Briefing on the New Bureau of Energy Resources within the Department of State

November 16, 2011

MR. VENTRELL: Good afternoon. We’re pleased today to have Special Envoy and Coordinator for International Energy Affairs, Ambassador Carlos Pascual, here to talk about the new Bureau for Energy Resources within the Department of State. Ambassador Pascual will provide some brief opening remarks followed by any questions. As a reminder, this call is on the record, and without further ado, I’m going to pass it over to Ambassador Pascual for his opening remarks.

AMBASSADOR PASCUAL: Thank you very much and thank you for joining. I really appreciate your willingness to take this time on a day that’s really quite important for us, the people who have been working on energy diplomacy and energy security issues in the State Department.

Today, we’re pleased to announce that we have officially launched and have begun operations of an energy resources bureau. The bureau was created directly as a result of the work that Secretary Clinton mandated on the Quadrennial Diplomacy and Development Review that began in 2009. At that point, she asked the Department to take a look at the challenges that the United States is going to face in foreign policy, international security, and international economics issues over the coming 25 years.

One of the conclusions of that review was that we needed to strengthen our capacity to coordinate our energy diplomacy issues in order to have a greater impact on protecting our national security and our national economic interests. In order to do that, Secretary Clinton asked for us to set up a new Bureau on Energy Resources – she mentioned this in a speech that she gave on October 14th. The bureau is up and running; it has approximately 53 personnel. These are individuals who have been working – or positions that have been with the State Department – some of them are filled positions, some of them are not. But they’re part of an allocation of resources that already rested with the State Department.

If you have the materials that I think we forwarded ahead of time, or the fact sheet and a few additional pieces, you’ll see that we’re organized around three central principles. The first of these is managing the geopolitics of today’s energy economy. We think that that is absolutely critical in understanding the market dynamics that affect stability of oil and gas markets, and that has a direct impact on our economic interests here in the United States.

The second pillar is focused on stimulating the market forces that drive the demand for renewable clean energy and energy efficiency technologies, and the financial vehicles that can stimulate their adoption. This is really critical, we feel, because the more that we can open up these markets, not only does it address long-term sustainability questions, it opens up markets for green technologies and products where the United States has a competitive advantage.

And finally, the third pillar is focused on energy access and transparency. The transparency part underscores the importance of working with countries – especially emerging economies – that have extractive industries, to ensure they benefit the populations that should benefit from those resources.

The energy access side focuses on the fact that there are 1.3 billion people in the world that don’t have access to electricity, that access to electricity and energy is the number one driver for the eradication of poverty, but that still there need to be commercially and environmentally sustainable models that allow this to happen.

Throughout all aspects of our work, we’ve really focused on markets - on market stability under the first pillar of geopolitics, of market transformation and market drivers under the second, and on market viability under the third, because even in those cases where one is looking at energy services for poor populations, someone has to be able to pay for the electricity or it’s not a sustainable solution.

In developing the bureau, we’ve worked very closely with our inter-agency partners, and as you imagine – might imagine – especially with the Department of Energy. We’ve had a very close relationship with them. The Department of Energy has unparalleled expertise on technological issues. Secretary Chu has been a tremendous leader in this area. We can complement that with diplomatic capabilities on the policy side, and on market dialogues, where at times the Department of Energy doesn’t have the personnel deployed around the world to sustain that on the same kind of ongoing basis. And so between the two of us working together, we think we can achieve much greater complementarities and much greater effect between their technological capabilities and our capabilities on the diplomatic and policy side.

We’ve worked very closely with the trade and investment agencies – Ex-Im, OPEC, and TDA – and we feel that as we can advance progress on market principles that create greater opportunities and greater economic returns for viable technologies in the electricity sector, that this opens the opportunity for U.S. business opportunities. And finally, I would just underscore that this is a real opportunity to bring together all of the various aspects of the capabilities that we have in the State Department – foreign service and civil service personnel as well as the foreign nationals that we have around the world, individuals who are highly skilled and trained in diplomacy but also in economics, but able to make the linkages between how our foreign policy interests can also serve our interests back here at home. And so in the sense that this is an area that really advances our national security interests, our commercial interests, it really is a tremendous opportunity for us to work on it and be able to establish this bureau.

So thank you for joining, and I’m happy to take your questions.

OPERATOR: Thank you. At this time, if you would like to ask your question, please press * then 1 on your phone. You will be announced prior to asking your question. To withdraw your question, press * 2. Once again, to ask your question, press * then 1.

Our first question is from Josh Rogin with Foreign Policy.

QUESTION: Hi. Thanks so much for taking the time, and congratulations on the new bureau. I’m wondering if you can sort of tell us if this transition, this effort, how much is this planning to cost, how has this been budgeted, and what kinds of funds are you seeking for FY 2012 and beyond? Thank you.

AMBASSADOR PASCUAL: Josh, thanks. The creation of the bureau is actually established with existing resources, internally within the Department. We’ve reallocated, as I mentioned, a total of 53 personnel, and the costs associated with those individuals have already been part of the State Department budget and become transferred into our budget. There is a small operating budget that we have initially, which will be in the range of 10 million dollars or so of resources that began from FY11 funds. The intent of this is to be able to jumpstart relationships that range from extending technical assistance and environmental expertise on issues such as the development of shale gas, and supporting or initiating dialogues on power market reform, on working with governments on setting up more transparent mechanisms for governance of energy resources.

For the future, we’ll have to continue to work with the U.S. Congress as part of the overall budget efforts to see what the resources – resource allocations may be. But one of the things I would just underscore is that, in addition to the other partners I mentioned, the Department of Energy and the trade and investment agencies, we’ve worked very closely with USAID because the full expectation is that if there are individual country initiatives that turn into deeper and longer-term programs, that AID would then take responsibility for that and bring their resources to bear for technical assistance.

A good model of this is work that we are already doing now in Nigeria, where I have been chairing an energy working group. I’ve invited the Department of Energy, my counterpart there, David Sandalow, who is Assistant Secretary for Policy and International Affairs, to join with me in that. We’ve had an initial set of exchanges with the Nigerians on oil and gas issues and power market reform issues. AID has been providing extensive technical assistance on reform of their power sector. Recently, Fred Hochberg, the president of Ex-Im Bank, was just in Nigeria, and a good deal of that visit was set up by some of the policy discussions that we already had. We were able to introduce OPIC into these conversations to see if there are opportunities to finance the possibility of U.S. investors, principally on the power sector reform side. And we’ve been able to work on issues that range from oil and gas to the flaring of gas to the development of power markets, and have been able to incorporate a wide range of U.S. actors that I think are going to be able to bring more effective results than any individual agency acting on its own.

QUESTION: Thanks. So just a very quick follow-up. So does the position of Office of Special Envoy for Coordinator of International Energy Affairs go away? Will you be dual-hatted? Will you be an assistant secretary level? Will you seek Senate confirmation? And who do you report up to? Thank you.

AMBASSADOR PASCUAL: The position of coordinator and special envoy remains. The position of coordinator was created by law. Senator Lugar in particular was a prime mover in trying to focus greater attention on the role of energy in American foreign policy when he proposed legislation in this direction in 2006. The bureau will report to me as the Coordinator for International Energy Affairs. I will work through Bob Hormats so that we have close coordination of all of the energy issues with our economic portfolios. And as you might imagine, I work very closely with Kerri-Ann Jones and – the Assistant Secretary for Oceans, Environment and Science, and with Todd Stern on climate change issues. So whether other things and what might happen with the bureau, those aren’t my decisions and we’ll just leave those to others to speak for.

QUESTION: Thank you.

OPERATOR: Once again, for your question, please press * then 1 on your phone at this time. The next question is from Tim Gardner with Reuters.

QUESTION: Hi, thanks for having this. You mentioned transparency, and the United States is often thought to have the best oil and energy data that’s put out every week. I mean, how much will this office be working with IEF and other forums to increase energy data in Europe and Middle East and other places in the world where better knowledge about what people actually have produced and produce and use can keep oil and gas markets calm?

AMBASSADOR PASCUAL: Tim, that’s a really good point and it’s an issue that we’re very deeply engaged with both directly with other countries and through other bodies. First is the importance of the International Energy Agency and the role that they play in standardizing and collecting data from all of the member OECD countries, and they increasingly have reached out to try to standardize that data as well from other partners that are not full members, including Russia, China, India, Mexico, Chile, and a few others being among the most important.

We, in fact, have a couple of our colleagues who are going out to the IEF meetings in – boy, I forgot if they were in Riyadh or in Dubai next week – wherever they are in the Middle East next week. And we will continue to work with them – through them on that. We are also in – deeply involved in IRENA, the International Renewable Energy Agency, because it’s important for the ways that they collect data and information on renewable energy.

We have become involved in UN Secretary General Ban Ki-moon’s Sustainable Energy for All Initiative because we feel that it is a critical initiative in looking at extending access of energy to those who do not have it, but as part of that being able to get good data on both the populations that are the key targets as well as the development of models that work and have a potential greater impact for scalability and replicability in developing countries is especially important. And it points to yet another part of the challenge, which is to be able to get good data on finance. Because in the end, all of these issues have to be linked back to financial markets and the availability of capital for investments in the development of conventional energy, the development of power, and the development of renewable energy as well.

QUESTION: Thank you.

OPERATOR: Thank you. Again, for your question, please press * then 1 at this time. Darren Goode with Politico, your line is open.

QUESTION: Hi, thanks for doing the call. I was just hoping you could clarify, does the bureau have anything to do at all with the Keystone XL review? And if so, how will it be involved?

AMBASSADOR PASCUAL: Darren, I’m recused from working on the Keystone issues, so the short answer is that no, that I’m not involved. And if there are any more detailed questions that you have, then our press office can get back to you on that. But it’s an area that I have not engaged in.

QUESTION: And you said earlier that you’d be working closely with people like Todd Stern on climate change. Is climate change something that is kind of wrapped into what the new bureau is going to be doing at all?

AMBASSADOR PASCUAL: I think one has to understand climate change issues and the interrelationships between energy and their impact on climate. Energy, the way we use it, the way that we produce it, is one of the principal causes for CO2 emissions, and the types of energy that are used and the incentives that are created for the use of energy are obviously going to have a very direct impact on our climate change goals. Todd is the lead person and will remain the lead person on all the climate change negotiations. But it’s important that he work with counterparts who are also working with energy policy and incentives that are created in – within energy markets on the types of energies, the forms of energy that are utilized on those basic fuels, and the type of generation capability – power generation capabilities that are used in different countries. And so we have thus far actually found it very helpful to be able to work together. I hope that I can be helpful to him to add a reality check on climate change negotiations, on how that translates back into different energy sources and their market viabilities, and I hope that the work that I can do on the market side and the policy side on energy can also facilitate and inform the work that he does on climate change.

QUESTION: And also, I’m sorry, just to clarify, when you said that you were recusing yourself from the Keystone review, is that because the review was already ongoing and there are already people that were doing it? Or is there –

AMBASSADOR PASCUAL: That is correct. There’s already been an established process and individuals involved in that process.

QUESTION: Okay. Thank you.

OPERATOR: Thank you. Again, for your question, press *, then 1 at this time. One moment.

Tim Gardner with Reuters, your line is open.

QUESTION: Thanks again. So, I mean, in terms of the U.S. trying to work with OPEC producers, I mean, in the last month or so, oil has gone up to above a hundred, and it’s – we could be seeing 113 again, like we saw in the spring. I mean, is this going to be the top place in the U.S. Government to be dealing with OPEC producers? And if so, what is the message they would be giving to OPEC should oil prices stay high?

AMBASSADOR PASCUAL: We will be working very closely together with OPEC producers as well as other energy producers. We’ll be doing that in close coordination with the Department of Energy. Both the State Department and the Department of Energy have a role and a mandate on promoting market stability in global oil markets. The Department of Energy obviously has direct responsibility and oversight on any domestic actions or recommendations on domestic actions that should be taken on the use of strategic reserves. We both participate on the board of the International Energy Agency, which is a key international body, especially for the coordination among consumers, on any kinds of actions that are taken to promote market stability.

In terms of the type of dialogue that we want to have, it has to go across the board and not just the OPEC countries. It’s important for us to understand that in a global market of 89 million barrels a day, the levels of spare capacity are much smaller. There are different estimates of what that spare capacity might be that range from two to five million barrels a day. But the point of it being that it’s relatively small, and that’s why disruptions on the level of one and a half million barrels a day when Libya came off the market had such a – had such a large impact.

The challenge that we face now is to sustain the dialogue with major producers – with countries like Russia, which is not an OPEC country; with Saudi Arabia, which is, on what their production plans are, what their interests are; with other countries that have an ability to bring additional resources onto markets, and that’s why we’re closely following the developments in Libya and Iraq; with countries that have the potential to produce more, especially if they could work through certain policy constraints. Nigeria is one of those key countries. And then there are, of course, countries such as Brazil that have tremendous resources capabilities that could potentially come online in future years. And so working with those countries to understand the commercial context in which international companies can participate is particularly important.

There isn’t a single, simple answer on how one addresses this. But as many of the complex issues that we face in global politics and global economics, one has to understand both who the key players are, but also on that marginal barrel, that extra barrel at the end that can be added, one has to understand who those potential producers are and maintain the relationships with them as well. And so that is part of what we will be seeking to do. And as I mentioned before, we will be working on that and coordinating it very closely with the Department of Energy.

QUESTION: Thanks. And if I could do a quick follow – I mean, we’ve seen Saudi Arabia go to using a million barrels a day or more just for their power. I mean, you talked to – you’ve touched on power, working with producers in reforming their power – domestic power. Is that something that this group might do, work with Saudi to get its power off of crude oil, off of burning crude oil?

AMBASSADOR PASCUAL: Well, as you know, the issue of liquid fuel subsidies has been an important part of the G-20’s initiatives. It has had – has met with extensive progress in a number of countries. And in some regions of the world right now, it’s complicated. But one of the things that can be an important part of a dialogue that we have with Saudi Arabia is – are the developments in global gas markets.

One very important possibility for both oil and coal is if there is a wide expansion of natural gas on global markets. Already, we have seen that some key producers, such as Russia, are seeking to increase their production radically, on the scale of about 75 to 80 percent over the coming 20 years. There are countries such as Australia and Indonesia that will be bringing extensive quantities of natural gas onto global markets. There are new developments, as we’ve had here in the United States, on the production of shale gas, where we have an interest in seeing it developed in a way that is environmentally sound and sustainable and, if that becomes a possibility, to expand global markets as well.

What we may also see is a continuation of a trend of gas moving from just trade principally in pipelines to trade as liquid natural gas. In the last two years, LNG trade has grown about 20 to 25 percent, while pipeline trade in gas has either stayed flat or, in some cases, actually diminished. The importance of this is that it presents countries like Saudi Arabia or Kuwait an opportunity to look at other alternatives for power generation and desalination that might allow them to make different uses of their oil resources. These are choices that they would have to make but could present them with options. It could present countries like China an opportunity to either mitigate their consumption of coal or to switch from coal to gas, which would have a significant environmental benefit, because gas has about half of the CO2 content.

So that is an issue that we’re addressing very seriously. We’re doing it on a bilateral basis with countries. But we’ve also been working with other actors, such as the IEA, which has just recently completed an outstanding analysis on the potential for gas supplies in the future.

QUESTION: Thank you.

OPERATOR: At this time, there are no further questions. Thank you for participating in today’s conference. Please disconnect your phone line at this time.