A/S Pyatt: Thank you for doing this. I really do want it to be a conversation. And just to give the larger story on this event, I was chatting with Fred Kempe just after I got back from Brussels and was reflecting on my takeaways from the 10th US-EU Energy Council.
I made the point to Fred that amid all of the tectonic forces that are acting across the transatlantic relationship right now, we don’t spend enough time sort of patting ourselves on the back for how much has been achieved. I think for me, that was one of the major takeaways from the Energy Council itself, which was just the extraordinary sense of appreciation from our European partners. High Representative Borrell and Commissioner Simson, but also everybody else I was talking to around the Commission and the Secretariat for the leadership that the United States has provided in helping get through the past winter and in particular the role of American producers in really riding to the rescue in terms of the pressure that Europe’s found itself under as a consequence of the sort of series of events that followed on the invasion of Ukraine. The price spike that I lived through living in the EU in the spring and early summer of last year and then eventually the cutoff of Russian gas and all the disturbance that that provoked.
The conversation literally began and ended with thank goodness for American gas producers, which was an interesting turn of events.
But equally striking to me was the degree to which it was very clear that we have crossed the Rubicon in terms of how Europe is thinking about its energy relationship with Russia. This is something that I think all of us who have focused on the transatlantic relationship and the energy dimensions thereof still have to sort of process a little further. We had the Czech Strategic Dialogue yesterday with Secretary Blinken and continued some of these conversations.
But I think it’s very clear that Europe across the board is not going back. And regardless of how the war ends, you are seeing structural shifts in European energy planning and European energy flows that are going to have enormous implications for the transatlantic relationship in Europe going forward.
The IEA has already injected on some of this, making the observation, their prediction, that by 2030 Moscow’s oil and gas revenue will be down by 50 percent which has enormous implications for the kind of Russia that we’re going to all have to live with whenever this war comes to an end. But also a clear determination to accelerate Europe’s energy transition, and I’ll circle back on that in a minute. But also the sort of structural reorientation of the European energy system. I think all of us have spent different periods of time starting with [Ambassador] Dick [Morningstar] counseling against the risks of Europe’s vulnerability to Russian energy dependence.
But what we probably didn’t spend enough time talking about or thinking about is Russia’s vulnerability to its dependence on the European market and now literally billions and billions of dollars of energy infrastructure which are never going to be recouped or repurposed because of this turn that Europe has taken.
I think it was interesting also to have this conversation in Brussels in the context of what we see and what we’ve seen even over the past couple of weeks in terms of new FID announcements on U.S. liquefaction capacity. And again, the sort of big strategic issue that people like Landon and Dick are going to have to make sense of which is what does it mean that the United States is going to be the world’s largest gas exporter by far for years and years to come? And how do we think about the geopolitical leverage that comes with that and how do we use that as a force for good. Both to advance our decarbonization goals in terms of reducing the CO2 intensity of our gas production, but also how we demonstrate that we’re not Russia, and how to support a dynamic in which our rich gas resource is used to reinforce our strategic objectives without messing around too much with the marketplace. I’m sensitive to this especially in the Asian context. We had the U.S.-Australia Energy Security Dialogue last week which was, again, extremely positive. I can talk a little it about that later on if folks are interested, but it was really interesting to hear how the Australians are also rethinking their gas industry in a moment where unlike our producers, Australia doesn’t have decades and decades of runway in front of it as an exporter.
I think if we look to the future, obviously it’s not over yet, and winter comes every 12 months, but I was struck also when we were in Brussels by the general confidence about how things are looking for next winter, helped by the fact that Europe has finished the winter with its gas reserves at a historic high point. 56 percent was the statistic that Commissioner Simson was using.
So barring a real surprise and given where global prices are right now, there is a fairly high level of confidence that Europe would be able to navigate successfully also through the winter of ’23-’24, and the conversation actually had started to migrate towards the winter of ’24-’25, recognizing that going out at least that far we won’t have new U.S. capacity substantially online, we won’t have new Qatari capacity online, so the market is what it is.
But related to that and related to my point about decoupling, it was really striking to me the degree to which unlike the way the conversation would have been for years and years when Dick was leading on this stuff, Russia was not the defining factor in Europe’s conversation about its energy future. The defining factor was the partnership with the United States, the conversation about energy transition, the conversation about the Inflation Reduction Act, and I think for Secretary Blinken and Dave Turk who led the US delegation it was a happy coincidence that this Energy Council happened after the von der Leyen-Biden summit meeting and the agreement therein to have the Clean Energy Incentives Dialogue which we have launched. I was part of the first go-around with that. And also, I think a maturing conversation in the European Union and in Europe about their own incentives for energy transition.
So a lot of the conversation was about how to ensure a race to the top in which we are using these different government policies to accelerate our respective energy transitions and how we think about issues like clean hydrogen, how we think about carbon sequestration.
There was an interesting nuclear conversation, I found it interesting at the political level of the Commissioners. The Commission itself, nobody wants to go there. It’s just too complicated in the European markets. But Commissioner Simpon herself was quite frank in noting the importance of the commitment the United States had made in the SMR area. And one area where I think the Atlantic Council can help is as you see now these various SMR ideas advancing in Europe, and of course we’ve got a major U.S. government commitment to the Romania project, the 2028 deployment, we now have the new XM and DFC financial commitment to the GE SMR project in Poland. The Kazakhs, I was with Kairat Umarov last week, and Kairat was very clear in terms of Kazakhstan’s interest in becoming an SMR deployer.
We’re going to need to work, especially in the transatlantic context, on the safety regulatory aspects of that. And of course we have, NuScale has its NRC preliminary design approval, but working that through the European bureaucracy is going to be a pacing factor, I think, in terms of how quickly some of these early deployments happen, especially in Eastern Europe.
Then there’s Ukraine and again, another good Atlantic Council topic. I could go all day on different Ukraine energy conversations, but what was striking to me when we had Prime Minister Shmyhal here a couple of weeks go, the numbers that the Ukrainians are using for their future nuclear deployment plans are very, very big. Very ambitious. And they clearly are committed to being part of this SMR supply chain, and I think they will actually be able to do it, both because they have the nuclear operation history, but also the industrial capacity. If I was sitting with NuScale, TerraPower, X-energy or Poltech which of course is on the ground already in Ukraine, thinking about how you leverage Ukraine’s industrial capacity with huge industrial forging operations at — what’s the company’s name in Kharkiv — anyway, a big Stalinist factory where the Soviets used to make nuclear — Turboatom. Turboatom is an asset there just waiting to be leveraged by one of our SMR manufacturers to move towards serial production of the things that are going to be necessary for an accelerated SMR supply chain.
I think everybody’s probably seen the statement that came out of the Energy Council. I would just put a spotlight there on the very strong language on Ukraine and also on Moldova. I had an interesting conversation in this regard on the margins of the Energy Council with the Commissioner from Neighborhood. And his focus on Moldova as one of the real challenges in the DG NEAR business. Ukraine is big and everybody’s in the game but as you look at the Caucasus, you look at the Western Balkans, what he worried about was Moldova because of the vulnerability there to Gazprom in particular. And he really urged us to work together, the United States and the European Union, to figure out how we can get Moldova off of Russian gas and off of that thermal power plant in Transnistria as fast as possible. Some of that will be focused on renewables but it also has to do with how we accelerate plans for great connections to the rest of Europe and perhaps how we use other technologies like small portable gas generators to create an energy system which is not sitting in Russian controlled territory.
So that’s one that we’d sort of taken for follow-up action, especially in the context of the $300 million that the Administration has notified for Moldova energy security.
Then I would also note in the statement, the strong language there on all, reinforcing all of what DOE is leaning on domestically in the United States, reducing the carbon intensity of our gas industry, moving towards the most forward possible approach on abatement, leaks, flaring, venting. I was really interested — High Representative Borrell, I was not expecting him to be as wonky as he was on how can we do more on methane in Algeria, or how do we work together more effectively in the Caspian context. I’ve been having a lot of conversations recently, for instance, with the Kazakhs, with the Turkmen on the Global Methane Pledge.
I think clearly for Europe, which is now accustoming itself to the idea that its gas isn’t going to be coming from Russia, figuring out how to — but the gas will be in major transition fuel for Europe in years ahead, how to do that in the least climate damaging way possible.
Let me just finish by saying as we look ahead on these mechanisms, I really think — and I’ll finish with this bigger strategic point that I started with. I think we’ve crossed the Rubicon in terms of how Europe is thinking about itself and its future energy system, and it gives us a tremendous opportunity to think about how we build an alternative web of interconnection in the transatlantic context.
The other issue that we talked a lot about in Brussels — no surprise at all — is China. And very much in the spirit of President von der Leyen’s speech which is the sort of twin sister to Jake Sullivan’s speech on China and de-risking, how do we work together to reduce our vulnerability to Chinese controlled clean tech supply chains? This is going to be a lot harder than I think senior policy makers have internalized, just because we are starting so far behind the curve in terms of the level of Chinese domination in some of these key sectors, because the growth requirements are so extraordinary in terms of its requirements for battery minerals, requirements for electrification of transport. And as you heard Jake Sullivan say so clearly at Brookings last week, we can’t do this alone. We’re only going to be effective to the extent we’re working with allies and partners and starting with our European partners.
So I think for the Landon’s of the world, as we think about the future of the transatlantic energy relationship, probably less about moving molecules and more about how, or at least gas molecules, liquid molecules, and more about how we procure and move the energy minerals that are going to be so important to our respective transitions which are proceeding full speed ahead.
So let me stop there I’m really looking forward to the conversation. I’m happy to take questions on anything I raised or almost anything else.