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Diplomacy in Action

On-the-Record Briefing on International Energy Affairs


Remarks
David L. Goldwyn
Coordinator for International Energy Affairs 
Washington, DC
October 9, 2009


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MR. WOOD: Good afternoon, everybody. Sorry for the technical difficulties.

We have here today David Goldwyn, who is the State Department’s Coordinator for International Energy Affairs, and he’s going to talk to you about the work of his office and some upcoming travel that he has planned.

Without further ado, David.

MR. GOLDWYN: Great, thanks. Good afternoon. As part of the Administration’s energy policy, the Secretary recently appointed me as the Coordinator for International Energy Affairs. And what I thought I’d do this morning is talk a little bit about what my position is, a little bit about what I mean by energy security, and then how I plan to implement this mission.

But the main task is to ensure that energy security is integrated into the core mission of the Department and to elevate energy diplomacy as a key function of U.S. foreign policy. So my job is going to be to coordinate, to gather together all the work the Department does in traditional energy – that’s oil and gas, renewables, nuclear – into a coherent policy to raise the profile of energy sector governance and transparency in our diplomacy, and to engage both on hydrocarbons, but also on power sector reform in countries that are of concern to the United States. Obviously, I’ll work closely with our interagency partners – we have tremendous technical expertise in other areas – and closely with our missions abroad as well.

Let me talk a little bit about what I mean by energy security. Energy security, for any country, is access to diverse, affordable, reliable energy supplies, free of political or economic coercion. Now, for the United States, energy security has been primarily about oil security; it’s been about avoiding oil price shocks and avoiding price volatility because of the way it affects our economy. And we do that by diversifying the kind of fuel used, diversifying the number of countries that we get that fuel from, slowing the rate of increase of our own energy demand, improving efficiency, deploying clean energy technology.

But we have to keep in mind that even as we transition to a less carbon-intensive economy, for the next two decades, oil and gas are going to remain strategic supplies. And the supply of oil and gas to the U.S. economy, to the global economy, is going to be a primary national security concern and interest.

But for countries around the world, energy security really means something different. For most countries, energy security means access to electricity, access to fuel in a physical sense. It’s whether the lights go on or whether you have the means for basic economic activity. And it means whether you can afford it, whether you have it in your country, or whether a neighboring country shuts it off and deprives you of that access.

And so these questions of security and stability of countries are very much tied to their energy security. And that’s why when the Secretary looks at energy security as a mission of the Department, we have to use energy as a tool of smart power with other countries to assure their stability, their freedom from coercion, and for us to be able to show that we care about the economic activity and welfare of those countries by helping them get the electricity they need to grow their economies.

So I’ll talk a little bit about security of supply, because that’s really the traditional area of U.S. energy security. And there, my mission is to concentrate diplomatically on relationships with our key suppliers. Those are the suppliers that you know and love that we’ve had for a long time, but it’s also emerging suppliers in Africa and other places. Our interest is to make sure they understand the market, they know how the economy is going to grow, that they have a regulatory or a legal or an investment framework that is going to permit investment in oil and gas and supply to the market. And so we want to promote a diverse supply of fuels, so that’s going to be oil and gas in a lot of countries. But we also want to promote unconventional fuels, and that might be investment in shale gas or coal bed methane in other countries. That increases global supply. It also helps climate change because they back out use of coal or other sources of energy. And we want to promote biofuels and renewables as well.

On the demand side, the energy security mission is to engage major consumers. And that’s China and India, of course, but a lot of other countries. And there, we want to engage them on how they use electricity. Do they do it efficiently? Do they have subsidies that subsidize the rich, as opposed to just subsidizing the poor? Can they create a different legal framework that will allow renewables to compete with traditional energy? And that’s a case of partnering with them to – in both the G-20 context to eliminate energy subsidies, but also just talking to other countries about how they get electricity and how they set up the system.

Transparency and good governance are key factors in protecting energy markets. Part of my mission is going to be to prioritize energy sector governance; and that is, talking to countries about how they sell their oil and gas acreage and how they manage those revenues. You’re all familiar with the resource curse. It’s a conversation with countries that want to have a conversation with us about how do you manage that money to use it for development. But it’s also a little bit of how do you have a good regulator, how do you do your own government’s work better. Because if you have three big blocks, you’re going to negotiate in a private room with three people. If you have – you break your blocks of oil and gas into small pieces, you’re going to have competition. If you have an auction system, no one’s going to wonder who won the auction and why. If you don’t have an auction system, then you invite corruption.

So we’re going to have a – not only a conversation, but we’re going to provide technical assistance to countries that want our help and how they can make transparency work and pay for them. The Extracted Industries Transparency Initiative is a very important tool in this toolbox. The Secretary has raised EITI with heads of state in Angola and Nigeria, something which has never happened before. So that’s going to be a key part of the mix also, but it’s not going to be our only tool.

Power sector reform is going to be another important issue, and not really a traditional one for the State Department. And this is a policy conversation with other countries – Pakistan is one that’s coming up soon – about how do you get electricity; and that is, how do you create an environment where people want to invest in electricity, how do you get investment in transmission and distribution, how do you price electricity so people who can afford to pay can pay, and people who are poor get subsidized. But you don’t subsidize everybody, which generally leads, in every country in the world that tries it, to a system where nobody wants to invest and you have rolling blackouts and no electricity and states that are in deep trouble.

There are a number of other ways that I’ll pursue this agenda, but I’ll leave that for the Q&A. Obviously, there’s the International Energy Agency, there’s APEC, there’s a number of multilateral fora, there’s ways that we partner with other countries.

On my short list, I made my first trip to Canada. Canada, a pillar of U.S. energy security, so we want them to keep doing what they’re doing, as well as meet their climate change obligations. Next week, I’ll be at the IEA ministerial in Paris. We’re talking about whether we include all the world’s energy consumers in the IEA and what its missions will be over the next 20 years. I’ll be in Pakistan the week afterwards for our energy policy dialogue to talk about short-, medium-, and long-term change in Pakistan and how they grow their energy sector. And then sometime in November, I’ll be in West Africa to follow up on the Secretary’s trip to Nigeria and Angola and the President’s trip to Guinea. So a big agenda, lots to do, and for me at least, it’s very exciting to be pursuing it.

Yes, sir.

QUESTION: I’m Arshad Mohammed with Reuters. Can we talk a little bit about Pakistan? The Secretary announced her trip on Tuesday. A couple things – you, yourself, talked about short-, medium-, and long-term things that the Pakistanis can do to address their rolling blackouts and their electricity generation shortages. Can you sketch out for us what kinds of things the Pakistanis could do in the short term to boost power generation, and then also, how the United States can help with that beyond just sort of technical expertise or advice, what kinds of money might be necessary or helpful? And then, can you also talk about how the Pakistanis can deal with what is clearly a long-term problem with multiple years required to bring on significant additional capacity in a country that I think has seen virtually no significant investment in this since the late ‘90s, and what kinds of things you see as possible there?

And if you could talk particularly about hydroelectric, which I think has particular problems because a lot of the big hydro things are up in the North-West Frontier Provinces. There are issues about whether India claims the land and, therefore, it’s very hard to get private money for that. Oil, which obviously would require them to import oil-fired, again, very expensive for the country. And then, lastly, nuclear where presumably there would be concerns about the diversion of nuclear expertise to their military nuclear program.

MR. GOLDWYN: That’s right.

QUESTION: So, it’s a lot of questions, but I think that Pakistan is a topic that is of great interest to people in the room.

MR. GOLDWYN: I’ll be able to give you more of those answers at the end of our three-day session with Pakistan.

QUESTION: Sure. Okay.

MR. GOLDWYN: But let me start by saying in terms of the overall frame of this. The United States is working with Pakistan to help with this – to help it move beyond this energy crisis, but really looking at long-term about how they transform their whole energy economy. There isn’t going to be any magic cure here. I mean, as you’ve pointed out, Pakistan has had problems in the energy sector for 25 years, and they’re not going to be subject to a short fix. But what we have with Pakistan is a partnership. This is going to be U.S.-Pakistan energy policy dialogue, so it’s two-sided. And what we want to do is work with them to create a climate where private capital will be invested, and to help them articulate their own vision of an energy sector. And they have a national energy plan. They have a vision in all of the sectors that you mention – oil, gas, coal, renewables also – about what they can do. And that’s what we’re going to spend two days in Pakistan talking about.

I mean, there are plans that are on the books with the IMF and with the Asian Development Bank to invest in the rehabilitation of Pakistan’s existing infrastructure which is a good short-term way to move things forward. They’re looking at exporting their own resources. They do market their oil acreage and look at gas. They’re looking at investment in a number of places. But as in any country, the real task is to get the macroeconomic picture right, and then to find a way to enable people to recover their costs from investing in the energy sector, but still take care of the poor. And that’s really going to be the content of our dialogue. There are a lot of different models for doing it.

We have to do what works for Pakistan, but they have made a tremendous amount of progress already. I think you saw the tariff rate increase that took place on October 1st, as promised. The – Pakistan and the IMF are engaged in a program of their own and Pakistan is pursuing it. So lots more to be done. I think I might do better, as promised, when I come back to talk about what the plan is going forward, rather than speculate on it before I’ve had a chance to meet with my counterparts.

QUESTION: Can I ask you just one thing about this? Why – two things, one, are you – is the U.S. Government thinking about putting any of its own money into this sector? You talked about trying to attract private capital. So is the U.S. Government open to or considering putting its own money to try to either rehab or enhance capacity? And then secondly, if you’re a private investor, why would you want to invest in Pakistan, a country that has its own insurgency that it is fighting, political instability that it has emerged from only recently, a long history of at least allegations of corruption in the private – in the power sector? Why is this a country where you’d want to invest?

MR. GOLDWYN: Well, on the first, I think you heard Ambassador Holbrooke when he was in Pakistan, commit the United States to helping this sector, so I think I don’t want to comment on the details now. But I think this is a very serious commitment, and there will be more to say on that in the future.

But with respect to investing in Pakistan, I mean, they – Pakistan has a – it has a functioning economy. It has industrial consumers. It has a residential population, a large part of which has the ability to pay. So there is a climate for investment in Pakistan. It’s a question of getting prices right. So there is tremendous interest in investing in their oil and gas sector. They have independent power production right now. So there are people who have invested and continue to generate power in Pakistan.

And I think when they see the path forward, and hopefully if they see the commitment of the United States and the Friends of Democratic Pakistan making a commitment to help Pakistan implement its own policy, but to get the economy right, they will see that it is a place that you can invest and where you can make money. And you can name a dozen conflict countries around the world or countries which have conflicts in their borders, but they have functioning economies and there’s getting that economy going and taking care of the people who are not involved in the conflict now but are trying to help run the country is the reason to do this.

Yes, ma’am.

QUESTION: Elise Labott with CNN. Thanks for doing this. A couple of questions. If I could draw you out a little bit more on what you were talking about, about coercion and countries using kind of oil as a weapon. I know the last administration was trying to get a lot of European countries to diversify their oil and gas supply from Russia because they were – you know, they were too dependent on that. And I was wondering if you could talk a little bit more about that area.

And then on Africa, you know, Ghana, for instance, just discovered oil and Angola’s oil sector is developing, Libya as well. How much is the U.S. going to be working with these countries to help develop their own sectors, and what is the connection between U.S. oil companies that are doing business in these countries and the government? I mean, are you looking to American companies to kind of put the money and make investments so that those countries have the resources to develop, or is this something that is part of kind of – you know, are you providing the strategic guidance or are you providing aid?

MR. GOLDWYN: Let me take the second one first because it’s a more complicated subject. Africa has a tremendous diversity of resources, and there’s tremendous diversity in the level of sophistication of their own either national oil companies, if they have them, or their private-sector frameworks. There are many countries in Africa that are great oil producers but are actually import products and don’t have electricity. And so the agenda in Africa is, I think, first to look at the major producers who don’t need commercial advocacy, the countries like Nigeria and Angola and increasingly Ghana, but we’re also seeing Sierra Leone, Uganda, Cote D'Ivoire, other places where they have found a way to attract private investment, so it’s not our job to move private investment to these countries.

And there the agenda differentiates. For countries which are about to become major energy producers, the goal is to talk to their governments, if they’re interested in talking to us – and Ghana is one government that is interested in talking to us – about how do you make sure your finance ministry can manage those revenues, how do you make sure that your regulator or your – the person who’s in charge of supervising the conduct of companies in your country does that in a way that maximizes value. So we’re really talking about improving governance.

And then in terms of stability and transparency, we’re talking about either promoting EITI or helping finance ministries learn how do you deal with getting billions of dollars of revenue into your country without destroying your other export markets and without creating a tremendous amount of rent-seeking.

So it’s – the first level of engagement is really government-to-government. In other cases, there may be changes of law or there may be challenges in the investment framework, and there we’re talking to governments about does the system you have really get where you want to go, or can you come up with something that both maximizes value but also has more integrity and is less subject to corruption. And in some places, we’re just plain talking about corruption.

And that’s the oil and gas sphere, but you have countries – Nigeria is one example – where they’re a huge oil and gas producer but they have incredible electricity shortages and they import gasoline. So there, the conversation is how can we help you set up a framework where you can get investment in the other parts of your economy where you need it. And they have their own views and their own laws, but our job is to talk to them government-to-government about can we help you do this better.

So it’s pretty diverse, but it’s primarily not about promotion or directing companies to do this. It’s about governments improving governance.

On the first question, it’s a good opportunity to say that there’s a great energy team and a lot of people doing energy diplomacy here in the State Department. Todd Stern does a tremendous amount of the demand side through the climate agreements. And Ambassador Morningstar, who has primary responsibility in Eurasian energy diplomacy, does as well. And there are others.

But Eurasia has been the case where energy as a tool of coercion has come up the most, and there I think you will see a continuation of the policy that we want multiple pipelines supplying Europe and that we want Europe to continue to diversify where it gets its imports and also how efficiently it uses its energy. And a tremendous amount is happening there. There is exploration of shale gas in Central Europe, which could be an indigenous source of new supply. There is supply from North Africa to Europe as well. But that’s something Ambassador Morningstar spends most of his time on, but a continuing source.

But you can look in other places around the world, and you might look at the southern cone and Latin America and say if you’re going to grow your economy and you’re going to be dependent on gas for electricity, where are you going to get your gas? Are you going to get it from one country, through one pipeline, or should you look at liquefied natural gas as a way to access the global market?

And that’s where I think we need to look around and see who is vulnerable, and are there strategies that are useful to other countries to make themselves less vulnerable. And there, we’d have to go through the map sort of country by country, but that’s the concept.

Yes, ma’am.

QUESTION: A bit of a broader question. Energy is such a security issue for many countries and a tool of power for many countries. How do you avoid the impression that the United States is doing this for itself to make sure that it has adequate resources around the world for – to get energy, or that it might not try to give this advice with the idea that this is a way of subtly or unsubtly carrying out the foreign policy mission of the United States?

MR. GOLDWYN: Well, I think the first step would be to be sort of unembarrassed about the fact that when we deal with other countries and we want them to improve the integrity of their energy sectors, that it is good for them but it is also good for the global market and it’s good for us. I mean, I think there’s no hiding it, and it’s true.

But it’s not the only reason. If we want to improve the integrity or the use of revenues, it’s because we want the supplier to continue to be a supplier, but we also don’t want them to be – to have instability. We want them to be able to take care of their people. We don’t want all of the bad things that come with states that are destabilized from export of disease, organized crime – you can look at the Niger Delta and say – I can give you a dozen reasons why it’s in our interest and in Nigeria’s interest to try and improve and deter corruption in its energy sector, because it’s good for everyone.

But I think the proof will really be in the content of the help that we provide. I mean, we’re going to be engaging a lot of countries where there isn’t U.S. investment. We’re engaging a lot of countries where, frankly, we don’t use that oil. I mean, Europe is sort of a classic example. I mean, most of the supply of oil and gas that goes to Europe in the countries that we care about – our whole interest in the Caspian – we’re protecting the world for investment from Central Asia to Europe. That’s not even oil America is using.

But we care about it because the fluidity of the global oil market – having it be liquid, having it be able – having a spot market, having it move – is good for us. But every country in the world that consumes gasoline or uses gas for power is impacted by price volatility, so it’s not just us, and that’s the reality of every country that’s a consumer. And even the big consumers, even Saudi Arabia is a major consumer increasingly of gas. Everybody cares about a market that’s not subject to massive disruptions. Everybody cares about price stability. Nobody wants a growing economy to be destabilized by huge demand that has no supply to meet it.

So I guess my answer would be it is helpful for us, but it’s helpful for everybody.

Yes, sir.

QUESTION: Yes. Michel Ghandour with Al Hurra Television. What about the U.S. suppliers in the Middle East? How can you help them with good governance and fighting corruption, first? Second, is the United States able to be independent in the energy sector, and when?

MR. GOLDWYN: I think in terms of engaging suppliers in the Middle East – I mean, here I assume you’re talking about the Gulf and North Africa, the whole sweep there. Where we have partners that want to work with us, we will – we can talk about sector governance. I mean, a lot of the Gulf countries and some of the North African countries have relatively sophisticated, or in some cases, incredibly sophisticated, national oil companies. So running the system is not an issue. But we talk about governance and encourage them to do things like adopt EITI. And we also talk to them about sort of how the market is going to operate. Some countries – Algeria is one, Libya is another – have adopted auction systems. So when they market their acreage, there is government take and there is a signature bonus and you open the envelope and you hold it up. In those cases, we don’t have a big agenda in terms of the integrity system. We want that system to propagate in other places.

And the other conversation may be different. It may be about energy subsidies. The G-20 has opened the door to talking to countries, including the Middle East, about energy subsidies. If they charge a market price for electricity or for fuel, then everybody is going to have a smoother market going forward. And they will address their own economies and grow their own economies without using huge amounts of revenue basically for subsidizing wealthy people who can afford to pay for electricity. So there is a conversation to be had, but it’s sort of different in each country.

In terms of will the U.S. be energy independent, I mean, the way I interpret energy independence is the way really I started this presentation, talking about energy security, and that is you want to have a system where countries are able to access the energy they need, in the quantities they need, at a reliable price, without coercion. And that is independence from coercion. That is having a market that works, that is having a diverse set of suppliers, and that is moving significantly the policy in terms of whether you do or don’t allow supply to flow to another country, moving the politics out of the energy supply. And that’s the independence that I’m working on.

Yes, ma'am.

QUESTION: But how do you move the politics out of it, if China has this gigantic push to get resources all around the world? Isn’t that a highly centralized political decision by that government?

MR. GOLDWYN: Well, China is going to be sort of front and center of our conversations. I mean, it’s ironic: China is a producer, China is a consumer, China trades most of the oil that it produces that it has equity shares in around the world. On the open market, it buys most of its supply on the spot market. So the conversation, I think, with China going forward is China and the U.S. are the two countries who have the greatest amount in common in terms of having a liquid, oil, and gas market, access to acreage overseas, safety in the places that you operate, and a system which can address oil disruptions in a major way. So if you were designing the IEA today, China would be the first place that you would go to get a partner.

Now, the issue that we have often with China is do they – what standards do they use in the places where they operate? And that’s why we’re going to talk to China about the utility of the Extractive Industries Transparency Initiative about stability in other places.

QUESTION: But not just – but not just transparency about the oil, but a lot of times you find that a country like China that needs to and wants to invest in the oil sector in a country doesn’t have any standards for the political situation or the governance in that country. I mean, human rights, the kind of things that America promotes --

MR. GOLDWYN: That’s right.

QUESTION: -- aren’t as important to China that really needs the oil.

MR. GOLDWYN: Right. And that’s a key part of our foreign policy is to engage the Chinese in places either where they are or where they’re going and why we think it’s not in our interest, but it’s not in their interest to do it. And I think part of the conversation here, and it’s probably – it’s best done in private diplomacy than in a public way, is you can look at all of the mistakes that Western oil companies have made in places where they have developed over the last 20 years, and you just hope that China doesn’t have to actually make those same mistakes for itself, because their return on capital is going to be impacted.

I mean, they could have very, very plain commercial reasons why they ought to worry about investing in places where we’re worried about their investing, and also that they need to worry about the standards, because having the communities where you operate not hate you is really important for maintaining a 30-year investment. And it’s hard to do it right. And there isn’t a great record by Western oil companies, but a lot of lessons have been learned. And I think that’s really the content of the energy security conversation with China. It’s both where, and it’s how, and it’s the impact that this has.

And that’s – having that conversation and injecting that into our bilateral diplomacy at a senior level is the reason why Secretary Clinton created this position. Because you can have these conversations in a marginal way at a low level, and you’re not talking to policymakers. But if you can mainstream energy into the conversations of the Secretary of State and the deputies and the under secretaries and you can make that part of the core of our foreign policy, you will have much more impact on how you deal with these issues. And that’s what I’m here for, both to do that and to support the principals of the department in dealing with the issues you’re talking about.

QUESTION: Thank you.



PRN: 2009/1016



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