Remarks at the International Energy Arbitration Conference

Remarks
Richard W. Westerdale II
Senior Advisor, Bureau of Energy Resources
Houston, TX
January 19, 2018


Greeting/Introduction
 

  • Thank you to the Center for American and International Law as well as the International Chamber of Commerce for hosting this event and allowing me to speak here today.

The world has changed

  • We are living in a time of dramatic change in the global energy sector. The picture of supply and demand that most of us envision has been shattered.
  • Technology, entrepreneurship, good policy and commodity prices have radically reduced U.S. oil import dependence and have changed the geography of energy.
  • Energy sits at the nexus between national security, economic development and environmental responsibility –as it always has.
  • We now live in a global economy with interdependent energy markets. Energy shortages, price volatility or market supply disruptions anywhere threaten economic growth everywhere. We all remain energy interdependent.
  • For these reasons we are emerging from four decades, since the oil embargos of the 70’s, of energy scarcity. Today, we are entering a new era of energy abundance and collectively, it is in everyone’s best interest to ensure that all nations are able to meet these same basic needs that are represented by the nexus of energy.
  • This fundamental change increases geopolitical stability (or national security) and fosters economic growth globally. It is a good news story for the U.S.
     

What’s on the Horizon?

  • I know many of you are interested in hearing about what this Administration’s energy policies mean for U.S. industry and our relationships around the world.
  • But first, I want to emphasize one core principle of this Administration.
  • President Trump has been unapologetic, as highlighted in the recently released National Security Strategy, “that (my) Administration would put the safety, interests, and well-being of our citizens first.”
  • An America First Energy Plan holds true to this core principle and acknowledges our “Energy Dominance” as the World’s leading energy producer, consumer and innovator.
  • We have the opportunity to think creatively about continuing to work together with our friends and allies to achieve our collective energy and broader economic policy goals.
  • And what are our collective energy and broader economic policy goals? Quite simply, through diplomacy, we will seek to :
  1. Remove barriers to energy development and trade;
  2. Promote U.S. energy exports, including resources, technologies, and services; and
  3. Ensure economic and energy security for the U.S. and our allies and partners.
  • These goals are focused on boosting domestic energy production, creating jobs at home and streamlining or eliminating certain regulations and restrictions.
  • At the Bureau of Energy Resources at the U.S. State Department, we address the pivotal intersection of energy and foreign policy.
     
  • We seek to ensure U.S. leadership on global energy issues. We respond to energy challenges from around the world that affect American prosperity and U.S. national security. U.S. national security is threatened when:
    • Our allies lack reliable access to diversified, affordable and reliable energy;
    • Foreign energy markets shut out U.S. companies;
    • Poor governance prevents market-based energy solutions;
    • Competition for energy leads to conflict; or
    • Terrorists and rogue regimes exploit energy resources to fund violence and destabilizing activities.
       
  • But before I delve further, let me set the scene by providing some background on the global energy landscape of today.

Change in Oil and Gas Markets

  • The oil and gas landscape has rapidly evolved over the past decade.
  • In the last ten years, the United States has:
    • Nearly doubled its oil production.
    • Increased natural gas production by 40 percent and
    • Transformed from being a natural gas importer to a natural gas exporter, including in LNG.
  • The EIA now projects that in 2018, the U.S. will have historic levels of oil production and exports (an average of 10.3 million b/d in 2018 would mark the highest annual average production in U.S. history, surpassing the previous record of 9.6 million b/d set in 1970 – 1/9 STEO).
  • Also, according to the recently released IEA’s 2017 WEO, the resilience of unconventional resources in the United States cements the U.S. position as the biggest oil and gas producer in the world, even at lower prices.
  • Today we’re producing 775 billion cubic meters of natural gas annually and according to the EIA, U.S. natural gas production is on its way to nearly 1 trillion cubic meters a year as soon as 2025.
  • These trends culminated in a historic first for the United States when, in February 2016, the United States exported its first LNG shipment from the Gulf Coast. Since then, over 225 cargoes have left Sabine Pass reaching more than 25 countries around the world.
  • There is more U.S. LNG on the horizon. DOE has authorized 21.33 billion cubic feet per day of natural gas that can be exported to non-FTA countries from facilities that are both under construction and proposed.
  • That translates into approximately 220 billion cubic meters of LNG. To put it into perspective: that quantity equals about a quarter of U.S. or half of the EU’s total natural gas consumption in 2016. Looking at it another way, Russia in 2016 exported approximately 160bcm to the EU.
  • By 2020 the United States will be approaching nearly 100 bcm a year in LNG export capacity. It’s amazing to think that in 2010 we were still building LNG import terminals!
  • I know those of you here don’t need me to tell you that the oil and gas revolution in the United States has had a global impact.
  • Thankfully, as natural gas markets become increasingly competitive and efficient, the world wins. Well-functioning gas markets reinforce global energy security, foster environmental stewardship, and advance U.S. economic and commercial interests abroad.
  • In short, what’s happening domestically in the United States, is having an incredible impact on foreign affairs.

Change in the Coal Markets

  • Given the 1.3 billion people in the world today without access to consistent forms of energy, coal will remain an integral part of the global energy mix, especially in developing countries as we have seen in China and India.
  • While the expectation is that the percentage of coal used in the global energy mix will decline over the next two decades, the absolute amount of coal consumed globally is expected to continue to grow.
  • In contrast, the U.S. sits on more than one fifth (22%) of the World’s coal endowment and yet, we only produce 9 percent and export less than 1 percent of the coal produced globally according to the IEA’s Coal 2017 report.
  • This presents a real opportunity for the U.S. and our challenge is how to best position American resources to compete in this global market and to ensure that there is a level playing field abroad for U.S. companies.
  • The ability of U.S. resources to compete on the global stage is in part driven by logistics and finding cost effective ways to get our product to market.
  • Further, our research and development is second to none when it comes clean coal technology. Such technologies will allow coal to remain competitive within the changing regulatory environments abroad.
    • A great example of this is the Petra Nova Project right here in Houston. Petra Nova is the world’s largest post-combustion carbon capture system that captures over 90 percent of the carbon dioxide released from the equivalent of a 240 megawatt, or million watt, coal unit, which translates into 5,000 tons of carbon dioxide per day or over 1 million tons per year.

Administration’s Foreign Energy Policy Priorities

  • When it comes to energy, the Trump Administration’s foreign policy focuses on three core tenets: 1) opening markets and removing trade barriers, 2) promoting exports of energy resources, technology and services, 3) and – importantly – ensuring the energy security of the United States and our allies and partners.
  • The Administration is committed to our national security.
  • The State Department has backed global projects that encourage diversification of fuel types and technologies, supply sources (countries of origin) and delivery routes. We continue to invest both our diplomatic capital and technical assistance resources in ensuring that countries achieve their own goals for energy security. Some examples:
    • The U.S. is a staunch supporter of European energy security, which is critical for ensuring Europe’s role as a forceful partner with the United States in meeting global challenges, such as Russia. This includes Ukraine, where natural gas is key to the country’s national security.
    • In the Eastern Mediterranean, the successful exploration, production, and export of natural gas resources will increase regional cooperation and energy security in the Middle East and beyond, and could serve as a catalyst for increased political stability in this strategically vital region.
    • North Korea is one of the starkest security challenges the United States faces and here too energy policy has a role to play. As a result of our engagement with China, we achieved a UN prohibition on all North Korean coal exports in August last year, removing over $1 billion of annual revenue from the regime’s coffers. More recently, the UN Security Council unanimously voted to impose further energy sanctions, for oil and refined product, to expand pressure on North Korea to return to negotiations aimed at achieving complete, verifiable, irreversible denuclearization.
    • Other parts of Asia – from Singapore to Tokyo – see opportunities for increased collaboration to enhance regional energy security through the growing supply of U.S. LNG. Our partners in the Asia Pacific view U.S. LNG exports to the region as a tool for diversifying their energy sources and ensuring access to a reliable source of supply as they strive to create a more integrated global gas market.
    • In Nigeria, the United States supports the Government of Nigeria’s energy sector anti-corruption agenda. Reforms in this sector will increase government revenue, crucial in the fight against the terrorist organization Boko Haram, address instability in the Niger Delta, and ensure that outside investors, including U.S. firms, are paid for their investments.
    • And, closer to home, in Central America and the Caribbean, the United States is seeking to increase energy trade and such development will benefit the United States as well as the countries of the region because it will enhance their energy security while creating new opportunities for globally-competitive U.S. energy firms and exports as viable alternatives to the long held influence of Venezuela thru Petrocaribe.
  • So, as you can tell, energy security remains at the forefront of the Department’s foreign policy.
  • Look closely, however, and you will also notice overlap between energy security and the Administration’s emphasis on trade and exports.
  • Investing in American energy, for example, not only helps our allies maintain their energy security, but it also strengthens our economy and helps create jobs. This represents a true win-win for everyone involved.
  • And that is what I really want to hone in on today – how do we unlock the United States’ full economic potential?
  • The State Department advances Administration priorities through old-fashioned advocacy, identifying new markets, and our broader technical assistance.
  • Technical support to countries with the capacity and will to pursue energy sector reform can spur private investment and U.S. energy technology exports.
    • That’s why we assist corporate governance reforms of Ukraine’s state owned energy companies to reduce reliance on Russian gas imports, promote privatization of inefficient state-owned-enterprises, accelerate reforms to combat rampant corruption, and assist Ukraine in meeting EU standards and commitments.
    • In the Caribbean, for example, by (1) integrating resource planning efforts and regulatory reforms and (2) encouraging governments and utilities to make transparent and economically viable decisions, we’re helping to mitigate risk for U.S. investors and deliver lower costs for consumers.
    • In Central America, we are working to enhance regional electricity integration, which will serve to strengthen energy reliability and lower prices. More broadly, enhanced integration will provide opportunities for U.S. business, while strengthening the regional economy and, in turn, reduce the factors that drive illegal immigration and illicit trafficking to the United States, and make doing business in the region so costly.
    • Bringing energy to Africa can unlock tremendous economic opportunity. Six hundred million people in Africa still lack electricity access. LNG discoveries – in Africa and around the world – present new opportunities for domestic gas-fired power generation and will support economic growth but these discoveries also come with the challenge of avoiding the resource curse.
  • Advocating on behalf of U.S. energy companies in the hydrocarbon, renewable, and energy efficiency sectors is another way we advance U.S. economic interests and trade. Historically, these efforts have translated into U.S. firms winning bids and securing billions of dollars in contracts around the world.
  • In addition, the Department of State works to resolve political tensions affecting U.S. firms; and facilitates the payment of arrears and resolve unfair tax liens against U.S. companies.
    • During an ENR-led U.S government roundtable with the Nigerian Minister of State for Petroleum Resources and senior Nigeria National Petroleum Corporation leadership, the Minister announced that Nigeria paid its first $400 million of the $5.1 billion owed to IOCs.
  • And at times, there is a simple need to inform our international counterparts about our policies and regulations.
    • Many of you probably took note when the White House announced the initial results of the 100-Day Action Plan of the U.S.-China Comprehensive Economic Dialogue, which welcomed China, as well as any of our trading partners, to receive imports of U.S. LNG.
    • The dialog went beyond just energy exports of LNG and included a candid reinforcement of the principles of open and efficient markets, free of manipulation, which relates directly to China’s influence in the global coal market.
  • Why is that? Because we have taken an all the above approach to energy where free and efficient markets combined with sensible regulations and U.S. ingenuity (R&D) as well as strong capital markets make such things possible.
  • This was true of the Shale revolution and certainly can be true of hydrocarbons in general under this Administration.
  • We want to work with our allies and partners to seek common ground and develop a way forward on this important issue.
  • As Secretary Tillerson noted, “Enhancing energy security by ensuring access to affordable, reliable, diverse, and secure supplies of energy is fundamental to national security objectives."

Conclusion

  • To state something that is widely-recognized but yet sometimes overlooked: the United States has a competitive edge in all segments of the energy sector and this advantage translates into American jobs and investments into U.S. infrastructure.
  • So you can expect this Administration to highlight the competitiveness of U.S. energy exports and anticipate that we will do everything we can to promote internationally the exceptional skill, expertise, and technology that reside in the U.S., in order to unlock the United States’ full economic potential.
  • And regarding our collective energy and broader economic policy goals, we will seek to remove barriers to energy development and trade; promote U.S. energy exports, including resources, technologies, and services; and ensure economic and energy security for the U.S. and our allies and partners.

Thank you