SPECIAL BRIEFING ON INTERNATIONAL ENERGY AFFAIRS

FROM;  U.S. DEPARTMENT OF STATE
Joint Coordinating Committee on Energy
Special Briefing Carlos Pascual
Special Envoy and Coordinator for International Energy Affairs Iraqi Deputy Prime Minister Hussain Al Shahristani and Deputy Secretary of Energy Daniel Poneman,
Washington, DC
April 23, 2012

MR. TONER: Good afternoon, everyone. Welcome to the State Department. As you know, today, Monday, April 23rd, the United States and the Government of Iraq held the inaugural meeting of the Joint Coordinating Committee on Energy at the Department of Energy. And here to talk about that meeting and some of the issues raised there, we have the Iraqi Deputy Prime Minister for Energy Dr. Hussain Al Shahristani, as well as our Special Envoy and Coordinator for International Energy Affairs Ambassador Carlos Pascual, and of course Deputy Secretary of the Department of Energy Dan Poneman.
So without further ado, I’ll let Ambassador Pascual take the mike.

AMBASSADOR PASCUAL: Thank you. Good afternoon. It’s a pleasure to see you, and on behalf of the State Department and the Department of Energy, let me introduce you to the Joint Coordinating Committee on Energy. It’s reflective of the relationship between the United States and Iraq and how it has evolved and how we have established mechanisms to be able to work on issues that are critical to both countries, and energy is obviously one of those. It’s fundamental to Iraq’s economic future. It’s fundamental to its ability to generate power for its own people. It’s fundamental to its ability – to Iraq’s ability to supply international markets. And in that context, it’s of direct interest to the United States.

We have been working together on how to support Iraq’s efforts to increase its oil production, and indeed, Iraq, through its efforts, has reached a level of about 3 million barrels a day in production. Last year, the average was about 2.7 million barrels a day, and the year before that it was about 2.4 million barrels a day, reflective of a consistent increase over time. And hence, one of the issues we discussed was how to sustain that progress. One of the issues that Deputy Prime Minister Shahristani focused particular attention on was the importance of turning Iraq’s energy resources into the benefit for the Iraqi people, and in that sense, the importance of electricity generation. And so we reviewed how to continue to work together on increasing electricity availability internally with Iraq.

Our commitment to this Joint Coordinating Committee is a reflection of the all-of-government approach that we have taken. The Department of Energy and the Department of State have been chairing it together, but we have included participants from a range of other agencies, including the Department of Treasury, the Department of Commerce, and some of our security agencies looking at Iraq’s energy infrastructure. And through this kind of ongoing mechanism, our intent is to be able to reinforce in a consistent, steady way, the development of Iraq’s hydrocarbon resources, electricity resources for its people, the environment for international companies to be able to invest, and through that, the United States will benefit as well.

So with that, let me ask my colleague, the deputy secretary of Energy, who has played an absolutely leadership role in the establishment of this Joint Coordinating Committee and a leadership role within our government on energy issues, Don Poneman, to say a few words.

DEPUTY SECRETARY PONEMAN: Thank you. Thank you, Ambassador. This is a historic moment. It’s a pivotal moment in the transition of the relationship between the United States and Iraq, rooted in the 2008 Strategic Framework Agreement. We now see, as we have been working for many years in the energy sector, that sector move front and center. As many of us joined Vice President Biden last December when we witnessed the transition from a military-dominated relationship into, much more formally, a civilian-driven relationship, we’ve been working hard to expand on the cooperation that Ambassador Pascual has just outlined.

The areas of cooperation are wide. The opportunities that we have discussed and that we have identified are vast. And we have reached a strong convergence of view with our Iraqi partners on a path forward. Clearly, it’s centered in the oil and gas sector, as you heard Ambassador Pascual note. There have been impressive gains in Iraqi oil production in recent years, and those gains look set to continue. We have been working hard also in the area of electricity – not only power generation, but discussing such widespread issues as demand-side management, energy efficiency, and even the possibility of developing renewable energy resources in Iraq.

We have also, with, I think, great enthusiasm on both sides, talked about the importance of critical infrastructure protection. And our Iraqi colleagues will have a chance further to discuss this as they make their way around the U.S. and talk to other experts in this area. In this connection, I would like to note that as the next stage of this cooperation, I’m delighted to join Deputy Prime Minister Shahristani, and we will be visiting Lawrence Livermore National Laboratory, where we’ll be able to continue not only discussions about critical infrastructures, but also on some of the exciting new energy technologies that have so much promise for us all.

As Ambassador Pascual said, none of this would be possible without tremendous cooperation from the other agencies and the leadership of the President, the Vice President, or the Secretary of State, who have been very, very clear with us on the importance that they attach to the burgeoning energy relationship between the United States and Iraq. It’s an area not only of great opportunity, but in which we have a very clear convergence of interest, and, as we agreed in our very extensive discussions for the first part of today, we have a very clear sense on both sides and mutually what work we have before us, and I think we’re all very enthusiastic to embrace that work program.
And with that, I’d like to not only thank our State Department hosts and Ambassador Pascual, who’s also been absolutely essential in this effort, but also turn the floor over to our esteemed colleague and good friend, Deputy Prime Minister Shahristani.

DEPUTY PRIME MINISTER SHAHRISTANI: Well, thank you, and thank you for coming. Iraq is called upon to cater for the world energy needs in the coming years, and it is expected that the world will need more energy, more hydrocarbon energy, in the coming two to three decades, and Iraq is uniquely positioned to be able to provide the world with its incremental energy needs. That’s why we have invited the international oil companies to work with us to develop the Iraqi resources, and the work has started based on the contracts where they signed two years ago. And the production is already increasing, and so are our exports.
We have developed infrastructure to enable us to handle more exports to the world market. As we speak, Iraq is producing more than 3 million barrels per day of crude oil, but we expect in the coming six years to be able to increase that capacity of production to more than 10 million barrels per day. This is to assure the world market that there is sufficient crude for them. We’d like Iraq to be considered as a dependable long-term supplier of world energy needs, whether oil or gas, and there should not be concerns of shortages in the supply in the near future.

We are extremely happy with our cooperation with the United States, not only to develop our energy resources but the general Strategic Framework Agreement in a number of areas. The United States have stood beside the Iraqi people to help them free from a dictatorship, build a democracy, rebuild the country. And as we are moving into a more strategic cooperation in civil areas, we consider the energy sector as one of the most important sectors where the two countries can cooperate not only to develop and unleash Iraq’s potentials in the short term, but also to look further forward to develop other sources of energy that – alternative sources of energy in Iraq.

Gas is – also is a very important resource that many countries in the region and also in Europe are looking towards Iraq to be able to provide them with some of their needs. Iraq is very much interested to be a partner and a supplier of gas to not only our Arab neighbors but also to the European countries and the world at large. We have also discussed cooperation in protecting the Iraqi energy infrastructure, whether on shore or offshore. This area of cooperation is also extremely important. And we look forward to further cooperation in other areas.

We also had a chance to meet with some American companies who are interested and looking to investment opportunities in Iraq. We welcome them and assure them that Iraq, with its new policies of – and investment incentives, is most welcoming to international companies, specifically to the American companies and come – to come and work not only in the energy sector but in all other sectors – in the financial sector, in the telecommunications sector, in the reconstruction, housing, and so on. There’s a great potential over the coming years to work in Iraq, and we hope that this cooperation and the success that we have already had with the oil companies to develop our fields would be incentive to the other companies to come and join us in rebuilding Iraq.
Thank you.

MR. TONER: Thank you. We have time for a few questions, just if you could give your name and media affiliation.
Go ahead, Andy.

QUESTION: Andy Quinn from Reuters. I’d like to address, actually, all three of you if I may, and ask if, during your discussions, if the situation with Kurdistan and Exxon came up, what the current state of play is with that particular issue. And specifically to the deputy prime minister, was Exxon’s decision to freeze its contacts with the KRG enough to get it back on the list of prequalified companies for the next round?

DEPUTY PRIME MINISTER SHAHRISTANI: Well, Exxon, being the largest oil company in the world, have been among the first companies to sign a contract and work on developing one of the largest super-giant fields in the south of Iraq. They are continue their work, and the progress of work has been so far totally good, according to plan. And they are – we are discussing with them the concerns that were raised in Iraq when a contract was signed with the KRG. You asked if that letter, commitment that they will freeze things as they are is – are sufficient. The answer is yes. And we are working with the KRG – try to develop a framework to enable all companies to be able to work in Iraq.

DEPUTY SECRETARY PONEMAN: I would just add, since you directed it to us as well, we maintain, of course, a continuing dialogue with all U.S. companies doing business around the world. And that having been said, on the particular matters before – between a company and a government, we don’t get in the middle of that discussion. Our role as a government is to work with the other government to encourage any issues that may be involving sovereigns to be resolved in a manner that’s clear and transparent, and that any due process that is required for U.S. companies be offered in the same spirit of due process that we call for companies all across the world. It was not specifically a part of our JCC agenda.

MR. TONER: Yeah. Go ahead, Michel.

QUESTION: Yeah. How will the lack of a comprehensive oil agreement between Iraqis affect the cooperation between the U.S. and the Iraqis? I don’t know what kind of –

AMBASSADOR PASCUAL: Well, I think, first of all, one of the things which the Iraqi side has been consistently working on is to try to find a mechanism to create a hydrocarbons law and reach consensus internally within the country so that everybody has clear rules of the road.

In the meantime, throughout most of the country, mechanisms have been put in place that have allowed companies to be able to make investments and to begin production. We’ve seen that in the south with the significant production increases that have already occurred. We’ve seen the potential for it in the northern parts of the country, including the Kurdish region.

There have been disputes, and the Iraqi Government has been very clear about that. We’ve heard about it from both the KRG and from the Iraqi side. And the critical issue that we’ve been trying to play – to work on from the perspective of the United States Government is to play any kind of facilitating role, either from technical advice or any other matter, that could be helpful or useful to the parties. But in the end, it has to be fundamentally an issue that the Iraqi parties decide.

In the meantime, there is still tremendous potential and opportunity for the development of energy resources within Iraq, and we have seen that consistently over the past few years. And even as we speak right now, new investments have been put online that are allowing for additional export production capacity, including a single-point mooring mechanism, a second one which has just been opened up and which a ship is, in fact, actually being loaded.

So we look forward to the continued increase of production and export out of Iraq, but at the same time, we are encouraging all of the parties to do everything that they can so that they have clear rules of the road going into the future on how they are able to further develop their hydrocarbons resources.

MR. TONER: Minister, go ahead.

DEPUTY PRIME MINISTER SHAHRISTANI: Yeah, I’ll just add to that. Sorry, I’ll just add to that. Of course, to have a hydrocarbon law, legislation that clears all the issues is important, and the Iraqi Government is pushing for the legislation of such a law. However, this has not deterred the oil companies to come and sign contracts and to start working in the country. They have already succeeded to increase production and to increase exports. And we are trying, with the oil companies that have signed contracts with us, our best to increase Iraq’s production to a significantly higher level than what we are producing right now. Until the new hydrocarbon law is legislated, the prevailing laws in Iraq that have been regulating the energy sector with – the oil sector or electricity – are enforced till they are changed by a new legislation.

AMABASSADOR PASCUAL: Go ahead.

QUESTION: Dr. Shahristani, Dave Ivanovich with Argus Media. I believe you said – you had mentioned 10 million barrels a day within six years. Now I also – if I understand it right, you’ve also talked about reducing your output target – your output capacity target for 2017. So is the 10 million barrels a day the new target that you were contemplating?

DEPUTY PRIME MINISTER SHAHRISTANI: We have engaged the IOCs who are developing these fields to put a production plan based on best reservoir practices to increase the recoverable oil from these fields. We have also engaged international consultants to advise us on what are the best production targets for Iraq. And we are revising the recommendations that – we are reviewing the recommendations that have been made, and before the end of the year, Iraq will make a decision and announce it as what are the targets for the coming years. But the figure that I mentioned, about 10 million barrels a day, this is a revised figure. The contracts that have already been signed, the 12 contracts for the 12 oil fields and the three gas fields, the total plateau of these contracts is about 12 million barrels per day.

MR. TONER: I think there’s time for a couple more questions. Any other questions? Go ahead, Andy.

QUESTION: Okay. I’ve actually got one for the American participants. It’s not explicitly on Iraq, but I’m wondering if you could talk a little bit about whether or not the current falling energy prices make it more likely the strategic preserves might be tapped. And do you feel that the Iran sanctions alone make that – are enough to justify tapping the SAR, or would an additional market disruption be necessary?

DEPUTY SECRETARY PONEMAN: The President has been very clear about this. First of all, in reference to the prices, I think everyone who is – including me – who has been to the gas pump understands the pain all Americans are feeling. And it’s hurting families and it’s hurting companies, and we are very focused on the current high state of energy prices, and they are too high. We have been watching closely, daily the energy markets for disruptions. We have, as the President has made clear, kept every tool available to us in a state that they can be used. And we are continually consulting with our international partners on this.

We are looking at the whole cluster of factors that contribute to this – the production that has fallen off the market, the demands in the market, both pro and con – and we’re going to keep monitoring those issues. It will not be any single issue. The President has also been clear that the regional tensions that are related to Iran’s noncompliance are unsettling markets, and in that respect the best thing for Iran to do would be to return to full compliance with their international obligations.

MR. TONER: Last question, in the back.

QUESTION: Jim Michaels, USA Today. Dr. Shahristani, a question about power generation, electricity. Clearly demand is continuing to go up, but I’m wondering if you have some projections at when you anticipate supply will be able to meet demand or close to meeting demand.

DEPUTY PRIME MINISTER SHAHRISTANI: We have already signed contracts to build new power stations with a total capacity of 15 gigawatts. The construction is actually going on. Some of these new power stations will be ready this year, some of them during the summer and others before the end of the year. And all this new power generation we expect to be connected to the grid before the end of next year. So by then, we should have enough generating capacity. The 15,000 in addition to the about 9,000 we have this year should meet all the demand, including the anticipated increase for the coming – for this year and the coming year.

And our plans is to build additional plants with a total generating capacity of 30 gigawatts in the coming four to five years. And most of these units are based on gas turbines that have already been purchased and are being constructed now. Our second phase will be to convert them into combined cycles that can add another 50 percent to the generating capacity. So these are our projections for power generation. Our projection for the increase in demand is about one gigawatt per year. So we should have sufficient spare capacity when these new power stations are completed.

MR. TONER: Thank you. Thanks to all of you for coming. Thanks.