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Global Energy Security and the Arctic

Daniel S. Sullivan, Assistant Secretary for Economic, Energy and Business Affairs
Remarks at the Arctic Energy Summit
Anchorage, Alaska
October 15, 2007

Thank you Steve, and thank you to the Institute of North -- Governor Hickle, Ben and others -- for putting together this important and timely conference. It is an honor to be here.

It is great to be back home in Alaska. My wife and daughter and I look forward to moving back to our home in Anchorage once the Bush administration is over. It is great to see so many familiar faces, friends and family who have played a leadership role on so many of the issues that will be discussed over the next several days:

Governor Hickel – Your leadership and knowledge of energy issues has done much for this State and our great nations. Thanks.

Senator Murkowski, your leadership on these issues and particularly the Law of t he Sea ratification has been critical. I thank you for that and also want to personally thank you for helping me through my Senate confirmation process.

Mead Teadwell, my good friend and Chairman of the Arctic Research Council has also shown consistent knowledge and leadership on Arctic and energy issues.

Bud Fate – who not only happens to be a great Alaskan leader for decades – President of the University of Alaska, State Legislator, President of the Chamber, but he and his wonderful wife Mary Jane are the best in laws a man could have. Thanks, Bud.

And Governor Palin, who obviously proving to be a very gifted politician, but also according to my wife Julie, who played high school basketball against her – one of the toughest basketball players in the entire State!

As an official from the U.S. State Department, I also want to extend a warm welcome to all our international colleagues, in particular, the President of Iceland. Mr. President, welcome. It is encouraging to see that other Arctic nations share the same concern and deep abiding respect for this unique and valuable region as the United States does. Of course, the United States State Department has been here from the beginning – literally. William Seward was, after all, the United States Secretary of State when he negotiated the purchase of Alaska from Russia in 1867. And we are proud to be an official sponsor of this important conference, continuing a long, productive tradition of State Department – Alaska cooperation. Speaking of the Secretary of State, I also wanted to note that Secretary Rice sends her greetings.

Challenges in Global Energy Markets
The world community faces an unprecedented set of challenges in global energy that makes our energy security objective more difficult to achieve. These include: tight global supply and demand balances; geopolitical challenges in major oil production centers; exploding global economic growth particularly driving energy use; and our shared concern over the global environment and climate change.

Global energy markets are being shaped and strained by unprecedented economic growth in Asia. Natural gas, oil and coal demand are expected to rise faster in East and South Asia than in any other region in the world. If the forecast growth rate of 3.0% annually is maintained, oil demand in the region will roughly double by 2025.

Many of the world’s major oil producing regions are also locations of geopolitical tension, and possibilities exist of unexpected supply disruptions. Instability in producing countries is the biggest challenge we face, and it adds a significant premium to world oil prices.

How we Address Those Challenges
The Bush Administration international energy policy emphasizes diversity of energy supplies and wise management on energy demand.

More specifically, we are focusing in four general areas:

  1. Increasing traditional energy supplies and promoting open, competitive, and transparent energy markets;
  2. Promoting and diversifying secure and reliable energy supply routes;
  3. Increasing the diversity of energy sources like alternative and renewable fuels such as biofuels, clean coal, and nuclear power; and
  4. Promoting energy efficiency and conservation through technology, international partnership, and market pricing.

We believe that focusing in these four areas will help us tackle what President Bush recently called the two greatest challenges of our times – addressing energy security and climate change.

So this morning I want to provide an overview of just a few U.S. initiatives and policies that support these goals. And as this audience knows better than most, whether addressing America’s past, present, or future energy challenges, Alaska has always loomed large, playing a critical, positive role. Even today, over 14% of the nation’s total crude production comes from this great state.

Governor Palin talked about future potential; and of course, with any challenges, come opportunities. So this morning as I review some of the Administration’s international energy policies, I also want to highlight potential areas of opportunity, particularly for Alaska.

The U.S. hosted representatives of 17 world leaders (Australia, Brazil, Canada, China, the European Union (Portugal as current EU President plus the European Commission), France, Germany, Indonesia, India, Italy, Japan, Mexico, Russia, South Africa, South Korea, and the United Kingdom) plus the United Nations, the International Energy Agency and the World Bank in the first Major Economies and Meeting on Energy Security and Climate Change September 27-28. These countries represented over 80 percent of global emissions and GDP.

This meeting is part of the new initiative President Bush announced at the G-8 Leaders Conference in May 2007 to further the shared objectives of reducing greenhouse gas emissions, increasing energy security and efficiency, and promoting strong economic growth.

Through the initiative, there will be a series of meetings that bring the world’s major economies together to develop a detailed contribution to address energy security and climate change when the Kyoto Protocol targets expire in 2012. These meetings are intended to reinforce and accelerate discussions under the UN Framework Convention on Climate Change (UNFCCC) and contribute to a global agreement under the Convention by 2009.

We will work with participating major economies to agree on a path forward under the UNFCCC and a working agenda for the year. We will identify areas for collaboration in key sectors and discuss challenges and opportunities for the development, financing, and commercialization of clean energy technologies. Participants will also discuss the approaches to reduce or eliminate tariff and non-tariff barriers for clean energy technologies and services. Finally, we will develop a stronger, more transparent, and reliable system for measuring actions to reduce greenhouse gases and improve energy security, and track progress toward meeting these goals.

We viewed this first meeting as a success because it is the first time the key emitters from both developed and developing countries sat down to try to map out solutions to climate and energy security challenges. There is no doubt that this will not be easy – but it is an important start.

Second, from a broader perspective this was a successful continuation of a trend over the past year of significant convergence on key issues involving climate and energy security. While the press likes to write about disagreements, but over the past year there has been a subtle shift towards convergence among the views on a key set of core issues on climate, energy, economics and the environment that represent a critical shift in the debate:

1) All the major emitters are now at table – developed and developing countries alike – making commitments to address climate and energy security and set up a Post-Kyoto framework;

2) We are taking an integrated approach – climate, energy security, economic growth, technology development are all talked about together as components of the solution;

3) There is agreement that addressing climate should not mean killing economic growth – indeed the opposite is true; and

4) Clean technology development is critical to cut what Secretary Rice last week called “the Gordian Knot of fossil fuels, carbon emissions and economic growth.”

This is why the United States Government has poured over $18 billion into clean energy renewable technology R&D since President Bush took office, and the real untold story is how much the United States private sector is pumping into this part of our economy.

It is also a place for enormous opportunity for Alaskan businesses given this State’s tradition of first class companies focusing on energy issues.

Increasing Global Energy Supplies
A second area of our International energy engagement is to work with key counties and major American and Western energy companies to help increase global supplies of energy.

Thus, for example, we are continuing to deepen and intensify our diplomacy in the Caspian region in order to help diversify routes and sources of supply in this energy rich and geostrategically important part of the world. Over the past decade, American diplomacy has played a decisive role in helping countries in the region enhance their energy security, sovereignty, and political independence.

Our focus in this region continues to be to increased the volumes of gas and oil flows west across the Caspian to European, and global markets. I have personally spent a significant amount of time in this region trying to advance these goals. In fact, I was recently in Azerbaijan and Turkmenistan both of which has enormous gas and oil reserves – meeting with the Presidents, foreign ministers and energy ministers of those countries.

But as I was flying back from this most recent Caspian trip, my thoughts were much closer to home, focusing on Alaska and the enormous gas reserves we have here in our own country and what a critical role unleashing this clean burning gas could play in meeting our own nation’s energy security and environmental challenges, as well as Alaska’s continued economic development.

I understand that the negotiations over unleashing and transporting Alaska’s gas are complicated, sensitive and are taking time. But time is of the essence-America needs Alaska’s resources. The State Department is committed to helping Alaska seize this opportunity. Just as the State Department stood with Alaska in 1867, you now have our commitment to stand with you to secure – as rapidly as possible whatever international agreements are required to move Alaskan gas through Canada, if that is the route chosen.

Under the federal MOU to streamline approval of a gas pipeline, the State Department will be the lead negotiator for side letters or agreements with our close allies in the Canadian government. We also will have the lead to negotiate modifications to several existing agreements that pertain to Alaska natural gas transportation projects, should that be necessary. You have my personal commitment that we will undertake this work with a strong sense or urgency. We are ready, willing and able to work hard on behalf of the State and people of Alaska to help increase America’s energy supplies and energy security, while at the same time providing significant economic opportunity for Alaskans.

Engagement with China and India
A third area of U.S. energy diplomacy is deepening our engagement with key developing countries – especially China and India. We are doing this multilaterally, especially through the International Energy Agency, where I have the honor to be the U.S. Governing Board Member.

This is another unreported story on the intensity of how much IEA has increased its outreach to China: sharing best practices on such key issues as strategic oil management, energy efficiency, energy with reform, and stimulating invested clean energy technology. China is extremely interested and receptive to this outreach. This makes clear sense for them as a huge importer and user of energy: second only to the U.S., China’s interest and those of the other large energy consuming countries in the IEA are closely aligned.

U.S. engagement with China on energy and climate issues extends beyond the IEA’s important work to many different areas, including the Asia Pacific Partnership on Clean Energy and Climate, our Strategic Economic Dialogue, the 5 Party Energy Ministerial, APEC, and the MEM.

At the bottom line, we see engaging China more deeply on energy security and climate issues as absolutely critical to find solutions to these critical global challenges. This engagement is also a potential opportunity for Alaska.

Diversified Sources of Energy
A fourth, and in my view very exciting, area of energy diplomacy is our biofuels strategy, and our cooperation with Brazil and other countries in the Western Hemisphere. The U.S. and Brazil are the world’s two largest producers of ethanol. This past spring Secretary Rice and Brazil’s Foreign Minister Celso Amorim signed a ground breaking agreement on a common biofuels strategy that has captured the imagination of the hemisphere.

Our partnership seeks to catalyze biofuels use in the region and beyond by creating conditions for the commoditization of biofuels and development of markets by establishing compatible standards and identifying opportunities for private sector biofuels investment in third countries. This will diversify energy supplies, bolster economic prosperity, advance sustainable development, and protect the environment.

Bilaterally, Brazil and the U.S. are advancing cooperation on biofuels research and development. Since Presidents Bush and Lula met on March 31, 2007, six high-level visits have occurred to bolster bilateral cooperation on biofuels research. In third countries, U.S. and Brazilian officials have underscored the transformative role of biofuels in advancing energy security and promoting sustainable development and protecting the environment.

Globally, the United States and Brazil have agreed to a roadmap to achieve greater compatibility of biofuels standards and codes by the end of 2007. This work is being carried out initially by the industry and standards organizations of the U.S., Brazil, and European Union under the International Biofuels Forum (IBF).

As biofuels research moves to commercializing second generation (or cellulosic) biofuels made from grass and woodchips, the opportunities for Alaska, with its abundance of these resources, seems enormous.

Arctic Policy
A fifth and final area of our global energy engagement which is particularly important to this conference is the emerging role of the Arctic.

The Arctic Region is set to play a major role in the world’s future energy security. The U.S. geological survey estimate that the Arctic could be home to more than 20 percent of the world’s undiscovered reserves of oil and natural gas. A key question that this conference should consider is not if the world will extract these resources, but how to do so.

The Bush Administration is undertaking an intensive review of our overall Arctic policy in order to help answer this and other questions posed by the changing nature of the Arctic. We believe that future energy exploration and development activities must be done in an environmentally sustainable and socially responsible way.

We are working with other Arctic countries thru the Arctic Council and other international fora to address some of the challenges posed by artic energy issues. For example, the United States is pleased to be a partner with Norway to lead the Arctic Council’s assessment of the potential affects of oil and gas activities in the Arctic.

At their 2004 Ministerial meeting in Reykjavik, the Arctic Council Ministers asked the working group, the Arctic Monitoring and Assessment Program, to assess the effects and potential effects of oil and gas activities in the Arctic. This assessment updates and expands on earlier reports. The assessment will be completed in early 2008 and will include a comprehensive history and projected near- future for oil and gas activities, including past practices, modern practices, technology developments, regulatory systems, monitoring and research, oil spill response capabilities, and a full inventory of Arctic leasing and licensing, seismic data collection exploration and development drilling and production volumes. For the first time such an assessment will survey the socio-economic effects of the wide range of oil and gas activities on local and indigenous populations.

And of course, updating our Arctic policy will involve working closely with Congress on a variety of issues, including U.S. accession to the Law of the Sea Convention, which will help determine the limits of the continental shelves of the five countries bordering the Artic Ocean and settle the boundaries between them. Senator Murkowski has shown great leadership on this issue in Washington, and the Administration will continue to work with her and others to move the law of the sea towards ratification.

In promoting energy security in the Arctic, it is imperative that we and other Arctic countries commit to certain core principles, such as:

  1. Promoting contract sanctity. Energy projects have long investment recovery times, so stable dependable investment terms and regimes are vital;
  2. Ensuring open, transparent, and competitive investment opportunities for all companies – throughout the Arctic. Alaska is doing great job on transparency. Other countries must do the same;
  3. Promoting environmentally sustainable development; and
  4. Avoiding nationalistic policies and sovereignty conflicts, which will be increasingly important as we address transportation issues in the Arctic.

Having a safe, secure, and reliable Arctic shipping regime is vital to the proper development of Arctic resources, especially now given the extent of Arctic ice retreat we witnessed this summer. We can have such a regime only through cooperation, not competition, among the Arctic nations. Denial of passage through international waterways, even though they may be territorial waters, and burdensome transit requirements will not benefit any nation in the long run.

The Arctic nations are represented here because we are all bound together on this planet we share, and together we must work to ensure its future. The issues calling for our action today must be solved by a global community working toward common global interests.

I thank you all for coming, and I wish you much success during the conference in expanding the body of knowledge on Arctic resource issues.

Released on June 5, 2008

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