The US government should be ready to engage local and state governments overseas in addition to national officials as it tries to secure foreign oil and gas supplies, a US senate committee was told on July 16.
The strategy could make a significant difference in Nigeria, Philip Carter III, principal deputy assistant secretary of the US Department of State’s Bureau of African Affairs, told the Senate Foreign Relations Committee.
“There have been efforts to have international oil companies engage in efforts to improve transparency flows, but these have mostly involved the national government there,” he said during a hearing entitled “$150 Oil: Instability, Terrorism, and Economic Disruption.”
“The key to resolving the problems of the Niger Delta is engaging the state governments. The companies which are there engage with civil governments on several levels, but their jobs are to pump the oil. Ours should be to help those governments solve their pressing problems,” Carter continued.
He was joined by Richard L. Morningstar, special envoy for Eurasian Energy; William J. Hudson, acting deputy assistant secretary in the Bureau for Near Eastern Affairs; and Richard J. Schmierer, US ambassador to Oman, who said that the disagreement over the Kurdistan area’s substantial resources has hampered Iraq’s ability to revive its oil and gas industry.
Talks possible
“But broader issues also are important. There continues to be disagreement over boundaries, particularly in the Kuridstan region. We’re encouraged by UN efforts to get the regional and national government to engage in a dialogue. Both sides have named politically connected and qualified representatives, so there could be a breakthrough,” he said.
Working more closely with local and state government’s in Iraq’s oil-rich Kirkuk area also could make a difference, Schmierer said. “We have tried to use our good will to encourage each party, particularly their security forces, to not get into violent situations. We’ve had some success, but it’s a process where there’s some ways to go,” he said.
The ultimate overall goal is to establish greater financial transparency in overseas oil and gas producing areas, starting with the Extractive Industries Transparency Initiative (EITI), the four State Department officials agreed. “Transparency is a very major part of our program in dealing with Eurasian countries,” said Morningstar. “We talk about EITI and encourage countries we’re dealing with to comply. Azerbaijan is a success story, and Kazakhstan is a candidate member. We’d like to work with Turkmenistan and have it participate.”
He said that the United States signed an April 29 declaration at a natural gas summit in Sofia, Bulgaria, which recognizes the need for transparency and enhanced public financial reporting and accountability by all participants. “Energy cooperation should comply with the best environmental and social practices, public disclosure, and dialogue with various stakeholders at all levels of the gas chain,” it reads in part. “Extending transparency [to] all levels of gas chain transactions and best international, market-based practices to all parts of the supply chain should be strongly encouraged.”
Carter said that transparency is a major consideration, along with sustaining gains in human rights and democracy, as the Obama administration develops its policy toward Africa. “It plays an increasingly important role when we talk about oil exporting countries. In Nigeria, the Niger Delta question is key. We look at Angola, and they hope to have a strategic partnership with us. There’s also Ghana, which has the potential of being an oil and gas exporter and a member of the [US government’s Millennium Challenge Corp.] compact,” he said.
Political will
He said that in the Niger Delta region, where the critical issue is how the US government engages on social and economic conditions that contribute to civil unrest, there has been an effort over several months to establish a multi-level working group. The United States also is looking at its overall development program in Nigeria, much of which involves public health, and is looking for ways to engage state and local governments, he told the committee. “Unfortunately, the national government is focusing on what it considers criminal activity. We don’t see the kind of political will on the parts of state and national governments to engage in other social issues,” Carter said.
Despite its problems, however, Nigeria is the only African country which has moved closer to full EITI membership, he went on. “We are trying to push aggressively on the accountability and transparency issue. EITI can be stronger and better. Right now, it’s a voluntary program but it provides a framework toward providing other areas of assistance once financial responsibility and transparency have been demonstrated. In the end, it rests on the citizenry of these countries and their governments to manage their resources and husband them effectively,” he said.
The US government could do more to encourage countries to embrace EITI’s principles, one committee member suggested. “I think we should evaluate technical assistance we provide for countries to comply with the EITI to make it easier for them to go down that path. I also think more attention needs to be paid to it so we can tell countries when we realize they’re not complying with it. And third, it should be a standard for international investment and participation of international organizations in that country,” said Sen. Benjamin L. Cardin (D-Md.).
“I know it’s voluntary, but there should be rewards for those which are making progress and trying to do the right thing. The framework is right, but it’s more urgent than ever that advancements be made in this area,” he maintained.
Chairman John F. Kerry (D-Mass.) said in his opening statement that making supplies more stable is crucial. “It may seem strange to be discussing $150 oil with the price hovering in the $60 range. But given the tremendous volatility of recent years, today’s price should not be a gauge of urgency. In fact, such volatility itself is a major problem in its own right: Last year, we almost reached $150/bbl. By the beginning of this year the price had plummeted to less than $35. Since January we have seen prices double. Such dramatic swings in such a short time span are devastating to our economy,” he said.
‘Painfully reminded’
Stable supplies are crucial for gas as well as oil, he continued, “as Europe was painfully reminded during the stand-off between Russia and Ukraine . . . [when] several European nations were left without a vital source of gas during a cold winter.” He noted that the committee’s ranking minority member, Richard G. Lugar (R-Ind.), represented the United States a few days earlier in Ankara, Turkey, at the signing of an inter-governmental agreement for the Nabucco Pipeline.
In his opening statement, Lugar said that the agreement was significant beyond the gas which the pipeline will carry. “Agreement on Nabucco is a bold demonstration that governments representing diverse peoples and interests can overcome divisions. It required substantial agreement on energy security between European Union nations, Turkey, Georgia, Azerbaijan, and the United States. It is a signal to the rest of the world that partner governments will not acquiesce to manipulation of energy supplies for political ends. It also has the potential to build new avenues for peaceful cooperation,” he declared.
Morningstar said that the Nabucco project will make supplies more diverse for countries potentially affected by a Russian gas shutoff. But he also suggested that energy security should play a prominent role within the North Atlantic Treaty Organization. “The issue is what actions it could take, particular whether its members could agree to invoke Article 5 during an energy crisis. More realistic, I think NATO should work with its member states to encourage them to take actions to protect themselves,” he said.
He and Schmierer each said that Iran’s possibly supplying gas for the Nabucco pipeline isn’t likely because of its nuclear weapons programs. “We have tried to engage with Iran and have not got a positive response at this point. If, in fact, their government does make the choice to engage and resolve the nuclear issue, then participation in their energy sector would be a positive result. In talking with other countries in the area, I’ve tried to convince them that resolving this issue would lead to this positive result sometime in the future. I don’t think anyone expects participation now,” said Morningstar.
Responding to committee member Jeanne Shaheen’s (D-Vt.) question about how China’s growing energy demand is affecting US policies toward Middle Eastern and African oil suppliers, Carter said: “It has drawn increasing attention. China has been an active oil investor, largely in the Sudan but also potentially on the West Coast and in Ghana. We see the Chinese as economic rivals, but not as a threat to our national energy security only so far as we work to make sure the bidding process follows international standards.
Similar process
“It comes back to transparency. In the end, we’ve seen that the Chinese have not fared well when they have tried to seek a sweetheart deal with certain African governments, and that they need to follow a process similar to what we and the Europeans follow in dealing with those African governments,” he indicated.
Morningstar added that China is having an increasingly heavy influence in Central Asia, having just agreed to build a pipeline to move gas from Turkmenistan and provide a $3 billion loan to produce the gas. “It is hard for us to compete with China, particularly in countries that are more insulated. In Turkmenistan, it essentially offered a deal that was easy to accept. We can’t compete on that basis, but we have to develop a strategy to deal with it. I think Turkmenistan understands that it shouldn’t be dependent on one or two countries. Our companies need to develop approaches that can recognize this,” he said.
He said that the United States should explore more opportunities to cooperate with China, where US oil and gas producers already are working to help produce deep gas. “The question becomes whether it makes sense to our companies, our country, and China to cooperate in a place like Turkmenistan. We don’t have a clear answer. Our first priority is to get our companies into Turkmenistan. China is already there. We would help determine what, for instance, the safety standards would be,” Morningstar said.
He said that he also has been encouraged by countries’ efforts to use energy more efficiently. “Russia’s energy efficiency is terrible right now, and they want to improve it. In Ukraine, as we’re encouraging them to reform their gas sector to help mitigate some of their problems in dealing with Russia, one of their biggest problems is efficiency. In fact, it’s one of the least efficient countries in the world because energy there is essentially free to consumers. We’re also working closely with Kazakhstan and Turkmenistan,” he said.
US relations are also starting to improve with Libya, according to Hudson. “We recently exchanged ambassadors and our relationship is proceeding to a normal level. I’m happy to report that US oil companies are the most active there, and Libyans are eager to use their technology. The Chinese are participating, but our countries are taking the lead. We can see Libya becoming a major oil exporter once again in the near future,” he said.
Contact Nick Snow at[email protected]