Remarks by DAS Sandra Oudkirk, Bureau of Energy Resources, at Martens Centre in Brussels

Deputy Assistant Secretary Sandra Oudkirk’s Remarks at Martens Centre Event:
Economics vs. Geopolitics? Nord Stream 2, Ukraine, and Europe’s Energy Security
Brussels, March 20, 2018

Energy security is fundamental to the stability of our transatlantic relationship; it’s fundamental to U.S. national security and economic prosperity for all of us. It’s a critical component of achieving a strong and free Europe and the United States is ready to carry on our tradition of support for the continued success of Europe.

Energy is unique in foreign policy in that it is an area where nations can work together to develop practical, technical solutions to political problems. But these solutions require steadfast commitment, they require ongoing support, and in many cases, they really call on nations to set aside immediate, parochial concerns and to look at the good of a region or a sub-region.

My bureau, the Bureau of Energy and Natural Resources at the Department of State, is the newest, smallest bureau at the State Department. We were created six years ago as part of a Quadrennial Diplomacy and Development review. And I think it’s helpful to look back at what has happened over the last six years as a demonstration of the ways that the United States can exercise policy in support of European energy security.

There’s been major progress on the Southern Gas Corridor.

There have been significant reforms in Ukraine’s energy sector.

We have diversified gas supply routes and sources to Ukraine, many of them through reverse flow pipelines out of Europe.

The Baltic region, which has traditionally been an “energy island,” is now more secure thanks to the deployment of an FSRU, the Independence at Klaipeda Lithuania; and we have made substantial progress on fully integrating the Baltic states with the Continental European power grid.

There has all been a commissioning of a strategic LNG terminal to serve Polish and Central European markets in Świnoujście Poland.

There is also a more focused list of EU priority infrastructure projects including the Trans-Adriatic Pipeline, the Greece-Bulgaria Interconnector (IGB) and an FSRU at Krk Island in Croatia;

We have also developed impactful sanctions in cooperation with Europe targeting Russia’s energy sector that call out Russian transgressions in a variety of areas, but most specifically with regard to aggression in eastern Ukraine, and the annexation of the Crimean peninsula.

And then finally there’s been the South Stream project, which was cancelled. It would have run counter to Europe’s energy diversification goals, and we’re glad to see the end of that.

Throughout this entire multi-year process, the United States has demonstrated a long-term policy commitment in support of European energy security as defined by European institutions. This has been a policy that the United States has been pursuing arguably for decades.

And one thing that I would like to do in my prepared remarks is dispel the notion that U.S. energy security policy with regard to Europe and specifically U.S. policy with regard to the Nord Stream 2 project is all a sneaky plot to sell U.S. LNG to Europe.

The United States is a brand new LNG exporter. First exports happened in 2016. First permitting began in 2014. Our opposition to projects like Nord Stream 2, which cut at the core of Europe’s efforts to diversify sources and routes, long predates the United States emergence as an LNG exporter. As recently as seven or eight years ago, the United States was expected to be an LNG importer. We were building import terminals on the Gulf of Mexico designed to bring LNG from Trinidad and Tobago to the United States. Some of those terminals have been turned around and they’re now exporting gas, but this is a new advent.

The shale revolution in the United States was indeed revolutionary. And although the IEA will tell you that they foresaw this in 2009, it was not widely believed until it actually happened. And I’m seeing some of you from the oil and gas industry are shaking your heads, because it really, it did come as a surprise. I think to both policymakers and to industry it was a very welcome surprise. The United States is now the largest gas producer in the world. Admittedly, most of that gas is consumed in the United States. But the advent of the United States as a gas producer and exporter has changed the equilibrium in global gas markets. And that is a long-winded way of saying that even though we’re happy to sell natural gas to anyone who would like to buy it at competitive prices, this is all not a sneaky plot to sell it to Europe.

U.S. support for European energy security is a foundation of the transatlantic relationship. For the last three decades, the United States has supported infrastructure development and regulatory reforms necessary to enhance European energy security and these reforms have received bipartisan support in the United States from successive administrations that quite frankly share very few other policy aims. And I think that that’s important to point out, because this support from the United States is steadfast and enduring. We have supported our European partners as they pursued initiatives like the European Energy Union, the Third Energy Package, as well as infrastructure projects that will ensure that no country from outside the European Union, including the United States, would be able to use its position or resources as a geopolitical weapon.

And this is central to the discussion about projects like Nord Stream 2. At the Three Seas Summit last July in Warsaw, President Trump made it very clear when he said, “the United States will never use energy to coerce your nations, and we cannot allow others to do so.” There are countries in Europe who remain vulnerable to coercion. Over 40% of total European gas imports come from Russia, 11 European countries are dependent on Russian gas to meet more than 75 percent of their annual gas imports. Many of these countries view this dependence as a national security threat, and are working to diversify their energy infrastructure

U.S. policy on Nord Stream 2 is very clear. The United States opposes the implementation of Nord Stream 2 and a second line of Turkish Stream. Deputy Secretary of State Sullivan stated in Kyiv last month:

We advocate for a strong, independent, self-sufficient energy future for Ukraine. One that is not dependent on Russia and subject to being an instrument of Russian aggression. We are against the Nord Stream 2 pipeline for that very reason, which would for the European continent undermine our goals of energy diversification and energy independence but at least as significantly it would undermine Ukraine.

And I think all of us have read in the news about the recent Gazprom actions following the decision by the Stockholm Arbitration Tribunal. These actions give us a further reminder of Russia’s objectives to not only hurt Ukraine, but to use the resources it commands for economic and political leverage. And bear with me as I drag everyone through this, because there may in fact be someone in the room who doesn’t have the history. On February 28, the Stockholm Arbitration Tribunal awarded $2.56 billion to Naftogaz and on March 1 Gazprom elected not to supply Ukraine with gas that was due to be delivered. The announcement was made approximately 5-10 minutes before the deliveries were due to begin, leaving the transmission operators little to no time to respond. This was gas that Naftogaz had pre-paid for, according to Gazprom procedures and in accordance with the Stockholm Arbitration court’s supply case award, which was issued in December of last year. At the same time, and in the run-up to this, Gazprom had been making pressure in the transit pipe extremely volatile, which put the actual gas transit infrastructure at risk, and therefore supplies to Europe.

I think we can see from this that gas for Russia is not just a commodity to be traded, it’s not just a source of export earnings; it is a foreign policy tool. But in this case, despite Gazprom’s best efforts, Gazprom was unable to portray Ukraine as an unreliable transit partner. Because in response to Gazprom’s politically motivated action, Ukraine took a strong and unified approach. The citizens of Ukraine pulled together in response to a request from Naftogaz to diminish demand, one of the coldest weeks of the year. Gas consumption was cut not by the 5% goal, but by 14%. People turned down their thermostats. Schools closed. And as a result, Naftogaz was able to transmit every molecule of gas that had been contracted to Europe. This sort of reaction by both the transmission system operator and the people of Ukraine really underscores who is using gas as economic leverage. And quite frankly I think it underscores that it’s not Ukraine using it as leverage.

Actions like this, though, do make it clear why the United State views Nord Stream 2 as a geopolitical threat to the European countries who would depend on gas supplies from Russia. Building Nord Stream 2 builds in for Europe and those European countries who would be receiving the gas infrastructure dependency for a generation. It’s billions of dollars in construction and the infrastructure will be good for 30-40 years. So right now, Europe has at its fingertips the ability to make a decision to build in vulnerability or to make another choice. And the United States would encourage our European partners to make another choice.

Russian efforts have extended beyond the traditional military campaign that we saw in Crimea and that we’re seeing elsewhere. And they encompass a suite of what I have learned everyone in Europe calls “hybrid tools.” And that includes the energy sector. These tools are used to spread malign influence among traditional diplomatic, civil society, commercial, and economic channels as a means of political coercion. There was recent analysis by the U.S. Congress that has shown that Russia engaged in coordinated disinformation campaigns to undermine U.S. energy policy and indicates that these same trends are evident in the energy sector in Europe. This is alarming. And Nord Stream 2 and a multi-line Turkish Stream fit this model and show symptoms of a malign influence and disinformation trends.

In addition to those problems, there is the fact that Nord Stream 2, by concentrating two-thirds of Russian gas imports to the European Union through a single route would create a choke point that would significantly increase Europe’s vulnerability to a supply disruption. And I would like to talk about two factors that make this concentration of supply particularly problematic. This first is: there are large-scale chemical and conventional munitions dumped along the prospective path of the pipeline through the Baltic Sea. And also, we have seen an increasingly aggressive military posture taken by the Russian Federation in the region over the past two years.

Full implementation of both the second stream of Turkish stream would allow Russia to end gas transit through the Trans-Balkan pipeline, which delivers gas to Bulgaria, Greece and Western Turkey via Ukraine, Moldova and Romania. And if fully realized, a multi-line Turkish stream to the south combined with Nord Stream to the north, would give Gazprom the technical capability to end gas transit through Ukraine by the end of the decade.

This would cut a vital link between Ukraine and the West. It would deprive Ukraine of about $3 billion, or about 3% of GDP. And this is at the very same time the European Union and the United States are directly assisting Ukraine with taxpayer dollars, as it pursues its energy security goals. Our programs have helped Ukraine reform its energy sector, reduce corruption while increasing government revenues; they’ve helped increase energy efficiency and domestic gas production and reduce reliance on Russian sources of nuclear fuel.

One thing that’s interesting to me is that supporters of Nord Stream 2 and Turkish Stream often argue that these projects are necessary because there’s going to be a future import gap. But we don’t see that as likely, in large part because Russia has announced that it intends to stop transiting gas through Ukraine, so we believe that the exact same molecules that are currently transiting Ukraine would simply go by different routes. That is not a solution to an import gap. And furthermore, the existing pipeline infrastructure coming into the EU, combined with LNG terminals, many of which are being under-utilized, fully cover anticipated demand. So I think that it is important to note that although the Nord Stream 2 proponents describe this as a purely commercial product, there are both energy and national security concerns related to the project.

It is worth noting that the Danish parliament has passed legislation that would give the Danish government the ability to weigh national security concerns in determining whether to authorize the passage of any pipeline, including Nord Stream 2 through Denmark’s territorial waters. Sweden and Latvia have denied Nord Stream access to port infrastructure, citing acute national security concerns given the aggressive Russian military posture in the Baltic Sea. We welcome the efforts of our European partners to fully scrutinize all the merits of the project, the pros and the cons, as well as the efforts of those who are calling for application of the Third Energy Package to the entirety of Nord Stream 2, both onshore and offshore.

The United States cooperates with European partners and supports many of the projects the EU has identified as Projects of Common Interest. These projects, many of them, advance Europe’s own energy diversification goals and will therefore also strengthen Europe’s energy security. In many, if not most of these cases, there is absolutely no U.S. nexus: no U.S. contractor, no U.S. supplies, no U.S. involvement. We’re not exporting goods, technologies, or services. We have nothing to gain from these projects but a stronger, more stable partner in Europe. And that is what’s most important to us in this national security calculation.

Our support, as I said earlier, for European energy security goes back decades. In looking at the totality of what the United States and Europe have partnered on in terms of energy security over time – the diversification of sources, supply routes, types of fuel – we see that the United States supports Europe and each Member State in their individual energy transformations. We stand resolutely with Europe as it seeks to diversify. And we certainly hope Europe does not lose this opportunity to build in more diversification and move away from the vulnerable position that it is in today.

Thank you very much.

 

The livestreamed video of this event can be found on the Wilfried Martens Centre’s Facebook page.