How the US Can Help Enhance EU Energy Security

The American Security Project (ASP), in conjunction with LNG Allies, held an event on Wed. July 30: Beyond Rhetoric: How The U.S. Can Help Enhance European Energy Security. The 90 minute session was moderated by ASP’s Andrew Holland and featured a panel of three experts:

  • Robin L. Dunnigan, acting Deputy Assistant Secretary of State for Energy Diplomacy.
  • H. E. Žygimantas Pavilionis, Ambassador from the Re-public of Lithuania to the United States and Mexico.
  • Charles McConnell, Executive Director of the Energy and Environment Initiative at Rice University, and former Assistant Secretary of Energy.

What follows is an edited transcript of key comments:

Dunnigan: Origin of BER

In January 2009, Russia cut off natural gas to Ukraine for the second time and European transit gas was disrupted. As a result, several nations were without gas for 13 days. Not long after, on Jan. 20, 2009, Sec. Hillary Clinton took office. On her first trip to Europe, it was the main topic in every conversation with every leader she met. That really influenced her view on how critical energy security is to a country’s national security… and out of that our office—the Bureau of Energy Resources—was created. So we’ve had a whole agency working on the nexus of energy and security since 2011.

Dunnigan: Russia / Ukraine Gas Situation
One of BER’s top priorities is resolution of the current natural gas stand-off between Russia and Ukraine. The bottom line is this: Ukraine and Gazprom need to make a deal before this coming winter to get the gas flowing again. The United States is not mediating these discussions, but we’re working very closely with the parties involved, urging a solution that allows Ukraine to pay its debt, provides for a market price for gas going forward, and a future payment schedule. In the long-term it would be nice if Ukraine could choose to buy Russian gas and isn’t forced to do so. It’s the policy of the United States that no country should have to rely upon a sole source for any of its energy supplies.

Dunnigan: European Energy—Still Not Secure
The EU isn’t as vulnerable as Ukraine, but it’s still vulnerable—it gets about 30 percent of its gas from Russia and about half of that comes through Ukraine. Since 2009, the EU has been taking steps to reduce its vulnerability and we’ve been working closely with the EU and individual nations to identify and support infrastructure projects such as better pipeline interconnections between countries and new LNG import terminals… Europe has taken various steps on the road to greater energy security, but there is still a long ways to go.

Pavilionis: We’re Fighting for a Market Economy in Energy
Let me break the rules a bit by starting with rhetorics (laughter)… For a country of my size, sometimes I need to speak big… You have to remember that for several centuries the autocrats in our region haven’t wanted countries like Lithuania to adopt American values, such as freedom and free markets… That is why the statement made by President Reagan still rings true today: ‘Freedom is always just one generation away from extinction.’

So, we continue to fight for values invented here in the United States over 200 years ago… Specifically, Lithuania is fighting for a market economy in energy. And as I talk with members of Congress and the administration about that idea, I always start by saying: ‘We believe in American values and sometimes we even die for those values.’ But, I’m always thinking: ‘Why should I have to tell Americans that it is American to create a global gas market?’ After all, it’s not very American to restrict the flow of natural resources to the world market…

And, why this is so important to the diplomats is that if America continues to restrict your oil and gas exports, you will only perpetuate the artificial circumstances that allow dictators to further their monopolies and extract exorbitant prices for their energy resources…

Pavilionis: We Count Time by Hours These Days
Now let me turn to practical things… I hear in America: ‘But Žygis, we don’t know how to export LNG to help Lithuania. You don’t have the import facilities.’ Well, that’s true right now, but in three months, on Oct. 27, we will open a beautiful ship called ‘Independence,’ and be the first in the Baltics to have our own LNG import terminal. It can supply Lithuania’s needs and it can also provide supplies to our Baltic friends…

I was touring American companies not long ago with my energy minister and my energy and LNG companies. We were looking for LNG contracts and all we heard was that U. S. LNG is ‘nonexistent’ or ‘it’s in the pipeline, but we must wait for the DOE licenses.’ Of course, we understand all about the LNG export queue and that it will take some time to get gas to Lithuania (2016 at the earliest).

But, you must remember that in our region we count time by hours these days! We need your gas now! We need your visionary, strategic statement now! Even just a statement, just a rumor, that America will build LNG terminals in two, three, or four years, will make a big impact right now.

Pavilionis: Why Not an LNG Export Terminal for Europe?
But, let’s get strategic—and you Americans really are the best at strategy. If you say: ‘You Eastern Europeans don’t have an LNG export terminal focused on your market,’ then I say: ‘So, let’s build one!’ Whenever I go to Pennsylvania and look at all of those beautiful new natural gas wells, I think: ‘One day I would like them to be able to export LNG through the port of Philadelphia to Lithuania.’

And it’s not just Lithuania. Poland will have its own LNG terminal operating in six months and Portugal and Croatia are also moving fast. Finland and Estonia are not far behind. So, don’t worry, there will be a market. The problem is here. The problem is in Washington. And the sooner we solve it the better. Timing matters. We don’t have three or four years! We can cease to exist in three or four years! It’s not theory. It’s not rhetoric. It’s just an unfortunate fact.

McConnell: Two Facts to Keep in Mind
Mr. Ambassador, I have to agree with you. The problem is in Washington and it’s been that way for a while. But there are a couple of facts to keep in mind.

First, America’s natural gas abundance is relatively new. The impact of hydraulic fracturing has absolutely changed the landscape. Less than ten years ago we were totally convinced that America was running out of natural gas. Of course, some companies that bet on that lost their shirts when technology fundamentally transformed the situation. That’s part of the market. That’s part of the bets you make. But, that happened.

Second, the U. S. government isn’t great at ‘doing commerce.’ We tend to focus on policies and platitudes, but companies do commerce. And, they look at commercial transactions to spur investments and come up with long-term business strategies. I might argue that a lot of the LNG import wave that swept through the United States was a little ‘if you build it, they will come,’ and they didn’t come. So, the market over here is still a little sensitive to that.

McConnell: Not Energy ‘Independence’ but ‘Security’
But, Mr. Ambassador, as I look at the situation you described, it is very much a global issue with very large geopolitical implications. Often here in our country—because we’re in this era of new-found oil and gas abundance—we don’t get the same feeling that the rest of the world does in regard to a ‘clear and present danger.’ This isn’t a political game to be played about whether we will export or not. This is all about geopolitical stability for our allies.

And, when I hear people say that we ought to keep our gas here to protect America’s new found ‘energy independence,’ I get concerned. This isn’t about energy independence. It’s about energy security and that means we must have policies in place, and technology, and commerce that enable us to do business with our allies around the world who truly do need the continued support of America.

To get to your point about ‘you need it now,’ it’s unfortunate that we can’t get it to you now. It would be great if we could, but we can’t. It’s going to require investment. It’s going to require commercial transactions. It’s going to require capital to be spent and markets to be created.

McConnell: A Model to Contemplate
Let me give you an example of something that might be a halfway decent roadmap or at least a model that we might want to contemplate…

As heavy crude oil discoveries were made in places such as Venezuela and Canada, those countries needed refineries to handle that heavy, sour crude. America at that time wasn’t in a position to accept those kinds of crudes, even though we had about 20 percent of the world’s refinery capacity. So what the foreign countries did—largely through state-owned enterprises—was to make commercial investments in U. S. refining capacity. Large parts of what we now see along the Houston ship channel were the result of such investments…

What I’m suggesting is that perhaps there is a commercial concept here that would go beyond rhetoric, beyond politicians and platitudes… If we can find the mechanisms for long-term commercial agreements with countries that are in serious need of U. S. natural gas, then the discussion around export licenses for LNG to non-free trade agreement countries will be elevated to whole new level.

The barriers within our own country—be they regulatory or permitting—could be overcome if we have a higher order mission in mind, such as doing commercial work with good strategic partners. We might actually use the government processes to accelerate such an outcome.

Focusing only on the DOE permits is just a small part of the tall stack of activity that’s in front of us. Let’s put commercial agreements into place and help companies make those investments, remembering that the most important thing a company needs for an investment is a customer…

This shouldn’t be just a political conversation. It should be a commercial conversation as well. Even though politics can help channel and catalyze the situation, starting at the beginning with commerce is critical. It’s all about real companies—with real balance sheets—who want to be involved in a global market and when you have that circumstance in place, then you have the essence of a deal.

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