US DOS official: Ukraine event in 2009 prepared West for 2014 faceoff

Russia’s decision to curtail gas supplies to Ukraine—and ultimately, Europe—in January 2009 helped lay the foundation for more effective US and European responses to a similar showdown more than 5 years later, a US Department of State official said on Apr. 28.

“What we’ve learned in the last 4 weeks is that we can move quickly in a crisis,” said Amos Hochstein, DOS’s deputy assistant secretary for energy diplomacy, during the opening session of a 2-day conference cohosted by the Atlantic Council and the Visegrad Group. “We need to look now beyond Russia and Ukraine to other countries trying to make their foreign energy supplies more diverse.”

Allowing US exports of LNG likely won’t have an impact on the current Russian-Ukrainian confrontation because the first US LNG export facility won’t be operating for at least another 2 years, he continued. “But the gas the US didn’t import from places like Trinidad and Tobago found new destinations,” Hochstein said. “It also helped several European nations renegotiate prices with their foreign suppliers.”

The US had to confront an overseas energy supply crisis early in 2009, as a new administration prepared to be sworn in, that was different from those in the 1970s because it did not involve crude oil or members of the Organization of Petroleum Exporting Countries, he noted. One of Hillary R. Clinton’s first acts when she became Secretary of State was to order creation of an energy bureau, which has since grown to 90 people from three, Hochstein said.

He said that while the long-cherished goal of achieving US energy independence has become outmoded, “relying more on our neighbors than on more distant foreign suppliers has an impact, although it’s too soon to say what it is.” But, he said, “the latest Ukraine crisis has shown how close our energy relationships with Europe have become by how well we worked together the last 4 weeks.”

More needs to be done, Hochstein maintained. “We need to talk about new infrastructure and LNG terminals,” he said. “There are many potential projects, but we need to make them bankable. If there isn’t more gas to put into them, new infrastructure projects won’t happen.”

Roles for government

Governments will need to be involved because energy and national security are closely related, another speaker suggested. “The US has an incredible natural gas story because of its private sector, but much of its success can’t be applied to Europe,” said Brenda Shaffer, a professor and visiting researcher at Georgetown University’s Center for Eurasian, Russian, and East European Studies.

“Its private sector may not be interested in storage, reversing pipeline flows, and similar projects because they don’t make as much money as production,” she observed. “Governments can play a role here. Commerciality has to work. Some of Europe’s biggest gas storage facilities are in Ukraine itself, and its situation would be improved if it managed them better.”

This was confirmed by Szaboics Ferencz, senior vice-president for corporate affairs at MOL Group in Budapest. “There is a need for diverse supplies,” Ferencz said, adding that 2014 “was supposed to be the year the European gas market was functional, but it hasn’t happened yet. Maybe the Ukraine crisis will stimulate action.”

MOL, which is 25% owned by Hungary’s government, buys crude from Russia for its refineries, he said. “No private company can delink its security from the government’s, so it’s good to promote infrastructure development,” Ferencz said. “Even though we could run one of our refineries using [Caspian Basin crude transported through the Trans-Adriatic Pipeline] exclusively, which would be fine strategically, it would be a disaster financially because Russian oil is so much cheaper.”

Meanwhile, LNG exports could become a bigger US domestic issue if the Environmental Protection Agency’s new coal-fired power plant regulations create more gas demand, noted a fourth panelist, Coral Davenport, who covers energy and the environment for the New York Times. “I think meeting EPA regulations and keeping gas prices affordable will matter more the next few years,” she said.

Hochstein said, “Gas supplies from Russia to Europe aren’t going away. But the mix can be changed so more of Europe’s supplies come from other sources and are used more efficiently. Both the US and Europe have taken major steps in that regard the last few years, and it’s had an impact.”

Contact Nick Snow at nicks@pennwell.com.

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