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Tuesday, April 10, 2012


Remarks at The Economist's Investment Energy Summit
Remarks Richard Morningstar
Special Envoy for Eurasian Energy The Economist Conference
Athens, Greece
March 28, 2012
Thank you for inviting me to speak at The Economist’s Investment Energy Summit in Athens. I will jump right into the details, as I know we all want to eat.
Let me just briefly outline our overall policy with respect to Eurasia, and then I'll get into some of the specifics, particularly relating to the Southern Corridor and the Eastern Mediterranean.

First, we encourage the development of new oil and gas resources while at the same time promoting efficiency and conservation in the use of all of our energy resources. Because there is a world market for oil, new production contributes to meeting growing demand anywhere in the world, including in the United States. When we're talking about natural gas in this neighborhood, whether it's the Caspian region, the Mediterranean, Iraq, Russia or Central Asia, it's unlikely that any of that gas is ever going to reach the United States. But it's still important, because it's going to add to the international gas supply. Additional supply in one place naturally frees up supply in another, and as the market for liquefied natural gas continues to grow, we can start to think about gas moving around markets in much the same way oil does. One item that may not be for debate today, but it's going to be interesting looking down the road several years, is whether fixed pipelines become somewhat archaic, given the ultimate development of liquefied natural gas and unconventional gas. I think there will always be fixed pipeline, but there is going to have to be more flexibility in take or pay contracts.

Second, we want to assist Europe in its quest for energy security. One might ask, why does the United States care about European energy security? You are 4,000 miles away. Europe is our partner in any number of different areas. The U.S. and Europe have the world’s largest trade and investment relationship. We have an interest in an economically strong Europe. Europe has a major interest in an economically strong United States. And energy security is a major factor in the economy of any country. And in spite of all the difficulties we're facing in the world today, we can't forget the relationship between energy security and a strong economy.

Of course, Europe is composed of many different states, and energy security is a more pressing issue to some than others. Some countries in Europe do not have a diverse energy mix and depend largely or, even in a few cases, entirely on a single supplier and transport group. So, our aim is to encourage the development of a balanced and diverse energy strategy with multiple energy sources, with multiple routes to market – a competitive, efficient market which offers the best prices for consumers. We say this for all countries. It's not just Europe. It's for the United States; it's for Russia. For example, if Europe wants to diversify its energy supply, Russia should be diversifying its consumers as well.

The third component of our policy is our desire to help Caspian, Central Asian and Middle Eastern - and Eastern Mediterranean - countries find new routes to market for their hydrocarbons. We want to help foster economic growth and prosperity in all of these countries. By expanding export routes, they can increase competition for their resources, demand a fair price and create strong links to the global economy. And most of all, I think maybe the most important part of this prong of our strategy is that we are not in a zero-sum game with Russia. We only care that these countries should be able to make their own choices as to how they deal with their energy resources.

While by no means our only interest, the Southern Corridor is a key component of our Eurasian Energy policy. The Obama administration strongly supports the establishment of the Southern Corridor to bring natural gas to Europe via Turkey from the Caspian and potentially other sources beyond Europe's southeastern frontiers. Gas from Azerbaijan's Shah Deniz (SD) field represents the first significant volumes available to supply the Southern Corridor. Development of the second phase of Shah Deniz is well under way. The Shah Deniz consortium recently narrowed the field to three potential pipelines a scalable Nabucco, SEEP, and TAP. Nabucco West is a modified version of the Nabucco project which would be built to accommodate the current gas production realities of SD II, while also having the capabilities to expand when more gas becomes available in the future. TAP would bring Caspian gas through Greece, Albania, and Italy via the Adriatic Sea. They're all vying for the right to ship Shah Deniz gas into the EU. I recognize that there are issues. BP has also suggested the SEEP pipeline, which stands for Southeastern Europe Pipeline. This possibility would provide for a capillary approach, combining existing pipelines and new construction, throughout the Balkans and Eastern Europe.

We support the Southern Corridor, which will consist of one or more pipeline projects that are commercially viable and strategically significant. A full Nabucco would be a highly desirable political and strategic option, but as with any pipeline it must be able to demonstrate commercial viability. There will ultimately be large amounts of gas to ship through Azerbaijan, Georgia, and Turkey to Europe. We support any pipeline through the Southern Corridor that provides gas to the most vulnerable countries in Europe and that includes concrete, written guarantees that the pipeline will be expanded as more gas becomes available. Additional gas will become available; it's just a question of when. If TAP is ultimately selected, it is generally accepted that it would have to be done in conjunction with an interconnector to SE Europe.

I would like to make one more point regarding Europe. The most important thing that Europe can do – more so than any pipeline or any single gas field - is what Europe does itself with respect to liberalizing its market, with respect to creating interconnectors between countries, by looking at alternative sources of energy, whether it be shale or renewables, by taking advantage of opportunities to improve energy efficiency, by increasing LNG facilities, by increasing storage facilities, doing all the things that are necessary for Europe to have its own balanced and diverse energy policy.

Moving beyond the Southern Corridor, recent, large finds in the Eastern Mediterranean are very important, new components for diversification and energy security for countries in the region and elsewhere in Europe. These developments are complementary to the Southern Corridor. With these valuable finds come some serious political considerations and risks, as well as a variety of legal issues. Yet, at the same time, there is much to gain for all stakeholders.

As to Cyprus, as we have repeatedly said, the United States recognizes Cyprus’ right to drill in its offshore zone. We also believe American companies bring unparalleled world-class experience in offshore exploration, and we support their bids to do work in this region, as we do in other regions. As we have also said, we believe that any potential revenue from future oil and gas resources in Cyprus should be equitably shared between both communities. Our key message to both the Republic of Cyprus and Turkey reflects our long-standing policy, which is to support the Cypriot-led efforts under UN auspices to reunify the island into a bizonal, bicommunal federation and encouraging the two sides to come to a peaceful settlement - this issue could help us get there. This would allow all of Cyprus and other countries to share in the benefits of the Eastern Mediterranean.

In addition, Israel’s significant offshore natural gas finds, including the Tamar Leviathan field – one of the largest offshore gas finds of the past decade – have put Israel on the hydrocarbon map and initiated significant changes in Israel’s energy economy and investment and energy policies. The gas will significantly enhance Israel’s energy security, and Israel is presently examining export potential, including LNG.

Greece also is working to identify potential hydrocarbons for exploitation. The Greek government has announced tenders for seismic studies and hydrocarbon exploration onshore, in the Ionian Sea, and south of the island of Crete.

Having said all of this – the issues in the Eastern Mediterranean go beyond Cyprus, go beyond Israel, and affect the whole region. There are a myriad of legal issues, including law of the sea questions, and political issues that will have to be resolved. At the risk of oversimplifying, I would make the following conclusions. Gas in the Eastern Mediterranean is a good thing. It helps to create diversification and helps Europe, but most of all it helps the region. All countries from Egypt and all the way around the Mediterranean to Turkey and Greece will benefit. There are multiple pots of gold in the Eastern Mediterranean. If equitable solutions are found, all will gain. If not, nobody will reap the full benefits. Voices should be kept low; the parties involved should look reasonably at their interests and talk to each other so that solution can be found and all can benefit.
Thank you.