U.S. House hearing on how to get Central Asian oil before Russia and China do, 2006

[ Make no mistake: one of the main focuses of the U.S. government is to keep crude oil flowing, because without oil, civilization as we know it collapses. This is because the transportation that matters most – heavy-duty diesel-engine trucks (tractors, harvesters, 18-wheelers, cranes, construction, logging, etc), rail, and ships, don’t run on electricity.  They run on oil. This hearing focuses on Central Asia.  As Zeno Baran, director at the Center for Eurasian Policy at the Hudson Institute notes:  “On the United States energy interests in Central Asia, I think we see Central Asia energy infrastructure and resources once again becoming a source of competition for great powers”.  

October 12, 2017: I put my notes from the following hearing below the 2006 hearing. It is full of energy independence talk. Yeah, right.

House 113–169. June 11, 2014. Assessing energy priorities in the Middle East and North Africa. House of Representatives. 41 pages.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report ]

House 109-219. July 25, 2006. Assessing energy and security issues in Central Asia. House of Representatives.   86 pages.

Ms. ROS-LEHTINEN. The developments in Central Asia are of a tremendous significance to United States energy and security interests in the region. Since gaining their independence from the Soviet Union in 1991, United States focus on Central Asia has increased dramatically, as indicated by American efforts to protect the sovereignty, freedom and democracy of these newly independent states.

Unfortunately, the region’s ability to profit from their energy resources in the past has been limited by Russia’s monopoly over transporting Central Asia’s oil and gas. By continuing to support diversification of pipelines, we will ensure a free flow of energy supplies to Western consumers and expand Central Asia’s economy through investment and development. We will ask our witnesses today to describe the range of U.S. energy concerns and energy interests in the region, in themselves, and their relationship to broader U.S. strategic objectives and needs.

Russia and China have intensified their efforts to isolate the United States politically, militarily and economically from Central Asia. Moscow and Beijing were successful in convincing the Uzbek leadership that the United States sought to overthrow their government. This resulted in the closing of an American military base in Uzbekistan last year. Though unsuccessful, similar efforts were made by Russia and China to pressure Kyrgyzstan to close a strategic United States air base in its country that is currently being used in the counter-terrorism efforts in Afghanistan.

If we allow ourselves to be marginalized by Moscow and Beijing, we could lose our influence in the region and could fail in achieving our immediate security goals and protecting our energy interests in Central Asia.

Gary Ackerman of New York.  As energy demand continues to increase globally, the strategic importance of Central Asia will become clearer than it is today. In truth, the development of the former Soviet republics into more important energy exporters is probably the only region that has received much attention, inadequate as it may be.

To understand why Central Asia hasn’t been on the radar screen in Washington political circles, I think we should recall the glib promises that were made about the abundance of Iraqi oil that were promised in a post-Saddam utopia. There is no way to deny that our misadventure in Iraq has distracted our Government from a host of issues that have not gone away, while our attention has been fixed on the bloody train wreck that amounts to Bush Administration policy in Iraq.

While Washington has been distracted, Iran and China have made greater inroads in Central Asia, seeking commercial and security agreements that ensure the flow of petroleum and natural gas to be used or refined and resold. Russia, too, has been active in trying to establish by commerce the dominance it used to enjoy by force. Russia’s appetite for control of petroleum resources in the region is barely concealed. The reality is that most Central Asia petroleum—after transit through Russia—is on its way to the West, and in light of the winter cutoff of Ukraine, this fact should give us some pause for thought. Moreover, the regimes that have emerged since the end of the Soviet Union are, broadly speaking, friendly kleptocracies. Every one of them has adopted a government model built around what is politely referred to as a ‘‘strongman,’’ a position commonly known as a dictator.

Mr. CARNAHAN.  Issues related to energy and security have become increasingly intertwined in recent years. Though we need to decrease our dependence on foreign oil, we must also make certain that investments in U.S. energy resources are protected throughout the world. Moreover, we need a firm hand to ensure that Iran does not further infiltrate Central Asia, which would have a direct impact on United States and international security.

STEVEN R. MANN, Principal deputy assistant secretary, BUREAU OF SOUTH & CENTRAL ASIAN AFFAIRS, U.S. DEPARTMENT OF STATE. This discussion of engaging Central Asian countries on energy cooperation is very timely as the world confronts tight oil markets and as we consider ways to deepen energy security nationally and globally. This hearing’s focus on Central Asia is particularly appropriate given the inauguration of the Baku-Tbilisi-Ceyhan pipeline on July 13.

U.S. policy for the development of oil and gas reserves in Central Asia is predicated on the use of best commercial standards and transparency to ensure that energy resources are developed efficiently and for the benefit of the countries concerned. In line with this, we have pursued a policy of encouraging multiple pipelines to afford the countries of the region options for export of their oil and gas. The completion of the Caspian Pipeline Consortium (CPC) pipeline from Kazakhstan to Novorossiisk on the Black Sea in Russia and the inauguration of the Baku-TbilisiCeyhan (BTC) pipeline from Azerbaijan to Turkey are signal successes of this policy. We all can be especially proud of the role that American firms have played in these endeavors. BTC in particular represents a new environmental, social, and design benchmark for energy transport worldwide. The construction of the South Caucasus Pipeline will bring Azerbaijani natural gas to European markets and, ultimately, Turkmen and Kazakhstani gas may cross the Caspian and share this route.

In line with these promising developments, the United States welcomes the June 16 signing by Azerbaijan and Kazakhstan of an agreement to facilitate access of Kazakhstani oil to the BTC pipeline. Such an agreement provides Kazakhstan additional capacity to export the large volumes of crude that will need to reach markets starting in 2009–10, when the Kashagan field is slated to come on stream.

U.S. firms are among the biggest investors in Central Asia’s energy sector, and this is a welcome development in many ways. Major U.S. oil and gas firms such as Chevron, ConocoPhillips, and ExxonMobil have extensive investments in the Tengiz, Karachaganak, and Kashagan fields. In addition, U.S. oil services companies and equipment providers such as Parker Drilling, McDermott, and Baker Hughes Services International have found promising opportunities. When speaking of oil and gas development, we must keep in mind that regionally Kazakhstan and Turkmenistan hold the largest reserves. Kyrgyzstan and Tajikistan have significant hydroelectric resources, but little oil and gas. Uzbekistan is largely closed to Western companies and has more limited potential.

The extent of Turkmenistan’s gas reserves remains unclear, and Turkmenistan is completely dependent on the Russian pipeline system to bring its gas to market. A proposed trans-Caspian pipeline foundered in 2000 when the parties could not reach an acceptable commercial agreement, and little has changed since then.

With the completion of the first phase of the East-West Energy Corridor, we must now press on with the second phase of supporting new energy routes out of Central Asia.

Countries bordering the Caspian Sea—Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan—are significant oil and gas suppliers to world markets, and their importance is growing. The countries of the north Caspian have reached delimitation agreements, but Iran and Turkmenistan have not yet joined these agreements, among other reasons, because of Iranian insistence on its claim to one-fifth of the Sea. Lack of agreement has impeded exploration and development of hydrocarbon resources in disputed waters, and there remains the potential for conflict in the southern Caspian where promising offshore deposits of oil and gas remain to be developed.

Kazakhstan—Energy.   Given the scope of the energy supply and demand challenges we face today and in years ahead, Kazakhstan can play a very helpful role in addressing the world’s energy needs. Kazakhstan and the entire North Caspian region have tremendous resources. At Tengiz, Kashagan, and other fields, nearly 30 billion barrels of reserves are proven; there is potential for up to 100 billion barrels. Natural gas reserves generally range from 65–70 trillion cubic feet, and could be as high as 100 trillion cubic feet. We strongly support the work of U.S. energy companies and their international partners, who are now focused on ramping up production and improving transportation to markets. U.S. energy companies were among the first non-CIS foreign investors in Kazakhstan; we expect American companies to be active in the region for many years to come.

Overall, Kazakhstan produced about 1.29 million barrels of oil per day (b/d) in 2005, and exported, through CPC and other routes, about one million b/d. The Kazakhstani Government expects production to increase to about 3 million b/d by 2015, especially as the huge Kashagan field comes into production. Moreover, Kazakhstan has expanded production of natural gas in recent years, and expects to reach 570 billion cubic feet this year. A lack of export infrastructure—plus a focus on oil—has limited gas production in Kazakhstan; previously, gas had been flared or re-injected into oil wells to maintain production pressure.

The United States and Kazakhstan enjoy a vigorous strategic partnership with a constant stream of high-level visitors. Energy Secretary Bodman met with President Nazarbayev and Energy Minister Izmukhambetov in March,Vice President Cheney met with President Nazarbayev in May, Secretary Rice saw Foreign Minister Tokayev on July 6.  We have made progress on enabling countries in Central Asia to bring their energy resources to world markets. Much remains to be done, however, and continued robust U.S. engagement is required to push forward the next phase of energy development

LANA EKIMOFF, DIRECTOR, Office of Russian & Eurasian Affairs, U.S. Department of Energy.

I will focus on the opportunity that Central Asia presents for enhancing energy security by adding supply and diversity to world markets.  Data on oil and gas reserves for the Central Asia-Caspian region vary widely. The EIA indicates proven oil reserves are between 17 and 50 billion barrels [my note: the world burns 30 billion barrels a year]. The regions natural gas production is expected to nearly double from 14 bcf per day in 2005 to 24 bcf in 2010.

The countries in this region run the gamut on energy wealth. Azerbaijan, Kyrgyzstan, Turkmenistan and Uzbekistan are endowed with oil and gas resources. Tajikistan and Kyrgyzstan are resource-poor except for hydropower. These countries provide 2 million barrels of oil per day to the global market and are expected to add 4 million barrels by 2010. Their gas production is expected to increase by 60 percent in 2010. However, the full resource potential of this region is still unknown, and reserve figures vary widely. Better data will become available as more exploration takes place.

Developing resources in this region is not without obstacles. There is a lack of export outlets, and we have supported the development of new transit projects.

Our goal is to promote regional partnerships among producing and transit countries. It is important that the countries take responsibility for encouraging the development of new, commercially viable export routes and find ways together, and with commercial entities, to create a win-win situation. We also consistently support the creation of sound legal, fiscal and regulatory policies that will encourage investment in the energy sector.

The Department of Energy maintains ongoing dialogues with officials from Kazakhstan and Azerbaijan. Energy Secretary Bodman recently visited Kazakhstan, where he met with President Nazerbayev and the energy minister. He and Deputy Secretary Sell recently met separately with Azerbaijani President Aliyev in Washington and Istanbul. Their discussions focus on advancing our energy cooperation and recognizing the important role it plays in the global energy market.

The Department has formal dialogues with both countries. As these bilateral dialogues have matured, we have changed the focus from oil and gas issues and expanded our cooperation to a broad range of technologies—energy efficiency, renewable power, nuclear power and environmental concerns. It is important that these countries understand that we are not just interested in their oil and gas contribution to global markets, but also share a common goal of building an energy sector in these countries that is diversified, cost-effective and secure to support their growing economies.

What are our next steps? We will continue to work with countries in the region to facilitate the development of commercially viable oil and gas export infrastructure. We will encourage more surveys to better understand the resource potential in the region, which will help attract investment. We support the full involvement of Kazakhstan and the BTC pipeline, now that Azerbaijan and Kazakhstan have completed an intergovernmental agreement and they begin negotiations on host government agreements with the companies.

We also plan to hold formal energy dialogues this fall in Kazakhstan and Azerbaijan to broaden and deepen our energy cooperation.

Ms. BERKLEY. This is a part of the world that, until recently, I knew so little about and now realize how strategically important it is to our country and, I believe, security in many very sensitive parts of the world. I have also come recently to appreciate how vast their oil and gas reserves are, and how extraordinarily important that is to our economic well-being and security needs. Can you give me some idea of where we fit into this? What would their natural inclination be as a region? Would they gravitate toward Muslim countries? Would they be more interested in coming into the American orb and being stronger allies of ours? Are these issues being determined by their governments on pure economic basis? Are they factoring in other security needs, religious needs? Give me some idea of what is happening there and what is the best-case scenario for the United States and how we can go about achieving that scenario. Because, lately, we are not doing well achieving any best-case scenario anywhere in the world.

Ambassador MANN. Kazakhstan is a good friend of the United States. Overall, there is a powerful Soviet imprint. The countries were Soviet republics for 70 years. Russian, in those years, was the language of the educated, the language of the elites. There is a powerful Soviet legacy, also an infrastructure, not just in oil and gas pipelines, but the rail routes, the air routes, telecommunications, so much of it still links through Moscow and the Russian heartland. That is a fact that just exists in Central Asia. Now, what the countries have said to us in so many ways is: we have greater opportunities now. We want not merely to be a part of the USSR as we were, we want to link to the global economy. The United States, in so many ways, has done this; not to create a sphere of our own, we reject that approach. But what we believe very strongly in is working with the governments and the people to strengthen their independence, strengthen their decision-making autonomy, strengthening their sovereignty and assisting in a process of stable development. One of the other aspects of this Soviet legacy was a forced atheism on the countries that had been Muslim for so many centuries. What we have now in Central Asia, fundamentally, are secular governments. So I think that is what they are left with after those Soviet years.

Ms. ROS-LEHTINEN. What goes on in Kazakhstan stays. Let me ask you about your thoughts on continued military assistance in Kazakhstan and Azerbaijan. Do you believe that it is a priority to help these two countries strengthen their capabilities so that they can independently defend the Caspian Sea energy platforms and interest? In my last question, I wanted to ask you about Iranian influence. You had talked about how close geographically these countries are. To what extent do you believe that the embrace of the Iranian regime in Shanghai implies a degree of legitimacy for and a Russian and Chinese acceptance of Tehran’s current policy? So, Iranian influence and also the United States military assistance to Kazakhstan and Azerbaijan.

Ambassador MANN. In each of those two countries, I think we have a good program of military cooperation and training; and a good part of that is strengthened at precisely that issue you have identified, Caspian security. It is not Central Asia per se, but I will say that I know it is a concern for Azerbaijan, which, in the summer of 2001, had oil field workers chased off of the Alov deposit by an Iranian gunboat. So it is a lively concern for the Azerbaijanis.

ZENYO BARAN, Director, Center for Eurasian Policy, Hudson Institute. On the United States energy interests in Central Asia, I think we see Central Asia energy infrastructure and resources once again becoming a source of competition for great powers. In this new rush, the two most important regional players are China and Russia. Energy-hungry China is actively working to reach long-term oil and gas agreements, and has billions of dollars to spend in order to obtain them. Russia is also spending considerable sums in the region in order to ensure it can maintain its monopoly over Caspian gas transportation to Western markets.

The U.S., however, is missing in action. In the 1990s, the United States had a very successful Caspian energy policy and identified the region as an important non-OPEC source of oil. The United States policy also correctly identified the direct transportation of Central Asian gas to new markets, rather than via the Russian monopoly Gazprom network or through a potential Iranian pipeline, as the best strategy for the region’s energy transportation future. To this end, the United States has already supported several non-Russian and non-Iranian oil and gas pipelines from the Caspian Sea, one of which, as we just heard, the Baku-Tbilisi-Ceyhan oil pipeline, was just recently inaugurated. Securing the East-West flow of Caspian gas has been much more difficult and, so far, efforts have not been successful.

Russia clearly won the first round of Central Asian gas competition. While the United States backed a trans-Caspian gas pipeline to transport Turkmen gas via an undersea pipeline to Azerbaijan and, from there, via Georgia, Turkey and onwards to European markets, Russia was able to finalize a gas pipeline agreement with Turkey to send its gas via Turkey via the Blue Stream gas pipeline underneath the Black Sea.

In part, because of the authoritarian rule of Turkmen President Niyazov until recently, the United States had abandoned its Central Asian gas strategy. The standard arguments were that the U.S. should not engage in energy dialogue with Niyazov until and unless he made improvements to the democracy of the human rights situation in the country. Given that he is not likely to do so, it was deemed best to wait him out and begin energy talks with his successor, no matter how far in the future. This policy was clearly not working. In fact, while the United States waited, we see the Chinese and the Russians have moved in to fill the vacuum. More recently, the trans-Caspian gas pipeline idea was revived by the United States Administration, but this time starting with Kazakhstan.

According to the new strategy, Turkmen gas will be added only later if at all. The logic is that there is already plenty of flared gas in Kazakhstan that could be transported to Western markets. Given Kazakhstan’s pragmatic energy development policy and demonstrated interest in the East-West corridor, this option seems to be a good way forward. Yet, this too may not materialize unless the United States is seriously committed to changing the energy dynamics in Eurasia, which ultimately means confrontation with Russia’s regional energy strategy. To come up with a coherent and pragmatic strategy, it is necessary to look at the broader Eurasian energy picture, specifically at the activities and plans of Gazprom.

While many have wanted to turn a blind eye to the possibility that United States and Russia may not have a win-win option in Central Asian energy, it is clear that Russia is playing it all.

For the United States to ensure its energy and security interests in Central Asia a new framework is needed. In the short term the U.S. will not have much influence in the democratic reform process in the region. The carrots the United States and EU can offer the Central Asians will simply not be attractive enough for them to bite, while the sticks the West can use will not be painful to induce change. We need to recognize also that

There is no win-win strategy possible with Russia and Central Asia regarding energy given the Kremlin’s use of energy as a political weapon and Gazprom’s need to obtain as much of the Central Asian gas as it can to keep Russian domestic gas prices low and to provide uninterrupted gas supply to its European consumers. The United States has two options, it can either give up, which is not advisable, or it can become directly engaged at the top levels on this issue.,

Anti-American developments.   These sentiments are a by-product of two factors, first, competition for energy resources with China and Russia, competition with Russia over the construction of new pipelines, and second, the perceived American promotion of democratic revolutions throughout the region. While its partners all have shared security concerns about the so-called three evils of separatism, terrorism and radicalism, it is of course ironic that Russia and China seem to disregard the longer term impact of their anti-American stand in Central Asia. By opposing the U.S. the way they do, they are effectively bolstering the position of the Islamists.

STEVEN BLANK, PH.D., Research Professor of National Security Affairs,  U.S. ARMY War college.

Today American interests in Central Asia, a region of growing strategic importance, are under attack from three sources: Russia, China, the authoritarian misrule of the Central Asian rulers themselves in many cases, and thirdly from the resurgence of the Taliban in Afghanistan.  Victory in Afghanistan there is the only option for us. If we lose then we will be facing another terrorist upsurge like we did 5, 7 years ago which will threaten all of Central Asia.

Because the security of Central Asia has become connected to the vital security interests of the United States, our presence in Central Asia in all of its dimensions, economic, military, political and so on, is regarded by Moscow and Beijing and to a lesser degree Tehran as a threat to their vital interests and they have spared no effort to try to oust us from Central Asia.

Russia, as has been noted here, has attempted to create a gas monopoly. They failed to create an oil pipeline monopoly, but the gas monopoly is vital to Russian politics in general.

At the same time the Russians have their own military bloc, the CSTO, which I alluded to, and they are also trying to exclude us from the Caspian by creating what they call a CASFOR, a naval force under Russian domination that would exclude non-littoral states from any participation in the defense of the area, defense of world platforms, counter-proliferation and counter-smuggling operations.

We need a broader economic policy than simply ensuring energy access. While we have been successful in energy access with regard to oil in Kazakhstan, we have failed with gas.

Secretary Rice’s initiative with regard to linking up South Asian and Central Asian electricity networks is a commendable example of what needs to be done, but it needs to be thought of in terms of a comprehensive economic policy involving not just the United States Government but the EU and international financial institutions. Similarly, military assistance and training through the Partnership for Peace and getting our allies’ support in Afghanistan, and the situation in Afghanistan is quite critical at the moment, is also an essential aspect of policy because if we fail in Afghanistan we put the whole of Central Asia at risk.

In conclusion I would say that we are facing a coordinated attack on our policies in energy with regard to democratization, with regard to defense and security in Central Asia from Moscow, Beijing and to a lesser degree Tehran, as well as from the Taliban in Afghanistan and their supporters, and also facing obstacles due to the authoritarian misrule or fragility of several, if not all, of the Central Asian Governments.

This makes the obstacles to our policy quite considerable in their extent and scope, but because of the fact that Central Asia is so important strategically and in energy terms, it is essential that we find and devise policy mechanisms and frameworks which will enable us to overcome those challenges in the near and long-term future.

Since 9/11/2001 a second vital interest for the United States has appeared, namely defense of the United States and of Europe from Islamic terrorism personified by Bin Laden and expressed by the Taliban and their allies. Consequently victory in Afghanistan is an unconditional vital interest which must be achieved just as much if not more than as in Iraq. The other important interests of the United States apply first of all to what might be called an open door or equal access for U.S. firms in regard to energy exploration, refining, and marketing. To the extent that these states’ large energy holdings are restricted to Russia due to the dearth of pipelines or oil and gas, they will not be able to exercise effective economic or foreign policy independence.

Today all these interests are under attack and the U.S. policy in Central Asia is embattled and under siege. Moscow and Beijing, as well as to a lesser degree Tehran, view our political and strategic presence in Central Asia with unfeigned alarm. Despite their protestations of support for the U.S. war on terrorism, in fact they wish to exclude us from the area and fear that we mean to stay there militarily as well as in all other ways indefinitely.

Russia has also waged a stubborn campaign to prevent Central Asian states from affiliating either with the U.S. or Western militaries. It seeks to gain exclusive control of the entire Caspian Sea and be the sole or supreme military power there while states like Kazakhstan and Azerbaijan rely upon Western, and especially American assistance to help them develop forces that could protect their coastlines, exploration rigs, and territories, from terrorists, proliferation operations, and contraband of all sorts. Second, Russia has formed the Collective Security Treaty Organization (CSTO) to prevent local states from aligning with NATO or getting too involved with its Partnership for Peace (PfP) program. Another purpose of the CSTO is to create legal-political grounds for permanently stationing Russian forces and bases in Kyrgyzstan, Tajikistan, and possibly Uzbekistan ostensibly to defend these regimes against terrorism. And the CSTO, under Russian leadership is constantly seeking to augment the scope of its missions in Central Asia in order to cement a Russian dominated security equation there. So in reality these forces are there to defend Russian interests and/or keep the current authoritarian regimes in power. Despite Russia’s relative military weakness and unbroken military decline in 1991–2000, Russia now has bases in 12 of the former Soviet republics and the expansion of its capability to project power into these areas if not beyond is one of the leading drives of current Russian military policy. Similarly another key drive of Russian military policy is the effort to develop, sustain, and project the land, sea (Caspian), and air capabilities needed to prevent local governments from either receiving U.S. weapons and assistance or allowing U.S. military bases in their territories. For example this program is the driving force behind Russia’s proposals for a Caspian Sea Force (CASFOR). The practical outcome of so exclusive a force made up only of littoral states would be to confirm the littoral states as dependencies of Russia, put Iran in a subordinate position in the Caspian, and exclude foreign military or energy presence there.

Simultaneously, Moscow and Beijing have also waged an unrelenting campaign beginning in 2002 to impose limits on the duration and scope of America’s presence in Central Asian bases and more generally in the region. They succeeded in Uzbekistan thanks to our misconceived policies there and are constantly bringing enormous pressure on Kyrgyzstan to force us out of the base at Manas. Probably the combination of our deep pockets, high-level intervention by Secretaries Rice and Rumsfeld, and renewed fighting in Afghanistan has allowed us to stay at Manas on condition of paying ever higher rents for its use. Russia has also sought to forestall these states from buying Western equipment by selling them Russian weapons at subsidized prices. And in return for their debts it has sought to restore the Soviet defense industrial complex by buying equity in strategic defense firms located there. Russia and China have also engaged in training programs for Central Asian officers.

Most significantly Moscow and Beijing have utilized the Shanghai Cooperation Organization (SCO) as a platform for a collective security operation in Central Asia, sponsoring both bilateral and multilateral Russian and Chinese exercises with local regimes and with each other on an annual and expanding basis since 2003. The SCO’s utility to Moscow and Beijing does not end here. While there are significant differences between Russia and China and among the other members and observers (India, Pakistan, Iran, Mongolia) as to what the SCO’s primary purpose and function ought to be, i.e. whether its main function should be promotion of trade and economic development; or to be a provider of hard security and another energy forum that Russia would dominate; or to be a genuine basis for regional cooperation as Kazakhstan and the smaller states would prefer, it clearly has been envisioned by Beijing and Moscow as a basis for attempting to unite Central Asian governments in an anti-American regional security organization. There are also divisions among the members as to whether its membership should expand to include the new observer states of Iran, Pakistan, India, and Mongolia. Nevertheless, Beijing openly and consistently proclaims the SCO to be a model for what it is trying to do in regard to Asian security in Southeast Asia and beyond, i.e. replace the U.S.-led alliance system in Asia with one of its own creation that is attuned to its rather than to our and our allies’ stated values and interests. Therefore we should take this organization and its development seriously as a template for China’s and Russia’s, if not Iran’s broader foreign policy objectives.

Thus U.S. policies in regard to security, energy access, and democratization are all under attack in Central Asia from the local dictators, Presidents Putin, and Hu Jintao, and their governments. Adding to the difficulties are the facts that we face a resurgent Taliban, backed up with enormous drug revenues, Pakistani support, and an inconsistent international effort to rebuild Afghanistan while its government remains weak and unsure of itself. As a result, we have lost the base at Karshi Khanabad, face constant pressure in Kyrgyzstan and elsewhere, and are fighting a revived and strengthened Taliban under conditions that are in many ways less favorable than in 2001.

The State Department emphasizes democracy as its main priority.   While such statements make powerful rhetoric; in Central Asia, according to expert observers, they are empty and irrelevant. Moreover, they contribute to the undermining of our security objectives because they feed the belief that we are seeking to unseat reigning rulers, and second, since they believe that the only real opposition is Islamic terrorists, our position fuels their belief that we neither understand the region nor their interests. If democratization is our first priority here than we have given the region over to Russia and China for we have convinced local leaders that these aforementioned beliefs of theirs are correct whatever the real truth might be.

Our utter lack of a viable information policy that is tailored to this region’s mores, cultures, and special needs, has reinforced all those previous negative feelings while also leaving the Russians and Chinese to operate with total freedom in support of retrogressive rulers or corrupt dictators.

We have failed to foresee what might happen in states that are so misgoverned that violence is likely, either through economic distress, or through a succession crisis. Thus our reactions have been uncoordinated and haphazard with resulting negative consequences for U.S. policy that we can all see today. Uzbekistan and Turkmenistan are likely to be failed states when the present rulers leave the scene and in Uzbekistan we have already seen, as has the Uzbek government, that it is vulnerable to both violent incitement and to outbreaks of pubic violence.

NATO’s continuing dilatoriness about sending troops to Afghanistan and giving them sufficiently robust rules of engagement has slowed our ability to counter the Taliban resurgence, especially as we are reducing the number of troops there. Since it appears that more troops might be needed, this is again a wrong sign. Eighth, we have failed to press the international community sufficiently strongly to make good its pledges to Afghanistan, without which reconstruction there will be greatly prolonged if it even is successful.

The State Department’s office of Reconstruction and Stabilization, under Ambassador Herbst, must be directed, if it not already doing so, to begin planning for contingencies having to do with the real possibility of state failure in Central Asia, particularly Uzbekistan and Turkmenistan. If and when that occurs it will usher in violent responses to that condition of state failure. And we cannot allow this chaos to go on in uncontrolled fashion or to abdicate our real interests in the region. Adequate forecasting, and rapid response policies, not only military ones either, must be thought through and implemented so that we are ready to move here on a moment’s notice if necessary.

ARIEL COHEN, PH.D., SENIOR RESEARCH FELLOW, HERITAGE FOUNDATION.  In the last 5 years real and present danger to U.S. national security, especially Islamist terrorism and threats to energy supply, have affected United States policy in Central Asia.  What is needed in Central Asia is a policy that allows the United States to continue to diversify its energy supplies, station its military forces in close proximity to most immediate threats, Afghanistan,

The aim of this testimony is to outline Central Asia’s strategic importance, particularly in terms of energy security, and to assess how our energy issues fit into wider United States strategic interests in the region.

The hydrocarbon reserves are concentrated in the Caspian region. As such, a discussion of Central Asian hydrocarbon resources would be incomplete without including Azerbaijan, which has considerable oil and gas resources in its own right and is central to non-Russian energy transit from Central Asia to points west.

The bulk of Central Asian Caspian hydrocarbons are located in Kazakhstan, Azerbaijan, and to a lesser degree Uzbekistan with a lot of gas in Turkmenistan. Both Tajikistan and the Kyrgyz Republic have limited reserves of oil and gas, but in amounts that thus far have not warranted much attention from foreign investors.

The outlook for Western investment in Central Asia is mixed. Especially the gas sector, investment was low. The leaders of the biggest gas producing countries are not friendly to the United States and their investment climates can be characterized as abysmal.

The Central Asian national gas sector has seen very little outside investments until recently and Russia continues to benefit from the bulk of gas exports from Central Asia as it buys Central Asian gas at prices as low as one-quarter to one-third of market prices in Europe, then resells at market rates. To put things in perspective, it must be noted that Caspian Sea production levels even in their peak will be much smaller than the OPEC, Organization of Petroleum Exporting Countries, combined output. Production levels are expected to reach 4 million barrels a day in 2015 compared to 45 million barrel a day for OPEC countries in that year. Clearly Central Asia is not the largest source of oil and gas nor it’s most successful.

Despite all these difficulties, investors and governments are rushing to lay claim to hydrocarbon reserves of Central Asia.

Geopolitical location is a keen concern as Central Asia continues to evolve as a highly important strategic area, especially for Russia, United States, China, Iran and India. Political instability in other major oil and gas production locations is very much in the news, the Middle East, Venezuela, where President Hugo Chavez just visited Belarus and is signing a $1 billion arms agreement with Russia, including the sale of sophisticated Soho 30 fighter bombers and building of a Kalashnikov machine gun factory in Venezuela.

All these factors of instability are fueling the drive to claim a share of Central Asian resources.

The role of the United States focusing on numerous factors that I mentioned before is also preventing the United States from being a hegemonistic power in the region. The more we are involved, the more Russia and China and Iran are resisting our presence there.

Even if the U.S. has the capacity to limit the presence of other large powers in the region, to do so would be an error, just as it was a mistake for the United States to support an oil and steel embargo on Japan in the 1930s, triggering its southern expansion of the Pacific. The U.S. and other great powers share the goals of stability, economic development and preventive religious radicalization of terrorism.

The United States does not want to openly antagonize China, Russia or India over their involvement in Central Asia but is likely to derive benefits from regional cooperation with them in the region.

Mr. COHEN. If Iran joins SCO or, even without that, if Iran and Russia get together to create what they call a gas OPEC, that will be a step in the wrong direction because they will be controlling together massive production capacity. I do not remember off the top the top of my head after Russia, which is number one, which one is number two in terms of reserves. Either Qatar or Iran. It is Iran. So if you think about a number one and number two producers of gas getting together, it is like Russia and Saudi Arabia getting together. That says it all. In terms of Iran being part of SCO, I think also it is going to be geopolitically a step in a wrong direction, directly affecting American interests if you take Russia and China and Iran to the west, to the east, and to the south because it will be a step to creating a geopolitical bloc essentially aimed at the United States. So we need to fight that.

House 113–169. June 11, 2014. Assessing energy priorities in the Middle East and North Africa. House of Representatives. 

Ileana Ros-Lehtinen, Florida. The Middle East and North Africa region produces over 35% of the world’s oil supply and over 20% of the global natural gas production. We know that energy resources are vital for the region, and as such, they play an important role in the shaping of the geopolitical landscape that impacts our foreign policy.  We also know that the Middle East and North Africa is one of the world’s most volatile regions, prone to unrest, instability, political upheaval, and conflict. In Libya, we saw armed groups occupying many of the strategically important oil fields and export terminals for nearly a year until a partial agreement was reached in April. And in Iraq, we have only recently begun to see that country tap the potential of its proven oil reserves, which is the source of 90% of its budget. But now that Iraq’s second-largest city, Mosul, fell this week to al-Qaeda-affiliated Islamic State of Iraq and the Levant, ISIL, and the increased deterioration of the security situation in that country, there is no telling what the future has in store for its energy sector.

But that just highlights the problem. Most of these countries rely heavily on the sale of oil or gas as their main driver for their economies, and anything that upsets the delicate balance can be extremely detrimental to their economic outlook and has the potential to upend the global energy market.

The instability in Egypt over the last few years, coupled with the large energy subsidies provided to Egyptians, has seen overconsumption in Egypt and has harmed its energy outlook. Both Israel and Jordan had been reliant on gas from Egypt, but now that Israel has the potential to export large sums of gas that Jordan needs, this could be an opportunity for those nations to strengthen their ties.

Israel’s potential could also transform its relationship with Egypt and other Middle Eastern countries as they look for regional solutions to their energy needs. Yet Israel’s natural gas boon hasn’t just affected its relationship in the Middle East and North Africa region, it has also seen a promising and expanding relationship with Greece and Cyprus. The recent discoveries of large hydrocarbons in the Eastern Mediterranean has helped forge an emerging and strategic relationship between these three countries, and this relationship has the potential to completely alter the political, economic, and security situation in the region. Their cooperation has the potential to increase the global supply of energy from friendly, more stable nations, and reduce the world’s dependence on some of these rogue regimes.

And by rogue regimes, we always mean Iran.

Theodore E.  Deutch, Florida.   For decades oil was synonymous with the Middle East. Energy resources and needs have long had a significant impact on the state of play in the region. According to OPEC, its member countries control 81% of the world’s proven oil reserves, with 66% of that coming from the Middle East. But developments over the past several years have dramatically altered the world’s energy supply. For many years, critics of American foreign policy accused the United States of being beholden to certain Middle East oil producers because of our reliance on imports for our energy needs. The discovery of significant energy finds here in our own country have set us on the course toward energy independence. The International Energy Agency predicts the U.S. will be oil independent by 2035.

To help offset the reduction in Iranian oil, Saudi Arabia has increased its production, pledging to make up the difference to avoid a shock to oil prices. The Saudis sit on 25% of the world’s oil reserves and produce roughly 8 billion barrels per day. We hope to see a return to prewar levels in Libya’s output, yet continued fighting and instability has production levels at 10 percent of capacity.

In a stunning development, Israel, long dependent on imports, has found itself sitting on a tremendous amount of hydrocarbons. For years, Israel received most of its gas from the Egyptian pipeline in the Sinai. As a result of the turmoil in Egypt, the pipeline has been attacked 15 times since 2011. The finds in the Tamar and Leviathan offshore fields now stand to make Israel energy independent within 20 years. Last year, the Israeli Government voted to mark 40% of Israel’s gas lines for export. Now, it is Israel that finds itself in the position of being the supplier to its more vulnerable neighbors. Israel and Jordan recently signed a deal for Jordan to receive $500 million worth of gas over 15 years from the Tamar field, which started producing last year. Jordan has faced a serious energy crisis, compounded by the state of affairs in its biggest supplier, Egypt, and the increased strain placed on resources by the influx of over 600,000 Syrian refugees. Jordan is set to begin receiving Israeli gas in 2016. The Leviathan field, which has yet to come on line, is said to be twice as big as Tamar.

Steve Chabot, OhioPolitical unrest and unstable energy supplies in the Middle East and North Africa will have a serious impact global energy markets. This is only intensified by an enormous growing demand for energy in Asia and an uncertain supply of energy in Europe. I hope this hearing will address the changing energy sector in the Middle East and its effect on U.S. policy in the region. I am particularly interested in how the administration plans to improve Iraq’s reliability in the production of oil, especially with some of the political instability going on there. Secondly, what progress has been made in resolving the maritime disputes between Lebanon and Israel and the energy claims in the East Mediterranean. And thirdly, Iran is limited to a million barrels of production of oil a day under the Joint Plan of Action. They are producing 1.3.

Mr. CONNOLLY.   The shift going on here in the United States toward energy independence, really, we are going to rival Saudi Arabia as a producer, what impact does that have on the region? How does that change U.S. foreign policy from being dependent on Middle East oil to now being a net exporter potentially ourselves. And what are we doing to help our allies identify alternative supplies and suppliers? You look at Turkey, 65% of its crude oil comes from 3 countries, Iran, Iraq, and Saudi Arabia; 74% of its natural gas comes from Russia and Iran. How are we helping allies like Turkey look toward alternative sourcing for political stability purposes?

Amos J. Hochstein, Deputy Assistant secretary for Energy Diplomacy, Bureau of Energy Resources,  U.S. Department of State. Energy resources play a critical role in the Middle East and North Africa. As you have mentioned, for decades the fortunes of governments and societies in the region have been closely tied to the availability of energy resources and their ability to bring them to market. Today we find ourselves living in a transformational era for energy markets and the geopolitics of energy, and the capacity of any country to be dynamic and play in this changing global context will determine its success going forward.

I would like to address how countries in the Middle East and North Africa fit into this global energy puzzle and how the United States, in particular the State Department, is working to encourage the development of global LNG markets, build energy linkages in the Eastern Mediterranean, stabilize Libya’s oil and gas sector, and support commercial opportunities in countries such as Algeria.

Energy demand around the world is changing rapidly. Consumption growth has shifted away from the traditional OECD markets and consuming countries and moved increasingly toward the world’s emerging economies. Even as Europe, North America, and the advanced economies in Asia reach increasing levels of efficiency in use of energy, high growth rates in China and India and elsewhere have led to rises in energy consumption. Increasingly, we are in a world where prices and commodity flows are driven by the demands of emerging non-OECD consumers. Around the world new energy suppliers are entering the market. We are moving from a world with a small number of well-defined producers, many of them in OPEC, to a world that welcomes new supplies and production increases from North America, Africa, Asia, and South America. New technology and improved production methods have unlocked previously inaccessible energy resources, fundamentally altering the energy landscape. North America has seen major increases in oil production, as has West Africa, and recent discoveries in East Africa and the Mediterranean are frontier areas with bountiful new energy and gas resources. New suppliers are emerging, including countries such as Israel, that were until very recently assumed to be bereft of energy resources. As all of you keenly are aware, the United States is in the heart of this supply shift around the world. We have added 2 million barrels a day of oil production just in the last 2 years, an amount greater than Nigeria’s crude oil production in total. We have become the world’s largest producer of natural gas and now anticipate that we will become a net exporter of LNG in 2016 and an overall net exporter of natural gas by 2018.

Our relations and interests in the Middle East have always been and will continue to be strong, multifaceted, deep, complex, and strategic. We live in an international global economy with interdependent energy markets, and even if all products we at home consume would originate beneath our own soil and oceans, we would still not be ‘‘independent.’’ A disruption anywhere in the world would have consequences everywhere, including here at home. The American economy is intricately linked to the global market, and we are dependent on the prosperity of others, as they are on us.

Developing frontier resources is a risky and capital-intensive undertaking, and companies will be deterred from making necessary investments if they believe that risk is too high. When investments can be made in places like North Dakota with little or no political risk, it becomes very difficult to convince boards of directors to approve investment in high-risk areas. In North Africa, Algeria is pursuing the next phase of development in its oil and gas fields and producing from its offshore and unconventional resources, but it has to get that investment climate right for that to work and to encourage companies to come and invest.

Mr. HOCHSTEIN. From an economic perspective, two LNG facilities in Egypt that are basically running dry at the moment because Egypt has taken all its gas destined for exports and using it for domestic, it makes sense, if you have the infrastructure already built and the capital investment is there, to use that. Can the geopolitics manage it is the next question. On Turkey, there are only two ways to get a pipeline from offshore Israel to Turkey. One would have to go through the EEZ of Lebanon and Syria, which is less than likely at the moment, or go through the EEZ of Cyprus. So for that there are other geopolitical hurdles that have to be reached. I think we have to sometimes take a step back from enormous amount of statements and conferences and books that are being written about the potential and agree on one thing. The cooperation in the Eastern Mediterranean, energy is a huge boost for that, and that is the way that this region will monetize and capitalize on these new resources. But it is going to take a lot of work and it is going to take a lot of effort and creative thinking to be able to get there.

Condensates are not oil, they are not crude oil, and that is why we don’t count them together. They are a liquid product that you get when you extract natural gas. Some countries are importers of condensate only and they don’t import crude oil, and they use it because they need it for the refining in gasoline, to create gasoline, when they are using crude oil from something else. Some countries develop gas that is very dry gas. Israel is a good example. Their gas doesn’t include much condensate. The United States has a lot of condensate in our gas.

Mr. HOCHSTEIN. Unfortunately, as I said in my testimony, I think that the term ‘‘independent’’ that is used often, in my opinion misused often, in natural gas we are becoming self-reliant and we have become a net exporter. In oil, we are still an importer. But even if we were not, if there was a crisis anywhere in the world that created a major disruption, whether it was a national security disruption, such as a closure of a strait, or a natural one, if Macondo in the Gulf Coast happened in the Persian Gulf, that would have a significant impact on the global markets. Any impact such as those on the global markets will have the same impact here at home. Even if we are producing all that we consume here, you will still have a price shock in the United States. We are an integrated market, and oil and gas are commodities.

Mr. YOHO. Is there a way to mitigate that or soften that if we were to team up with Canada more and Mexico to where we could supply this region that would be more isolated from a world market? And I understand we are all tied together, but it seems like it would soften that more. Because every time we see a spike in gas prices diesel goals up, everything on the shelves of the grocery stores goes up. Is there were a way, if we were to team and have a consortium between Canada and Mexico, the North Americas, to where we supplied the demand for our continent, in this region, we would be less affected by Middle Eastern conflicts.

Mr. HOCHSTEIN.  Condensates are not a crude oil or a product of crude oil. They are a product of natural gas. They are a liquid product of natural gas. They are exported mostly separately and occasionally they are exported together with crude oil. That does not make them the same product.

Mr. WEBER. Coming from Texas, LNG, lots of Petro-Tex Chemical in my district. Liquid gas, ethanes, propanes, propylenes, methanes, products that are used to produce plastic products. And that has ramifications for plastic explosives, by the way.

Mr. CONNOLLY. Could you talk a little bit about how does the growing independence, the growing self-reliance, because of a huge exponential increase in domestic production here in the United States, how does that shift affect your job? I mean, when we look down the road, how will U.S. energy policy in the Middle East be different, say, 15 years from now, 10 years from now than it is today? Clearly, that has got to have some impact in our relations in the region with respect to energy policy.

Mr. HOCHSTEIN. Without a doubt, we are in a new world, not only around the world, but in the United States. And as we look to transition from a major consumer to an exporter, that changes not only the dynamic of our own energy economy at home, but the position that we have broadly and globally.

I think that people are drawing the wrong conclusions from that, as you have heard around in the media and even today in this hearing, that we are somehow changing or reducing our engagement in the Middle East. As I said before, nothing could be further from the truth. We have very complex and strong relations in the Middle East and they will continue. But that is true globally. What we can do, what we are in the position to do today, in the years to come as we become an exporter, is think about how that provides part of the answer to some of the questions that we are seeing playing out. We would like to see a world where no country is reliant on a single source of energy. And if we can be helpful in diversifying the energy mix for countries and sources, I think that will benefit not only those countries, but our own national security and global economic security. And that is true whether we are talking about Europe or whether we are talking about nearer to home in Central America and the Caribbean. The reliance on a single source creates great political difficulties, as we have seen played out over the last 3 months, and the United States is going to be part of that as we start exporting.

Mr. CONNOLLY. Okay. A noble goal, and I am thinking of Turkey as an example as I think I said in my opening statement. But, so what does that mean? Does that mean the United States is going to try to help build alternative pipelines? Does it mean the United States is going to find alternative shipments, LNG, or whatever it may be to try to assist these countries to diversify and lessen their reliance on sole or primary sources of energy?

Mr. HOCHSTEIN. We have and will continue to strengthen our work with countries to identify what other kind of infrastructure and mechanisms within their own regulatory systems that would allow and to ease that pressure and to make them more secure.

Mr. WEBER.   In Texas we have lots of LNG and lots of oil obviously. Things are just bigger and better in Texas, and so we are very honed in and keen on energy and the kinds of benefits that it gives to our country and I would say internationally. With the current prevailing attitude that somehow fossil fuels are bad, and I want to make the distinction that I understand the difference between petroleum products, as I kind of laid out, and natural gas products. We see natural gas products, as you know, in plastic bags, plastic bottles, as I say even plastic explosives they have raifications.


Mr. WEBER. But they do make money by exporting things, those liquids, those ethanes, methanes, propylenes, propanes, everything that we named, they are able to make money when they export that stuff to help underpin their economy. True or not?


Mr. WEBER. How is that? They sell those products and they don’t get paid for them?

Mr. HOCHSTEIN. They get paid into accounts that are in banks in foreign countries.

Mr. WEBER. The assets are frozen?

Mr. HOCHSTEIN. The assets then can only be used in very restricted ways and cannot underpin their economy.

Mr. WEBER. Do you think that if America becomes totally energy independent, self-sufficient, it makes for better international security around the world?

Mr. HOCHSTEIN.   I do think it would enhance security, yes.



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