Important (Really!) Congressional Hearing

For six years (many moons ago), I worked for the chair of the Senate Foreign Relations Committee who used to joke that: “Congressional activity is an oxymoron, not unlike ‘military intelligence,’ or ‘cafeteria food.’ ” So, you can understand my reticence about putting the words ‘important’ and ‘hearing’ together in the same headline.

Nonetheless, for those of you who wish to understand more (a lot more) about European energy security, I urge you to watch the important Senate Foreign Relations Committee hearing on that subject that was held on Tues., July 8, webcast by the committee, and archived on their website: Click Here.

For those of you want the summary, read on.

Titled: Renewed Focus on European Energy Security, the hearing was held by the Subcommittee on European Affairs, which is chaired by Sen. Chris Murphy (D-CT). After opening statements by Murphy and ranking member Sen. Ron Johnson (R-WI), two State Department officials provided verbal statements:

  • Mr. Amos Hochstein, Deputy Assistant Secretary for Energy Diplomacy. (Written statement: Click Here)
  • Mr. Hoyt Yee, Deputy Assistant Secretary for European and Eurasian Affairs. (Written statement: Click Here)

Hochstein’s best written line: “Europe must build an interconnected pipeline system that allows gas to flow freely throughout the continent… [and] pursue diversification of sources away from a dependence on a single supplier. I am not suggesting that countries should eliminate Russian imports—that is neither necessary nor reasonable and Russia will and should remain a central player in the region—but introduction of alternative supplies will promote competition (emphasis added) in the energy market. This will ultimately increase energy security while also benefiting consumers.”

Yee: “The Ukraine crisis has demonstrated that security has multiple dimensions. Vulnerabilities can come in many forms: the threat of military intervention; the danger of over-dependence on energy from an unreliable and, at times, hostile neighbor; or the cancer of corruption that weakens institutions and undermines security and sovereignty.”

After the oral statements, Sens. Murphy, Johnson, and Jeanne Shaheen (D-NH) posed questions:

Sen. Murphy: Mr. Yee, for every step forward in Europe there seems to me to be a step backward… a lack of urgency… a lot of talk in Brussels but not a lot of action at the individual state level. Why? Mr. Yee: While there are many different voices, one thing all EU members share is a desire for energy diversification and less dependence on single sources such as Russia. While they might disagree on some of the means and time frames, there is general consensus in this area.

Sen. Johnson: Can you speak about the effects of spot pricing on gas prices? Mr. Hochstein: [European pipeline] gas has traditionally been pretty high but has come down in the past couple of years, partly as a result of the shale gas revolution in the United States and market dynamics around the world. Prices have settled in the $10 to $12 [per mmbtu] range. But, there has also been a lot of fuel switching in Europe, with coal replacing natural gas. So there are many factors…. What Europe really needs is additional interconnections so that there actually is a [continent-wide] integrated market. That will help with price and it will help with stability and security.

Sen. Shaheen: Don’t recent events in Ukraine provide some added impetus for more unified action in the EU? Mr. Hochstein: If you’re a country receiving your gas through Ukraine you’ll have a different perspective than those who, receive their gas from Russia through other pipelines and the level of dependency will change your attitude… However, we think it would be a mistake [for everyone] to not seize the day to come together as a region and cooperate better.

Sen. Murphy: Sen. Markey isn’t here to give us his sermon on what the export of natural gas will do to U.S. prices, so let me ask you this: What are the barriers that would will prevent [U.S. LNG] from ending up in Europe? Mr. Hochstein: At the end of the day [this administration] has granted licenses for over 90 bcm per day in exports and these companies now must build the infrastructure here in the United States so that they can export it… Of course, price plays a big role in this. If you look at the Henry Hub price today, look at where the destination prices are today, and add [the cost of transportation] and regasification, that will often dictate where U.S. gas will end up. I don’t believe it matters, though, where an individual molecule from the United States end ups… The idea is that U.S. gas [can truly help improve global market liquidity].

Following the two government witnesses, the subcommittee heard from four excellent private-sector experts.

  • Edward C. Chow, Senior Fellow, Energy and National Security Program, Center for Strategic and International Studies. Written statement: Click Here.
  • Brenda Shaffer, Professor, Center For Russian, Eurasian and East European Studies, Georgetown. Click Here.
  • Edward Lucas, Senior Fellow, Center for European Policy Analysis. Click Here.
  • Andras Simonyi, Managing Director, Center for Trans-atlantic Relations, John Hopkins. Click Here.

There are far too many excellent passages in these written statements to quote in this report. However, I was particularly struck by these:

Chow: “Europe has not adapted to changes in the global gas market or adapted to new technologies. Its gas markets have been dominated until recently by long-term contracts at fixed volumes with prices indexed to oil. Suppliers have restricted competition and the free flow of gas with destination clauses and control of pipelines. Consequently, Europe does not enjoy gas-on-gas competition the way we do in the United States after the federal government deregulated natural gas in 1978, which incidentally was a major factor enabling our shale gas revolution… [Moreover,] The European gas market is surprisingly complacent about the [Russia / Ukraine] situation. Spot gas prices have dropped significantly and, although gas storage capacity has risen, actual storage is not as high as it could be. The risk of miscalculation is high.”

Shaffer: “A number of measures can improve European natural gas energy security: focusing policies on specific markets in Europe that are at high risk for disruption of security of supply; respecting legitimate Russian commercial demands, such as payment for the gas it has shipped to Ukraine; developing new natural gas sources for Europe, especially the Southern Gas Corridor; identifying organizations that are funded by Russia to undermine European energy security under the guise of promoting environmental protection; preventing European companies from acting as surrogates for Gazprom; halting potential price manipulation at gas sale hubs; requiring that NATO and EU members adopt EU energy security policies; and separating out EU climate change and renewable energy policies.”

Lucas: “We [must] improve the West’s resilience and solidarity in the face of [new geopolitical energy] pressure. American exports of LNG will be a small but welcome addition to the global natural gas market. Lithuania has built its own floating LNG terminal, which will become operational in December of this year…. and [as a result,] Lithuania has been able to negotiate a discount from the extortionate price—the highest in Europe—which [Gazprom] had been charging. As energy editor of The Economist, I am sceptical of the idea that we will ever have a deep and liquid global LNG market: the technology and costs involved hinder the development of the needed supply chain. However at the margins, LNG does make a big difference, blunting the edge of any artificial emergency that [may arise from] supply interruptions.”

Simonyi: It is clearly in the interests of the United States to work as closely as possible with Europe on the future of transatlantic energy and to do what it can to make Europe less energy dependent on Russia, while understanding that Russia will remain a key source of Europe’s energy. Steps by the United States to allow for generous issuing of export licenses to Europe would be important, strategic decisions that would have a long term economic impact, improve supply diversity, and—perhaps equally important—have an immediate political impact… At the same time Europe must be courageous and embrace a common energy strategy that allows for diverse solutions. The European Commission, in its latest recommendation, encourages a radical embrace of the energy mix, not excluding shale or nuclear. The EU must also take further steps to de-ideologize its internal debate, not forcing a choice between a sound energy policy and a sound climate policy, but finding a balance to accommodate both, but with a lot more realism.

Simonyi, former Hungarian ambassador to the United States, also made some pointed remarks in his oral statement about U.S. LNG exports:

“LNG from the United States to Europe would be a strategic message and strengthen the transatlantic relationship and, besides making economic sense, would create jobs on both sides of the Atlantic… Europe needs to support the building of interconnections and port facilities to make sure U.S. LNG becomes an important factor. In this, the U.S. private sector should be actively engaged. We need to use all opportunities to shape a transatlantic energy agenda, including through TTIP—the Transatlantic Trade and Investment Partnership—the forthcoming NATO summit in Wales, and by reinvented U.S.-European dialogue and cooperation on energy.”

The four private-sector presentations begin at one hour and 18 minutes into the webcast. There were a number of interesting questions and responses. If you have the time (and interest), I strongly urge you to watch this portion of the hearing in its entirety.

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