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The Atlantic Council of the United States

Twenty Years of Kazakhstan Independence

Luncheon Keynote

Introductory Remarks by Ross Wilson,
Dinu Patriciu Eurasia Center,
Atlantic Council

Dan Poneman,
U.S. Deputy Secretary of Energy,
U.S. Department of Energy

Location: Washington, D.C.

Date: Tuesday, January 31, 2012 

Transcript by
Federal News Service
Washington, D.C.

ROSS WILSON: Gentlemen, if I could have your attention please. (Sound of clinking glass.) Yes, that would help, thank you. Thank you very much. Ladies and gentlemen, it is time to move on to the next portion of our program and to – and to resume our discussions about Kazakhstan and the region and the issues before it.

Our featured speaker today is the Honorable Daniel Poneman, U.S. deputy secretary of Energy. I know from my own time at government that senior officials – some senior officials give more time and attention to some problems than do others. Dan Poneman is one of those who’s made a serious effort on Kazakhstan.

Since his appointment by President Obama in May 2009, the deputy secretary has visited the country several times, including as co-chair of the U.S.-Kazakhstan Energy Partnership, to commemorate the closing two decades ago of the Soviet nuclear testing site at Semipalatinsk that I think General Scowcroft referred to this morning, and to represent the United States at the Kazakhstan International Oil and Gas Exhibition and Conference.

Mr. Poneman served as special assistant to the president and senior director for nonproliferation and export controls at the National Security Council from 1993 to 1996. In between his stints in government, Mr. Poneman published widely; served on federal advisory panels related to proliferation and other matters; and was a principal at the Scowcroft Group for eight years.

The deputy secretary has agreed to make some remarks, and then, time permitting, to take a few questions from our participants. Please join me in welcoming Deputy Secretary Dan Poneman. (Applause.)

DANIEL PONEMAN: Thank you, Ross, for your kind introduction and for your extraordinary diplomatic service to the nation for so many years, and we watched with great admiration. I’d like to thank also the Atlantic Council, which has really become a very important thought leader in issues of this character. It’s always a pleasure to try to find out where Fred Kempe is on any particular day. He always sounds like’s he’s on a long-distance phone call, and I think he is.

I would like to say how honored and delighted I am to be here with my good friend Minister Kazykhanov, and so many – (inaudible) – I’m going to get in trouble by not mentioning everyone I know in the room from Kazakhstan. It’s been a long, happy relationship for me, one that has collegial attributes but really genuine friendship.

I would be deeply remiss if I did not acknowledge Ambassador Erlan Idrissov. I would note, I was surprised to see that the U.S.-Kazakh Energy Partnership that I co-chair was actually launched by Secretary of State Colin Powell and Foreign Minister Erlan Idrissov in an earlier era. Perhaps you had a few – fewer gray hairs at that time; I’m not sure; but you are doing a tremendous job here today.

But listen, this is a very important subject. And it’s an important issue not just for the country of Kazakhstan, but for the region and the world. It is not given to many generations in any nation to have the opportunity to really build a nation, to build a republic. And that is the opportunity that Kazakhstan has had. And 20 years ago now, we are looking back at just an extraordinary development of that nation since then.

With the end of the Soviet Union – and, as Ambassador Wilson acknowledged, I’ve spent a lot of time working not just on Kazakhstan, but on proliferation and nonproliferation issues – people sometimes forget, when things turn out well, how they could have turned out. But I remember. I was a nonproliferation student, and at that time, the breakup of the Soviet Union caused deep concern. I was already working for General Scowcroft at the National Security Council. We were facing the prospect of four – four – new nuclear weapon states.

Now, you know, nuclear weapon states – when it comes to proliferation, pace matters. And you look along the trajectory of history, and you had the United States, Russia, France, China. Then we go 10 years until the Indian peaceful nuclear explosion of ’74. So all of a sudden, we’re looking at the prospect of four.

And indeed, at the National Security Council, we were focused on what was going to happen to the material, what was going to happen to the weapons, what was going to happen to the people, to the expertise. And it was not at all inevitable what would ensue – not at all. It depended on choices. It depended on deep, fundamental, strategic choices.

And President Nazarbayev took an historic choice, a strategic choice, a choice for peace, a choice to end testing at Semipalatinsk, a choice to send the nuclear weapons to Russia, and a choice to bet the future of Kazakhstan not on a vision of a legacy nuclear power; but a rather different kind of a vision of a nation that would turn away from nuclear weapons, that would embrace the principles of nuclear nonproliferation, and would bet the future on the talent of its people and the resources that nature had endowed the nation.

That’s 1,400 nuclear weapons. And when you think of the devastation that can be wrought even by one, it gives you some sense of the transformational decision that President Nazarbayev made at that time. And that is why – when I had this extraordinary opportunity last October to join Minister Kazykhanov and many others in this room – and Ambassador Bill Courtney, our first ambassador to independent Kazakhstan – to go out to ground zero and to see where the Soviet testing had first been done – the first Soviet fission device, the first Soviet fusion device – and this had all been abandoned – and to have the opportunity, as we did, to visit with and be joined by on the order of 20,000 Kazakh citizens out there – it was an absolutely unforgettable experience.

The decision that the president made for peace, for nonproliferation, has rightly earned Kazakhstan international respect and established a pathway forward for the rapid development of the nation. And I’m going to depart from my text to say: and for other nations, because nothing succeeds like success, and I think the results of Kazakhstan and that historic decision speak for themself.

As Kazakhstan progresses down that pathway, we at the United States Department of Energy are committed to building on two decades of mutually beneficial cooperation across a broad range of shared strategic interests, from nuclear security and nonproliferation to Kazakhstan energy production and economic diversification.

I am proud to report that this partnership is flourishing; it’s robust. I have an extraordinarily good relationship with my counterparts, and Minister Mynbayev has been an extraordinary partner. And we’ve worked on a wide variety of issues together, and some difficult issues as well – and always, if I may say, to a successful conclusion. I’m going to focus today on just a few areas of that cooperation that give ample reason to believe that progress will only gain momentum.

I will turn first, perhaps not surprisingly, to nuclear security and nonproliferation. Given Kazakhstan’s prominent role as a supplier of uranium for nuclear power plants, as well as the large nuclear weapons infrastructure that it inherited following the breakup of the Soviet Union, it is not surprising perhaps – especially given the decisions that President Nazarbayev has taken – that nuclear security and nonproliferation are bedrock issues in our bilateral relationship.

In the 20 years since that dramatic decision, the United States of America and the Republic of Kazakhstan have worked closely together to achieve our shared nuclear security and nonproliferation goals. And one that I’m very happy and proud to report is the comprehensive campaign to safely shut down the BN-350 reactor and secure 775 nuclear weapons’ worth of used fuel at that facility.

And I had the extraordinary experience of going to Aktau, where the BN-350 reactor is, and seeing these – I think the technical term is humongous canisters of spent fuel – in a rather much more exposed location; and then last October seeing those very same canisters at the other end in Semi, which was extraordinary – (inaudible) – technology center, which was one of the measures we came up with in those early days of 1991, to develop this center to engage former Kazakh weapons scientists in peaceful pursuits, and so to prevent the spread of expertise in nuclear weapons development and production by giving people more interesting and more benign paths of cooperation.

And most recently, these efforts have resulted in a milestone achievement in our work to eliminate the remaining stocks of highly enriched uranium in Kazakhstan. And this I actually had the opportunity to announce in October in Astana. Our two nations have partnered with the International Atomic Energy Agency to blend down 33 kilograms of highly enriched uranium from the Kazakh Institute of Nuclear Physics in Almaty. The resulting low-enriched uranium cannot be redirected to weapons use. Instead, it will be returned to the institute for future scientific work that will support the safe, secure and peaceful use of nuclear energy.

We look forward to continuing this cooperation, and we applaud Kazakhstan’s regional and international leadership in these areas. Together, our nations can continue to make progress toward achieving our shared goals of securing vulnerable nuclear materials, combating illicit trafficking in nuclear materials and strengthening the international nuclear nonproliferation regime. And together, Kazakhstan and the United States can continue to work to realize the ultimate vision that President Nazarbayev and President Obama both share, the vision of a world without nuclear weapons.

Just as Kazakhstan has been a leader on nuclear issues, so too can the country play an expanded role in promoting energy security and fueling global growth. The country has been endowed by providence with prodigious natural resources, including some of the world’s most impressive oil and gas fields. And I note here presence of Ken Derr, who I’ve seen in the Dan Yergin books signing the critical early contracts. I’ve had the opportunity to go out, and I’ve been at the Tengiz Chevron oil fields. And I think it is fair to say – I don’t think you would disagree – that it is an extraordinary demonstration of how advanced technology in some very challenging environments can bring a tremendous benefit to both of our people.

The rapid growth of hydrocarbon production in Kazakhstan since the country’s independence is largely the result of cooperation between the government of Kazakhstan and international oil companies. Within the framework of our U.S.-Kazakhstan Energy Partnership, we have worked to promote this kind of public-private cooperation. We’re very clear about the role of government, including our own. We strongly encourage private companies in their efforts, and we are gratified that it’s been very successful.

Many of America’s largest private companies have made significant investments in the production and transit of oil and gas in Kazakhstan. In turn, these investments have enabled some of the largest and most technically challenging oil production projects anywhere in the world, at places such as Tengiz, Karachaganak and Kashagan. They have also generated significant employment opportunities for the Kazakhstan people.

And yet, we have only just begun to get a sense for Kazakhstan’s importance to global energy markets and to energy security. Kazakhstan has tremendous potential to develop further its hydrocarbon resources. In the coming years, the country can play an important role in helping to meet the world’s increased demand for energy. Full development of its major oil fields could make Kazakhstan one of the world’s top five oil producers within the next decade.

However, that outcome is far from a foregone conclusion. Many of Kazakhstan’s oil and gas fields present engineering challenges and require significant investments in capital, technology and expertise. Our two nations can and should work together to promote the safe and effective development of these resources in the years ahead. At stake is much more than efficient extraction, or even the monetary wealth it provides.

As the first 20 years of Kazakhstan independence have shown, investing wisely in energy production can also provide the Kazakhstani people with an important source of employment, as well as revenues that can in turn be reinvested in other sectors to help diversify the economy. And in this respect, I would like to acknowledge the thought leadership and political leadership of Prime Minister Massimov, who I think has been a strong advocate and visionary in this area.

For example, oil and gas revenues were central to the creation of the country’s sovereign wealth fund, Samruk-Kazyna. During the financial crisis of recent years, this fund in turn provided a critical source of strategic support for the nation’s financial system, enabling Kazakhstan to avoid recession and to emerge quickly from the worldwide downturn.

Since achieving independence, Kazakhstan has pursued macroeconomic reforms that have attracted substantial international investment in new or expanded industries such as mining, chemical production and agriculture. Kazakhstan has demonstrated its ability to develop strong economic opportunities for investors, and we look forward to seeing new areas for potential investment expand over the next few years, both in and out of the energy sector.

Oil and natural gas are not Kazakhstan’s only energy resources. The nation’s geography and landscape also provide it with vast potential for renewable electricity from sources such as solar power and wind. And anybody who, like me, has been jogging in Astana knows what I’m talking about when it comes to the wind. We are encouraged by Kazakhstan’s interest in working with private-sector companies to develop that wind infrastructure. And through the U.S.-Kazakhstan Energy Partnership, we are engaged in efforts to train the workers and engineers who are pioneering clean energy and energy efficiency technologies in Kazakhstan.

This kind of expert-to-expert collaboration between our academic institutions and our laboratories is equal in importance to the formal cooperation that occurs at levels high within our respective governments. And may I say, in some respects it’s more important, because what happens here is you develop the people-to-people relationships, people understand the opportunities; they bring it back to their home institutions. I view our role from a governmental perspective as to facilitate that kind of interaction. I don’t see it in any way as a substitute for it, much less as anything superior to that kind of person-to-person and lab-to-lab kind of cooperation.

Just as it is liberalizing its economy, we continue to hope that the government of Kazakhstan also follows through on its stated goal of strengthening the overall conditions necessary for genuine political pluralism. As we look to the future, we want to deepen the engagement of our civil societies and private sectors in trade and investment, science and technology, education, the arts and much more.

By wisely developing its natural resources, a strong, prosperous and democratic Kazakhstan can energize the global transmission of learning, trade and freedom across the Steppes of Central Asia. We congratulate Kazakhstan on this momentous anniversary of its independence and we look forward to continuing to work with Kazakhstan in the pursuit of nuclear nonproliferation, regional energy security and prosperity for many, many years to come.

Thank you. (Applause.)

MR. WILSON: Thank you very much. As I indicated in getting ready to introduce the deputy secretary, he’s prepared to take a couple of questions, if people may wish to – may wish to pose them.

Ambassador Bill Courtney.

BILL COURTNEY: (Off mic) – terrific this morning. The demonstration effect – Kazakhstan’s nuclear – the demonstration effect of Kazakhstan’s nuclear activity over the last two decades, as you look around the world, has really been one of the remarkable nonproliferation successes.

To what extent is this demonstration effect helpful in other parts of the world? I imagine it’s hard for a demonstration effect to have too much impact on an Iran or a North Korea, but there must be a lot of other areas of the world where countries look to a country like Kazakhstan, the success it’s had in nonproliferation, and using that success to leverage other economic success in other areas of energy and the economy. How much importance has that demonstration effect had on the approach that America and other countries are taking for nonproliferation?

MR. PONEMAN: It has a great deal of importance, Bill. And I wouldn’t even underestimate, at the end of the day, the importance of this kind of demonstration effect can have on hard cases, because it’s interesting – and as you know, I’ve spent 30-plus years working on nonproliferation – but it is a really about the whole fabric of a regime.

And so for example, the fact that we were able, in 1995, to get the nonproliferation treaty extended – that’s a community of 185 nations. And the moral weight of that is actually very important. And they’re – not every state is sensitive, to the same degree, to that sort of moral weight, but many states that might be candidates to pursue another path, I think, are. And so I think it’s very important.

Look, Kazakhstan has three fundamental elements that I think characterize its unique nuclear position. One of them cannot easily be replicated, but two of them can at least be modeled, OK? One is they have this tremendous quantity of uranium in country, which makes a business opportunity that, frankly, if you don’t have those resources may not be equal in the same measure.

Secondly, it’s got deep subject matter expertise in places, like the BN-350, like the Institute of Physics, like Ulba and so forth, which is something that, with time, others can achieve. And then third, it’s got this impeccable record going back to the initial decision of President Nazarbayev in ’91.

When people look at Kazakhstan and they see something like $150 billion of foreign direct investment in the development of that economy, and the benefits that has brought to Kazakhstan and its people, and they say: this is what you do by taking a path of peace and nonproliferation and development of your technology, but cooperatively and under IAEA safeguards – it’s not the only place you can tell that story. You can tell that story in Germany. They don’t have uranium. You can tell that story in Japan. These are the countries that we worried about from a nonproliferation perspective in the ’50s, right? So to be part of an overall global network, where you demonstrate that by taking responsible positions – that’s the way to vouchsafe the prosperity of your people and to develop your country – I think it’s a very powerful image.

And that’s why – one of the reasons why the U.S. so highly values its nonproliferation partnership with Kazakhstan, precisely because Kazakhstan has made its own choices for its own reasons. It was not just a matter of looking at what others expected of it, this was a decision that President Nazarbayev took at looking at his own understanding of the best long-term path for Kazakhstan. And for others to take that same message, I think, is a very positive one.

MR. WILSON: Rich Kauzlarich.

Q: Rich Kauzlarich from George Mason University. A question about Caspian Energy policy looking ahead: For 20 years now U.S. energy policy and diplomacy has been focused on developing these resources and transportation links to Europe as a way of achieving greater energy security for Europe. Now as our national security emphasis seems to be shifting to Asia, how do you see this affecting changes in how we’re going to carry out U.S. energy policy in the future in this region?

MR. PONEMAN: I do not think that the increased emphasis on Asia fundamentally alters our approach or our policy with respect to the development of Caspian Energy resources or the importance of finding pathways for those resources to reach markets in Europe and Asia. You know, we’ve got a pipeline – they have a pipeline running to China now.

I think that we will continue to support both the responsible and safe development of the resources there, and to support, in a very sort of even-handed and wide-ranging way, access of those resources through whatever means the commercial marketplace finally invests in to market, and that’s whether it’s (ending at ?) finding a way across the Caspian for the gas as well as the oil, going up through the CPC. We are very open to that.

Sometimes when I go out to the region, it’s like you like this one or that one? Again, I know what the role of government is and what it’s not. Our role is to support the safe investment climate, transparent investment rules, stable tariff structures and so forth, that allow unfettered commercial forces of supply and demand to determine the best pathway for those resources to reach market.

I might suggest perhaps some of the changes that we’ve seen geologically may actually end up being more important than the added emphasis you saw from the president going to Asia because, for example, to the extent that the shale gas resources turn out to be as prodigious in parts of Europe as they have been in parts of the United States, the demand curve is going to shift.

And so what that does in the whole great game of pipeline politics is anyone’s guess. There are certainly people who are studying it more closely than I am. But I don’t think that you’re going to see any shift in either of our two emphases to support responsible development and to support good access for those resources to reach markets.

MR. WILSON: Let me turn to Dr. Ariel Cohen from Heritage Fund.

ARIEL COHEN: Policy in the near – so-called near-broad is going to develop. If you take it seriously, how does that affect the level playing field for our energy companies? How does it affect the balance of peace that we’re seeking in that part of the world? And what is the current thinking on this issue, if any, that the administration is developing? Thank you.

MR. PONEMAN: It’s a good question. I’d make a couple of observations. We actually – we do not view this as a zero-sum game. It’s no secret – in fact, there’s a presidential commission between President Obama and Medvedev to set up a U.S.-Russian civil nuclear working group, which I co-chair with Mr. Kiriyenko, who is the head of Rosatom. And we deal with a wide, wide range of nonproliferation matters, and also matters having to do with international cooperation in the fuel cycle and so forth. And there are even aspects of trilateral cooperation that we have had between Russian and Kazakhstan and the United States.

I think we need to distinguish, however, between a broad level of strategic convergence on one thing that Russian and Kazakhstan and the United States all agree on, which is the importance, A, of nonproliferation; B, fighting nuclear terrorism; C, minimizing highly-enriched uranium stocks wherever they are in the world and that whole cluster of issues that goes with it, and the sort of clean, level playing field, duke it out, competitive issue that is faced when people are bidding to sell reactors and sell nuclear fuel services.

And the way we think of this – and this is something we talk about very openly – is we need to keep our nonproliferation standards high and clean. And we need to have that kind of a level playing field. And then the United States never shrinks from competition. We’ll win some; we’ll lose some. I have great confidence in American technology, in the safety of our products and so forth. And all we can ask for – and you imply it in your question – is a level playing field. And if we have that level playing field, then we’re very happy to compete.

At the end of the day, if we’re able to get over the very challenging circumstances of responding responsibly to the Fukushima challenge and making sure everyone – and certainly, we have done this in our country – is satisfied that they’re taking appropriate measures to make sure that nuclear energy can be pursued safely, then there’s going to be plenty of work out there for everyone involved. And I think what you’re also seeing in the consolidation globally of the nuclear industry, is you see today’s competitor is tomorrow’s partner. And I think you’re going to continue to see that kind of development.

MR. WILSON: Mr. Secretary, let me, maybe, close with a question that asks you to be a little bit more speculative. In the last session before lunch we talked about where Kazakhstan is going, looking ahead 20 years. Steve Sestanovich, who you know, I thought made a particularly thoughtful and compelling set of remarks sort of looking ahead at the world in 2031, 2032. He did it primarily through the lens of security and some security opportunities and especially security challenges that Kazakhstan may face looking ahead at the end of that – end of that time frame.

I wonder if I could ask you maybe to apply that same kind of a model to energy and to nonproliferation, in particular some of the big opportunities and also some of the big problems that Kazakhstan could well face, given the known unknowns that, as we look out 20 years, and in particular some of the perhaps less-known developments that we can imagine as plausible scenarios for this – the complicated part of the world we’re in.

MR. PONEMAN: Yes. Well, first of all – that’s a great question – first of all, I think the nature of energy demand and consumption patterns – and, you know, we’re constantly studying this. We had the World Energy Outlook come out of the International Energy Agency a few weeks ago. We’ve had our own International Outlook from the Energy Information Administration. No matter which way you cut it, you’re going to see probably on the order of a 30 percent demand for hydrocarbon resources over the next 30 years. It’s going to be pretty much flat or even declining in most of the OECD, but the demographics and the economic projections for Asia and the Middle East are such that that’s what’s happening.

Therefore Kazakhstan is going to remain, I think in a quite technical sense, pivotal, both in terms of its geographic location and the resources that it has. And so I think in terms of long-term security challenges, we’re going to, I think, continue to be needing to partner with Kazakhstan as we’re facing challenges we’re facing right now, because I don’t think that our proliferation challenges will end with Iran.

And right now, because of the importance of showing international solidarity that Iran cannot persist in defying the international community and its own international obligations to transparency to the International Atomic Energy Agency, to have all producer nations pulling oars in a consistent direction, certainly including Kazakhstan, that’s going to remain very important. Point one.

Point two: I do believe that the general sense I get literally from traveling around the world since Fukushima, is that most governments are reaching a similar conclusion, and certainly this is the conclusion that Argham (ph) has reached, that we need to study deeply the lessons that need to be learned about what you have to do to respond to a loss of power, accident, to keep your spent fuel ponds properly cooled and so forth. But, having taken those into account, if you’re looking to build a long-term energy portfolio with a significant low-carbon component, nuclear is going to continue to play a very important role.

And in this respect, secondly, I think that Kazakhstan, precisely because of that confluence of three factors – it’s natural endowment of uranium, it’s indigenous expertise that’s been developed and further evolved in recent years with the leadership of people like Mr. Skolnik (ph) at – (inaudible) – and precisely its nonproliferation credentials – are going to be very important.

And this I’d like to underline, that we welcome a couple of things: number one, the fuel bank proposal that Kazakhstan offered up when the International Atomic Energy Agency looked for countries to take that opportunity and, indeed, the cooperation and leadership that Kazakhstan has shown in the Nuclear Security Summit, the first one that President Nazarbayev attended with President Obama hosting in April 2010, but also not just showing up at the meeting but the cooperation that goes with it.

And here – you know, I know – (inaudible) – in working with his fellow Sherpas in finding ways to minimize HU (ph) – and if we are to actually achieve the benefits that nuclear energy can offer, we’re going to have to be as assiduous on addressing the proliferation challenges as we are on the safety challenges.

And third and finally – because I think this really is the future – the view that I get – and the last time I was in Astana, and I think Ambassador – (inaudible) – was actually in the meeting I’m referring to – we had – we had very interesting sessions with people from the industry and technology ministry, with people from Somrakazinah (ph), and they are very focused on the next step, which is the evolution beyond. They may have decades’ worth of hydrocarbons – they certainly do – but you have to look beyond that.

And the responsible way to do that, at a time when people are very focused on transformational opportunities that clean energy presents, not just in terms of altering your energy profile, but of creating good, high-paying jobs, making the country, you know, an attractive place to work and live – I think that is the one that, at this point, is a small wedge, but that could open up in decades ahead. So if you ask me to take the long view, I would be remiss if I did not include that very important piece.

MR. WILSON: Thank you very much, Mr. Secretary, for honoring the Atlantic Council and for honoring Kazakhstan, an important bilateral relationship that I think pretty much everybody in this room cares very deeply about and, I hope, appreciates a little bit more as a result of the discussions that we’ve had today. We’re very, very grateful to you.

Our next session will begin at 2:30 back in the other room. Please join me in thanking Deputy Secretary Poneman. (Applause.) Thank you very much. It was really terrific.


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