MR PALLADINO: Thanks, Deja. Good morning, everybody. Thank you all for joining us. Today we’re going to be talking about European energy security and the Nord Stream 2 pipeline, and we are pleased to have with us our Assistant Secretary for Energy Resources Frank Fannon.
Today’s call is on the record. Assistant Secretary Fannon will make some opening remarks, and then we will open it up to questions.
Assistant Secretary Fannon, please.
ASSISTANT SECRETARY FANNON: Yeah, thank you. Good morning, everyone. Thanks for dialing in. As Robert said, I want to speak to you about transatlantic energy security, and in particular I just returned from Europe. I spent some time in Croatia, in Hungary, and then moved on to Prague, where we talked about these critical issues and the importance of diversification of energy sources, supplies, and routes to strengthen energy security, to do so in recognition of our shared values of our transatlantic alliance, and to do so away from Russian dependency.
The energy security of our European partners and allies has been a longstanding strategic priority for the United States, and given Russia’s aggression in recent days, this is a good time to spotlight our diplomacy on transatlantic energy security.
The United States has strongly condemned the recent Russian aggression in the Sea of Azov. We’ve called Russia’s closure of the Kerch Strait a clear violation of international laws. Russia’s actions only strengthen the international consensus that views the proposed Nord Stream 2 pipeline as a direct affront to Europe’s own energy and national security goals. It strengthens those dependencies that we’re speaking about.
Many in Europe certainly recognize the centrality of energy diversity in achieving energy security. More European countries are recognizing this importance every day, and the European Union is doing a lot. The EU is opening its markets, is encouraging projects of common interest, key energy infrastructure projects. These – among these include the Greece-Bulgaria Interconnector pipeline and the synchronization of the Baltic States electricity grid for continental Europe.
The Krk island LNG project in Croatia is another project of common interest. I just returned from Zagreb and met with Prime Minister Plenkovic, where we discussed energy diversification and security. That terminal could import LNG from a wide range of suppliers. It allows for broader diversification away from Russian sources, in particular for Hungary.
Throughout Europe, once key infrastructure is built, it provides optionality and therefore introduces market competition. Russia does not want options. They do not want a real, transparent market. And that’s why the European Union developed these projects of common interests.
Diversification isn’t just a notion. We’ve had real, clear examples. Take a look at, in Lithuania, the floating storage and regasification unit, the Independence. It was built as a strategic investment, not a commercial one but strategic investment, yet that FSRU meaningfully introduced market competition and lowered prices for Lithuanian gas, wherever that gas may have been sourced from.
Diversification includes all sources of energy, whether gas, but we also talk about renewable energy as well as nuclear power. It includes – diversification includes differentiation of supplies and routes, which together create resilient and secure markets. Countries have more choices as markets offer more options.
And America’s call for diversification preceded our recent position as a U.S. – as an LNG exporter. Our steadfast support of the $40 billion-plus Southern Gas Corridor has spanned multiple administrations and continues today despite the fact that there’s no direct American investment in that project.
The U.S. will continue to support European energy diversification, including by providing alternative sources of energy, including LNG. But there is also new sources coming online all the time. Just prior to my trip to Europe I was in the Eastern Mediterranean, and there we see how energy pragmatism can overcome longstanding political concerns. We now see the recommissioning of a pipeline that will now take Israeli gas to Egypt and Jordan and potentially for export to Europe. Regardless of where a country ultimately sources its gas, American-drive competition increases choices for European consumers and reduces prices, even when the ultimate supply is from others.
By contrast, Nord Stream 2 and an expanded Turkish Stream pipeline take – seek to deepen dependence rather than strengthen security. They are not commercial projects; they are political tools. Unlike the United States, Russia’s energy companies are an extension of the state, and the Russian state uses energy for coercive political aims. Through Nord Stream 2 Russia seeks to increase its leverage of the West while severing Ukraine from Europe. The U.S. and Europe share Western values. We look at commerce as mutually beneficial and reciprocal, but doing business with Nord Stream 2 is just not consistent with those shared values.
Earlier this month, Secretary Pompeo hosted Ukrainian Foreign Minister Klimkin. He stated to the press, quote, “We will keep working together to stop the Nord Stream 2 project that undermines Ukraine’s economic and strategic security and risks further compromising the sovereignty of European nations that depend on Russian gas,” unquote.
U.S. opposition to Nord Stream 2 is rooted in our abiding concern that the pipeline presents broad geostrategic threats to Europe’s security, a point that we have consistently conveyed to leaders across the continent. The Secretary reminds us that, quote, “We do not want our European friends to fall prey to the kind of political and economic manipulation Russia has attempted in Ukraine since it cast off its Soviet shackles.”
With that, Robert, let me pause and look forward to your questions.
MR PALLADINO: Great. Thanks, Deja. Let’s please open it up for questions.
OPERATOR: And again, ladies and gentlemen, if you would like to ask a question, please press the 1 – sorry – please press * and then 1 on your touchtone phone. Again, *1 for any questions.
Our first question will come from the line of Jessica Donati with The Wall Street Journal. Please, go ahead.
QUESTION: Hi. Thank you for doing this. I was wondering if there are any measures or steps that you plan to take to increase your ability to influence Germany away from Nord Stream 2 if diplomatic efforts aren’t – don’t work.
ASSISTANT SECRETARY FANNON: Yeah, thank you for the question. We continue to speak to all of our friends in Europe through bilateral fora – bilaterally as well as through multilateral fora. We hear some increasing levels of concern about Nord Stream 2 in Germany but also more broadly certainly and expect – in terms of moving forward on other policies, we don’t comment on future actions that the U.S. government may take, but we’ve made quite clear where we stand on that and encourage countries to act based on the shared values that I spoke of earlier.
MR PALLADINO: Next question, please.
OPERATOR: The question will come from the line of Meghan Gordon with S&P Global Platts. Please, go ahead.
QUESTION: Yeah, hi. I have a question about the – how does the administration view the measures that Congress is considering taking related to Nord Stream such as leveling sanctions against the pipeline or like on Tuesday possibly a vote expressing nonbinding – a nonbinding resolution expressing opposition to the building of the pipeline?
ASSISTANT SECRETARY FANNON: Yes, thank you for the question. We certainly are monitoring the level of interest that Congress has, and I would say that that level, that interest preceded the Sea of Azov’s hostilities. We anticipate that Congress’ resolve on this issue and going after the Russian energy exports sector will only increase subsequent to that. We’ve been monitoring the bill. I think there’s something like 10 bills out there, all of which include Russian energy as a key component. We can’t comment at this time on any particular bit of legislation, but please know we are tracking it quite closely. Thank you.
MR PALLADINO: Next question, please.
OPERATOR: The next question will come from Haik Gugarats with Argus Media. Please, go ahead.
ASSISTANT SECRETARY FANNON: Hi, Frank. EU has been pushing an effort to ensure continued transit of Russian gas for Ukraine after 2019 even in the case Nord Stream actually happens. I wonder how you look at that, and also, are you pushing energy reforms in Ukraine in their gas sector?
ASSISTANT SECRETARY FANNON: Yeah, thank you. So I’ll take the second question first, if I could. I spent some time in Kyiv a few months ago, and the issue – of course Nord Stream 2 was a topic, but more broadly we really focused on reform of Ukraine’s energy sector. And I’m very pleased that, with a lot of spadework, and in close collaboration with our – Ukrainian government and companies – that they are moving forward with the unbundling of Naftogaz, the state company. They’ve put together a framework process to that – to move forward with unbundling, which will take place January 2020. It’s of course a big state-run company and it’ll take some time. So we’re very pleased with some meaningful steps. More certainly needs to be done and European partners have shared their views with us as well, and we’re in close discussion with the Ukrainians on that. But we’re pleased to see the reforms moving forward, and we continue to call on them, along with other multilateral institutions.
OPERATOR: The next question will come from Guy Taylor with The Washington Times.
QUESTION: Hi, thanks so much for doing this. It’s endlessly interesting. I was wondering, Mr. Secretary, could you speak a little bit to this – to the Krk Island project, LNG project in Croatia, and maybe give us an update as to when that facility could actually begin receiving LNG shipments? And is it an American government policy to want to ship American LNG through that receiving port, and can you maybe speak to the extent to which that represents something of an energy war between the U.S. and Russia, given that this is an alternative potentially to Nord Stream 2 for Western Europe? Thanks.
ASSISTANT SECRETARY FANNON: Sorry, sorry about that. Let me – I realize I didn’t answer the prior question completely, so let me do that quickly and then I’ll turn to Krk. So with respect to the notion of trusting Putin, that – to maintain gas transit to Ukraine, we don’t see that as real at all. There’s been no indication that we ought to trust Mr. Putin in any regard, and his comments continue to be that they would consider – my belief – would consider gas transits so long it’s commercial in the terms of the Russian Federation. The question of maintaining some modest volume of gas transit is in part just an order of math, because you’ve got – assuming multi-line Turkish Stream built, assuming Nord Stream 2 is built, collectively they will be unable to export the total volume of gas transit to Ukraine. So it’s kind of just a – what’s left over would be transited – potentially transited through Ukraine. But even then, that’s only based on whether we can trust Mr. Putin, and I don’t think the record should indicate anyone should.
Moving to the Krk terminal, the U.S. has been a strong supporter of Krk Island and a strong supporter of the European Commission’s advancement of that terminal. It’s their project of common interest and we have applauded it and supported it, and in fact that was part of my trip was to talk about that terminal. They continue – both the Croatian side as well as potential importers of that gas like Hungary have been pragmatic in trying to make that project feasible. They’re doing so to this day. We do not see it, however, as a means necessarily to – for a destination for U.S. gas. We see it as an important diversification, the introduction of an optionality to create a market where none really exists to this day, and that’s what we want to see. Now, if U.S. gas ends up transiting there, being exported there, that’s great, but that’s not our intention here. We expect that U.S. gas goes based on where our private sector companies sign contracts. Unlike Russia, our companies are not an extension of the state. They’re private sector enterprises, and they’ll make those destination for their own cargos.
As I mentioned, the Eastern Med is also an interesting – some real interesting developments happening there, and that could be another place for Krk to import from. Again, this is an opportunity, I think, for Croatia, Hungary, and other potential beneficiaries of Krk. It’s an opportunity to realize a better energy future, given this abundance of gas that we’re seeing – not just from the U.S., which will have an overall reduction in prices, but also from the Eastern Mediterranean, from Qatar’s increasing, from Mozambique, Australia. We’re really at the precipice of a new age in gas, and they can realize significant benefit from it. Thank you.
MR PALLADINO: Next question, please.
OPERATOR: Next question will come from the line of Timothy Gardner with Reuters. Please, go ahead.
QUESTION: Hi, thank you. Just wanted to see what you made of some German politicians, including Kramp-Karrenbauer, who’s a candidate to replace Merkel. She said last week that it would be too radical to withdraw political support for Nord Stream 2, but she suggested that Germany could reduce the flow for the pipeline. Is that something that would acceptable to the U.S. considering how far along the project is right now?
ASSISTANT SECRETARY FANNON: Yeah, thanks. I can’t comment on the political dimension in another country, but I can say that our policy is to continue to oppose Nord Stream 2. It’s an instrument of the Russian state to increase dependency and have coercive effect on importing countries, and calls for Europe to embrace the project of common interest as they see the path toward energy security as rooted in diversification. Thank you.
OPERATOR: And as a reminder, if you do have any questions, please press * and then 1. Our next question will come from the line of Julian Heissler with German Business Week.
QUESTION: Hi. I was wondering, are there any steps that the German government could take that would satisfy the Americans’ opposition to Nord Stream 2 that would keep the partner in place, given the fact that it’s about to be, I think, opened at the end of next year? And also, given that short time space until the pipeline is actually finished, what’s your timeframe of actually imposing measures to oppose its completion? Thank you.
ASSISTANT SECRETARY FANNON: Our U.S. position is pretty clear. We oppose Nord Stream 2 and we would call on all parties to exit the project, and for the – that’s our position.
MR PALLADINO: Time for one last question, please.
OFFICIAL: Our last question will come from the line – sorry, one moment – of Meghan Gordon – one moment – Meghan Gordon with S&P Global Press. Please, go ahead.
QUESTION: Yeah, hi. The State Department made the determination back in August under the CBW law, and I just wanted to find out where that process stands. The administration had, I believe, a 90-day deadline to impose a second round of sanctions on Russia. Has the administration decided which of those penalties to impose?
MR PALLADINO: This is Robert Palladino, I’m going to jump in here. This is beyond the portfolio of Assistant Secretary Fannon, but we’d be happy to take your question and get back to you with a response.
I just want to thank everybody for tuning in today. This concludes our briefing. Thank you again to Assistant Secretary Frank Fannon for joining us, and thank you all as well. Bye-bye.