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U.S. Uniquely Positioned To Lead International Energy Dialogue

State Department official reviews U.S. energy engagement worldwide

26 March 2007

U.S. Department of State
Daniel S. Sullivan, Assistant Secretary for the Bureau of Economic, Energy and Business Affairs
Address to Energy Council's Federal Energy & Environmental Matters Conference
Meeting Jointly with Interstate Oil and Gas Compact Commission (IOGCC) and
Leadership of Pacific Northwest Economic Region (PNWER)
Madison Hotel and Conference Center, Washington, D.C.
March 9, 2007 - 1:00 p.m.

Energy and U.S. Foreign Policy: Security Through Diplomacy

It is a pleasure to be with you here today. I am particularly glad to see fellow Alaskans here in the Alaska delegation. For those of you who do not know me, I have called Alaska home since I realized they don’t have a state income tax, and it is so much nicer than Cleveland. My wife, who was born in Alaska, and I have had the pleasure of living and working in Alaska for many years. It is a great state with a solid future as it will no doubt continue to be a major energy supplier to the rest of the country.

I very much appreciate the Energy Council’s invitation to speak on the United States’ energy foreign policy. The Department of State appreciates the work of the Energy Council and its hosting legislators from around the world. International engagement on such energy issues is not only critical to U.S. energy security, but to every nation’s energy security. The U.S. holds the view that energy security is not a zero-sum game. Indeed, no nation’s energy security can be had at the expense of any other nations -- we’re all in this together. The State Department has recognized this. Last year my title and focus were changed to reflect the greater importance that energy issues play in U.S. foreign policy. We have expanded our energy policy staff and the Secretary has appointed an International Energy Coordinator to assist in energy policy formulation. Today I will provide an overview of our energy policy goals, discuss the foreign policy issues that impact those goals, and describe what State Department is doing to achieve our international energy goals.

Before I do so, however, I’d like to highlight briefly the broader economic policy successes of this Administration, a record that too often goes unmentioned and unappreciated.

Promoting free trade has been a top priority for this Administration. Free trade is a fundamental building block of broader economic and political freedoms for which generations of Americans have sacrificed so much. We have played, and continue to play, a vital leadership role in the Doha Round. When the President took office in 2001, the United States had Free Trade Agreements with only three countries; we now have 13 FTAs, with more on the way. Although the FTA countries account for only 7.3% of the world’s GDP, exports to these countries comprise 42.5% of total U.S. exports.

The U.S. has also dramatically enhanced effectiveness of development assistance programs through Millennium Challenge Account and the Millennium Challenge Corporation, or MCA and MCC. This approach offers a new model to provide foreign aid to developing countries that agree to three criteria: ruling justly, investing in their people, and encouraging economic freedom -– criteria that have revolutionized the way people think about development assistance. In its first 3 years, MCC has selected 26 countries and signed 11 compacts totaling nearly $3 billion in aid. Our overall assistance of $27.6 billion in 2005 made us world’s largest donor nation -- at March 2002 UN conference held in Monterrey, Mexico, U.S. pledged to increase foreign assistance by 50 percent over 2000 levels by 2006 -- I am proud to say we met that pledge three years early and were at 270% of 2000 levels by 2005.

On health care, President Bush has provided record support to fighting pandemic and infectious diseases that ravage communities and undermine economic development. His Emergency Plan for AIDS Relief (PEPFAR) -– is the largest international health initiative dedicated to a single disease in history -- a generous, unique effort to support AIDS-fighting strategies of 15 heavily-afflicted countries in Africa, Asia and the Caribbean. PEPFAR commits $15 billion over five years to support treatment for 2 million people, prevention for 7 million, and care for 10 million.

On governance and transparency, we have lead multinational efforts to combat the two most persistent obstacles to economic growth faced by emerging economies –- corruption and bribery. The UN, G-8, OECD, Organization of American States, and other multilateral institutions stand beside us in this fight. The President reinforced our commitment by announcing a National Strategy to Internationalize Efforts against Kleptocracy -– that provides a framework to deter, prevent, and address high-level, public corruption by identifying critical tools to detect/prosecute corrupt officials around the world.

We have championed the right to freedom of expression worldwide. The Internet has become a lightning rod for repressive governments trying to restrict the free flow of information and ideas. We are determined to minimize success of repressive regimes in censoring information and silencing legitimate debate on the internet. The Administration is so engaged in vigorous efforts to advance global Internet freedom that Secretary of State Rice has made Internet freedom a priority, establishing an internal task force that draws on State Department’s expertise in many areas, including international communications policy, human rights, democracy, business advocacy, and corporate responsibility.

The United States is leading international efforts to shut down terrorist finance networks. We have encouraged countries to freeze terrorist assets when they are found, have developed new initiatives to strengthen cooperation against terrorist finance, and have supported efforts to provide technical assistance to foreign governments working against terrorist finance.

Finally, by guiding our strong domestic economy with a steady hand, President Bush has enabled America to contribute greatly to a strong international economy.

As President Clinton’s former Treasury Secretary Larry Summers recently noted, “the world economy in aggregate grew more during the past 5 years than in any 5-year period since the second World War. Growth is not merely strong. It is also widely shared. In 2006, according to the World Bank, economies of high-income countries probably grew by 3.1%, with the U.S. achieving 3.2%, Japan 2.9% and even the sluggish Eurozone 2.4%. Meanwhile, economies of developing countries, led by the rising giants, China and India, expanded by 7%, after 6.6% in 2005 and 7.2% in 2004.”

We are determined to see the same kind of success in our international energy policy as we have seen in the areas I have just mentioned.

Objectives

During his State of the Union address last January, President Bush announced an ambitious plan to strengthen America’s energy security. President Bush laid out a plan that builds energy security by promoting diversity of both the types and sources of our energy. The President presented a powerful vision for energy freedom that begins at home, with actions the United States must take domestically. This vision also guides our international energy policy, and we invite our Allies and partners to join us to advance their own energy security and the world’s.

The first two parts of the President’s plan are (1) diversity of energy sources and (2) wise management of energy demand. A way forward for both is through new technology. A centerpiece of the President’s plan is to reduce America’s gasoline usage by 20 percent in 10 years. To achieve this, the United States needs to diversify the fuels we use to power our cars and trucks by increasing the use of renewable biofuel, like ethanol, and use energy more wisely by setting high standards for automotive efficiency.

The third and fourth parts of the President’s plan for energy security will reduce, over time, our nation’s oil import dependency. The plan calls for (3) doubling the size of our strategic petroleum reserves and (4) stepping-up our production of domestic oil supply in environmentally sensitive ways.

America’s energy security strategy does not stop at our border. In fact, energy security concerns are deeply incorporated into our foreign policy.

The international energy security strategy of the United States promotes abroad the President’s vision for energy security at home. We support (1) greater diversity of energy sources, like alternative fuels and clean coal, (2) the wise use of energy through efficiency and conservation, (3) a diversity of secure and reliable energy supply routes, and (4) a diversity of energy suppliers working in an open and transparent energy marketplace. These energy security objectives are far reaching and ambitious, especially when considered against our short term goal of maintaining global oil and natural gas production levels. Although there are many challenges to overcome in the course of attaining them, we are making progress.

Challenges

The world community faces an unprecedented set of challenges in global energy: tight global supply and demand balances; geopolitical challenges in major oil production centers; galloping global economic growth driving energy use, and our shared concern over the global environment. Many of the world’s major oil producing regions are also locations of geopolitical tension, and possibilities exist of unexpected supply disruptions. Instability in producing countries is the biggest challenge we face, and it adds a significant premium to world oil prices. Concurrently, we are faced with the rise of resource nationalism, where consumer countries attempt to “lock-up” upstream assets in the pursuit of a false notion of energy security, and where producer countries reject much needed foreign investment and expertise in the face of declining production levels.

U.S. oil and gas companies are facing increasing difficulties in securing foreign reserves. Roughly two thirds of the world’s oil and gas reserves are in countries that provide limited access or are completely closed to foreign investment. National Oil companies own about 50 percent of the world’s proven oil reserves. And we are seeing increasing instances of manipulation of hydrocarbons in countries with large resource bases, including: further limiting access to resources for commercialization; renegotiating contracts or even outright expropriation of assets, renationalizing assets, cutting off supply, subsidizing petroleum products, and engaging in discussions about new collective efforts to control energy supplies.

Left unaddressed, these energy challenges threaten to reduce not only America’s energy security, but that of all consumer nations. But with the Congress, the private sector, America’s pioneering technological mindset, and our international partners, we can meet these challenges.

The State Department’s jurisdiction in energy policy begins at the water’s edge, but it is very much forged by America’s own energy strengths and challenges. We represent a nation that is both a large energy consumer and a large energy producer. The U.S. is the king of coal, corn, and now ethanol. As important, we are the world’s leading technological innovator. These are all experiences that we draw from in forging our energy diplomacy. And this means the United States Government is uniquely positioned to lead the dialogue between energy producing and consuming nations, and to lead the way on biofuels -- and we are leading.

Strategies

Our strategy employs every tool at our disposal: diplomatic engagements, including bilateral and regional activities with allies, producers, consumers, and NGOs. The U.S. leads and actively participates in multinational institutions, like the International Energy Agency (IEA), conducts energy-focused foreign assistance programs aimed to reduce energy poverty, and holds public-private dialogues to promote energy investment and innovative commercial activity.

Western Hemisphere: In the Western Hemisphere, the State Department is using diplomacy to advance our shared goal of energy diversity with consumer nations. The U.S. and Brazil are considering a memorandum of understanding (MOU) to advance cooperation on biofuels in the Western Hemisphere. The MOU would call for the United States and Brazil, the two largest producers of ethanol in the world, to cooperate on the development and deployment of biofuels through a three-pronged approach. Bilaterally, the United States and Brazil would advance the research and development of next generation biofuels technology. Regionally, the two countries would work jointly to promote domestic biofuels industries for local consumption in third countries through feasibility studies and technical assistance aimed at stimulating private sector investment. Finally, the United States and Brazil plan to work together multilaterally through the International Biofuels Forum (IBF), announced on March 2, and complementary international fora, such as the G8-endorsed Global Bio-Energy Partnership, to advance the global development of biofuels. We both want to drive the expansion of this fuel around the world, to make sure there are unified global standards for third country trade in ethanol, and to assure that biofuels penetrate new markets abroad. To be sure, however, our engagement of Brazil does not include discussion of our tariff.

Also in this hemisphere, the United States will step-up its support in kind for Mexico’s bold Mesoamerica Initiative, which seeks to improve Central American energy integration and efficiency. Sometimes we can overlook our closest friends, and the public does not fully appreciate that our largest energy supplier is not in the Persian Gulf, but in North America. So thank you to Deputy Minister McFadyen for your country’s and province’s historic energy partnership, in which we both benefit from unified, interconnected oil, natural gas and electricity networks. As we all know Canada’s oil sands are a huge success story for the North American energy market, and I might add that the technology used in its production may be able to unlock potential U.S. oil sands and oil shale reserves. I am proud to be a part of this effort. My bureau has the responsibility of issuing Presidential Permits for trans-border petroleum pipelines. We are currently adjudicating an application for a major crude oil pipeline that will run from North Dakota through South Dakota, Nebraska, Kansas, Oklahoma, Missouri and Illinois, with terminals in Cushing, Oklahoma and Patoka, Illinois. Additionally we anticipate several more applications this spring for other pipelines to carry oil sands crude from Alberta to the U.S. market. All told these projects should increase pipeline capacity from Alberta by almost 1 million barrels per day by 2009. This extra capacity will easily handle the projected increases in oil sands output and significantly enhance U.S. energy security by accommodating our projected increase in demand and help make up for lost production in some of our other suppliers.

On natural gas there are several proposed LNG terminals in the U.S. and some in Canada and Mexico designed to serve the U.S. market. Of course we do have significant reserves of natural gas in the U.S. particularly in Alaska. The Department of State will play a role in bringing North Slope gas to the lower 48 markets. In February of last year, we in concert with other federal agencies worked out an M.O.U. that establishes a framework for cooperation among participating federal agencies with responsibilities related to the approval of an Alaska natural gas transportation project. It requires each agency to prepare and to submit an implementation plan, to coordinate with FERC, to share data and to maintain coordination with other agencies in connection with the project. The Department would negotiate any side letters/agreements with the Government of Canada concerning Alaska natural gas transportation projects, including the negotiation of new agreements or any modifications to existing agreements.

This effort is in keeping with our larger work to actively promote greater energy integration and facilitate cross border energy trade with two of our four largest oil suppliers, Canada and Mexico. We are also doing so trilaterally through the North American Energy Working Group, which is part of our broader Security and Prosperity Partnership we have with Canada and Mexico. We also have an annual strategic dialogue bilaterally with Canada called the Energy Consultative Mechanism. Its purpose is to explore how our two governments can enhance and facilitate the largest cross border energy relationship in the world.

Asia-Pacific: Beyond our hemisphere, global energy markets are being shaped and strained by unprecedented economic growth in Asia. Natural gas, oil and coal demand are expected to rise faster in East and South Asia than in any other region in the world. If the forecast growth rate of 3.0% annually is maintained, oil demand in the region will roughly double by 2025.

In response, the U.S. has championed the Asia Pacific Partnership on Clean Development and Climate, where we are joining Australia, China, Japan, Korea, and India to focus on voluntary and practical measures to create new investment opportunities, build local capacity, and remove barriers to the introduction of clean, more efficient technologies. We are also actively involved with 20 other countries in the Asia Pacific Economic Cooperation (APEC). The APEC Energy Working Group seeks to maximize the energy sector’s contribution to the Asia Pacific regions economic and social well being, while mitigating the environmental effects of energy supply and use.

On the demand side, China and India’s increasing demand for energy is already fueling tension within the region as countries compete to secure direct access to stable supply sources. The choices these countries make in terms of their energy mix will very much determine the energy and environmental future of the planet.

We are deeply engaged in a formal Strategic Economic Dialogue with China -- and are in broader energy dialogues with China and India. The U.S. government has eleven different cooperative mechanism that include China, all aimed at encouraging the adoption of market-friendly energy policies, the rapid uptake of clean energy technologies, and a responsible approach to the development of upstream oil resources. The main thrust of these talks is to encourage China and other emerging consumers to recognize that they are now stakeholders in the system, not apart from it, and unilateral efforts to guarantee energy security, like buying into upstream oil assets, are ultimately self-defeating.

China is our major focus when it comes to outreach to consumer nations. China is the second largest energy consumer and its demand, as we have seen, can significantly affect world prices. According to the IEA it will overtake the U.S. in carbon emissions this year if not the next. Both these aspects of China will profoundly and negatively impact the world’s energy security and environment if current trends continue.

Our outreach with consumer nations like China is producing results and influencing those nations in ways that we believe will change current trends for the better. One excellent demonstration of consumer nations coming together to address joint energy challenges is China’s initiative for a five-party energy ministerial that brought together China, India, Japan, Korea and the United States in Beijing last December. We discussed the joint challenges of energy security, strategic stocks, clean energy technologies, alternative fuels, and energy efficiency. A second demonstration is the new outreach program at the International Energy Agency, which has been designed to draw China and India, in particular, into a more active role in the market-based partnership that has characterized OECD energy policymaking for the past three decades.

Eurasia: Energy security was a cornerstone of last year’s G8 meeting, and we worked with our partners to secure a comprehensive text that reflected both the challenges and opportunities that confront G8 countries, including Russia and its own emergence as an energy power. Our challenge is to draw Russia into a shared set of principles and follow on actions with G-8 colleagues that will allow it to live up to its promise as a global energy leader and reliable energy partner.

Our Eurasian energy policy focuses on encouraging energy production, promoting competition, diversifying energy sources, supplies and markets, promoting energy efficiency, and developing advanced technologies. We were pleased to see the culmination of years of bipartisan U.S. diplomacy, and Congressional support, at the ribbon cutting for the Baku-Tiblisi-Ceyan pipeline last year, which is providing landlocked Caspian states an outlet to world markets for their crude, and which denies regional powers a veto on these states’ economic destiny.

The U.S. government is also working toward intensifying its engagement with officials from Russia’s neighbors and Europe to encourage development of commercially viable pipeline routes to transport Central Asian gas to Europe and other markets. We recognize that these efforts must complement and not undermine our ongoing dialogue with Russia about its neighbors.

We are also engaged in a high-level dialogue on climate change, clean energy, and sustainable development with the EU. This dialogue advances the 2005 G8 Gleneagles Plan of Action for Climate Change, Clean Energy, and Sustainable Development, and is guided by the ultimate objective of the UN Framework Convention on Climate Change. On energy efficiency, the U.S. is exploring the possibility of expanding the U.S./EU agreement on Energy Star to include other globally traded products such as consumer electronics, and we are working to identify other cooperative efforts in energy conservation in buildings and housing. We also have an Energy Security Cooperation Dialogue with the EU aimed at efforts to develop new Caspian/Central Asian gas supplies, and explore options for Ukraine to boost energy efficiency and improve energy infrastructure.

In fact, I recently returned from and extensive trip through Central Asia and Europe where I met with private sector and energy officials to promote our policy goals. [Insert personal observations here]

Africa: A growing source of our energy inputs, the nations of sub-Saharan Africa now supply the United States with approximately 18 percent of our annual crude oil imports. Production from sub-Saharan Africa has the potential to reach 7 million barrels per day by 2010. However, oil production in Africa has been shut-in at times due to ongoing instability. Often this instability occurs when inhabitants of a resource-rich region believe that the riches generated by the country’s oil industry have eluded them due to the corruption and incompetence of government officials. Our engagement with our African neighbors includes developmental assistance, promoting democracy and supporting economic growth.

Our engagement with African producers also works to ensure that the benefits of oil and gas development are managed in a transparent manner by supporting and participating in the Extractive Industries Transparency Initiative (EITI). EITI is a UK initiative launched in 2002. The U.S. supports EITI as one policy tool in our comprehensive anticorruption/transparency kit set forth in the G8 Evian and Sea Island anticorruption and transparency initiatives. The EITI is a voluntary initiative that helps both resource-rich countries and extractive industries help themselves. EITI is based on the theory that when countries fully publish and verify both company payments and government revenues from natural resources then corruption and civil conflict are reduced. With transparency, the large revenues generated from a nation’s natural resources can better foster economic growth and reduce poverty. In FY 2006, the U.S. contributed $1.0 million to support EITI implementation and to strengthen the role and capacity of civil society organizations in the EITI process. I would like to take a moment and point out that on February 10, of this year Canada announced that it will join EITI as a supporting country. We are very grateful for Canada’s stepping up. Its membership will no doubt enhance this initiative’s effectiveness, so thank you to our Canadian friends.

Multilateral Engagement: Our multilateral engagement is by no means limited to just EITI. The State Department pays the dues for our participation in the International Energy Agency, an organization of 26 OECD members which fosters collective energy security, largely through the coordinated management of strategic oil stocks. In fact, the IEA was born in the State Department, at the Washington Energy Conference convened by Henry Kissinger, to meet the challenges of the Arab Oil Embargo of the 1970s. Some 25 years later, it was the IEA which rose to the challenge of countering the potential economic shocks of Hurricanes Katrina and Rita. In the wake of these storms, and their devastation of the U.S. oil patch, the U.S. joined with IEA nations in a coordinated release of strategic petroleum stocks to avert an energy crisis. The U.S. was able to lead in this effort because this Administration, in partnership with the Congress, had increased our own Strategic Petroleum reserve by 100 million barrels, to its full capacity of 700 million barrels. And as I mentioned earlier, the President intends to double the SPR to 1.5 billion barrels. Through our investment in the IEA and the SPR we demonstrated that U.S. leadership is never free, but it is always worth the price. A core area of our diplomacy now is to encourage emerging consumers in Asia to augment their own strategic oil stocks, and in recent years Korea has become a full member of the organization while China has significantly built its stocks.

Through the Group of Eight (G8) we have pushed energy security and energy as a development issue. We appreciate Canada’s efforts in the G8 as well and in particular in with the 2006 St. Petersburg Declaration on Energy Security Principles. The security principles acknowledge the shared interest of energy producing and consuming countries in promoting global energy security. With the St. Petersburg Declaration, the G8 countries committed to, among other things, transparency in energy markets, diversification of energy supply and sources, promotion of energy saving and environmentally friendly technologies, cooperative emergency response, and to address energy challenges of the poorest nations. Energy security was a cornerstone of last year’s G8 meeting, and the comprehensive text reflected both the challenges and opportunities that confront G8 countries, including Russia and its own emergence as an energy power. Our challenge now is to draw Russia into a shared set of principles and follow on actions with G-8 colleagues that will allow it to live up to its promise as a global energy leader and reliable energy partner.

I hope I have been able to provide a representation of the degree to which energy security concerns are incorporated into overall U.S. foreign policy, and our actions in key regions of the world to augment our energy security. I can assure you that no matter the price, energy security will always be an important item on our agenda, not only our energy security but that of our friends and allies as well. Diplomatic successes such as the performance of the IEA in calming energy markets roiled in the wake of Hurricane Katrina, the building of the BTC pipeline through the Caucasus, the G8 Energy Principles, or the launch of the Asia Pacific Partnership for Clean Development and Climate require communication, cooperation, and coordination among the many actors here in Washington and in our missions overseas. We will continue to work with our foreign partners and the Congress, to ensure security of supply, diversity of energy sources, as well as open and transparent markets. Thank you very much.

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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