January 12, 2019
Atlantic Council

2019 Global Energy Forum

Official Opening of the Global Energy Forum

 

 

Speakers:

Frederick Kempe,

President and CEO,

Atlantic Council

 

General James L. Jones, Jr., USMC (Ret.),

Executive Chairman Emeritus,

Atlantic Council

 

H.E. Dr. Sultan Al Jaber,

Minister of State, United Arab Emirates and Chief Executive Officer,

Abu Dhabi National Oil Company

 

H.E. Suhail Al Mazrouei,

Minister of Energy and Industry,

United Arab Emirates

 

 

Location:  Abu Dhabi, United Arab Emirates

 

Time:  9:00 a.m. Local

Date:  Saturday, January 12, 2019

 

 

Transcript By

Superior Transcriptions LLC

www.superiortranscriptions.com

ANNOUNCER:  Ladies and gentlemen, please welcome Atlantic Council President and CEO Fred Kempe.  (Applause.)

FREDERICK KEMPE:  Excellencies, ladies and gentlemen, what an immense pleasure it is to welcome you to the third annual Atlantic Council Global Energy Forum.  For those who have joined us before, welcome back in this new and exciting venue.  And for those who have joined us for the first time, we find you – we hope you find it valuable and return for years to come.  It isn’t just what you will learn in the next couple of days that you’ll find profitable, but also the set of relationships, friendships that are built here. 

There is no better place in the world for this conversation than Abu Dhabi.  It lies at the crossroads of so many key energy trends, trade flows, and technologies.  There are, indeed, few places that have such a balanced foundation in the energy sources that have dominated the 20th century, and the new energy sources that will come to dominate the 21st century.  And importantly, for our discussions today, there are few places in the world with such a far-sighted commitment to driving innovation across all of these energy sources.

It is our greatest honor to hold this forum under the patronage of his highness Sheikh Mohammed bin Zayed Al-Nahyan, crown prince of Abu Dhabi and deputy supreme commander of the United Emirates armed forces.  The patronage of his royal highness and the engagement of this sort of high-level group underscores the relevance of the themes we discuss over the coming two days, and how central they are to ensuring a global order that is inclusive, prosperous, and peaceful at a time when so many forces are pulling in the opposite direction.  The UAE recognizes the crucial role that energy plays in the global order, and we thank the UAE for its generous hospitality. 

We’re also particularly delighted to gather here in the Year of Tolerance – the UAE’s Year of Tolerance.  The UAE’s promotion of tolerance carries on the legacy of Sheikh Zayed, and the Atlantic Council is pleased to play its part in the dialogue that takes place in this country between many faiths, nationalities and backgrounds.

Our mission – the Atlantic Council’s mission, since our founding after World War II, has been to foster constructive dialogue and cooperation among partners and allies to secure the future, working together to secure the future – a simple sentence very hard to execute.

In today’s world where intolerance so often takes precedence over tolerance, our mission has never been so urgent nor so important.  The UAE role in its region in the world has never been this crucial.

This event has brought us together today in an important time, and it would not have been possible without the tremendous support of our key presenting partners.  I first want to salute Minister Suhail Al Mazrouei and the UAE Ministry of Energy and Industry.  Thank you so much.  Dr. Sultan Al Jaber, UAE minister of State and CEO of ADNOC, and Khaldoon Al Mubarak, CEO of Mubadala.  Thank you, gentlemen.  (Applause.)

Thank you for your generous support and partnership, and commitment to continuing to develop this forum as the agenda-setting event that kicks off the energy year where trends are untangled, deals are done, and priorities are issued.  And I know that there are as many questions as answers in the next two days.

We’re also extremely grateful to the forum’s platinum co-chair, Majid Jafar, CEO of Crescent Petroleum; to Tony Douglas, CEO of Etihad Airways, our official carrier; and to Adam Sieminski, president of our knowledge partner and the King Abdullah Petroleum Studies and Research Center.  And Majid, we’re also happy to have your father here, as well.  Thank you to all of these gentlemen as well.  (Applause.)

Thanks also to our other partners and sponsors who have made this event possible, and finally, thanks to our international media partner, CNBC, and other key media partners:  Abu Dhabi Media, the National Oil and Gas here, Sky News Arabia, and Quartz. 

We are pleased to be playing our role in also kicking off Abu Dhabi’s Sustainability Week, which has cemented its role as the focal point for the future of energy and sustainability trends.  It is a tremendous honor to play this role in conjunction with ADSW, the largest gathering on energy and sustainability in the Middle East and probably the world. 

In kicking off ADSW and the annual global energy calendar, we will address three main issue areas.  Number one, the future of oil.  The volatility of oil prices has left many wondering where the market will go in the next 12 months, and thinking long term, we need to ask, what is the role of the crucial oil and gas industry.  Number two, digitalization.  New technologies promise to generate efficiencies across the energy sector, enhancing energy security and reducing emissions.  But new risks could emerge as competition for technology leadership creates new geopolitical risks.  Some of us had our own introduction to the digitalization question visiting the breathtaking Panorama room of ADNOC yesterday.  Number three, diversification of countries and companies.  For overlapping reasons, both energy-producing countries and energy companies are looking to diversify their efforts, moving downstream into renewables and even into nuclear.  What strategies can companies and countries leverage to maximize revenue and ensure stability over the short, medium and long term?

So these are three big questions, but we also added a fourth region this year.  We will address these issues in the context and the challenges and opportunities in East and Southeast Asia that will change both supply and demand for energy.  We are pleased that we have exceptional experts, business leaders from that region.

And now I’m honored to introduce the Atlantic Council’s executive chairman emeritus, General Jim Jones, who will formally open the forum.  General Jones graciously answered the call to the Atlantic Council Board of Directors to serve as our chairman not once, but twice, having just finished his second term at the end of last year.  He is the only person to serve twice as the Atlantic Council chairman alongside General Brent Scowcroft.  General Jones’s previous service from national security adviser to President Barack Obama to supreme allied commander Europe to commandant of the United States Marine Corps illustrates the incredible depth of his commitment to causes larger than himself.  General Jones, thank you for all that you’ve done for the Atlantic Council, for the world and for our country. 

Let me turn the floor over to General Jones.  (Applause.)

GENERAL JAMES L. JONES, JR. USMC (RET.):  Thank you, Fred, very much for that kind introduction.

Your excellencies, ladies and gentlemen, it’s been a great honor for me to work with Fred Kempe for almost a decade and to have served twice as chairman of this great organization called the Atlantic Council.  And I particularly enjoyed the last year-and-a-half of service as Atlantic Council chairman while the board searched for a permanent replacement for Chairman Jon Huntsman, who, as you know, is presently our ambassador to Russia.

I’m very pleased that the Atlantic Council has found an impressive new chairman of the board, John Rogers, who officially started his term on January 1st.  Jon is executive vice president of Goldman Sachs.  He serves as the firm’s chief of staff and as – and as secretary to its board of directors.  He also possesses a wealth of experience in the public sector, including at the White House and at the U.S. Treasury.

I have no doubt that he will be a great leader for the Atlantic Council as it concludes this decade and enters a new one ripe with opportunities and challenges.

I’m honored to continue supporting the Council’s exciting global activities by serving as executive chairman emeritus.  And I hope John is able to join us here in Abu Dhabi next year so you can all meet him personally.

Our Atlantic Council is driven and in fact informed and led by a Board of Directors and an International Advisory Board.  And I want to personally thank the members of these boards with us here in Abu Dhabi for their engagement and support:  Philippe Amon, Mark Bernstein (sp), Helima Croft, Ankit Desai, Claudio Descalzi, Gianni Di Giovanni, Paula Dobriansky, Murathan Günal, Amos Hochstein, Yongsoo Huh, Majid Jafar, Ernie Moniz, Dick Morningstar, Dan Poneman, Ellen Tauscher and General Chuck Wald, all names that are very well known to you I’m sure.

Your Royal Highness, excellencies, ladies and gentlemen, friends, thank you for being here today.  It’s terrific to be back in Abu Dhabi for the third year of the Global Energy Forum.  Abu Dhabi is a key hub for development not only in the region, but across the global energy sector.

Last year, we met here to discuss and shape the energy agenda for 2018.  One year later, many changes later, the need for this forum is more apparent than ever before. 

As a former national security adviser to the president of the United States and former military commander, my area of expertise is peace and security.  And the role energy plays in ensuring that stability and prosperity has always been very clear to me.  The reverse is also true that peace and security are crucial for functioning energy markets.

So now more than ever, energy leaders must be prepared to respond to a rapidly changing geopolitical environment.  This includes the tectonic technological shifts that increasingly determine our energy destiny, from those that are unlocked – from those that unlocked the shale revolution in the United States to the next-generation technologies that will feature very prominently in this year’s forum.

Energy, just like the world of defense and security, is increasingly leveraging new digital technologies, including artificial intelligence, big data, blockchain, 5G and beyond.  And these technologies are not just unlocking new opportunities for producers and consumers.  They also play a tremendous role in the global fight against climate change.  The seed of these changes may be borne out of labs and boardrooms but they will end up having significant geopolitical implications for those of us used to sitting in situation rooms and that’s the rationale behind the Global Energy Forum and at the heart of our task today.

If you’ll permit me, I’d like to read a message that I just received this morning from the deputy secretary of energy of the United States, the Honorable Dan Brouillette, who cannot be here, unfortunately, but he did author a brief statement that I would now like to read:

Dear colleagues and friends, I’m writing to offer my greetings and best wishes to the Atlantic Council and its leaders, to the gracious UAE hosts, and to all attendees of this year’s Global Energy Forum.  Regrettably, circumstances have prevented my attendance this year.  Each year this vital forum brings together key representatives in governments, businesses, and organizations to analyze and discuss the global energy landscape. 

In recent years, something monumental has been happening across that landscape.  The world has entered in a new era of energy abundance, one that is filled with potential and astounding promise.  If this era proves to be long lasting, it could dramatically advance the energy security, the economic security, and the national security of countries and the overall well-being of humanity.  This new era has emerged in no small measure due to the development of the United States.  Once an energy-dependent country experiencing energy shortages, the U.S. now finds itself on the brink of energy independence and a rising exporter of its growing energy bounty.

So what sparked this transformation of the United States, making the U.S. a major energy player beyond its borders?  The question may be answered as follows.  After a long battle in the U.S. between innovation and regulation, innovation finally prevailed and innovation has spurred a technology revolution leading to the astonishing energy progress. Due to a cascade of technological breakthroughs, the United States uses energy more cleanly and more efficiently, obtains it from a wider range of sources, and produces it more affordably and in greater abundance than anyone predicted just a few short years ago.

Many of these breakthroughs occurred at the National Laboratories of our Department of Energy.  The Department of Energy’s research aided the rise of hydraulic fracturing and horizontal drilling, as you well know, leading to a natural gas renaissance.  It also led to technologies that dramatically increased energy efficiency.  The DOE’s clean coal technology program laid the foundation for technologies that produce clean energy outcomes.  And beyond DOE and a number of our states, the same innovative spirit produced similar outcomes.  By reducing taxes and holding the line on regulations, such states provided both the incentive and the freedom to innovate.  Thus, from fossil fuels to renewables supply rose, costs fell and efficiencies increased.  Today, the United States is the number-one producer of oil and gas across the globe.

At the same time, thanks to innovation and technology, the United States has been leading the world in reducing carbon emissions, cutting them by 14 percent between 2005 and 2017 with further reductions likely over the next generation.  And today, we export our natural gas to 32 countries on five continents with more expected in the coming years. 

By exporting this energy, the United States is using its abundant supply as a tool of liberation, not subjugation.  We are liberating allies from dependence on any nation that wield its energy supply as a political weapon.  We believe all nations have the right to chart their own energy future and achieve energy security without being held financially hostage by other countries.  And across the globe the U.S. is promoting energy security among its friends, working with them to repel the malign influence of those seeking to undermine free markets and energy independence. 

In the case of Iran, the U.S. is partnering with regional players like energy-rich Iraq to ensure energy market stability.  Iraq has the potential not only to achieve prosperity for itself through energy, but also to play a key role in strengthening regional and global economic stability. 

In Europe, we seek to strengthen the energy security, and thus the economic security and the national security, of our transatlantic partners, preserving Europe’s achievement of being whole, free, and at peace since the close of the Second World War.  We continue to seek a more inclusive approach towards a complete Europe, one that identifies threats to the transatlantic energy security and provides effective solution. 

To that end, Secretary Perry announced the Partnership for Transatlantic Energy Cooperation in order to give policymakers and civil society stakeholders the tools they need to promote prosperity and bolster energy progress and national security.  In addition to sharing our energy bounty with others, we’re also sharing the same energy technology and know-how that at least our own – that unleashed our own energy progress.  And we invite other energy-producing countries to do likewise.  And as we do, we can transform societies caught in the grip of heartbreaking poverty and want.  As they unleash their own energy, these societies can provide the life-giving power of reliable, affordable electricity – in some cases, for the first time ever.  Energy development can also ignite economic growth and foster development, creating jobs and other opportunities, and providing the wealth to improve nearly every facet of human existence. 

So besides exporting our energy supply and know-how, we also intend to export the most important lesson we have learned on energy policy.  For any nation that seek to proceed – to produce energy cleaner, more abundantly, more affordably, more efficiently, and in more diverse forms, it must allow innovation to work its magic, so all of these goals can be advanced.  For any nation, there is no surer path to energy security than that of energy innovation unleashed by sound energy policies.  And with energy security comes greater economic growth and opportunity, and with it greater national security and peace.

Because our policies are working in the real world, I’m excited about America’s new direction in energy.  I’m excited about what this means not only for the United States, but for our friends, our allies and trading partners abroad.  I’m excited about what this means for every nation and people who want to fulfill their dreams for a better prospect, a brighter future, and a more prosperous tomorrow.  And most of all, I’m excited about the prospects for every nation that is willing to embrace a better tomorrow by pursuing sound and sensible energy policies today.  May this year’s Global Energy Forum be a productive and successful one for its leaders, its speakers, attendees, and its participating nations. 

Ladies and gentlemen, it is now my honor to turn the stage over to his excellence Dr. Sultan Ahmed Al Jaber, minister of state of the United Arab Emirates, and chief executive officer of Abu Dhabi National Oil Company.  Thank you so much for your attention.  (Applause.)

SULTAN AHMED AL JABER:  (In Arabic.)  In the name of Allah, excellencies, distinguished guests, ladies and gentlemen, good morning.  And it gives me great pleasure to welcome you to the third Atlantic Council Global Energy Forum.  This forum, in fact, provides a very important platform for industry, policy, and academic leaders to engage on key energy issues in a very complex world.  This platform also helps shape the global energy agenda for the year ahead. 

As 2019 begins, geopolitical and economic factors are weighing on markets around the world.  And it is only right that we face this period of uncertainty with some caution.  Yet, while global economic growth may slow down in the short term, the long-term fundamentals remain strong and robust.  Prosperity is spreading from traditional centers to the rest of the world at an unprecedented rate.  This year, for the first time in history, most of the world’s population is now in the middle class.  And by 2030, there will be 3 billion new consumers.  And as breakthrough technologies continue to enhance human progress, demand for energy over the coming decades will only increase.

For energy companies, this multilayered landscape balancing current market conditions with future growth requires a careful, calibrated and an agile response.  This means we must focus on what we can actually control through unwavering operational efficiency while staying ahead of projected demand as we enter the fourth industrial age. 

We at ADNOC are calling this mission Oil and Gas 4.0.  For ADNOC, Oil and Gas 4.0 means embedding a tech-focused digital mindset within every aspect of our business, driving our performance, energizing our partnerships and empowering our people.  As we prepare for any market uncertainties that might – that may lie ahead, minimizing costs and maximizing margins is, in our view, mission critical.

By embedding artificial intelligence and digitization, we are building resilience and driving profitability across our operations.  Predictive analytics is helping to reduce our maintenance costs, prevent shutdowns and avoid system failures.  Big data is allowing us to make real-time decisions in response to market movements and in line with industry trends.  And blockchain is generating valuable efficiencies by transforming how we track every hydrocarbon molecule we produce from first oil to final sale.

Ladies and gentlemen, as we prepare to cater for the world’s future energy needs, we are reinventing our approach to partnership.  We are engaging strategic partners, partners who will actually put skin in the game, bring new technologies and open up new growth market opportunities for ADNOC.  Through creative collaboration, we will maintain the UAE’s position as the second-largest oil producer in the region.  In addition and by thinking differently, applying technology creatively and adjusting our business model, we will, for the first time, unlock huge reserves of previously uneconomical gas.  In short, we have finally cracked the code that will put us on a path to gas self-sufficiency and ultimately transition the UAE to become a net exporter of natural gas.

As part of our strategy to increase our oil and gas capacity, last year, for the first time in our history, we opened up a set of new onshore and offshore exploration blocks for competitive bid.  The exploration area covering 30,000 square kilometers contains vast amounts of oil and gas.  And today, I am pleased to announce that a consortium comprising of Eni and Thailand’s public exploration and production company have just been awarded the first two blocks.  (Applause.)  These two – these two offshore blocks covering 8,000 square kilometers represent the beginning of a new wave of exploration that will leverage our resources and further enhance Abu Dhabi’s position as an essential energy provider to the world.

Distinguished delegates, our new approach to partnership does not end with our upstream operations.  It is also at the heart of our 45 billion U.S. dollar investment downstream.  As demand grows for plastics and polymers that will enable the modern world, we are working with value-add partners to stretch the dollar of every barrel we produce by moving further along the value chain.  Partners will benefit from our existing, world-class, fully integrated refining and petrochemicals asset base – (inaudible).  They will have access to our high-grade, flexible feedstock and a dependable and credible business-friendly environment in the United Arab Emirates.

And today, together, those partners, with ADNOC, they will develop an ecosystem that connects refining, petrochemical, conversion and manufacturing facilities into one state-of-the-art industrial hub, a hub that will only capture greater value from our hydrocarbon resources, maximizing return on investment and helping diversify the UAE’s economy.

Distinguished delegates, ladies and gentlemen, at its core, Oil and Gas 4.0 is about transforming culture to enable organizational progress.  This is helping make ADNOC a destination, in fact a true destination of choice and an incubator of young talent, young talent who are today actually rewriting the rulebook of how the oil and gas company of the future should operate and should be run.  By embracing rather than resisting disruptive innovation, we will be a leader, not a follower, more able to withstand unpredictable market headwinds and be a reliable partner for long-term sustainable growth.

I thank you again for being here and I hope you enjoy the next two days.  Thank you.  (Applause.)

ANNOUNCER:  Ladies and gentlemen, please welcome to the stage His Excellency Suhail Al Mazrouei.  (Applause.)

SUHAIL AL MAZROUEI:  Good morning, ladies and gentlemen, excellencies.  Welcome back to Abu Dhabi and to the third edition of the Atlantic Council Abu Dhabi.  It’s really a great pleasure to see the number increasing year on year.  It’s something that we started building three years ago and to tell you the truth we did not anticipate the success.  So I would like to thank Fred and his team for making this happen.

I will not make my remarks long because I think General Jones, Fred and Sultan have said the main things that inspire us to stay together here.  I will shed some light on how do we – how did we see one year ago, 2018, and what have we achieved and how do we see 2019.

If you remember, when we met last year, oil prices in the previous year was around $53.  And this deal of OPEC and non-OPEC continuing to work together was a bit questionable.  Are they going to stay together or not?  The market was not – the investments coming back to the oil and gas market was a bit shaky, it was not solid.  And today, we look at an average – an average year of around $70 for Brent from 53 (dollars).  So it’s remarkably a good year for the investors.  And I think that is what drove companies like ADNOC and others here in the region to embark on major projects for the next five years.  ADNOC alone, if I’m not mistaken, put first $109 billion of investments and then complemented that with the downstream forum where they – where they have attracted around 40 (billion dollars) to $45 billion, I mean, in addition to that.  Same in Oman, same in Saudi Arabia, same in the other countries. 

So we manage as an industry to attract new investments not only on the oil and gas but I think, in general, in energy we have seen great projects in renewable energy, in new technologies of the CCGT happening here in the region and its quiet transformational thinking – transformational in the minds of the regulators.  Now the regulators are convinced, at the end, to let the private sector lead in giving solutions and making energy more reliable and we will focus more on the environmental side and making sure that the old forms of energy in the future are cleaner.  That’s what we will do as regulators and we will encourage this competition among the front forms of energy.

I’m confident that the geopolitics always going to play a key role in either making those investments or delaying such investments. Therefore, we are, as a country, a promoter of peace, a promoter of tolerance, and, as you know, this year, 2019, is the year of tolerance.  So within this year you will see us as a country promoting tolerance and trying to promote peace and development in the Middle East because we need to start that yesterday.  The new generation, there are millions and millions of young people lacking jobs, lacking futures, and even lacking energy.  So we need to help them see a better future and become, rather, builders of their – of their societies rather than joining some of those radical groups.

The relationship between the Atlantic Council and the expertise of its members that brings here to Abu Dhabi is crucial to help us see the future and to help us tackle and try to think together about some of those problems that we will see in 2019.  There is definitely a  more financial – a rather financial problem that we will face.  We are – in the future – we are almost at the beginning of a crisis that could happen in the next two years if we did not plan for it, and even though in the energy sector I think we are – we are on top of things, making sure that investments are coming, but there are other issues that we need to talk about and we need to address.  And I’m sure during today and tomorrow and this week – the sustainability week – we will focus on some of those important issues and, hopefully, we could bring some recommendations to the leaderships of the different countries who are participating here, trying to learn from this distinct group of the Atlantic Council as well as some of the – some of the guests that we attracted this year.

I look forward to the remaining of the program and, again, welcome to Abu Dhabi.  (Applause.)

ANNOUNCER:  Ladies and gentlemen, we will now take a family photo.  The first – speakers of the first session, please proceed to the stage.

Scene Setter: New Energy Technologies and New Energy Geopolitics

 

 Introduction: Frederick Kempe, President and CEO, Atlantic Council

Speaker:

The Hon. Ernest Moniz, President and CEO, Energy Futures Initiative; former Secretary, U.S. Department of Energy

FREDERICK KEMPE:  So ladies and gentlemen, before I welcome to the stage former U.S. Secretary of Energy Ernest Moniz, let me just thank again Minister Mazrouei – Al Mazrouei for being such a great partner for this.  Let me thank Dr. Sultan, also, for breaking some news this morning of the new concessions and the view into oil and gas.  And it is a shame that the secretary – deputy secretary of energy could not be here – complications also involving the government shutdown, but I think that is an important statement that will go into the records of this session.

Ladies and gentlemen, it is now my distinct pleasure – and we have two senior officials from the U.S. government, Frank Fannon and Brian Hook, who will be speaking to us in the next two days.  We will hear from Brian shortly, but we’re delighted that they could be here in person.

So ladies and gentlemen, it is now my distinct pleasure to welcome to the stage former  U.S. secretary of energy and Atlantic Council international advisory board member, our good friend, Ernie Muniz, who will provide a scene setter for today’s discussions with a global tour of new technologies and trends shaping the global energy environment.

Secretary Muniz served as the 13th U.S. secretary of energy from 2013 to January 2017.  As secretary, he advanced energy technology, innovation, nuclear security, and strategic stability, cutting edge capabilities for the American scientific research community, and environmental stewardship.  He now hangs his hat at the Nuclear Threat Initiative where he is chief executive officer and co-chair of the board of directors.

Secretary Muniz, with that the floor is yours.  (Applause.)

ERNEST MONIZ:  Well, thank you, Fred and Jim, for the opportunity to address this group, and excellencies, colleagues and friends, and I want to assure you that those are not exclusive categories.  They highly overlap, and that includes Sultan and Suhail as well.

So I was asked to give a few remarks along the lines of the themes of the conference in terms of oil, and digitalization, and diversification of energy technologies.  And let me first say, of course, on the issue of energy geopolitics, of course, that has historically been tied to oil, and then in the 1970s, with disruptions in the markets, that led to great change that we see today:  the diversification of suppliers, and – often not mentioned enough, the change – the fundamental change in terms of market structures and futures trading and the like.

But today, with this market, of course, we still have a situation where transportation globally is virtually a hundred percent – not quite, but very, very close to a hundred percent dependent upon oil because of its unique properties, meaning that of course we still have these issues of energy security to deal with.  I might add that of course we all know the United States – it has already been stated by – especially by the deputy secretary, Brouillette, that the United States now is producing the order of 11 ½ million barrels a day, and this raises the discussions about energy independence.  I have to say – despite what my good friend Dan Brouillette said – that there is a bit of an illusion here in terms of energy independence, and that even includes a possibility in the next decade of having net zero imports to the United States of oil and oil products because the reality is we will remain very tightly coupled to the global market.  And we will be as exposed as anyone, frankly, to things like price volatility and those impacts.  So energy security in the oil arena is going to remain a very, very big concern of the United States as we remain engaged in the global – in the global markets.

Now, of course, natural gas is also in that energy security discussion in ways that it was not a couple of – a couple of decades ago.  Gas, with its lower carbon footprint, its very flexible uses across the economy, is a very – of course, a very attractive fuel.  And then the events in 2014 involving Russia and Ukraine were in some sense the change element in terms of how energy security for natural gas was being – was being viewed.

And that led in 2014 to the G-7 and the EU coming together in response to the Ukrainian events to issue – to think through and issue a new set of energy security principles to guide policy, to guide – to guide action.  Let me just say that a first important point of that set of new principles was something that again was alluded to already this morning, namely that energy security is not an individual country’s field of play; it is a collective responsibility because the insecurity of allies and friends in the energy arena affects – certainly I’ll speak for the United States – affects our foreign policy in very, very strong ways.  So once again this issue of international engagement is absolutely critical for us all to work together in terms of energy security.

Now, on the principles themselves, they of course emphasize the traditional issues of diversification of suppliers and routes of delivery, et cetera; emphasize the importance of developing market structures as an element of security.  But what I want to emphasize is I think that that statement, while not surprising, was a very clear statement that in addition the efforts to go towards low-carbon technology – thought up, of course, mainly in terms of addressing global warming and the impacts of climate change – were actually central to an energy security construct as well, because obviously renewable fuels – to a large extent nuclear not quite in the same sense, et cetera – are also elements of security, and frankly may be more relevant towards concepts like energy independence than are some of the issues around oil and gas.

Now, with that – so that is the statement that, again, not surprising, but there is a very, very clear intersection of how we talk about and what we do about energy security and global warming and climate change.  Indeed, the targets that have been set for climate change, for global warming, we know is in the order of, say, a 50 percent reduction in emissions globally by mid-century, and in the industrialized world more like 80 percent if, in fact, we are to accomplish the goal of remaining below two degrees centigrade warming, for example.  Now, this is – (laughs) – everyone here knows to achieve those goals is a massive transformation of the energy system.  I certainly believe there is no question that the low-carbon trend will be critical, will be a defining element of the energy system over the next decades.  We’ll still see how fast, how far, but the commitments, I think, are clear.

And I would just make two observations.  One is if we are collectively to achieve anything like these kinds of goals, the incumbent energy companies must be part of the solution.  This will not happen only with what I would call disrupters because the incumbents, of course, have control of, own, et cetera, the key infrastructures, have the ability to make these transformations as they inform their business models going forward to meet the challenges of this carbon transformation.

And, in fact, I would note that in the United States, obviously, the president in 2017 announced the intent to withdraw from the Paris Agreement.  And the reality is within days many, including energy companies, made it clear that they intended to stay the course towards this low-carbon future.  So I think – I think – I think industry has also stated that what they want is not disruptive policies, but rather stable policies, rules of the road which can allow business-model evolution towards this new world.

I would add to it, as well, that I think we have not paid enough attention to the fate of communities in our various countries.  Because without addressing the needs of communities who are exposed to the energy transformation, we will – we have tremendous headwinds in trying to implement the kinds of policies and technologies that will lead to a different outcome.  In the United States that’s evident in the need to address communities’ dependence upon coal.  In France we have just seen the – or continue to see, perhaps – the “gilets jaunes.”  In Africa we have tremendous energy poverty that we have to address, even in the midst of major and evolving energy resources.  So I think that we have to not only think about this energy transformation, but think about the progressive policies that allow all of our communities to move forward and, in fact, provide the ability for policy evolution in a – in a more rapid way.

Now, that takes us to technology.  And I have to say, being here in Abu Dhabi, I can’t resist putting my MIT hat back on and talking about the old collaboration with Dr. Sultan and Masdar.  In fact, my last visit here was in May of 2017 to address the graduating class of Masdar, which was the – following a decadelong collaboration focusing on technology and young people, which Sultan also emphasized.

But in talking about technology briefly, I’d like to really focus on sectoral issues.  I mean, I will just say that of course demand-side issues – energy efficiency, et cetera – are clearly essential in our – in our path forward.  I’ll also say that the – in the energy industry, in the energy business, I think we heard what, again, was said this morning in terms of digital technologies and big data and their importance, and that’s certainly something I endorse.  But I have to say I think we are still slow on the uptake and are barely scratching the surface.  And what we term platform technologies – that is, not energy technology specifically, but big-data technologies and AI, 3D printing, and all of those technologies that are racing ahead – we need to get on top of in terms of being able to help our supply chains and our – and our energy businesses moving forward.

But in turning to sectors, let me first make a – just a few comments on electricity.  Electricity decarbonization is certainly essential and in many ways the lead horse in addressing the low-carbon transition.  In fact, it’s been progress in lowering the carbon intensity of electricity that is largely responsible for much of the progress that we have seen in various countries, including our own in the United States.  Now, in low – the low-carbon options are also pretty clear for electricity:  renewables, nuclear – and by the way, nuclear I don’t dismiss fusion as well as fission in that equation – and carbon capture and sequestration.

Now, on nuclear let me say, again, the Emirates are a regional leader, as we all know, in nuclear.  But everywhere, frankly, certainly including in the United States, cost and schedule challenges are just endemic as the generation three and generation three-plus reactors are built.  I personally think that a transformation in the nuclear business will or will not come with the success of small modular reactors.  So I think this is a critical focus.  I think that the reasons are twofold.  One is that small modular reactors will allow a new financial engineering approach to these projects, number one.  And number two, most critically, will allow for all of the quality control possibilities that a manufacturing environment will permit as opposed to on-site construction, which I can tell you firsthand in the United States right now is causing, again, tremendous cost overruns, like a factor of two, which really question the viability of further construction of large nuclear plants.  So I think that in about a decade we should know the cost – the cost engineering schedule performance of these reactors.  And this could be a major gamechanger, I think, for nuclear and its contribution to low-carbon electricity supply.

Now, there is a challenge here.  And this is in a segue to renewables.  In the United States, again, we see it very, very clearly, and that is now the emergence of, essentially, zero marginal cost technologies, like and solar for example.  The entire regulatory structure in the United States for competitive markets is founded on the principle of marginal cost dispatch.  It wasn’t designed for a system where one has zero marginal cost technologies, which are, in turn, subsidized in their capital costs.  So I think we are also going to see, need to see a revolution in the policy and regulatory structures to accommodate these different forms of low – of low-carbon technologies.

Which takes us to solar in particular I’ll focus on in these – in these few minutes.  As you all know, the costs of solar have continue to plummet.  We are now talking about $1 per watt for utility solar installations, a rather incredible continuing drop over the last – the last few years.  But there are challenges.  And we all know the challenges of intermittency, which, of course, leads to storage and natural gas as complements to solar, but we don’t often enough talk about the daily production curve of solar.  As we all know, there is something called night, for example.  And we also don’t talk enough about the fact that solar has considerably more output in the summer than in the winter, which raises the issue of seasonal variation and the requirements of seasonal storage.

I believe that the only way in the end to manage this in a world of very, very large solar and wind penetration will be fuels.  There must be fuels in the system in order to manage these inherent characteristics of these – of these intermittent and seasonal varying technologies.  So storage will have to address minutes, hours, days, weeks, months, all of these scales.  And I think that we have been a little bit myopic in thinking that batteries, for example, are the solution for all of those timescales.  Batteries are more and more critical, clearly, costs are dropping, but in the end, I do not believe it’s practical for that to be a solution for the longer storage timescales, including seasonal.  So once again, we’re talking about a fuel.  For example – and this is not unique – but one example would be producing hydrogen, for example, when one has so-called excess renewable electricity.

Now, in saying hydrogen, what I really want to emphasize is that’s only one possible pathway.  But I really want to talk about the other sectors.  So as I’ve said, electricity is what we focus on a lot and it’s a lot of the early gains in terms of lower carbon along with energy efficiency.  But what about transportation, industry, buildings, agriculture?  The reality is electricity is a minority of the emissions we are addressing.  I’ll just take California as an example.  Transportation, as is the case in many other places, is the largest-single-emitting sector.  We just saw the results from the Rhodium Group about the United States having a very substantial carbon emissions increase last year.  What was the lead industry – up 7.4, I think it was – no, 5.7 percent industry increase in emissions.  This is the story.  If you want to address carbon, you’ve got to go where the carbon is.  And transportation and industry are very much more difficult sectors to address than electricity.  We need to have more focus in these areas.

Now, clearly, in transportation, light-duty vehicles are amenable certainly to battery solutions, fuel cell – fuel cell solutions and the like.  But that is not a way of addressing the entire sector, heavy-duty vehicles, aircraft, et cetera.  I believe we are going to have to keep looking as well for low-carbon liquid fuels, ideally those compatible with current infrastructures, if we are moving forward.  So these are tremendously important technology directions to be pursued.  Natural gas could have a role, LNG in certain heavy-duty vehicle situations, but that also will not be a universal solution.

As we look at the – at these alternatives, we also have to remember infrastructure.  We already have three enormously developed infrastructures:  oil, gas, electricity.  Will we be able to adapt the oil infrastructure to new fuels?  Will we be able to sustain a natural gas infrastructure that will be needed at a minimum as a major contributor to a several-decade transition to very low carbon?  Will we be able to expand electricity infrastructure in order for it to play a much larger role throughout the energy economy?  Will we need a new massive hydrogen infrastructure?  Will we need a new massive CO2 infrastructure?  These are open questions.  But once again, if the incumbents who understand how to manage oil-scale infrastructures are not part of the solution, it’s hard to see how one – how one – how one gets there.

In industry, there are things like the need for high-quality heat and the like.  And we could see several pathways:  efficiency, reuse, remanufacturing, recycle, some electrification, biomass feedstocks, carbon capture, utilization and sequestration.  What I really want to finish on in technology is really emphasizing that we need, in my view, a lot more attention on carbon capture, utilization and sequestration.  Of course, success there will be a gamechanger for fossil fuels almost by definition. 

So let me talk about hydrogen.  Now, hydrogen and electricity could be – again, this is not a prediction – could be one way of handling economywide energy service requirements.  Today, steam methane reforming is, of course, the principal pathway.  And I’m going to use a strange unit, 6 gigajoules, roughly speaking the energy of a barrel of oil, because that’s a nice benchmark to compare.  So with SMR, we’re talking just over $40 per 6 gigajoules of hydrogen.  With electrolysis, which is the favorite carbon-free electricity, splitting water to make hydrogen, today, those costs are approximately $250 for the same unit.  Dramatically more expensive.  We have to think about this going forward.

In fact, today, if we were to do steam methane reforming with carbon capture and sequestration, we’d be talking 75 (dollars) to $80 per 6 gigajoules, still much less expensive than electrolysis today.  Now, we can drive costs down, of course.  But I want to argue that for this one example, once again, natural gas may be a very, very important part not only of a transition but of a(n) acidotic situation where we are relying on hydrogen as a major part of greening the economy.  But nothing comes cheap.  So even in this, let’s say, natural gas plus CCS approach, now comes the issue is the issue of will the public accept sequestration of that much carbon dioxide. 

To give you a scale, one coal plant – coal power plant – produces megatons of CO2 per year.  If you put that underground for 50 years from that one plant to use – again, I’m using units familiar in the oil business – we are talking about billions of barrels of carbon dioxide in geological sequestration.  So it gives you an idea.  We have – we have cost barriers, we have public acceptance barriers, and we really need to come together in terms of plotting out the options for a low-carbon future.

Indeed, another area where I think we are way under investing is the coal area of carbon direct removal, which can be from concentrated sources, dilutes sources – the air, the oceans.  We are not spending enough in terms of developing the options for large-scale utilization of CO2.  We have not answered the questions about long-term geological storage or long-term biological sequestration.  There’s a tremendous palette here of options.  The future of how the energy industry evolves and the role of the incumbent companies is going to be dependent in the longer term mid-century on answering these questions.

So, finally, my message pretty clearly, I hope, is – and we’ve heard it already this morning – innovation in technology, in policy, and in business models is absolutely critical and we need a large dose of humility in thinking about the pathways to low carbon after five or 10 years because there are so many factors, political as well as technological, that our focus should be flexibility and optionality for all of us to meet a low-carbon goal in the best way that we can.  That’s a hell of a lot better than predictions that are completely worthless for several decades down the road.

Thank you very much.  (Applause.)

 

Setting the Energy Agenda for 2019

 

 

Speakers:

H.E. Suhail Al Mazrouei,

Minister of Energy and Industry,

United Arab Emirates

 

Lisa Davis,

CEO Energy and Member of the Managing Board,

Siemens AG

 

Brian Hook,

U.S. Special Representative for Iran and Senior Policy Advisor to the Secretary of State, U.S. Department of State

 

Majid Jafar,

Chief Executive Officer,

Crescent Petroleum

 

Moderator:

Hadley Gamble,

Reporter and Anchor,

CNBC

 

Location:  Abu Dhabi, United Arab Emirates

 

Time:  10:05 a.m. Local

Date:  Saturday, January 12, 2019

 

 

 

Transcript By

Superior Transcriptions LLC

www.superiortranscriptions.com

ANNOUNCER:  Ladies and gentlemen, please welcome Hadley Gamble, reporter and anchor, CNBC.

(Off-side conversation.)

HADLEY GAMBLE:  Thank you so much for joining us.  My name is Hadley Gamble and I’m the anchor and Middle East correspondent for CNBC News, based right over at Abu Dhabi Global Market.  And I want to welcome you guys once again to this very exciting Atlantic Council forum, and we’re very excited to be a part of it this year.

One of the things, of course, that we want to do this year is kind of mix it up.  Usually, we have a Davos-style format, and everyone sits on a stage, and we take questions at the end of the format.  But what we’d love to do this year is to be a bit more interactive.  So we’re going to be speaking to these esteemed panelists, but we’re also going to be tossing to you guys in this – the audience.  So we want to hear from you.  This is, of course, on the record.  So I would suggest everybody try to keep those questions pretty, pretty short and very much to the point so that we can get all of them in.

And now I would like to introduce our esteemed panel to be talking about the energy agenda for 2019.  Joining us on stage right now, as you probably very well know, His Excellency Suhail Al Mazrouei, the minister of energy for the UAE.  We also have the representative on Iran for the U.S. State Department, Brian Hook; Lisa Davis, the CEO of Siemens Energy and also a member of the managing board; and our very good friend Majid Jafar, the CEO of Crescent Petroleum.  Thank you so much, panelists, for joining us.  (Applause.)

Now it’s very exciting for me, as a follower of the oil markets and reporter for CNBC, to get to speak to the minister of energy so closely in one week.  I spoke to him just about three days ago for his first interview of 2019, and I asked him about his tenure as OPEC president.  I asked him, did you feel trumped by what we saw happening over the last year?  My question today, though, is how do you plan to tackle the known unknowns coming from the Trump administration in 2019.

H.E. SUHAIL AL MAZROUEI:  Well, first of all, I think it’s – we will continue doing what we have been doing successfully in the past three years, which is watching and trying to achieve the market balance, trying to ensure that the – that we have enough oil, but not too much oil, in the market for the consumers.  We will not target, as we always say, a price.  We are targeting that balance wherever the price is going to be achieved by the market when we reach that balance.

I think we have demonstrated that we can increase production and we can decrease production when needed, and I think that is a good testimony of how strong this alliance between OPEC and NOPEC, so I’m optimistic that during 2019 we are on track to achieve that balance rather in the first part of the year rather than the later part.

GAMBLE: And Brian, I want to bring you in here as well because when we’re talking about those known unknowns, one of the things that really threw potentially some of these OPEC countries – OPEC-plus – for a loop were these extra waivers when it came to Iran last year. How do you see this playing out in 2019, and what do we really need to watch for?

BRIAN HOOK:  Let me first thank Fred Kempe and the Atlantic Council for hosting this event and for – you know, for the Emirates here.  It’s a pleasure to be back in the Emirates.

On the oil exceptions that we granted, at the time when the president left the Iran deal in May, oil was trading at about $74, and we had, I would say, a fairly tight oil market.  And we were in the process of talking about how we have a goal of getting all Iranian imports to zero.  And we ended up taking off in that six-month period from when the time the president left the deal in May until our sanctions were then fully re-imposed in November, we had taken off about a million barrels of Iranian crude off the market.

We did not want to lift the price of oil, and we were successful doing that.  So when the president left the deal it was trading at $74.  When our sanctions went back into effect, and we had taken off a million barrels of Iranian crude, oil was at $72.  So we had very carefully calibrated the balancing of our national security goals and our economic interests.  We did not – the president was very clear that he did not want to cause a spike in oil, and so we granted eight oil exceptions – significant reduction exceptions.  All of those countries demonstrated significant reductions in their purchases of Iranian crude that made them eligible for an exception.

We are not looking to grant any waivers or exceptions to the import of Iranian crude.  In the last cycle we had to be very careful because, as I said, we had a – we had a fairly tight market.  The United States increased production by 1.7 million barrels a day during that period; our exports were about a million.  The Saudis were very helpful.  Khalid Al-Falih did a terrific job increasing production to ensure a well-supplied oil market.  Next year we foresee a better picture, and then I think that allows us to accelerate our path to zero.

GAMBLE: And in terms of the waivers ending in May, what is your expectation today of whether we could see those extended?

HOOK: Well, I can’t preview that specifically.

GAMBLE: (Laughs.)

HOOK: All I can say is that we believe that a – that certainly when we have a better-supplied oil market then that puts us in a much better climate to accelerate the path to zero.

GAMBLE: And, of course, one of the things that is always on the mind of every markets reporter is price. And last year at Davos I had a conversation with Majid and we were talking about what the price expectation for this year or 2018 would be, and he said we’d see 80.  What is your expectation today?  (Laughter.)

MAJID JAFAR:  I’m not as brave to forecast it for the year.  I think what’s – what we have seen clearly in the last few months is a lot of volatility, and I expect that will continue.  If we look back on the concerns – obviously, China, what’s happening with China, trade deal, but also the economic situation; and then on the supply side – the growth that we’ve seen over the last year has been mainly U.S., Canada, Brazil to some extent, and Iraq.  But really, if you look back – say back to 2012, 70 percent of the growth in supply has come from the U.S.  So we’re largely relying on U.S. unconventional supply.  And, in fact, the last three years conventional oil hasn’t played a role in supply growth.  Demand’s gone up by 4 million barrels a day.  We’re over 100 million barrels a day for the first time.  And all of that in the last three years came from the U.S.  So there is chronic underinvestment in conventional oil.

And then, on the gas side, the growth in demand for gas, the huge developing economies like China and India recognizing it as a fuel of choice for power, not just for global climate change policy but for local air quality policy, that’s a huge political driver now with cities like Beijing and Delhi.  You know, it’s more than just the quality of life.  They’ve had huge health challenges, even deaths as a result of air quality.  So the switch from coal to gas, which economies like the U.S. and the U.K. have already largely achieved, is going to be a big driver for gas demand growth, particularly in Asia.

GAMBLE: Not hearing a price for me there, though.

JAFAR: I think that – I think what we need to see in the upstream sector to encourage more investment on the conventional side is a price band probably between 70 (dollars) and $90, 95 (dollars) maybe. I think north of 100 (dollars) starts to become harmful for consumers.  But at the levels we’re at now, we’re still seeing underinvestment.  Probably this range of 60 (dollars) to 80 (dollars) is where we might be.  A lot depends on the kind of central bank of the OPEC-plus deal continuing, which I expect it to, and I think it’s surprised a lot of the naysayers over the last year.  And the Saudi-Russian partnership there, obviously, has been key.

The big unknown is all the concerns of global recession.  Is it people just annoyed that interest rates are going up and their heady days in the stock market aren’t going to continue, or is it a real threat?  And that’s something, I think, that, you know, oil markets are going to be watching closely over the coming weeks.

GAMBLE: Lisa, I want to bring you in here on that especially, because as a company, how do you forward plan given all of these kinds of constraints in terms of your technology?

LISA DAVIS:  Yeah.  Well, you know, obviously, from a – for Siemens, you know, we’re a technology company.  We focus on innovation.  And so our focus is trying to understand where the markets are going, where technology can benefit in terms of helping to create more efficiencies, more advances, more environmentally friendly production and operation.  So our planning is really – I think the challenge we have in our planning is being able to accommodate the complexity that we see in energy systems today.

So we’re very much focused – and you’ve heard a lot from the speakers that opened the sessions this morning about the importance of technology with respect to energy systems and the advances that have been made.  We’re very much emphasizing continuing to put technology into existing operations.  So how do we continue, for example, in gas turbines and in energy systems to advance that technology to drive efficiency, to reduce CO2 emissions, to make the operations more reliable and more safe, safer?  And then also, if you look at new technologies, there’s a huge amount of effort going into even technologies beyond what you see in today’s market.  So, as you look at energy systems today and they become much more complex, how do we leverage digitalization – you’ve heard that spoken about this morning already – to manage that complexity, put intelligence into the grids, be able to visualize the energy system in a bigger way through digital twins and such?

But also what we’re finding, as energy systems get more complex, the need to integrate more across the different forms of energy, whether it be oil and gas, whether it be renewables, et cetera.  How do you integrate?  And the ability now to convert one form of energy to another form of energy.  So, for example, electrical energy into thermal energy, so excess power into heat.  Or the ability to convert excess electrical or energy electricity into hydrogen or into ammonia or into methanol, what we call gas power to – power to X, or power to different forms of energy?  And this gives us more flexibility and the ability then to accommodate even more complexity in those energy systems.  So our focus is very much on how do we develop different technologies to manage the complexity.

GAMBLE: Your Excellency, right before we turn to the audience for a few questions, I want to ask you specifically about some of the challenges that you foresee in terms of those geopolitical and economic headwinds. Because we heard on the stage about what we consider the dangers in terms of supply and demand, what we were talking about about Chinese growth, worries of course about what we could or could not see coming out of Washington.  Could you specifically tell us some of the headwinds that you foresee in this year?

MIN. AL MAZROUEI:  I think one is demand.  And demand is as a result of the either a good business and a good financial year or not.  And the threat of the trade war or tension – I wouldn’t call it “war,” I think.  I don’t think it’s equal to a war because you cannot afford that.  But I think that tension, the more unclarity on that tension, the more it’s going to be – the more we will see fluctuation on what is the expected demand.

We don’t need to see volatility on the oil prices, because if you see volatility than you will – you will hurt demand.  And what we want to achieve is less volatility, and hopefully with clarity on some of those issues like grants or sanctions or not.  The more we – the more the market understand(s) the expectation, the more the market can plan for it.  You cannot just turn the well or a million barrel just overnight.  It needs to be well-planned.  And I think the lack of understanding between the policymakers in the geopolitics – who are setting up the geopolitics is leading to higher volatility in the oil market.  If we understand things, I can assure you we have spare capacities that we can use.

And so the trade tension between China and the U.S. is one thing that you need to watch for.  How much to expect from the shale oil, that’s another thing that we need to understand and maybe work with the shale oil producers to understand.  And we paid them a visit at the (shale  week ?) and we had that discussion, candid discussion with them.  The idea is not to talk about the production or limit, just plan of the production.  Then we can – we can adjust for the – for making sure that the balance in the market is there, which will attract investors to continue investing here, in the United State(s), and elsewhere.

I think – I think those are – those are the main major two elements. Are we going to see a slowdown in the – in the financial world?  Is there, too, a recession coming, and when, and how can we plan for it?  All of those major risks are, I think, not unique for the oil industry, but they are – they are generally concerns for all of the investors around the world.

GAMBLE: And you mentioned policymakers lacking understanding, potentially, about the markets and supply and demand. Were you referencing the U.S. president by any chance, or anyone specific?

MIN. AL MAZROUEI:  No, no.  No, I think – I think people are trying to trap us into this.  But we respect, I think, all of those major nations, industrial nations.  They are the major economies:  United State(s), China, India, Russia.  We listen to those presidents because they are talking on behalf of the consumers.  And to us as the producing nations, it’s important to understand what makes the consumers happy and try to do it for them because that will drive demand.  We’re not in the business of slowing down demand because we want to achieve a certain price.  That is a very old policy that we throwed into the pen.  We are now concerned about achieving the balance, incentivizing investors to continue investing in this important commodity.  And some of those counties – the United States is indeed the world’s largest producer of oil.  So it’s also part of their economy to have a good incentivizing economics for those investors in shale oil and in others.  So I think – I think we are complementing each other, we’re talking to each other, but we are not – we’re not – we’re not enemies here.  We’re trying to do something that benefits us all.

GAMBLE: I want to turn now to the audience to take a couple of questions for our panelists. If you’ll raise your hand, I have microphones that could come to you all around the room.

And I have one right down front.  (Laughs.)  No microphone.

: Helima (ph) doesn’t need a microphone.  (Laughter.)

Q:  Thank you so much.

Actually, Brian, this is a question for you.  I’m always asking you questions.  But in terms of, you know, the skepticism in the market, there has been some skepticism about the ability of the U.S. government to actually enforce sanctions.  There’s been a lot of discussion about ghost ships turning off their tracking devices, you know, countries seeking to evade the sanctions.  Can you talk about, you know, the successes or the challenges you actually have enforcing the sanctions regime?

HOOK: Yeah, good question. For Secretary Pompeo and the president, sanctions enforcement is one of our top priorities.  In the prior administration, they had granted about 20 oil waivers over a period of three years.  We have granted eight; three of those eight have stopped importing Iranian crude.  So we face a much different picture today than the Obama administration. 

I gave a speech shortly after our sanctions were re-imposed talking about the point you just made.  At the time that I gave the remarks, we had about a dozen Iranian tankers that had turned off their transponder.  And in the Obama administration, I think you had almost half of the tankers had turned off their transponders.  Since 2004, it is international maritime law to ensure the safety of traffic that ships operate with their transponders.  And so the Iranian regime, which is an outlaw regime, certainly tries to evade sanctions.  We have, I think, organized the interagency in a way to make sanctions enforcement a big priority.  And we have had a fair amount of success with it.

I think nations around the world know that the president is very serious about his campaign of maximum economic pressure.  There were about – prior to when the president left the deal, you had about 20 countries that were importing Iranian crude that today are not importing any Iranian crude.  So when the president and the secretary of state, secretary of the treasury, secretary of defense make Iran the priority that it is, I think nations around the world understand that there is no benefit to them partnering with the Iranians to evade our sanctions.  We will sanction any sanctionable activity and we have already demonstrated that.  Treasury has already done some sanctions.

Since the time that we have – we have re-imposed ours, we know how Iran evades sanctions, we know the general channels they do it and we are working very closely with our partners to try to close those loopholes.  But then I’ve also met with a number of countries that have historically been open to cooperating with Iran, that it’s a new day.

GAMBLE: And speaking of that, why don’t you tell us a little bit about your recent trip to Iran and how fared in terms of those kinds of conversations.

HOOK: Yeah, I’ve been on the secretary’s trip. We were on a nine-country tour and we were in Baghdad and then also went up to Basra and had very good meetings there.  Specifically in terms of my portfolio, Iraq has been importing electricity from Iran.  We granted a 45-day waiver.  Most of the oil waivers all run on a six-month clock and that six-month clock is by – is by statute, it’s by congressional statute.  We had – we had discretion on the electricity piece and so we granted a 45-day waiver initially and that’s because we did not want to see electricity outages or shortages in southern Iraq.

We did make very clear that we needed to see progress in the direction of diversification on energy and a better integration.  We very much want Iran to stop interfering in Iraq.  We want Iraq to enjoy sovereignty.  And that was the nature of a lot of the discussions in Baghdad.

GAMBLE: Well, one person sitting on this stage would have a pretty clear idea of how far those conversations really got.

Majid, you’ve been working in Iraq for many years now.  Give us your sense of how cooperative the new government is going to be to this kind of influence.

JAFAR: So I have no visibility on how those conversations went. But the situation in Iraq, there’s clearly a lot of gas resources in country.  But what hasn’t yet happened is a strategy to utilize them, so you have the strange situation where over a billion cubic feet per day being flared in the south and yet there are power stations, new-built gas-fired power stations, one by an affiliate of ours further north in the country, in the center of the country, sitting idle, some of them on top of gas fields, and utilizing imported Iranian gas at quite a high price. 

So that – I think the Iraqi government recognizes that electricity provision is the number-one priority.  Despite all the good news in Iraq in recent years, defeating ISIS, the elections, the Kurdistan post-referendum issue, remaining peaceful, the big issue is service delivery.  The main reason the government didn’t get reelected or continue was last summer’s demonstrations over electricity and particularly in the south.

So they’ve been talking with Siemens, GE about national strategies, but also looking immediately at how to deliver more electricity for the coming summer.  We have bid successfully on three new blocks, two of them in the Diyala area, not far actually, 60 to 70 kilometers from our current production in the Kurdistan region, which is already 400 million cubic feet per day, and we plan to double that in the coming years.  But then with these Diyala blocks, we could hopefully add to the domestic gas production, particularly in the areas where there’s a deficit of gas.

And then in the south, you have Shell who’s been working on gathering associated gas.  But as the oil production increases, of course that associated gas production is also increasing.  And there’s huge investment requirements in the infrastructure.

GAMBLE: That’s a major problem for a lot of countries.

Lisa, I want to bring you in on that specifically and how Siemens is working to develop that, not just in Iraq, but regionally as well.


DAVIS: Yeah. Yeah.  You know, one of our biggest priorities as a company within our energy program is to make sure we work closely with countries to help them become sustainable, self-sustainable.  And obviously, that’s a big need within Iraq.  We’ve been working for many years with the – with the government there, the old government, the new government, and have developed a very long-term view as to how we can assist the country with respect to creating their own – leveraging their own resources to ensure they can be sustainable and self-sufficient going forward.  That includes obviously the ability to capture the gas, process the gas, be able to then convert that through power facilities into electricity, then be able to connect that electricity to the grid and be able to support the grid for broader distribution throughout the country.  And the focus being very much on the long term.

So for us, it’s about not only putting facilities in and the technology that’s needed to create the systems that will give them energy and prosperity, but it’s also about being able to create jobs, being able to develop skills so that then the people of Iraq can operate those facilities, can maintain those facilities and also to start contributing to the development of a private industry in Iraq.  So we’ve been working very hard to bring this forward and are very optimistic about the opportunity and the potential to continue working on it.

GAMBLE: Your Excellency, when we talk about this potential and the shortfalls or the pitfalls rather of a lack of development in a country like Venezuela, for example, which is now going to be the president of OPEC for the next year, how worried are you about these countries lagging behind in their ability – they can’t just turn the taps back on immediately – their ability to help you going forward in terms of managing the market?

MIN. AL MAZROUEI:  I think there was a reason for taking Iran and Venezuela out the current – outside the current deal.  Those countries, they have special circumstances, and I think it’s obvious that in Venezuela they would need to do lots of work on not only stopping the decline but also building up production.  And we are talking to them.  I think we have invited the minister a couple of times.  He’s a sincere person.  He’s trying his best to improve and, according to him, they have a plan. 

But, again, it’s a difficult situation when – and it’s a complex, I think, political as well as – as well as from a technical point of view.  It’s not an easy – an easy forecast to say are they going to further decrease and for how long or for how much.  So I would be hesitant to give you a figure – are they going to continue, are they going to stop or reverse.  But we give them – we took them out to allow them to get – to get their action together and try to do something about it.  If they manage to maintain, I think that’s good news.  Then we can – they can – they can be joint if there is another dip.  But no expectation that those two countries and even Libya with them will ask for exemptions.  They are going to increase their production. 

There is – there is a more likelihood of the production going down – like we mentioned, that the sanctions are not going to be forever and they will be probably tougher.  So that’s the expectation of the hearing.  We hear from the United States that they are not forever and then there is a limitation.  So if that is the case, then that is going to hinder the export and the production of Iran, and in Venezuela they have another circumstances.  They are also under sanction but they have other issues as well.  So those two countries we decided to take them out or not to impose a production cut on them for obvious reasons.

GAMBLE: One of the things I have to ask you – one of the most remarkable things over the last few years is seeing this relationship develop between Saudi Arabia and Russia, the UAE and Russia in terms of this OPEC plus. Are you confident that Venezuela as the president of OPEC will see the kind of success that you have in terms of continuing that dialogue and continuing that relationship, which has become so central to OPEC policy?

MIN. AL MAZROUEI:  I think we are, as a body, called the Joint Ministerial Monitoring Committee and that body is going to continue doing its work to have the – we have two capable ministers there, Minister Khalid Al-Falih and Minister Novak, and they’ve been instrumental in the success of 2018.  I think they’ll carry on doing a good job and they will help the president to, hopefully, achieve the decision.

GAMBLE: I think we have a question right here. Mr. Kemp (sp).

Q:  I have a one-word question for all four of you:  China.  Role in Iraq, Majid; roles in technology, competitor Siemens; role as a partner, UAE; role in Iran, in what you’re trying to achieve with Iran, for Brian.

HOOK: China was one of the countries that received an exception. China has significantly reduced its purchases of Iranian crude and that’s a good thing.  I’d just say one little – a little bit about the – sort of the foreign policy behind our oil waivers exceptions.  Eighty percent of Iran’s revenues come from oil exports and this is the world’s number-one state sponsor of terrorism.  If we want to deny this regime the money that it needs for its nuclear program, its missile program, for its regional aggression, maritime aggression, cyber threats, human rights abuses, the whole list, we need to go after the money.

And on the energy side, we have been very successful and there are going to be much deeper reductions of Iranian imports.  As I said, our goal is to get to zero as fast as possible.

On the banking side, the SWIFT financial system disconnected all the banks that we designated in early November.  And Iran is now increasingly feeling the economic isolation that our sanctions are imposing.  We do want to deny the regime the revenue that it uses to fund all of its malign activities, but we also – we know historically that Iran does not come back to the negotiating table without pressure.  I think if talking nicely would have worked – if that worked we would have solved this a long time ago.  So we are very focused on the energy side because that is where Iran’s economy is structured in a way where it is its greatest vulnerability.

China has significantly reduced.  We have been very pleased with that.

MIN. AL MAZROUEI:  For us, China is, as you mentioned, a strategic partner.  We have, I think, last year have been a year of change in term of the relationship, a year of bringing the Chinese companies to our oil and gas sector.  Now you can see them part of the operations, and we are very happy with that – with that relationship.  China is one of the major uptakers of the United Arab Emirates.  It’s a historical customer, and we will keep that.  And we are building infrastructure in China to allow – to give them some security of supply as a reliable partner.

At the same time, we are investing as well in China in different sectors, and especially in the technology sector we think China is going to take leaps in telecommunication, and we are trying to understand and be part of that success story.  To us, the United States will always remain a partner and an ally, but at the same time, we are realizing the growth of China.  And I think, like the American companies, they have started going to China, having manufacturing in China, teaming up with them and contributed to this technology leap.

United Arab Emirates is also aspiring to play a key role as an investor and also as a partner for China, so to us, China is – or our relationship with China is an opportunity, and it’s something that is going to benefit both us and them.

DAVIS: So I would add a bit the same in terms of comments. I mean, for Siemens we’ve had a very strong relationship for China – with China for many, many years.  Today we see them as a very strong technology partner, a very strong business partner.

What we do see changing with respect to China is, in the past, we had much more partnership around, you know, joint R&D, joint technology development, partnerships in terms of new business fields, new business models.  Today we see much more of a desire for independence with China, and I think that’s much more of a reflection of the challenge with respect to the trade environment that has been emerging over the past several years.

From technology we see China also being very focused in many of the same areas that we are in Siemens:  around digitalization, around innovation, around how to better leverage automation in different industries, to not – you know, to be able to drive productivity gains and increase capacities and such.  So we see China becoming much more aggressive in technology development and much more aggressive in driving independence with respect to technology, but a very strong business partner, as well, from a Siemens perspective going forward.

JAFAR: So I think for – in terms of energy markets overall, that’s the one maybe most important driver over the medium term is what is really happening with the Chinese economy. There have been several indicators in the last few weeks even that maybe the rate of growth is slowing down.  Having said that, what we’ve seen, for example, with demand for LNG – liquefied natural gas – growth over the past year has just exceeded all the expectations, so it’s going to remain a very important growth market for energy. 

In terms of its role here in the region – and Fred asked about Iraq – I mean, extremely active, and I’m very glad that the conference this year, the forum this year has a particular focus on Asia and China, and I know there is a session on the One Belt, One Road Initiative.  And in Iraq, we’ve seen very active in the upstream, upstream companies, service companies, state and private sector, and a big capacity for financing also and maybe more of an appetite for risk.  I think through, you know, the ups and downs many countries in the region have had – and Iraq obviously was a central battlefield with the war on ISIS – many of the Western majors left or reduced activity in certain parts of the country.  We didn’t see that actually with the Chinese companies.  So I think they take a long-term view and there’s clearly a strategic driver for them to be active in this region and in energy in particular.

GAMBLE: And following onto the China theme, had a question right here.

Q:  Noura Mansouri, a researcher at KAPSARC, the knowledge partner of this forum, and a visiting scholar at MIT. 

My question is to you, Your Excellency Suhail Al Mazrouei.  My question is on the nuclear power plant, the Barakah plant.  What are the prospects of nuclear cooperation in the GCC?  Like, what are the expectations being the pioneer in the region?  We had a very stimulating closed session yesterday on nuclear power in the Middle East.  And one of the ideas was to launch an initiative, a nuclear cooperation initiative and have an independent regulatory body for the GCC.  What are your ideas on that?  Thanks.

MIN. AL MAZROUEI:  Thank you.  I think the successful program that we are building here in the United Arab Emirates, the idea of it is to become a relevant benchmark for the region.  So we are – we will be very happy to share information.  And I think especially with Saudi Arabia, the collaboration and the discussion we had from the ministerial level to the – to the operational level has been – has been great.  We talked about it and we are ready, I think, for any lesson learned on this program.

At the same time, we are trying with our partners from Korea to build an R&D – a specific R&D center here in the – here in the – in the Emirates and trying to develop or answer certain questions and develop certain technologies related to the specific environments of nuclear and nuclear safety here in this part of the world.

So I am optimistic that more collaboration will be – will be happening.  And that will make the program that Saudi Arabia wants to do shorter probably because they will – they could capture all of the learnings that we have – we have developed here in the United Arab Emirates.  And myself and my good friend Khalid Al-Falih, we always talk about these things.  And I think we will – we will be ready if needed to sign any more of a joint Saudi Arabia-UAE collaboration agreement or even to a greater extent if other countries want to tap into this form of energy that will be also available.

The idea is safety and security is in the top of the – of our agenda.  We are building probably I can tell you with confidence the safest plant on earth.  It’s the newest and it’s the safest.  And we are committed to make it a worldwide benchmark with our partners.

GAMBLE: And, Brian, I want to bring you in on this as well because I spoke about this with Khalid Al-Falih last year and in the beginning of 2018 we were discussing this potential for Saudi Arabia to bypass the 1-2-3 Agreement with the United States. This raised a lot of fears on Capitol Hill about the future of the region and security.  What’s our outlook for how U.S. policy is going to adjust to these new realities, particularly with nuclear growing in the UAE and Saudi Arabia?

HOOK: Well, on the – in the Bush administration, we negotiated the 1-2-3 Agreement, the gold standard, with UAE, which was, I think, a big accomplishment in the – in the sort of the history of nonproliferation. The Iran nuclear deal lifted the prohibition on Iran enriching and we thought that was a mistake.  If you look at Secretary Pompeo’s speech in May after the president left the deal, he laid out 12 requirements for Iran to start behaving like a normal country.  And I think number one or number two on the list was no enrichment.  And we think it’s very important to restore that standard. 

We can’t allow Iran – I don’t think Iran has earned the trust of the international community to have restrictions on its nuclear program lifted.  They have – they have a long game of playing cat-and-mouse with the international community about the military dimensions of its nuclear program.  This has been a very volatile region and it’s very important that we not set off an arms race here.  I know that proponents of the deal, of the Iran deal, made the case that this – you know, it is a nonproliferation deal.  It’s temporary.  These restrictions expire.  And we also think that the gains were not significant. 

And so it’s important.  I think we’re in this moment on the national security side.  We think UAE sets a perfect example for the region on the nuclear side.  And Iran sets the worst example.  And recently, you had the Israelis liberate from Iran about half-a-ton of materials in Iran’s nuclear archive, which was kept under armed guard in the heart of Tehran, which says a lot about Iran’s ambitions.  I’ve studied the history of countries that have decided to denuclearize and one of the common denominators is that they surrender their atomic archive.  There’s no need to retain a half-a-ton of materials on how to – how to build a nuclear weapon and the capability to deliver it if you really are running a peaceful nuclear program.  And we have no evidence to suggest that Iran has come clean on the past military dimensions of its nuclear program.  That should have been a condition of the last deal, but it wasn’t. 

So we’re looking to get to a new and better deal with the Iranians, with the regime, and that will include a nuclear component, but it needs to be comprehensive.  It needs to include all of the threats that Iran presents to regional peace and security and the nuclear piece is the most significant.

GAMBLE: A question in the audience here.

Q:  Hi.  David Friedman from Argus, which is a price reporting agency for physical commodities.

A question for Brian.  I was wondering if you could give some clarity on refined product exports from Iran and how they’ve been impacted by sanctions thus far.

HOOK: Our sanctions apply to the export of crude oil and condensate. And so we have not made an exception for condensate as we done in the past.  And so I’m not sure if that’s what your question is.

MIN. AL MAZROUEI:  Refined products

HOOK: Our sanctions have been just around the – have been around just the oil and the condensate, and so I don’t have much to add beyond that.

GAMBLE: Eithne, right here in the middle.

Q:  Thank you so much.  Eithne Treanor here.

A question maybe to Brian.  And, Majid, I think I’d appreciate you coming in and any of you on this. 

You seem to indicate, Brian, that every move the president makes is a very strategic one and with great reasoning behind it.  But the market and the media – I know, the impressions of the media – seem to take it very differently.  I mean, you know, they’re pretty bright people.  The market has been around for a while.  But the reaction to the tweets from the president, you know, have been, in some way, thinking he’s playing games whereby you’re saying this is very strategic in terms of what he’s doing.  How can the market and the media get this so wrong and how can the markets be in such a flux just because?

And I ask that probably a bit selfish because I am moderating a session tonight on the impact of the tweets coming from the president, particularly on the oil sector.  But indeed, this is right across the board.  Thank you.

HOOK: Well, in the case of Iran – and I’m the Iran envoy so I can only speak to that – but it has been very strategic. And in terms of the analysts that you – that you mention, I would just point out that when the president left the deal in May, analysts were predicting that we would only take off 300,000 barrels.  We took off around a million and within a few months.  That was preemptive compliance with our sanctions regime and you’ve had very consistent messaging from the president on the threats that Iran presents.  When he ran for president he made it very clear that he thought the Iran deal was a bad deal.  He thought that we gave up too much in return for too little – that it wasn’t an equitable trade.

And so I spent about six months working with the Brits, the French, and the Germans trying to fix the deficiencies of the deal and that was around it has a weak inspections regime.  It has – the restrictions on the nuclear program lift and there’s no mention of ICBMs.  And any country that wants to become a nuclear power always needs the means to deliver them and you always need to partner the nuclear – the nuclear bomb with the means of delivery, and so the Iran nuclear deal is silent on ICBMs.  In fact, I think the Iran deal contributed – is contributing to missile proliferation.  We know it is.

So going back to your question, I think you’ve seen a very consistent approach on this.  When he was running he said it’s a bad deal.  We then addressed – we highlighted what the deficiencies are.  We tried to fix them.  We weren’t able to come to agreement with the E3.  I think we came very close.  We largely had agreement around inspections and ICBM but we ended up having disagreements that we couldn’t bridge about the sunset clauses, and so then the president left the deal. 

He made very clear that sanctions enforcement is going to be a big priority and it has been.  We do want to get to a new and better deal.  But in that process we are denying the Iranian regime billions and billions of dollars and they’re facing a liquidity crisis.  The rial is down 75 percent.  Inflation is up – estimates around 40.  We’re having a very significant impact on the Iranian economy and we’re just getting started.

So I would say that we’ve been very consistent and very focused throughout this.

GAMBLE: One question, then we’re going to have to wrap it up in just a moment. But –

JAFAR: All right. I’ll have you know there is a gentleman there who actually raised his hand first, but maybe with the lighting you couldn’t see him.

GAMBLE: One more then. Very energetically.

Q:  Thank you very much for the distinguished panelists.  Slightly shifting from the geopolitics, this is Waleed al-Samali (ph) from Saudi Aramco.

R&D investments in the arena of energy is an extremely critical factor for this region for efficiencies in the energy domain.  Latest European Union statistics – $2 trillion were spent 2018 by corporate in R&D.  So my question is for the distinguished panelists – two brief questions.  One, what it takes for multinational corporations operating in the energy arena to increase its investments in R&D technology developments here in the region.  A better question is about technology base entrepreneurship.  The whole region is putting a lot of emphasis on entrepreneurship and embedding entrepreneurs, SMEs, startups in the supply chain of energy.  What can the energy industry – what strategies can be considered in embedding entrepreneurship in the supply chain?  Thank you.

DAVIS: I can do that.

JAFAR: So here in our region I think, clearly, we’re punching below our weight. We have half the world’s oil and gas reserves – probably more, but that’s what’s proven.  Less than a third of its production, less than a sixth of gas production, and we’ve seen over recent years that other parts of the world, North America in particular, have seen much more rapid growth. 

Now, we’ve had geopolitical issues, as you mentioned.  Many countries – Libya, Yemen, Syria, Iraq, Sudan – that clearly affects the oil and gas development.  But there is underinvestment and it’s great to see what Dr. Sultan mentioned in terms of ADNOC looking at both cost efficiencies and new models for partnering with the private sector because, clearly, the public sector can’t be relied upon alone to take the burden of the investment because there are national budget needs in all countries and they are growing with populations which are growing.  So how to encourage the private sector, and you mentioned multinationals.  Absolutely multinationals, but first our own regional private sector – and I say that as a member of it – can play, I think, a bigger role in all parts of the value chain.

In terms of R&D, it’s very important but it starts with universities.  We need universities with the right departments – science, technology, and more on the oil and gas side – because even the multinationals, when they come to make such R&D investments they usually look to an institution of higher learning that has that capability, and I know Saudi Arabia has been a leader with many top universities in that field.

DAVIS: Maybe I’d just make a quick comment to your question on investment in R&D. We do see from a company perspective the need to invest much more in R&D and we see this region being a prime place to do that.  But the investment is in a bit of a different twist in R&D.  It’s really more around digitalization.  It’s really more about how do we bring innovation into creating new applications that allow us to run traditional systems in a different way.  So how can we bring innovation into supply chain from a digital perspective, new tools that allow us to optimize, new tools that allow us to include artificial intelligence, et cetera.

And we’ve recently announced here an investment of 500 million (dollars) where we will start to develop and have already opened what we call application centers where we’re bringing together software engineers, partnering with local universities, local institutions, to develop some of these applications that can be used to allow traditional parts of our industry to become more efficient, more innovative, more creative, more productive and that, to me, is where we really need to invest for R&D, going forward.

MIN. AL MAZROUEI:  From the supply and demand I would like also to add from the – sorry, from the supply chain and how do we allow the SMEs into the supply chain and have an allocation for them, I would like to commend the ICV program, or the In-Country Value program, that ADNOC have started.  The target is around 40 percent local content, and we are – we are integrating the local manufacturers on the basis of proper audit of their contribution to the in-country value with a special – with a special emphasis on the SMEs.  So the promotion of SMEs, their contribution to the – to the supply chain is something that we target in the future.  We’re not there yet but I think there is a good plan for us as an economy, as an industry, to reach where we are supposed to be in the near future.

GAMBLE: And in terms of setting the agenda for 2019. I’m afraid we’re actually going to have to leave it there and we’re running a little bit of overtime. But I’m going to ask the panelists to please stay for a few minutes and do a photo op.  Thank you, guys, once again.  Talking about the need for more clarity when it comes to what’s happening with China’s growth, the fact that more technology and investment is needed, certainly with regards to Iran, the question about what’s going to happen next in that country and in terms of the need for greater communication with shale producers as well – OPEC plus.

Thank you all so much for joining us.  (Applause.)

(END)

RELATED CONTENT