Senior US energy official Amos Hochstein on the West’s response to Russia and ‘critical need’ to diversify its energy supply

Watch the full event

Event transcript

Uncorrected transcript: Check against delivery

Amos J. Hochstein
Presidential Coordinator for Energy Security and Build Back Better World, US

Helima Croft
Managing Director and Head of Global Commodity Strategy, RBC Capital Markets

HELIMA CROFT: Thank you so much. I mean, you are currently with President Biden in Brussels at the moment. We are so sad that you are not with us today, but we understand the importance of the work that you are undertaking.

And I actually wanted to start with where you are right now and President Biden’s speech in Poland that generated, you know, significant headlines. I’m just wondering if you could, you know, let us know your views on—has there been a shift in US policy in this war?

AMOS HOCHSTEIN: Well, first, Helima and Randy, I’m—I am truly sorry not to be there. This is one of my favorite events of the year and been coming for many years. And you know, it’s great that everybody’s there in person, so I wish I was there in more than just the screen.

Look, I think the president had a remarkably successful trip to—and very intense trip—in Brussels, where he was part of the NATO leaders summit as well as then the [Group of Seven] summit, and then following with the meeting of the US together with all the leaders of the EU Council Heads of State.

So, you know, following that, going to Poland, meeting with hundreds and hundreds of refugees at the stadium and meeting with the Polish parties and with our military, I think that speech that you saw was a reflection of his emotional connection to this issue and commitment to European security, to NATO and to Ukraine. And I think that—as you refer to the last line of the speech, I think the president was not indicating a change of US policy on regime change and did not say—none of his—those few words were about US doing it, but rather just a statement that comes out of that experience and someone who he has already said has committed war crimes in Ukraine. I think that was his very emotional and very personal view.

HELIMA CROFT: Amos, you know, you really are, you know, one of America’s foremost energy diplomats, and you are really someone who knows the energy industry very, very well, and I wanted to ask you about the willingness of the United States, of European partners to do more when it comes to energy.

I mean, initially the conversation was about trying to push the pain on to Russia while shielding, you know, the consumers at home. We now have had significant movement in terms of energy sanctions, but there are key countries that remain reluctant to impose those sanctions. And we just had a speaker from Ukraine on the stage really saying that this is a moral imperative.

So, A, do you think we will see more energy sanctions? What would be the catalyst for such sanctions?

AMOS HOCHSTEIN: Well, first, Helima, as you know, we’ve been talking about the—the need for Europe to diversify away from energy sources—from—of Russian energy sources—not to eliminate at first, but what we talked about is diversification away from it for several years. And you know, I came to the Atlantic Council at this event when I was in the Obama administration talking exactly about this topic of how important it is, and—and Europe has done a lot to already put itself in a position to diversify.

As you know, President Biden and President von der Leyen announced a—a energy cooperation agreement, an emergency task force, to look at how do we accelerate that diversification, how do we work together to diversify away.

So, I think that rather than energy sanctions, which, I think, are de facto in place with the self-sanctioning that we’ve seen in the energy sector with companies pulling out of Russia and with most of the oil that is—ships in the West by—by tanker versus pipeline already being effectively stopped with no takers to those—to those contracts, even at significant discounts—so, we’re already seeing that move away—what you want to do is—what makes sanctions effective are two basic ingredients.

One is making them as multilateral as possible, and the second, making sure that they are—that the impacts are felt more on Russia than they are on the rest of us, on the United States and our allies. As you’ve said, prices are already up. Gasoline in the United States is up a full dollar since the beginning of the war, and it went up on preparation for the war even months before that. And natural gas prices in Europe have fluctuated between extremely high to extraordinarily high, and that’s basically been the fluctuation over the last few months, reaching records at times. That is something that allows Russia to recoup some revenues at higher prices, even with lower volumes. So, what we need to do is to work together to make sure that there is enough supply on the market of both gas—natural gas, pipeline gas, and LNG, as well as oil, and in the short term, that’s what we need to do.

So, the agreement that we’ve signed and announced is to do two things. One is to begin to diminish the dependency of Europe on Russian supplies, and the second is to reduce the demand overall of gas because it’s just going to be very difficult in a short order to get out of 150 somewhat bcm of gas delivery per annum. So, you have to do both of those things at the same time, and the United States and Europe are now going to work together in 2022 and ’23 in an urgent manner, as well as then build-up a little further.

HELIMA CROFT: I want to, actually, dive more into this announcement that you made with the European Commission.

I have—I have sort of two follow up questions about the gap between 15 and how we get out to the, sort of, 150, 160. What is realistic? What’s the timeframe? What’s going to be the mix?

And then the second question is, you know, what needs to be done in terms of investment, infrastructure buildout, permitting? I mean, how do we actually, you know, get those cargos on the water? Like how do we set the system in place to be able to do that?

AMOS HOCHSTEIN: Well, that’s a good question.

So, we’ve—we’ve noted—at least in the agreement we have announced—is at least 15 bcm this year—additional bcm this year. And what that means is looking at what we, frankly, did already in December, January, and early February, where we were able to work with market participants, both US companies and traders and buyers around the world, to see how can we redirect flows of cargoes from those countries, from those destinations and on those portfolios to Europe above and beyond what was anticipated.

And that was a relatively successful operation that allowed Europe, which started the winter with very low inventories because of Gazprom’s effective underselling into Europe for several months before the invasion started, and we’re going to try to do more of that this year.

As you know, you can’t magically bring on LNG infrastructure. You need to work with the system that you have. There are some LNG terminals around the world that are not operating—export terminals—sorry, export plants—that are not operating at full capacity, and so we are working to bring them into full capacity by increasing production on a temporary basis in those countries. There’s some pipeline gas nearby Europe that can be increased as well, and we’re going to do that. And then, we’re going to see what we can do with countries that are able to, perhaps, have their storage full—maybe not as much as they would have anticipated.

The second part, though—that’s in the emergency part. The second part of your question about the permitting—look, the United States already has several plants that are—or expansions of plants that are already entrained, that are under construction—you know, Golden Pass and others—that are already under construction and will be coming into operation over the next, you know, two, three years. We have other plants that are already fully permitted or almost fully permitted—that what they’re missing is—for FID—for a final investment decision—what you need to fund is the financing, and that financing in the LNG terminals are—are tied to contracts—a long-term contract.

So, if you look carefully at the—at the agreement between the United States and Europe, Europe is making—we’ve made a number of commitments in the United States. Europe is making some commitments that they will work with its member states to ensure that there is long-term and contractual arrangements with US infrastructure to allow for those FIDs, to allow for those facilities to be financed, so that additional LNG can come on the market sooner rather than later.

We have a—we’re living in this strange world of energy transition where we have to make sure that we have enough supplies of oil and gas today and the next several years as we accelerate and double down on the energy transition itself, whether it’s through expansion of nuclear and SMR or—sorry, including SMR—as well as other renewables and energy—green, clean energy technology that will reduce the demand side.

So, we have to do both of these things at the same time. We have to walk and chew gum at the same time, and that’s what this—that’s what this agreement is endeavoring.

HELIMA CROFT: So, Amos, I’d like to ask you two follow-ups on that.

I want to ask you about the regulatory issues. I mean, I was just in Doha, and there was concern about the issues around FERC, around, you know, the permitting process, around regulation. There was some discussion that maybe the regulatory environment was easier under the previous administration.

Are you now going to use the, sort of, current situation in order to, sort of, streamline, the regulatory process? And then on investment—I mean, that has been something that has been a theme of this conference so far, is that you can’t defund the current energy system. And so, are you concerned about, you know, the issue about insufficient investment in this oil and gas sector as we proceed with the transition?

AMOS HOCHSTEIN: So first, on permitting, look, FERC is an independent agency, and the administration doesn’t have the ability to influence its—its decisions. But I think it’s a little bit disingenuous to say that it’s all about regulation when we have so many plants that are already permitted, that are not waiting for any permits. That is already entrained. So, I think that we’re—what’s holding us back right now on the LNG side is definitely not a permit.

But to your other question on investment, if you look at the actual numbers from 2019 onwards, we’re actually—we’re doing OK on investment in the sector. I think there’s this story out there that we’re underinvesting and their—investment has stopped. I think there’s quite a bit of investment. We have in the—on the oil side in the United States, we have basically a story of two industries.

We have a number of companies in the majors who have publicly announced—if you look at Chevron’s announcement—that they have decided to increase CAPEX by 25 to 30 percent; that they are increasing production, some companies by 10 (percent), others by 20 percent. And there are other companies who are saying, even at $200 we won’t make those increased commitments for production because our financial backers, our funds, are not willing to allow us under the excuse of fiscal responsibility or fiscal discipline.

And I think at these prices and in the current environment, there’s no doubt that I believe that we can see additional investment and additional production coming online. We are expecting close to a million—900,000 to 1 million barrels a day of increased production in the United States. I think we are doing everything we can. We have given as many and if not more permits for new leases in this administration in the first year than the previous administration did in three.

So, I think we’ve done everything we can rhetorically and physically to incentivize companies, and we’re glad to see that companies are increasing their investment. And I hope that that story is true not only in the United States, but around the world. And our neighbors to the north in Canada have announced that they’re going to increase production this year, so we’re doing what we can. We’ve had a number of releases from the SPR already. We are doing everything we can to increase production to make sure prices are not hurting the American and the European and the Asian consumers and making sure the pain is felt on Russia for the loss of their exports and their revenues.

HELIMA CROFT: I mean—Amos, I just have one more question on investment before I move to the region that we’re in right now.

So, when you talk to Wall Street and you essentially say we want you to put more money in this industry, what type of projects are we talking about? Are we talking about you want Wall Street to fund short-cycle projects, or do you want Wall Street to continue to fund long lead-time projects? Because these are—these are important decisions that have to be made now in terms of where the dollars are going to go.

AMOS HOCHSTEIN: Well, there’s no doubt that on the short-cycle—it’s very difficult to understand what the hesitation would be on the short-cycle investments. These are investments that would bring production on at fairly short order and don’t need long-lasting prices in order to justify and to—to recoup and recover investment. So, there’s no doubt—I can understand that we would have a conversation about long lease—long-term leases.

But, look, we’re not hiding and we’re not changing our broad view. Our broad view is that we need to use this time to underscore how important it is for the world to begin diminishing demand for fossil fuels. There is no doubt. That is going to take time, though. It’s not going to happen this year, and even by the end of the decade, we’re not going to see the biggest, you know, the losses in demand or declines in demand.

So, we have to plan for the short term, the medium term, and the long term. In the long term, we are looking to get away from the reliance on fossil fuels. In the short term, we need to make sure that our—that our system and our economy is well supplied to be able to sustain growth and to avoid the kind of inflationary actions that we’re seeing today in the markets.

So that’s the—that’s that challenge. And I think that folks on Wall Street and in London and other places are sophisticated enough to be able to see how to finance things that are there for the short and medium term versus the investments that we’re already seeing in renewable energy, in electric vehicles, in supply chains. And those are the things that we—that we want—when we talk about long-term investments, that’s where we want to see the long-term investment dollars go.

HELIMA CROFT: So, Amos, I’m going to switch topics now. You know, we’re in a region that there has been outreach to, as the traditional holders of spare capacity, to try to get these countries to increase output to potentially mitigate the increase in prices that we’ve seen for a variety of reasons, but primarily, as, you know, institutions, companies, self-sanction. We’re heading into an OPEC meeting this week.

What would the administration like to see from OPEC? I mean, are you pushing them beyond the 400,000 barrel a day monthly increase? Like, what is your dialogue looking like right now?

AMOS HOCHSTEIN: Well, first let me say we have a very close dialogue with the countries in the region. And let me just take this opportunity since you are all sitting in—in UAE and just express once again what the president and secretary of state have said—and National Security Adviser Jake Sullivan have said—and condemn the attacks by—the increasing attacks by the Houthis. And we have worked very closely with—increased military equipment and—to support our allies and our strategic friends in the region to ensure against these attacks.

And this is not just the attacks against oil infrastructure. I’m talking about any attacks by the Houthis that are just unacceptable, and the escalation and increase of these attacks is extremely worrying. And we’re having those conversations with our allies in the region on a different—on a different channel. When we are in close contact—and I’ve visited the region recently on a number of occasions to have these conversations with countries in OPEC—we understand their considerations.

I don’t have a specific message here for—for OPEC or OPEC+. As they come—as they come to their meeting on Thursday, they’ll do what they see—what they see as the right thing to do. I think that everybody at OPEC is well familiar with the market and knows the shortages that we are living through right now with the fact that over 2 million barrels are currently offline from where we were just a month ago. But I think that they’ll make their decision, and that’s not something that I’m going to interfere with.

HELIMA CROFT: So, I have—I have two follow-ons. You mentioned the issue of the Houthis, and that is a—you know, we’ve done, sort of, a tour of the region this week—and that is a front-and-center concern that—these ongoing attacks. And there is, you know, conversations about the American commitment to the region. You reiterate America’s commitment to the region. But, you know, what more can be done in terms of reaffirming, you know, bolstering the US partnership with these key countries in the region that have been traditional US partners?

And how are we thinking about these negotiations with Iran over JCPOA and potentially reconstituting JCPOA? Because one concern I keep hearing is about the fact that Iran provides material support to these groups, and there is discussion now about potentially taking Iran off the foreign terrorist organization list. That has been the source of a number of conversations—concern about Iranian sponsorship. And how does the US essentially proceed with nuclear talks while also deal with the issue of Iran’s behavior in the region?

AMOS HOCHSTEIN: So, first let me—let me start with our commitment to the region. I know there are a lot of stories about the commitment. The commitment is rock solid, and it always has been. It doesn’t mean that we always agree, and I think that we have to separate between always being in agreement to the commitment and the security of the region, and we are committed. We will—at no attack will we ever say that this is your problem and not ours.

So, we both condemn these attacks, but we’re also engaged in a very serious and intensive cooperation on ensuring sharing of information to make sure that these attacks don’t occur and that Saudi—and Saudi Arabia and the Kingdom, and UAE, in particular, are protected and able to protect themselves and have the equipment to do so. So, the commitment is there, and again, I’ve traveled with my—with my State Department and NSC colleagues the last couple of months, quite intensively in the region and will continue to do that. So the commitment is definitely there.

When it comes to the JCPOA and the negotiations in Vienna, we have—I think the president has made clear from the beginning that the most important goal is to deter and to make sure that Iran does not have access to nuclear weapons and nuclear capability. And look, we—the Obama administration entered the agreement—the JCPOA agreement in 2015. We thought it was a terrible, disastrous decision to get out of the JCPOA because it took a regime that maybe people didn’t like some of its provisions—did not like a sunset provision of 2030 or 2035, and now we have a sunset provision of 2022.

So, when you replace something with nothing it puts you in a very dangerous position, and we are committed to trying to stop that. So, there’s no doubt that we want to be able to get to a point where we can stop that program. At the same time, it has been made clear that that agreement is not at all costs, and that there are—and that’s why we have a—Rob Malley as the negotiator. And the administration is focused on that. So we will—we’ll do what we—we’ll pursue a policy that is—that secures the United States, secures our allies in the region, and we’ll do that in close consultation with all the countries in the—in the region.

As far as a designation, look, no decision has been made. No change of policy has been announced or made. These are all what the press reports are, so it’s a little bit difficult to react to press reports.

But the Iranian groups are among the most designated of any group under US sanctions and under a variety of different laws and different provisions. So, I think that should be understood, that this not—there’s not just one designation. There are multiple designations. And there is—these are—they remain, as Secretary Blinken said in Jerusalem just a couple of days—just yesterday, they remain under many designations.

HELIMA CROFT: OK. I have probably time for two more questions, and I’m going to ask a short follow-up on this issue of the supply picture because you mentioned we’re likely looking now at a 2 million barrel-a-day deficit in terms of self-sanctioning as companies walk away from Russia.

So I’m wondering, in terms of additional US outreach, where else are you looking—beyond doing potentially another SPR release, where are you potentially looking to be able to fill that gap. There have been some reports about, you know, outreach to countries like Venezuela. How are you thinking about over the next couple months potentially filling that gap? Or if we’re going to have that gap, what type of message are we giving to consumers about near-term prices, on both gas and on oil?

AMOS HOCHSTEIN: Well, look, I—in this audience, I don’t need to tell people where oil exists in the world. I can’t—I can’t make it up. You know, there’s just—the reality of the oil markets is who has the capacity—who has oil production and who has the capacity to increase production, whether under their quotas or whether it’s under sanctions or for other reasons.

So the United States has committed ourselves to increase production and to make sure that there’s enough supply in the US market and to the global market. Remember, when we—we’re in a balance in the United States when it comes to the supply and demand. So, increasing production by about a million barrels a day this—later this year—and that will come on in the third and fourth quarter and probably closer to the fourth quarter, but that—large parts of that are going to go for exports and continue to supply the global markets.

So our commitment to the global market continues to be—to be there. We’re going to continue to look at other countries that have production, increased capacity and what does that mean and what would it take to bring that on. But that’s always going to be done through—not through the—only through the narrow lens of oil production, but also making sure that it fits within what is in the national security interests of the United States, values of the United States. So, we’re going to always do that in concert with those other priorities and objectives of the United States. So we’re going to continue to do that.

On gas, look, I think there is ways to increase gas supply into Europe, not just through LNG, and we’re going to take those—we’re going to take as many of those steps—from neighbors of Europe, and from those who are—there are some that are able to increase production and increase delivery capacities. So we’re looking at those.

Germany has already announced some of the infrastructure buildout that they’re going to do in both onshore and FSRUs. Norway has already announced that they are going to be increasing production in both April and in May, and those are—some of those are LNG, and some of those are volumes that will go into the pipeline, which makes things easier.

So, we are all looking at literally every single place around the world, both in their demand to see if that can be reduced as well as in the production side and the delivery side, to see if that can be expanded for Europe. And the main objective is to bring this war to an end so that this manufactured energy crisis can be—can be resolved. So, we have a bridge that we need to—that we need to create between where we are today and where we’re going to be once this war is over or once additional production is able to be brought back online.

But one thing is for sure, this war has totally and completely changed the narrative and how we view Russian supplies into Europe and the critical need to diversify away from Russian supplies into the future. That is a tall order, but it has to be done, and I don’t think there is more than one or maybe two countries in Europe that don’t fully understand this issue and commit themselves to this—to this. If Putin—whatever objectives and whatever fears he said he had, he got the opposite of everything that he wanted. He got a stronger NATO, a more unified transatlantic community, and a stronger and more unified EU that recognizes the threat that he poses not only to Ukraine but to the free world, to the democratic world and to Europeans.

HELIMA CROFT: Amos, before I do my final question, I do think it’s worth noting that I met with you in—it was late September, early October. You had just gone on record then before we had this Russia-Ukraine crisis talking about the need to get additional gas into Europe. This is something that you’ve actually been working on for many, many months, so I think that’s just something that you should be acknowledged for.

And the final question is really about the geopolitics of the transition. Majid Jafar was just on stage and he really talked about the transition and who’s going to provide the necessary, you know, ingredients for that transition. And it looks like it’s still a challenging geopolitical picture. I mean, he mentioned, you know, Ukraine—that Russia is a major, you know, provider of uranium. He talked about China’s, you know, major, you know, lead in the whole, you know, renewable supply chain, the issue of critical minerals. And so I’m just wondering if you could, you know, bring it all to a close and talk about what might be some of the geopolitical challenges as we move forward with the transition that you’re working on and trying to get ahead of.

AMOS HOCHSTEIN: I think Majid makes a very, very good point and something that is one of my big passions that has been a bit—I’ve been sidelined a bit because of the crisis in Ukraine.

But look, the energy—people always assume that the energy security architecture of the 20th century, which really was about oil and gas—in early years, coal—and who has control of the upstream, who has control of the midstream, and how do you have—and we had this world of—bifurcated between producer and consumer, right? I mean, we had the producers at OPEC. We had the consumers at the IEA, and we had these weird countries like the United States that were both producer and consumer.

And the assumption that that goes away in the energy transition world or in the—rather once—the end of the—when we get to the end of the energy transition, that’s just false. We have a clear and present danger when it comes to the energy transition that we are—we need to focus on today as a global community to make sure we don’t fall into the trap of having the same exact energy security crisis in the renewable energy and the clean energy world of the—of later in the 21st century.

And that is this, if you have—you take an example of an electric vehicle battery and the components in it, or a storage battery and the components in it, and you look at the cobalt and lithium and copper and nickel and graphite—these need to be resources that are diversified—that have a diversified set of owners, a diversified upstream, diversified midstream, and assembly into the battery itself. So, we have to make sure that we don’t wake up one day with a—with one country or two countries controlling all the inputs from the upstream to the—by the upstream, I mean the mining; the midstream I mean the refining or the—or the processing, and then therefore the assembly. That would be a tragedy for us as a global community if that were to occur.

So we are taking a very critical look at, how do we address this concern? We still have that time. We have to look at where these inputs are coming from—who owns them? Who are others who are interested in coming in? And we have to do it with standards. We cannot allow ourselves to have a renewable energy revolution and a new energy world that has in it child labor and human rights violations and have an irony where we’re using coal in the process or processing of the materials that are going to go into renewable or electric vehicles or other clean-energy technologies. That would be really tragic if we’re going to increase coal in order to have a greener outcome, where parts of the world are using coal in order to satisfy the greener parts of the world. That is not the energy we want, and that is not the energy transition world we want to see.

So, we have a lot of work to do in that, and we are going to be working quite a lot on that in my roles and working already with our—with our partners in Europe, in Australia, New Zealand, in Japan, Korea, and around the world, as well as already having these discussions. And you’re sitting in UAE, where in that region—from Qatar to Saudi Arabia to UAE—already making big investments in the energy transition. You can say investing in their own disruption, and we have been in discussions with them about partnering with them in these kinds of investments.

So, I think there are exciting times ahead in this area, but if we—these are steps that we must take, and if we don’t, the consequences will be that we will have a new, cleaner world but with the same energy, security and geopolitics of energy that we suffered through in the 20th century. And I hope that that’s not the outcome, and I’m committed to working with—I know the Atlantic Council’s put out a lot on this issue—to work together with anyone who’s interested to bring about that change in a more sustainable, cleaner, and more humane way than it is being done right now.

HELIMA CROFT: Well, Amos Hochstein, I want to thank you for being with us today. Congratulations on your expanded portfolio. Thank you for always being a friend of the Atlantic Council, and we hope we have you with us in person next year.

Watch the full event

Further reading

Image: US President Joe Biden crosses his fingers next to European Commission President Ursula von der Leyen as they attend the EU-US summit, in Brussels, Belgium on June 15, 2021. Photo by Yves Herman/Reuters.