22 Dec 2010

U.S. Department of State Special Envoy for Eurasian Energy Richard Morningstar: Russia should be U.S. ally in energy area

U.S. Department of State Special Envoy for Eurasian Energy Richard Morningstar has given an interview to Interfax in which he speaks about U.S.-Russian relations in the energy sphere.

Question: You have just visited Moscow and taken part in the Joint US-Russian Commission on energy issues established by the presidents. Do you see this as something that gives any results, or it’s a purely bureaucratic exercise? Do you see any achievements?

Answer: First of all, the working group has been very viable and important communication in actual work in any number of areas where we have not been working prior. The Department of Energy is responsible for areas like energy efficiency, new technologies. They have made very specific progress with their Russian counterparts. We had very good discussions with our contacts and Minister Shmatko. The work that I have been involved in has been in connection with energy security subworking group. And we also made considerable progress.
One of the areas we talked of is what is happening on energy markets, and what changes are taking place. All over the world energy is becoming more competitive. It is important that all countries diversify and that includes Russia diversifying into Asia countries like China and South Korea that are growing markets. We were talking about investment. We hope that we will have an investment conference later this spring in Moscow. This is something that was agreed at energy working group meeting back in June between Secretary Chu and Minister Shmatko. And we think there are some real opportunities relating to investment in Russia in the energy area, as well as Russian investments in the United States. I think it’s a two way street. While in Moscow I spoke not only with Minister Shmatko, Deputy Minister Denisov, but also think-tanks and investment firms. Two funds that are very active in energy area.
I think it’s an opportunity to work in areas in Russia’s interest with respect to investments. We talked about what some of those areas may be. Looking at areas that Russia feels in its interest we could also look at some regulatory issues that are of concerns like taxation.
I want to emphasize that it’s a two way street for both U.S investments in Russia and Russian investments in the U.S. We had very important discussions about various projects. Given the changes in the global energy markets, the financial crisis it is very important that we have these conversations, that we understand exactly what our Russian colleagues think and our Russian colleagues understand what we are thinking. And if we do that I think in overtime we may come to constructive win-win solutions that are in everybody‘s interest. We don’t want to play a zero-sum game.

Q.: How do you evaluate, how does the U.S. Government evaluate Russia at the global energy market? Is it an ally of the United States? Is it a neutral player? Or is it an enemy of the United States?

A.: I think Russia should be an ally of the United States in the energy area. Russia will continue as long as we can foresee to be a major player in the energy market. And that is why it is so important to do what we are now doing to constructively engage Russia. We may have differences in various times, but if we talk openly about whatever differences there may be and continue to work in areas where we can agree than we can make a lot of progress. But its not an overnight process. I think we are talking about making progress in next couple of years.

Q.: How do you estimate the demand for the Russian natural gas in the United States?

A.: We have to see how that develops. Few years ago everybody would thought that there would be a significant demand for Russian liquefied natural gas, but because of the development of the shale gas over the last couple of years we are not importing even as much LNG. If shale continues to be the major part of our energy structure it maybe that frankly that there will be less demand. And it has nothing to do with Russia.

Q.: It seems that in Russia the issues of shale gas has not been taken very seriously. Do you view shale gas as a serious source of energy in the future?

A.: Sure! The question is how much. Obviously it has been an important factor in the United States. European countries are looking closely at it too. There are a lot of unanswered questions with the respect to environmental issues: how much shale gas there actually is, what the expense would be. All of these are important issues, but our feeling is that is something that should be pursued is being pursued by countries like Poland and Ukraine. Possibly, other countries. Our advice for it worth to those countries is "yes, they ought to pursue shale." But it should be only one part of a very balanced energy policy. Because even if its possible for shale to become a major factor in those countries it will take a long time, it could take 10-15 years. But shale gas should be done alongside a lot of the other aspects of energy.
By the way, my impression is that Russia is not so negative about shale gas at this point. The people who I speak to in Russia have questions, which are reasonable questions. They want to know more and to learn more. And I don’t think that Russian energy officials and energy companies will keep their head in sand on shale. Over time they will explore the possibility and take a realistic view on that.

Q.: It seems that U.S. companies are not as active as they could in the energy sector in Russia. Or we can say that their activity is at the initial level. Is there any reason for such stagnation in energy cooperation between U.S. and Russia? And shall we expect new deals and approaches in this field? Maybe as an example of the reset in bilateral relations?

A.: It is one of areas where we want to work very much with our Russian colleagues and we hope that there will be new deals. And one of the purposes of my recent trip was to learn more about what kinds of deals in what areas Russia maybe more interested in getting Western technology and Western finance. And I think if companies look towards what Russia believes is in its interest more deals will become available, and regulatory and legal [issues] that maybe of some concern maybe more easily resolved. There are some deals in Russia. For instance, the most recent one Chevron-Rosneft deal on the Black Sea. Companies that are in Russia now feel like some issues that they have are resolvable. And companies I have spoken to are feeling fairly good about the situation. But as long as companies develop relationships of trust and communicate openly with their counterparts in Russia I think there is a very bright future.

Q.: There is an opinion that the United States is sponsoring non-government and ecological organizations that are criticizing investment and infrastructural projects in Asia-Pacific and generally in the East.

A.: If it is so I don’t know anything about that.

Q.: What is your view of the Russian energy presence in Asia-Pacific?

A.: I don’t see any reason why Russia should not be involved in that region. Russia is working closely in developing news relationships with China on energy. I mentioned South Korea – President Medvedev went to Seul a few weeks ago and offered gas to South Korea. I think it is a natural consequences of global competitive markets. Russia is going to diversify and look more and more on Asia. And it seems to me to perfectly appropriate.

Q.: U.S. companies working in Russia are quite independent in the implementation of their projects, almost at every stage, beginning with geological research up to the final product sales. Do you think that this policy is really efficient? So far there was only one project that was efficient Sakhalin-1. This year Chevron got 33% in the development of the some parts in the Black Sea. In any case do you see the risk in competition with Chinese and Japanese companies that have a completely different strategic approach to the development in Russia? They offer investments and credits first in exchange for the final energy supply.

A.: First of all, you have to understand that American companies that are working in Russia certainly operate independently from the United States government. We don’t interfere in what they are doing in Russia. And hopefully we are going to see more and more successes in American investments. One of the most successful companies in spite of the problems that they had a few years ago TNK-BP is doing extraordinary well and maybe a model for other investments. I think there will be more successes in then future. I don’t consider myself expert enough to compare Russian policy with Chinese to make publicly, or on the record any specific comments.

Q.: And my last question would be the North Stream and South Stream. What is the current attitude, the view of the United States, on these two projects? Do you support it? What is your view?

A.: First of all, on the North Stream. This project clearly going to take place, and countries like Germany will be involved in it. Previous administration liked to compare it with Molotov-Ribbentrop pact. And as a practical matter that project is up and going, and there are many countries in Europe that are doing it, and that is fine. With the respect to South Stream we have often stated that we don’t oppose the South Stream and that its really up to the countries involved. There interesting issues with the respect to the South Stream that are involved and we going to watch them closely.