U.S. European Dialogue on Russian Energy and European Security
Ambassador William R. Timken, Jr.  

Berlin, April 23, 2007

As prepared for delivery.

I would like to thank the Nixon Center and the German Institute for International and Security Affairs for putting together this morning’s timely event.

In a little over a month, the G-8 Summit will convene in Heiligendamm.  One of the key purposes of the G-8 is for the leaders of the world’s leading industrial countries to discuss issues vital to the whole of the world and to commit to actions to help address those issues.  The scope of the issues discussed at these summits is vast, from trade and fostering international economic prosperity to proliferation and energy security.    Russia has now joined Germany, the United States, and the other leading industrialized countries in addressing these issues and helping to shape a post-Cold War international system whose contours are still evolving. 

Last year in St. Petersburg at the first G-8 Summit Russia hosted, the G-8 leaders agreed that reliable access to affordable, clean, and efficient energy is essential for both economic growth and development around the world and for global security.  It is essential that we move forward on concrete measures to increase energy cooperation.  We have a shared interest in demonstrating that "energy security" is not just another slogan, but a product of responsible partnership.  The summit in St. Petersburg was meant to highlight Russia's vision and reliability as an energy producer.  I think we can expect that a focus in the run-up to this year’s Summit will be to build on the momentum of  the St. Petersburg Plan of Action  – and try to institutionalize Russia’s stated commitment to these goals.  Many would note, however, that Russia has unfortunately resisted binding commitments to liberalize its energy markets.  This is a key component of what it means to be a reliable energy supplier. 

We have to recognize that for decades there has been deep concern about the use of energy as a political instrument rather than a commercial commodity.  Geology and politics have created oil and natural gas superpowers that nearly monopolize the world's oil supply.  The world cannot help but look upon Russia, and the actions of its government, and energy companies, in the context of this historical reality.

The world also sees two different categories of oil companies active today.  One is comprised of the international private-sector entities whose profits benefit their investors.  Their objectives are known and transparency is great.  Standing in contrast are the national oil companies that are state-controlled entities whose profits go directly to their governments.  Decisions remain in the hands of a few.  Opaqueness rather than transparency is the rule.  At the present time, state-owned oil companies control 79 percent of the world’s oil reserves.  

As a result of our dependence on foreign oil, we transfer hundreds of billions of dollars each year to some of the least accountable regimes in the world.  It has been pointed out again and again that the influx of energy wealth can destroy the impetus to diversify or to reform an economy in ways that ensure the benefits flow to the people.  Under a worst case scenario, oil and natural gas will be the currency through which energy- rich countries leverage their interests against import dependent nations.  We have seen examples of this in Iran and Venezuela.  Some also have concerns about Russia.  By consultation and dialogue, Russia can allay those concerns. 

We also know from decades of experience that energy security for energy producers and consumers alike should be governed by the market, supported by stable and predictable regulatory and tax regimes, and shaped by a long-term vision of the need to diversify sources and transit routes. 

Russia, now the world’s largest producer of hydrocarbons -- like my own country, the world’s largest consumer -- has a powerful obligation to provide leadership on these issues. 

Russia is already a world-class energy player.  The issue is how Russia will choose to take advantage of the opportunities before it and choose to overcome some significant challenges along the road ahead.  All of us have a stake in Russia’s success.  G-8 members and Russia are engaging in useful dialogue on ways in which we can best cooperate. 

In the medium to long term, Russia's oil and gas sector faces two broad kinds of challenges: getting its hydrocarbons out of the ground, and then delivering them to the market.  The Russian energy sector needs billions of dollars in investment.  Russia already has capital and know-how; but it needs to attract foreign capital and additional specialized know-how. 

Both domestic and foreign investors will look carefully at the risk-to-return tradeoffs and at the emergence of a clear and predictable investment framework before they risk huge capital investments.  As they expand, Russian firms -- like firms everywhere in the world -- will find that the market rewards transparency.  Market actors will avoid or even punish those who attempt to operate in murky or opaque ways.  As a former businessman and now as a diplomat I can tell you the ability of Russia to attract and hold investors will depend greatly on the direction taken by the Russian government.  Good corporate governance, transparency and sound business practices will lead to a better competitive edge, more profits, and an enduring place among the super multinationals.

Russia’s membership in the G-8 is a strong sign of its intent to evolve toward a more open society and economy.  The G-8 position – and for that matter, the WTO and the EU positions – regarding transparency and the rule of law are clear. 

Members in these international institutions are committed to the operation of global markets in ways that ensure transparency, reliability and stability.  That commitment is part of the membership dues.  That commitment is also key to a country’s economic prosperity and growth.

Germany has a special role to play in supporting ever-greater Russian convergence with the goals of international institutions.  Germany understandably has had a longstanding policy to develop a working relationship with Russia.  Berlin’s “strategic partnership” with Moscow, specifically in the energy sector, affords the opportunity to engage in discussions about transparent and rational market structures.   During its presidency of the European Council, Germany is focusing on reviving the Energy Charter, which the U.S. supports.  Unfortunately, Russia has resisted binding commitments to liberalize its energy markets which is a key component of its goal to be a reliable energy supplier. 

Energy standoffs like the ones that transpired in Ukraine and Belarus show the necessity and importance of transparency in energy markets. 

I want to emphasize that in energy, as in many other areas in our relationship, we have a great deal more to gain by working together than by working apart.  Suppliers need customers and customers need suppliers.  Speaking from the U.S. perspective, we also feel that there are other areas in which Russia and the United States together can have a positive global impact.  Our partnership is still emerging, but we see areas of great opportunity.  It should be expanded through consultation to promote mutual understanding, provide clarity about intentions and expectations, and help create a more predictable and fair investment climate. 

I think all here would agree expanding this relationship is in the interest of Russia and of all of our countries.

There is already a solid, practical basis for our energy partnership.  Exxon-Mobil's leadership of the Sakhalin I project has been a remarkable success for both our countries.  So has the partnership between Lukoil and ConocoPhillips.  Chevron has a significant stake in the Caspian Pipeline Consortium, whose early expansion will bring substantial benefits to Russia, to all the partners in CPC, and to the globe.  Russian companies are investing in, and the Russian government is promoting, valuable partnerships with the U.S. in areas like energy efficiency and fuel cell technology.

Both the United States and Russia have a deep interest as well in expanding alternatives to hydrocarbons.  This commonality of interests is especially apparent in the area of civilian nuclear energy, where the U.S. and Russia have both unique historical responsibilities for leadership and unmatched technological capabilities.   A genuine two-way street is beginning to emerge in this area. 

No one could’ve imagined, even 20 years ago, that our two nations would be working together – in partnership – on ways to expand access to safe and proliferation-free nuclear energy to the world. 

World concerns about climate change and the requirement for nuclear energy as a key part of the solution make this partnership most timely.

In sum, by moving forward together on matters such as energy efficiency, expanding the use of alternative energy, and cultivating a fair, open, and transparent energy market, our two nations can continue to make a difference in the world.  By working in partnership with Germany and other countries, the positive change we can make will be even greater.

Without question, the strategic rivalry between the United States and the Soviet Union was the most important foreign policy dynamic in the second half of the 20th century. 

In the 21st century, our relationship must not be defined by a rekindling of our strategic rivalry of old, but instead by a positive new strategic partnership.  A partnership defined by our joint leadership on the world’s greatest challenges.  And right now, one of the greatest challenges is energy.

Thank you.

As prepared for delivery.