Remarks of Deborah Jones
Consul General – U.S. Consulate Istanbul
STEAM 5th Energy Arena – Conrad Hilton Hotel

Enhancing Energy Security

Friday, April 28, 2006

Mr. Under Secretary; Mr. Chairman; Distinguished Guests:

I am pleased to be here today to represent Ambassador Wilson, and to present some U.S. perspectives on global and regional energy security issues. 

Energy is a fundamental driver of growth and development around the world, and the use of energy has been steadily expanding along with the world’s economies.   With that growth comes increasing pressure on world energy markets from both supply and demand perspectives.

The energy sector is increasingly global, with a strong, growing interdependence between producers, transporters and consumers in both the oil and natural gas sectors.  Important structural changes in the world energy market are occurring as well.   China and India, with their huge populations and dynamic economic growth have become important consumers—introducing new market dynamics.  

We believe that development of transparent global energy markets based on market forces -- with open access to suppliers and consumers -- is the best method to enhance global energy security.  At the same time, we need to work collectively to protect the integrity and security of our pipelines, refineries, and shipping channels.

The United States is inviting its friends and allies to work together in implementing a full range of near, medium, and long-term strategies to enhance global energy security.  In this process, we have identified a number of key areas for cooperation.

Diversification of Supply and Transit 

The key factor in global energy security is diversification; this is important to producers, transporters and consumers, and will require significant private investment.  We should work together to encourage market actors to help strengthen and secure greater redundancy in global energy transit routes. 

As a result of the Russia-Ukraine gas dispute, European gas consumers are now focused on the need to diversify their natural gas supplies.  This presents a unique opportunity to develop new sources of gas supply and transit.  Our effort should include promoting energy sector reform in countries along gas transit routes and the encouragement of market-based behavior by existing monopolies.

There are a number of promising opportunities for diversification of supply.  Among these are the advance of liquid natural gas (LNG) technologies and the development of Caspian, Central Asia, and Middle Eastern gas resources.  We can help accelerate these trends in the wake of the unfortunate Russia/Ukraine gas dispute.  As many countries, including the U.S., become bigger consumers of Russian energy, it is in our interest to promote market principles with Gazprom and with Russian government officials who influence Gazprom.  As a matter of policy, we seek to encourage normal market behavior, and to discourage attempts by monopolies to exploit their monopolistic power.

Beyond diversifying the sources of supply and transit routes, our collective energy security can be greatly improved through better integration of electricity, oil and gas grids amongst energy consuming countries.  The greatest opportunity for this lies within Europe, including Turkey.  As the recent disruptions in Russian gas supply demonstrate, gas does not flow smoothly amongst the European nations.  More electricity, gas, and oil “inter-connectors” would improve efficient and fluid distribution of needed energy in all directions and to regions affected by supply disruptions – whether due to manipulation or acts of God.  Turkey and Greece are already establishing a first “inter-connector.” 

Diversification of energy supply, of course, also includes non-hydrocarbon based technologies.  Nuclear power can meet the twin challenges of improving energy security and greenhouse gas emissions management.  New technologies have addressed concerns about safety, and emerging technologies may greatly reduce nuclear waste.  The newest generation of nuclear power plants could produce electricity and hydrogen with substantially less waste and without emitting air pollutants or greenhouse gases. 

Enhancing the Investment Climate

Achieving diversification of supply and transit will require attention to the investment climate.  The margin between demand for oil and gas and the production capacity available to exploit these resources is becoming increasingly narrow.  According to the International Energy Agency, $2.2 trillion in investment in worldwide oil production is needed by the year 2030 to meet forecasted demand growth.  Worldwide, there remain significant untapped reserves of oil and gas; at the same time, adequate funds are available in capital markets to finance upstream and downstream investments.  However, new supplies of oil and gas are often concentrated in countries that lack open and transparent investment regimes.  The main challenge, thus, is not the physical deficit of such resources, but rather  creating the proper environment to realize this potential.  Measures aimed at attracting private investments and improving the overall sustainability of energy sector development would be beneficial. Governments that create transparent and non-discriminatory regulatory environments and favorable investment climates, while ensuring the physical safety of key energy infrastructure facilities, contribute substantially to the achievement of these goals.
           
Moving to Market Pricing

It is also in our collective interest to promote a gradual transition to market prices in the economies of developing nations to ensure the most efficient utilization of limited world energy supplies.  The dispute between Ukraine and Russia over natural gas put the spotlight on those particular energy price subsidies; however, such policies are in place throughout the developing world, including in major consumer nations such as China.  Subsidies interfere in the operation of markets by insulating consumers from price signals, which in turn encourages demand growth beyond what the markets would ordinarily support. 

Russia’s chairmanship of the G8 offers a unique, although limited, opportunity to push for important commitments on energy security.  The United States is urging other countries to encourage Russia to engage in greater cooperation with the International Energy Agency (IAE) as a non-member country, to encourage Russia to be a reliable and transparent global energy supplier, and to encourage their ratification of the Energy Charter Treaty.

Energy Efficiency 

Moving to market pricing will be a key step in spurring a greater focus on energy efficiency.  In the immediate term, promoting energy conservation and efficiency provides by far the most important tool in improving our collective energy security.  Both at home and abroad, the U.S., Turkey and other partners can cooperate and support programs that generate incentives for enhanced energy efficiency, conservation, and reductions in greenhouse gas emissions. 

Integrating the “New Consumers”

To facilitate the transition to open, transparent and efficient energy markets, we should encourage key non-member drivers of global demand – such as India and China -- to collaborate and move toward association with the IEA.  The IEA can assist non-member countries in designing policies to accelerate market-based domestic policy reforms, build strategic petroleum stocks, employ clean energy technologies, and enhance overall energy efficiency.   

Supporting New Technologies 

Since President Bush launched his National Energy Policy in 2001, the U.S. government has spent $10 billion to develop cleaner, cheaper, and more reliable alternative energy sources.  The President in his State of the Union speech declared that the United States must remain competitive, while working to break our notorious “addiction to oil.”  The “Advanced Energy Initiative” provides for a 22 percent increase in research by the USG to find clean alternatives to oil imports from potentially unstable sources.  The USG will invest more in clean coal technology, solar and wind technologies and nuclear energy.  The United States looks forward to expanding its international collaboration on cutting-edge energy technology research with its friends and allies to better utilize our supplies of raw materials and to reduce our dependence on imported energy from volatile regions of the world. 

Protecting the Global Energy Infrastructure

The U.S. has also elevated the importance of the security and safety of its energy infrastructure.  We have assisted other countries in developing the capability to protect their energy assets.  We are willing to work with countries to expand their capabilities to ensure the safe production and transport of energy.  With respect to nuclear power, the U.S. is exploring ways to expand its assistance to like-minded nations on safeguards and facility security.  Similarly, it is vital to maintain the security of sea lanes like the Straits of Malacca and the Turkish Straits, through which major shares of the world’s oil and refined petroleum products pass.  The U.S. participated in an APEC Sea Lanes Exercise in 2002 which simulated members’ responses to sea lane disruptions by terrorists or pirates.  Similar exercises could be undertaken in other areas using other scenarios.

In Conclusion

Diversification, investment climate, market pricing, energy efficiency, engaging consumers, new technologies, and infrastructure security are all areas ripe for increased cooperation.  This year we will harvest the fruits of this cooperation when oil flows to Ceyhan via the Baku-Tbilisi-Ceyhan pipeline.  This project initially was dismissed as a “pipe dream”; many said it could never be done.  Achievement of this remarkable project increases global energy diversification and security, and serves as a first “Bosphorus bypass.” 

Energy security is, and will continue to be, a leading U.S. government priority.  Indeed it is one of the major challenges facing the world in the coming generation.  We need to begin to prepare for the eventual transition to a post-petroleum-based economy.  In the long run we need new clean technologies that can fuel our economies without posing threats to the environment or our national security.  In the interim, our national energy policies must address the familiar challenges posed by a hydrocarbon-based economy where oil and gas reserves are concentrated in various regions of the world undergoing transition or experiencing disruption.  All of us together, through cooperation in the IEA, bilateral discussions, EU discussions, and other avenues, must work toward these ends.  This will require sustained, patient and determined effort.  The United States at home and overseas will remain engaged in that effort.

Thank you again for this opportunity to share our views on enhancing international energy security.