[Senate Hearing 115-627]
[From the U.S. Government Publishing Office]
S. Hrg. 115-627
EUROPEAN ENERGY SECURITY: U.S. INTERESTS AND
COERCIVE RUSSIAN DIPLOMACY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON EUROPE AND
REGIONAL SECURITY COOPERATION
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 12, 2017
__________
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COMMITTEE ON FOREIGN RELATIONS
BOB CORKER, Tennessee, Chairman
JAMES E. RISCH, Idaho BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida ROBERT MENENDEZ, New Jersey
RON JOHNSON, Wisconsin JEANNE SHAHEEN, New Hampshire
JEFF FLAKE, Arizona CHRISTOPHER A. COONS, Delaware
CORY GARDNER, Colorado TOM UDALL, New Mexico
TODD, YOUNG, Indiana CHRISTOPHER MURPHY, Connecticut
JOHN BARRASSO, Wyoming TIM KAINE, Virginia
JOHNNY ISAKSON, Georgia EDWARD J. MARKEY, Massachusetts
ROB PORTMAN, Ohio JEFF MERKLEY, Oregon
RAND PAUL, Kentucky CORY A. BOOKER, New Jersey
Todd Womack, Staff Director
Jessica Lewis, Democratic Staff Director
John Dutton, Chief Clerk
SUBCOMMITTEE ON EUROPE AND REGIONAL SECURITY COOPERATION
RON JOHNSON, Chairman, Wisconsin
JAMES E. RISCH, Idaho CHRISTOPHER A. COONS, Delaware
JOHN BARRASSO, Wyoming EDWARD J. MARKEY, Massachusetts
ROB PORTMAN, Ohio ROBERT MENENDEZ, New Jersey
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
(ii)
C O N T E N T S
----------
Page
Johnson, Hon. Ron, U.S. Senator from Wisconsin................... 1
Pepared statement.......................................... 2
Murphy, Hon. Christopher, U.S. Senator from Connecticut.......... 3
Mitchell, Hon. A. Wess, Assistant Secretary, Bureau of European
and Eurasian Affairs, U.S. Department of State, Washington, DC. 4
Prepared statement........................................... 6
Response to An Additional Question for the Record Submitted
to Dr. A. Wess Mitchell by Senator James E. Risch.......... 36
Responses to Additional Questions for the Record Submitted to
Dr. A. Wess Mitchell by Senator Edward J. Markey........... 36
McCarrick, John E., Deputy Assistant Secretary, Bureau of Energy
Resources, U.S. Department of State, Washington, DC............ 8
Prepared statement........................................... 10
Responses to Additional Questions for the Record Submitted to
John E. McCarrick by Senator Edward J. Markey.............. 38
(iii)
EUROPEAN ENERGY SECURITY:
U.S. INTERESTS AND COERCIVE
RUSSIAN DIPLOMACY
----------
TUESDAY, DECEMBER 12, 2017
U.S. Senate,
Subcommittee on Europe and
Regional Security Cooperation
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:02 a.m. in
Room SD-419, Dirksen Senate Office Building, Hon. Ron Johnson,
chairman of the subcommittee, presiding.
Present: Senators Johnson [presiding], Barrasso, Murphy,
Markey, Menendez, and Shaheen.
Also Present: Senator Young.
OPENING STATEMENT OF HON. RON JOHNSON,
U.S. SENATOR FROM WISCONSIN
Senator Johnson. Good morning.
This hearing of the--I am going to say the full committee's
and subcommittee's name here--the Senate Foreign Relations
Subcommittee on Europe and Regional Security Cooperation is
called to order.
I want to thank our witnesses for appearing today, for
their thoughtful testimony.
I will ask that my written statement be just entered into
the record because it pretty well repeats the testimony. So no
sense going into that.
And I will certainly turn it over to Senator Murphy for his
opening statement.
But let me just make a couple comments to begin. I made my
first trip as a United States Senator to Europe in February-
March of 2011. I visited Georgia, Ukraine, and the Baltic
States. Georgia had already been invaded. Ukraine's primary
problem was corruption within their wheat markets. This is
before the invasion of Crimea and eastern Ukraine.
What was quite notable was just the pressure that Russia
was putting on those fledgling democracies. We called them the
ring of democracies around Russia. And for what reason?
Apparently just to destabilize, but we certainly determined the
effectiveness of their propaganda, of their disinformation
campaigns. Later we are going to find out the hybrid warfare
that they instituted in Crimea and then burgeoning into the
invasion of eastern Ukraine.
So the title of this hearing, ``European Energy Security:
U.S. Interests and Coercive Russian Diplomacy,'' would just be
another method that Russia is utilizing to destabilize.
Our goal as the United States is to stabilize, provide
security. And in subsequent trips over to Europe, it is pretty
easy to make the point to our European allies and people that
are struggling to shed the legacy of Russian corruption, of
Soviet Union corruption. Their future lies with the West
certainly economically. There is no economic future looking to
the East or Russia.
And so what we need to do is we need to do everything we
can to help stabilize the situation. The purpose of this
hearing is--again, the subsequent visits to these nations--and
this is actually quite confusing, all the different pipelines,
which ones we should support, which ones should we not support,
what type of infrastructure needs to be built. That is really
kind of the purpose of this hearing is trying to lay out the
facts, how important energy security is. You know, America--we
have done a pretty good job of becoming energy independent. We
need to do everything we can to encourage Europe to take a look
at this holistically, strategically, and make sure, again, not
to deny the use of Russian oil and gas but to make sure that
they cannot utilize that in their coercive diplomacy.
So, again, I want to thank the witnesses for your
testimony. We are going to look forward to it.
With that, I will turn it over to Senator Murphy.
[Senator Johnson's prepared statement follows:]
Prepared Statement of Senator Ron Johnson of Wisconsin
Good morning and welcome. The Senate Foreign Relations Subcommittee
on Europe and Regional Security Cooperation is meeting today to examine
European energy security. We will hear from two Administration
officials on U.S. interests and policy options on this issue.
In a recent speech at the Wilson Center that Assistant Secretary
Mitchell and I attended, Secretary Tillerson put it succinctly when he
said, ``Russia is playing politics with energy supplies.'' For years,
the United States has urged Europe to diversify its energy portfolio,
increase domestic production, integrate critical infrastructure, and
coordinate on energy policy. The U.S. has done so, not just because
energy independence strengthens our allies, but because Russia views
its vast stores of oil and natural gas as arrows in its geopolitical
arsenal. Unfortunately, Europe's fractured approach to energy security
combined with certain countries' willful blindness towards the problem
have left Europe vulnerable to the political coercion that often
accompanies Russian hydrocarbons.
The European Union is currently the world's largest energy
importer. More than half of its energy needs come from external
sources, with the daily bill totaling more than =1 billion. Russia is
the EU's dominant supplier, accounting for 33 percent of natural gas
imports and 36 percent of oil imports. EU dependence on Russian imports
varies widely across its individual members. Eleven member states
depend on Russia for at least three quarters of their gas imports.
Nine, however, do not import any Russian gas. This disparity is a major
factor in the EU's inability to implement an integrated energy policy.
Russia, moreover, has further solidified its influence by amassing
significant holdings in Europe's energy infrastructure, including
pipelines, distribution, and storage facilities.
Despite some progress since the 2014 Ukraine crisis, most analysts
agree that EU dependence on Russian gas will increase in the near term.
Over the same period, aggressive emission reduction goals are expected
to increase the EU's reliance on natural gas in its overall energy mix.
The question for this committee today is what, if anything, can the
United States do about it. U.S. policy has historically focused on
supporting the development of viable alternatives. For a host of
reasons, these alternatives have remained elusive. Instability in North
Africa and the Middle East have stifled increased exports from those
regions, despite ample supply. The Southern Gas Corridor project has
been resurrected, but even if completed, initial output will not
significantly alter Russia's market share. Liquefied natural gas holds
significant promise, but it is yet unclear whether Europe will embrace
it as a major alternative. Tellingly, the most significant project in
the works is Nord Stream 2, which will double the capacity of Russian
gas exports to Germany via the Baltic Sea, severely curbing the
political leverage of transit states such as Poland, Ukraine, and
Slovakia.
The growing energy independence of the United States, fueled by the
shale boom of the last decade, stands in stark contrast to the
predicament of our European allies. As the U.S. becomes increasingly
insulated from the geopolitics of the global energy market, it is vital
that we do not lose sight of the importance of European energy
independence for our security. Russian has the means and has
demonstrated the will to coerce political change in states that rely
upon its energy exports. This is a potent tool with which Russia can
further its policy of instability and division within NATO and Europe.
Our hearing today will examine how U.S. policy can best ensure this
does not happen.
STATEMENT OF HON. CHRIS MURPHY,
U.S. SENATOR FROM CONNECTICUT
Senator Murphy. Thank you very much, Mr. Chairman. Thank
you for convening this hearing.
Thank you to both of our witnesses. I look forward to your
testimony.
This morning there was a deadly explosion at a gas plant in
Austria. It sent a shock wave through European energy markets.
Already prices for delivery are soaring, one dead, several
injured. This is a reminder frankly of the fragility of
European energy security, but it is not a wakeup call because
we have had plenty of those before.
Almost a decade ago in January of 2009, the lights went out
in Europe. A dispute between Russia and Ukraine led the Russian
Government to cut off gas supplies to Europe in the middle of
the winter, leaving most of southeast Europe and several other
countries without power. The standoff continued for 2 weeks.
And so this crisis now a decade ago--it exposed the
region's overwhelming reliance on Russian gas. And it did
motivate the European Union to adopt the Third Energy Package
later that year. Since then, it has been a chore to keep all of
the European Union together in that initiative, though there
have been some, I think, very encouraging developments, the
development of new interconnector pipelines so that gas can
more easily move within Europe, improved regulatory frameworks
so that Russia cannot bully smaller countries. There are some
very positive things happening.
But we saw a budget submitted to the Congress earlier this
year which proposed a $50 billion increase in defense and a 40
percent reduction to the State Department, the State Department
which oversees work with Europe to try to reduce dependency on
Russian oil. We are simply fooling ourselves as a Congress and
as a country if we think we can protect this nation and our
treaty allies with a 40 percent reduction to the Department
that works primarily in the area of energy security. We have to
fundamentally rethink the way in which we allocate resources to
protect this country. The military is important, and I am
darned proud of the helicopters and the submarines and the jet
engines that we make in Connecticut. But when it comes to
European security, we have to recognize that the way in which
we spend money today simply is not working.
And so to that end, I am currently working on legislation
that would establish an investment fund that pools resources to
diversify energy sources and energy transport capabilities of
Central and Eastern European countries. We are spending $4
billion on a European Reassurance Initiative that is almost all
military spending. That is important. But if we are spending no
money trying to actually move their gas and oil dependence away
from Russia, then we are simply not meeting the security needs
of our treaty allies.
So thank you, Mr. Chairman, for convening this. I look
forward to the witnesses.
Senator Johnson. Thank you, Senator Murphy.
Our first witness is Dr. Wess Mitchell. Dr. Mitchell is the
Assistant Secretary of State for European and Eurasian Affairs.
Prior to his appointment, Dr. Mitchell co-founded and spent
12 years building the Center for European Policy Analysis. He
is the author of numerous articles, reports, and books on
transatlantic relationships and geopolitics. Dr. Mitchell
received his Ph.D. in political science from Freie University
in Berlin, Germany.
Dr. Mitchell?
STATEMENT OF HON. A. WESS MITCHELL, ASSISTANT SECRETARY, BUREAU
OF EUROPEAN AND EURASIAN AFFAIRS, UNITED STATES DEPARTMENT OF
STATE, WASHINGTON, DC
Dr. Mitchell. Thank you, Chairman Johnson and Ranking
Member Murphy, for inviting me to testify before this
subcommittee on European energy security. I appreciate the
Senate's leadership on this subject and in particular the
active role that both of you have played in keeping
congressional attention focused on this and other important
dimensions of transatlantic security.
We live in a time of profound change: Change in
international economics, change in technology, change in the
scale and nature of threats facing the West. These changes make
it more important than ever that the United States be strategic
in its approach to Europe and that we cultivate strong
alliances as an advantage in geopolitical competition. No other
power in history, past or present, has had the wealth of allies
that the United States has today. President Trump and Secretary
Tillerson have made a priority of strengthening our alliances.
That commitment has been underscored in multiple cabinet-level
visits to Europe, affirmations of article 5 of NATO, seven
trips to Europe by Secretary Tillerson, $1.4 billion in new
funding requests for the European Defense Initiative,
intensified U.S. diplomatic engagement in the crises on
Europe's southern and eastern frontiers, and as we will discuss
today, increased attention to the U.S. role in the
diversification of European energy.
The energy security of our allies is a fundamental U.S.
national interest. When allies' access to reliable and
diversified energy is secure, they are less susceptible to
pressure from outside powers. In recent years, we have been
reminded of just how vulnerable many of our allies in Europe
are in this regard. Russia has repeatedly demonstrated its
willingness to wield its vast natural resources as a
geopolitical weapon against our allies. One study found 55
instances of Russia using supply cutoffs for political purposes
over a 14-year period. Another identified 41 examples in 1 year
alone of Moscow linking political demands to energy deliveries.
Today, EU member states collectively remain the largest net
energy importer in the world, and the Russian Federation
remains by far their biggest single supplier.
It is neither possible nor desirable to exclude Russian gas
from the European market. The problem is that Russian leaders
tend to view energy exports not as a matter of supply and
demand, but as the extension of politics by other means. Moscow
is working to construct two new pipelines, Nord Stream 2 and a
multi-line Turk Stream which, if completed, would bypass
Ukraine as a transit country, heighten the vulnerability of
Poland and the Balkans, and deepen European dependence on the
Russian gas monopoly.
Russia's goal is to divide the West and drive America apart
from our allies. Its efforts are smart and coordinated. The
manipulative use of energy is part of a toolkit that includes
cyber attacks and disinformation, as well as military buildups,
exercises, threats, and as we have seen in Ukraine and Georgia,
the actual use of military force.
To counter these methods, the United States pursues a
European energy security strategy built on three planks:
diversification of fuel types, of countries of origin, and of
delivery routes. We are working to spur the development of
infrastructure for diversity of supply through import terminals
like Croatia's Krk Island liquefied natural gas floating
storage and regasification project. We encourage allies to
invest in intra-European pipelines, and we are revising the
rules governing the export of liquefied natural gas and U.S.-
produced crude oil, which will unlock the wealth of American
energy to the strategic benefit of allies and provide a boon to
the U.S. economy.
The advent of cheap and abundant LNG is turning natural gas
into a globally traded commodity, connecting otherwise isolated
regional markets to the Atlantic basin. For allies reliant on a
single source of energy, the mere availability of LNG provides
leverage when negotiating contracts with Russia. To cite one
notable example, in the period since Lithuania began importing
LNG, the price it pays for gas has fallen 20 percent.
An important component in U.S. strategy is to encourage
closer political and economic cooperation at the regional level
among the allies most vulnerable to supply manipulation in
Central and Eastern Europe. Lack of seriousness about the need
to increase north-south infrastructure between the Baltic and
Black Seas has contributed to Europe's vulnerability. We have
prioritized U.S. engagement in groupings such as the Three Seas
Initiative, Visegrad Group, Bucharest Nine, and Nordic-Baltic
group as platforms for bolstering the region's resilience
against energy coercion.
In all of our efforts, we seek to ensure open, competitive,
and sustainable energy markets. We advocate for fair and
transparent competition to give U.S. companies a level playing
field. We encourage the EU to abide by its own commitments to
diversification under instruments like the Third Energy
Package. Some of the largest EU member states ignore these
instruments in pursuit of commercially advantageous deals with
Gazprom that undercut fellow member states to the East.
Russian influence makes easier headway in countries that
are weak internally. To reduce those vulnerabilities, we work
to strengthen the components of stability in the countries of
the western Balkans.
This administration recognizes energy security as a
fundamental component of U.S. national security objectives in
Europe. We will continue to work closely with our allies and
partners there to move the European continent toward a more
diversified, efficient, and secure energy landscape. This is
one of my foremost concerns as Assistant Secretary for European
and Eurasian Affairs, and I remain committed to working with
this subcommittee and Congress to achieve these objectives.
Senator Johnson, distinguished members of the subcommittee,
I thank you for the opportunity to appear before this body. I
appreciate your leadership on this critical issue and look
forward to your questions.
[Dr. Mitchell's prepared statement follows:]
Prepared Statement of A. Wess Mitchell
Chairman Johnson and Ranking Member Murphy, thank you for inviting
me to testify before this Subcommittee on European energy security.
This is a matter of great strategic importance not just for our allies,
but for the United States, and therefore a major concern for the Bureau
of European and Eurasian Affairs. I appreciate the Senate's leadership
on this subject and in particular the active role that you have played,
Mr. Chairman, in keeping Congressional attention focused on this and
other dimensions of transatlantic security.
We live in a time of profound change. Change in international
economics, change in technology, and change in the scale and nature of
threats facing the West. These changes make it more important than ever
that the United States be strategic in its approach to Europe and that
we consciously cultivate strong alliances as an advantage in
geopolitical competition. No other power in history, past or present,
has had the wealth of allies that the United States has today.
President Trump and Secretary Tillerson have made a priority of
strengthening alliances. That commitment has been underscored in
multiple Cabinet-level visits to Europe, including seven trips by
Secretary Tillerson; $1.4 billion in new funding requests for the
European Defense Initiative; intensified U.S. diplomatic engagement in
the crises on Europe's southern and eastern frontiers; and, as we will
discuss today, increased attention to the U.S. role in the
diversification of European energy.
The energy security of our allies is a fundamental U.S. national
interest. When allies' access to reliable and diversified energy is
secure, they are less susceptible to pressure from outside powers. In
recent years, we have been reminded of just how vulnerable many of our
allies in Europe are in this regard. Russia has repeatedly demonstrated
its willingness to wield its vast natural resources as a geopolitical
weapon against our allies. A Swedish study found 55 instances of Russia
using supply cutoffs for political purposes over a 14-year period. The
Estonian government identified 41 examples in one year alone of Moscow
linking political demands to energy deliveries. In 2006, 2009, and
2014, Russian cutoffs to Ukraine disrupted gas flows to countries as
far west as France and forced businesses and schools across
southeastern Europe, in the dead of winter, to close for lack of heat
amid freezing temperatures.
Despite years of efforts at diversification, today, EU member
states collectively remain the largest net energy importer in the world
and the Russian Federation remains by far their single biggest
supplier, comprising more than a third of total EU oil and natural gas
imports. For 11 EU member states, Russia supplies more than 75 percent
of annual gas imports. For several countries, including Bulgaria,
Finland, and Macedonia, the figure is closer to 100 percent.
It is neither possible nor desirable to exclude Russian gas from
the European market. The problem is that Russian leaders view energy
exports not as a matter of supply and demand but as the extension of
politics by other means. Moscow is working to construct two new
pipelines, Nord Stream 2 and a multi-line Turk Stream, which if
completed, would bypass Ukraine as a transit country, heighten the
vulnerability of Poland and the Balkans, and deepen European dependence
on the Russian gas monopoly.
Russia's goal is to divide the West and drive America apart from
our allies. Its efforts are smart and coordinated. The manipulative use
of energy is part of a toolkit that includes cyber-attacks and
disinformation, as well as military buildups, exercises, threats and-as
we have seen in Ukraine and Georgia, invasions.
To counter these methods, the United States pursues a European
energy security strategy built on three planks: diversification of fuel
types, diversification of countries of origin, and diversification of
delivery routes. We are working to spur the development of
infrastructure for diversity of supply through import terminals like
Croatia's Krk Island liquefied natural gas (LNG) floating storage and
regasification project. We encourage allies to invest in intraEuropean
pipelines like the Gas Interconnector Greece-Bulgaria, Gas
Interconnector BulgariaSerbia, and Gas Interconnector Poland-Lithuania.
And, we are revising the rules governing the export of liquefied
natural gas and U.S.-produced crude oil, which will unlock the wealth
of American energy to the strategic benefit of allies and provide a
boon to the U.S. economy.
The advent of cheap and abundant LNG is turning natural gas into a
globally traded commodity, connecting otherwise isolated regional
markets, including the Atlantic Basin. For allies reliant on a single
source of energy, even the hypothetical availability of LNG provides
leverage when negotiating contracts with Russia. To cite one notable
example, in the period since Lithuania began importing LNG, the price
it pays for gas has fallen 20 percent.
An important component in U.S. strategy is to encourage closer
political and economic cooperation at the regional level, among the
allies most vulnerable to supply manipulation in Central and Eastern
Europe. Lack of seriousness about the need to increase North-South
infrastructure in the space between the Baltic and Black Seas has been
a contributing factor to Europe's geopolitical vulnerability in the
East. We have prioritized U.S. engagement in regional groupings such as
the Three Seas Initiative, Visegrad Group, Bucharest Nine, and Nordic-
Baltic group as platforms for bolstering the region's resilience
against energy coercion.
In all of our efforts, we seek to ensure open, competitive, and
sustainable energy markets. We advocate for fair and transparent
competition to give U.S. companies a level playing field. We continue
to encourage the European Union to abide by its own commitments to
diversification under instruments like the Third Energy Package. Some
of the largest EU member states ignore these instruments in pursuit of
commercially advantageous deals with Gazprom-deals that undercut fellow
member states to the East. We support the work of the European
Commission and Baltic States to integrate the Baltic power network into
the European electricity grid. And we applaud the European Commission's
investigation of abuses of Russian market dominance, which compelled
Gazprom to remove contractual requirements restricting the destination
and resale of gas. As a result, Ukraine, which previously imported all
of its natural gas directly from Russia, was able last month to
celebrate two consecutive years of receiving all gas from European
partners through reverse flows.
Russian influence makes easier headway in countries that are weak
internally. To reduce those vulnerabilities, the United States works to
strengthen the components for domestic stability and constitutional
order in the countries of the Western Balkans. As seen in Moscow's
effort to destabilize Montenegro during its 2016 parliamentary
elections, this region is the target of focused Russian attempts at
strategic penetration. For this reason, as Secretary Tillerson has made
clear, the United States must prioritize this and other regions of
Europe under Russian duress.
This administration recognizes energy security as a fundamental
component of U.S. national security objectives in Europe. We will
continue to work closely with our allies and partners there to move the
European continent toward a more diversified, efficient, and secure
energy landscape. This is one of my foremost concerns as Assistant
Secretary for European and Eurasian Affairs, and I remain committed to
working with this Subcommittee and Congress in a bipartisan manner to
achieve these objectives.
Senator Johnson, distinguished members of the Subcommittee, I thank
you for the opportunity to appear before this body. I appreciate your
leadership on this critical issue and look forward to your questions.
Senator Johnson. Thank you, Secretary Mitchell.
Our next witness is Mr. John McCarrick. Mr. McCarrick is
the Deputy Assistant Secretary in the Bureau of Energy
Resources at the State Department. He previously advised
institutional investors on policy and political risk in energy
and related sectors. Mr. McCarrick also practiced corporate law
at Hogan and Hartson and was an investment banker at Merrill
Lynch. He is a graduate of Georgetown University and Georgetown
University Law Center.
Secretary McCarrick?
STATEMENT OF JOHN E. McCARRICK, DEPUTY ASSISTANT SECRETARY,
BUREAU OF ENERGY RESOURCES, UNITED STATES DEPARTMENT OF STATE,
WASHINGTON, DC
Mr. McCarrick. I would like to thank Chairman Johnson,
Ranking Member Murphy, and the members of this subcommittee for
the opportunity to appear today to discuss European energy
security, an issue of vital importance to the United States.
A discussion of the role the Russian Federation plays in
Europe's overall energy security is both fitting and timely.
I will focus on a few themes, including the dangers of
energy overdependence and the critical importance of energy
diversification in bolstering energy security. I will highlight
the contribution that liquefied natural gas, or LNG, can make
to Europe's energy diversification efforts and also the need
for Europe to continue to improve its energy infrastructure and
to implement measures to promote a more integrated and flexible
energy market.
Energy security is a top policy priority for our European
partners because many of them are highly dependent on a single
supplier, the Russian Federation, for gas imports. Although
some of the most vulnerable countries in Europe are making
rapid progress to reduce their dependence, 11 continue to rely
on Russian gas for 75 percent or more of their annual needs and
several others for 50 percent or more.
The dangers of excessive dependence on a single supplier
were highlighted, as Senator Murphy noted, in 2006, 2009, and
2014 when Russia cut off gas supplies to and through the
Ukraine, hurting both the Ukraine and other Russian countries.
Such actions are a reminder of Russia's persistent use of
energy as a weapon.
The United States does not seek to eliminate Russian gas
from the market. Our priority is helping Europe minimize
dependence upon a single supplier. The United States supports a
pro-Europe energy security policy based on diversification of
fuel types, supply sources, and delivery routes. These actions
are all needed to foster a more open and competitive European
energy market, one in which all companies play by free market
rules.
Indeed, the United States advocates for infrastructure
projects, projects identified by the European Union as projects
of common interest, that enhance diversification.
We have long advocated for projects like the Southern Gas
Corridor that will help Southern and Central Europe diversify
its natural supply with 10 billion cubic meters per year of gas
from Azerbaijan and the Caspian Sea region as soon as 2020.
This will be among the first entirely new sources of gas for
Europe in many years.
In similar fashion, together with the European Union, we
promote the merits of projects like Baltic Pipe, which would
bring new supplies of natural gas from Norway via Denmark to
Poland and on to countries of Central and Eastern Europe.
Importation of LNG, including from the United States when
market conditions dictate, can also play an important role in
diversification of Europe's gas supply. However, to secure the
maximum benefit that LNG offers in promoting diversification,
the proper infrastructure is essential. Europe must have both
sufficient regasification capacity and the pipeline
interconnectors to deliver the gas to the broadest range of
customers.
We applaud the steps taken by Poland to construct a
regasification terminal at Swinoujscie and by Lithuania to
build a floating storage and regasification unit, or FSRU, in
the port of Klaipeda. The impact of introducing LNG import
infrastructure can be transformative. As Assistant Secretary
Mitchell noted, after they opened this terminal, they were able
to negotiate a 20 percent reduction in price and also reduce
their reliance on Russian gas from 100 percent in 2015 to 45
percent in 2016.
While these are positive steps, much work remains if LNG is
to contribute more options to Europe's energy security. The
United States supports the establishment of an FSRU at Krk
Island, Croatia and has committed technical assistance and
diplomatic engagement to the realization of the project. In
addition, the United States has endorsed key pipeline
interconnectors to reach consumers in southern Central Europe,
a region that is among the most dependent on Russian gas
supplies.
We continue to oppose projects that foster dependence on
Russia, including Nord Stream 2 and a multi-line Turkish
Stream. Russia's aim is political in nature and these projects
would allow Russia to make good on its threat to eliminate
Ukraine as a gas transit state. This not only would deprive
Ukraine of over $2 billion in annual transit revenues, but of a
vital, physical, and symbolic link to the West. Construction of
Nord Stream 2 would also concentrate 75 to 80 percent of
Russian gas imports to the EU through a single route, thereby
creating a potential choke point that would significantly
increase Europe's vulnerability to supply disruption, whether
intentional or accidental.
We welcome the skepticism and vocal opposition within
Europe to these unwise projects.
We note, too, that a number of European allies have
expressed national security and energy security concerns over
Nord Stream 2.
As I close, I want to emphasize that our goal in
implementing sanctions, both those imposed by executive order
and those provided for in law, have been to impose costs on
Russia, the target of these sanctions, for its malign behavior.
Neither the U.S. business community nor firms of our partners
and allies are the targets of sanctions. We are committed to
the coordination with partners and allies called for in
Countering America's Adversaries Through Sanctions Act of 2017
and have consulted on multiple occasions with European, G7, and
other allies. We are committed to the full implementation of
this new sanctions law.
Again, I would like to thank the subcommittee for the
opportunity to appear today, and I welcome your questions.
[Mr. McCarrick's prepared statement follows:]
Prepared Statement of John E. McCarrick
I'd like to thank Chairman Johnson, Ranking Member Murphy, and the
members of the subcommittee for the opportunity to appear today, to
discuss European energy security, an issue of vital importance to the
United States.
A discussion of the role the Russian Federation plays in Europe's
overall energy security is both fitting and timely.
I will focus on several themes, including the dangers of energy
over-dependence and the critical importance of energy diversification
in bolstering energy security. I will highlight the contribution that
liquefied natural gas (LNG) can make to Europe's energy diversification
efforts and also the need for Europe to continue to improve its energy
infrastructure and to implement measures to promote a more integrated
and flexible energy market.
Europe's energy security is central to the national security of our
NATO allies and EU partners, and it undergirds what is currently the
world's single largest trade and investment relationship.
The United States strongly supports enhancing European energy
security. An energy secure Europe serves as a strong partner for the
United States in meeting global challenges, and the Administration is
working closely with our European allies and partners to aid them in
achieving their own goals to enhance their energy security.
Energy security is a top policy priority for our European partners
because many of them are highly dependent on a single supplier--the
Russian Federation--for gas imports. Although some of the most
vulnerable countries in Europe are making rapid progress to reduce
their dependence, eleven continue to rely on Russian gas for 75 percent
or more of their annual needs, and several others for 50 percent or
more.
The dangers of excessive dependence on a single supplier were
highlighted in 2006, 2009, and 2014 when Russia cut off gas supplies to
and through Ukraine, hurting both Ukraine and other European countries.
Such actions are a reminder of Russia's persistent use of energy as a
weapon. In light of these actions, the United States has worked with
allies and partners to address single supplier dependence.
Understandably, many European countries view overreliance on Russia as
a vulnerability--a national security threat--and we are working to
support their efforts to diversify their energy supply and improve
energy infrastructure, including cybersecurity.
The United States does not seek to eliminate Russian gas from the
market. Russian gas can and should remain part of a diversified energy
mix for Europe. Our priority is helping Europe minimize dependence upon
a single supplier. The United States supports a pro-Europe energy
security policy based on diversification of fuel types, supply sources,
and delivery routes. These actions are all needed to foster a more open
and competitive European energy market--one in which all companies play
by free market rules.
Indeed the United States advocates in favor of infrastructure
projects--projects identified by the European Union as ``Projects of
Common Interest''--that enhance diversification.
We have long advocated for projects like the Southern Gas Corridor
that will help Southern and Central Europe diversify its natural gas
supply with 10 billion cubic meters per year of gas from Azerbaijan and
the Caspian Sea region as soon as 2020. This will be among the first
entirely new sources of gas for Europe in many years.
In similar fashion, together with the European Union, we promote
the merits of projects like Baltic Pipe, which would bring new supplies
of natural gas from Norway via Denmark to Poland and on to other
countries of Central and Eastern Europe.
Importation of liquefied natural gas (LNG), including from the
United States when market conditions dictate, can also play an
important role in diversification of Europe's gas supply; however, to
secure the maximum benefit that LNG offers in promoting
diversification, the proper infrastructure is essential. Europe must
have both sufficient regasification capacity and the pipeline
interconnectors to deliver the gas to the broadest range of consumers.
We applaud the steps taken by Poland to construct a regasification
terminal at Swinoujscie (sveen-oh-OOSH-chay) and by Lithuania to build
a floating storage and regasification unit (FSRU) in the port of
Klaipeda (KLAY-peh-duh). The impact of introducing LNG import
infrastructure can be transformative. Lithuania's 2015 deployment of
the Klaipeda
FSRU provided real competition for Russian gas pipelines. After
inaugurating its LNG terminal, Lithuania was able to negotiate a 20
percent reduction in the price it pays for Russian gas. More
importantly, the ability to import LNG from alternative sources led to
a reduction in Gazprom's share of Lithuania's gas market from 100
percent in 2015 to 45 percent in 2016.
While these are positive steps, much work remains if LNG is to
contribute more options to Europe's energy supply. The United States
supports the establishment of an FSRU at Krk Island, Croatia, and has
committed technical assistance and diplomatic engagement to the
realization of this project. In addition, the United States has
endorsed key pipeline interconnectors like the Interconnector Greece-
Bulgaria and the Interconnector Bulgaria-Serbia. These interconnectors
will enable non-Russian gas--including LNG imported through Greece and
gas imported via the Southern Gas Corridor--to reach consumers in South
Central Europe--a region that is among the most dependent on Russian
gas supplies.
We continue to oppose projects that foster dependence on Russia,
including Nord Stream 2 and a multi-line Turkish Stream. Russia's aim
is political in nature, as they want to develop these projects to gain
the technical capacity to make good on its threat to eliminate Ukraine
as a gas transit state. This not only would deprive Ukraine of over $2
billion in annual transit revenues, but of a vital, physical and
symbolic link to the West. Construction of Nord Stream 2 would
concentrate 75 to 80 percent of Russian gas imports to the EU through a
single route, thereby creating a potential choke point that would
significantly increase Europe's vulnerability to supply disruption,
whether intentional or accidental.
We welcome the skepticism and the vocal opposition within Europe to
these unwise projects. We applaud the efforts of European partners who
are scrutinizing all aspects of these projects--assessing the legal,
environmental, and security implications--and seeking full application
of EU regulations on energy market liberalization.
We note, too, that a number of European allies have expressed
national security and energy security concerns over Nord Stream 2--
reasonable concerns, in our view, in light of Russia's increasingly
aggressive military posture in the Baltic Sea region and history of
using its energy resources for political purposes.
As I close, permit me to offer a few words on sanctions and energy
security. Our goal in implementing sanctions, both those imposed by
Executive Order and those provided for in law, has been to impose costs
on Russia, the target of these sanctions, for its malign behavior.
Neither the U.S. business community, nor the firms of our partners and
allies are the targets of our sanctions. We are committed to the
coordination with partners and allies called for in the Countering
America's Adversaries Through Sanctions Act of 2017, and have consulted
on multiple occasions with European, G7 and other allies. We are
committed to the full implementation of this new sanctions law.
Again, I would like to thank the subcommittee for the opportunity
to appear today, and I look forward to your questions.
Senator Johnson. Again, thank you, Secretary McCarrick.
Let me just start out by asking--both Senator Murphy and
you mentioned the fact that we first saw Russia utilize oil as
a diplomatic weapon in 2006 and again in 2009 and 2014. What
has been the delay? I mean, what is the stumbling block in
terms of responding to it in a more robust fashion in terms of
creation of more infrastructure, more pipeline to deny them
that and reduce that vulnerability?
Mr. McCarrick. There have been projects since then that
have increased the transit of gas. There has also been--working
closely with the State Department, we were able to negotiate a
change in the way the Ukraine buys gas. They have not bought
any gas directly from Russia in the last 2 years. So there have
been transit agreements that have allowed for them not to
purchase gas directly from the Russians.
Senator Johnson. Do you know the level of investment that
has been made to, again, diversify the pipelines, that type of
thing since 2006, 2009?
Mr. McCarrick. I do not have the exact numbers in front of
me, but we can get those to you.
[The information referred to above follows:]
Mr. McCarrick's Response to Senator Johnson
Mr. McCarrick. Governments and the private sector have made
significant investments to diversify Europe's energy sector and enhance
its energy security since 2006. The European Commission's Connecting
Europe Fund made a commitment of =5.35 billion to the energy sector for
the period 2014-2020, of which =1.6 billion has already been committed
to 74 of the European Union's ``Projects of Common Interest'' (PCI). In
addition, EU cohesion funds, in particular the European Regional
Development Fund (ERDF), also provide support to smart energy storage
and transmission systems. Currently six Member States have planned
about =2 billion in investments for the 2014-2020 period, with one
fourth of these funds directly for PCI projects. Poland's Swinoujscie
LNG terminal represented an investment of roughly $840 million,
including EU financing. The floating storage and regasification unit at
the port of Klaipeda, self-funded by Lithuania, cost roughly =128
million to construct.
The Southern Gas Corridor represents an investment of approximately
$40-45 billion. This has largely been financed by the private sector
with support from the European Union and multilateral development
banks.
Senator Johnson. Do you have any idea of how much it would
take to really completely diversify it?
Mr. McCarrick. Well, diversification is difficult in the
sense that there are not as many--the countries in Europe do
not have the natural resources that we do in the United States.
And so diversification for them really is a question of using
LNG, for one, that would come from us and other sources. But
candidly the diversification that I talked about in terms of
building the pipe that would run into Poland is one way of
diversification, and the Southern Gas Corridor is another way
of diversification.
Senator Johnson. Again, I am just trying to get some sort
of sense. You got to build infrastructure, pipelines,
terminals, that type of thing. I mean, is it a $50 billion
investment? Is it a $100 billion investment? Secretary
Mitchell, do you have any feel for that?
Dr. Mitchell. Let me say that in the case of Ukraine
specifically since the start of the conflict in 2014, the
United States has provided around $60 million in energy
security assistance, and that is by far the largest
concentration of U.S. aid anywhere in Europe on energy.
On pipelines specifically, there are a number of very
important interconnector projects which the United States has
promoted. We do that through a combination of diplomacy and in
some cases technical and financial assistance. So diplomacy is
particularly critical because in many cases these
interconnectors are consistent with existing EU policy under
the Third Energy Package, but the EU implements unevenly. So
for the United States to weigh in often helps make a
difference.
In cases like Krk Island, as you saw President Trump commit
$1 million on the financial and technical side, the U.S. help
is particularly useful in creating legal frameworks working
with local allies and partners through things like tariff
agreements, tariff rates. I think it is on the technical side
that the United States has made the biggest difference in some
of these interconnecting pipelines and much less on the
financial side in terms of direct U.S. taxpayer resources going
towards the pipelines themselves.
Senator Johnson. And again, I was not really, at this
point, talking about U.S. involvement. I am just talking about
overall investment. In my briefing pack, I was actually
surprised--the size of this. It said about =1 billion per day
is what they import. So it is =365 billion into an economy--
what--$15 trillion to $20 trillion large. So size-wise, I was
actually surprised. I would have thought energy would have been
more than that.
So in light of about a =365 billion per year import fee for
gas, I am just trying to figure out how much would be the
required investment to diversify the transit of that so we do
not allow Russia to have that type of power.
Dr. Mitchell. I do not have that figure offhand. I have
seen figures, though, that give a sense of the scale on the
European side through a combination of government and private
financing, the scale of investment in some of these pipelines.
I would be happy to do a research and return and come up with
some aggregate numbers for you.
Senator Johnson. Okay. Yes, because I just think that is a
key feature.
[The information referred to above follows:]
Dr. Mitchell's Response to Senator Johnson
Dr. Mitchell. In 2014, the EU estimated it spent over =365 billion
annually importing energy. In 2016, Russia accounted for 31.7 percent
of oil imports and 39.5 percent of gas imports to the EU, measured as a
percentage of total value of each commodity.\1\ The best way to reduce
Russian energy import dependency is for the EU to invest in domestic
energy production, such as renewables, civil nuclear power plants,
high-efficiency coal power plants; continue exploration for new oil and
gas fields; and invest in infrastructure to import energy from
alternative sources. An excellent example of the latter is the Southern
Gas Corridor, which is being constructed at a cost of about $40 billion
to deliver 10 billion cubic meters annually of gas from Azerbaijan. The
EU's own assessment\2\ is that its energy infrastructure is aging and,
in its current state, not suited to match future demand for energy, to
ensure security of supply, or to support large-scale deployment of
energy from renewable sources. Upgrading existing and developing new
energy transmission infrastructures of importance, for example, would
require investments of about =140 billion for electricity and at least
=70 billion for gas.
\1\ Eurostat provisional report: EU Imports of Energy Products--
Recent Developments http://ec.europa.eu/eurostat/statistics-explained/
index.php/EU_imports_of_energy_products_recent_developments (downloaded
January 26, 2018)
\2\ Commission staff working paper, Executive Summary of Impact
Assessment accompanying the document regulation of the European
Parliament and of the Council on guidelines for the implementation of
European energy infrastructure priorities, repealing Decision No 1364/
2006/EC (COM(2011) 658) and communication from the Commission to the
European Parliament, the Council, the European Economic and Social
Committee and the Committee of the Regions, Energy Infrastructure
Priorities for 2020 and Beyond--A Blueprint for an Integrated European
Energy Network (COM(2010) 677)
---------------------------------------------------------------------------
Senator Johnson. Who does invest in these pipelines? Is it
the countries themselves? Is it private capital? Is it the
Gazproms of the world? I know they do, but I mean, where is the
incentive to actually invest in pipelines?
Dr. Mitchell. It is primarily on the private side. So the
overwhelming bulk of investment in interconnectors and
pipelines comes from the private sector, and you very often
have commercially viable gas or oil fields, the development of
which and delivery of those resources to Europe represents a
commercial opportunity. And that is usually what spurs
investment. Diplomacy and government action, particularly on
the U.S. side, usually constitutes a way of encouraging what is
already a set of preexisting market incentives.
Senator Johnson. Okay. I will turn it over to Senator
Murphy.
Senator Murphy. Thank you very much.
I am very glad that both of you are where you are. Big fans
of both of your work.
But, Secretary Mitchell, you sort of just made my point for
me. You mentioned that we are spending $60 million on energy
security in Ukraine, and that is by and far the most that we
are spending in any country. The administration has requested
$4.8 billion in European Reassurance Initiative funding for the
coming year. I tried to do the quick math, but suffice it to
say we fundamentally misunderstand the threat to Ukraine.
Russia does not want to militarily own Ukraine. It wants to
economically and politically break Ukraine, and it wants to use
energy as a means of doing that. So by spending $60 million on
energy security and requesting $4.8 billion for military
security, I just think we are totally misaligned with the
actual threats. That is commentary not a question.
Let me stay with Ukraine, though, Secretary Mitchell. I
have got a letter here that I will submit for the record,
without objection, from the CEO of Naftogaz. And he and others
have been raising alarm bells here in Congress about some real
backsliding happening in Ukraine with respect to energy reform
and broader anticorruption reform, which is very important to
ultimately making sense of Ukraine's gas market.
[The information referred to above had not been received
when this hearing went to press.]
Senator Murphy. And one of the things they are concerned
about is that in the Obama administration there were very often
very high level communications from the President or Vice
President to President Poroshenko and others in the Ukrainian
Government about the need to move forward with reform. And
today, the Ukrainian Government is blocking two major
anticorruption efforts, backtracking on their promise to
implement energy reforms and then, second, by going after the
anticorruption bureau and the Rada's anticorruption committee.
So, Secretary Mitchell, have you raised these concerns
directly with President Poroshenko? Do you know if the Vice
President or the President have raised these concerns regarding
backsliding on energy reform and anticorruption reform with
President Poroshenko?
Dr. Mitchell. Thank you for that question, Senator Murphy.
And I really appreciate your interest in this subject and
particularly on Ukraine.
I was just in Kyiv and was also with Secretary Tillerson on
his recent trip to Europe where we met with some Ukrainian
interlocutors.
Let me just say this. This is an enormous priority for the
Secretary. He has stated that repeatedly. I also have to
contextualize this by applauding the Ukrainian Rada and
Government and people for the tremendous strides that they have
made in reform in the period since 2014. I do not think any of
us could ever have imagined in our wildest dreams the kind of
progress that they have made in such a short period of time.
Secretary Tillerson has established as a very high priority
ensuring that the Ukrainians--encouraging the Ukrainians stay
on the track to reform not only in some of the easier areas we
have seen progress in but the harder structural areas of
reform. This is especially true in two areas, the establishment
of an anticorruption court and addressing energy sector reform
particularly with regard to gas tariffs, both of which are
necessary for Ukraine to comply with the conditions for the
next IMF tranche.
I have raised these subject repeatedly and am in constant
contact with Poroshenko, Groysman, Foreign Minister Klimkin,
Poruvey, and others as is the Secretary. We also are
coordinating very closely with the IMF to make sure that our
messaging is in sync.
Let me say that I think it is worth pointing out the
positive steps that have been taken very recently on pension
reform. It was positive to see Naftogaz form a supervisory
board with independent experts in the majority. That still has
to be signed and so we continue to make the case to Ukrainian
interlocutors that it is not done yet.
It was also positive to see a Ukrainian commitment to
addressing gas tariffs.
I would say specifically on Naftogaz, I cannot say enough
just how important continued reform in this area is for the
wellbeing of Ukraine going forward in both the geopolitical and
economic sense. And I think the CEO of Naftogaz, Andre
Kobolyev, who I met with in Kyiv, has really done an
outstanding job not only in keeping the company committed to
this pace but really raising concerns about the need to keep
the overall reform pace. It is a priority for the Secretary and
it is a priority for me as well.
Senator Murphy. And, again, I do not underestimate the
effect that you and the Secretary could have. I would hope that
you would encourage the White House to directly engage because
the Ukrainians for the last 8 years were used to engagement
directly from the White House. And so I think that is a
continued necessity.
Let me turn--Secretary Mitchell, maybe on the second round
I will try to ask you a question--to Mr. McCarrick on Nord
Stream 2. Russia just recently announced through their state
media that they have signed all the contracts for material,
equipment, and services. And yet, there still seems to be some
uncertainty as to whether the European Union or individual
countries have the ability or the inclination to stop the
pipeline from going forward.
Can you just talk about what the administration's
engagement has been on Nord Stream 2 and whether the European
Union or individual countries like Denmark have the ability to
stop Nord Stream 2 before it becomes operational?
Dr. Mitchell. Thank you so much for raising that. That is a
critical, longstanding concern for the United States and it
continues to be a focus of our diplomacy.
Let me be clear that our position has not changed. The
Secretary, I think, was very forthright in saying this is an
unwise project, as is multi-line Turk Stream. Nord Stream 2
would circumvent Ukraine, potentially leading to something like
$2 billion a year in revenue loss from transit fees, bypasses
U.S. allies in Poland and the Baltic States.
Also, I just have to point out on Nord Stream 2, this is a
project that would concentrate 75 percent of the Russian gas to
Europe into one pipeline. So it is not in Europe's interest. It
is not in our interest. It is also a political rather than a
commercial undertaking, and I think it is important to be
crystal clear about that.
In the context of CAATSA, let me say it is premature to
make a determination about Nord Stream 2 absent contractual
information which would be consistent with our guidance. We are
monitoring it closely. I continue to raise this with German
interlocutors, EU interlocutors, as does the Secretary as
recently as last week on the trip. What we are doing in a
broader sense on Nord Stream 2, in addition to speaking up--
particularly with the Germans as they form a new government, I
think it is important for them to hear from us--we are
encouraging EU action. There is an existing framework in place
for the EU to take more aggressive action on Nord Stream 2 and
similar projects if it wished to do so politically, Third
Energy Package. And in addition to those existing tools, a
revision was proposed in October for the EU gas directive that
would even more directly and aggressively address the issue of
Nord Stream 2. We also encourage member state action.
So to your question specifically, the Secretary was
personally involved in encouraging the Danes earlier this year
to take a really close look at legislation that they were
considering. The Poles and others in Europe who are likeminded
on this issue--we coordinate with them to keep our messaging in
sync and keep raising the issue.
Specifically on your question of what the Danes can do, my
understanding is that because Nord Stream 2 would go through
Danish waters, this is a potentially significant political and
legal stumbling block that could really slow progress on the
pipeline. It is a positive development that we applaud, and we
have really coordinated closely with the Danes. The credit goes
to Denmark for moving in this direction, but I think it is
consistent with European energy security. I just wish we could
get Germans and other large EU member states to see it the same
way.
Senator Murphy. I know my time is up, but just to square
the circle, it is important to note what you said. You said
that this is a political initiative, meaning that most energy
economists will tell you that this does not make sense as a
financial endeavor moving this gas through a northern route
pipeline, which means that it only happens with massive subsidy
from the Russian Government, meaning they are putting
substantial resources into this political initiative, again
another advertisement for the United States and our allies in
Europe to be thinking about ways in which we subsidize energy
independence because we are simply not engaged at the same
level as the Russians if they are spending huge amounts of
money on compromising European energy security, and we are not
spending substantial amounts of money to build European energy
security.
Thank you, Mr. Chairman.
Senator Johnson. Thank you, Senator Murphy.
I did leave 1 minute on my time. I want to use it as long
as we are talking about this topic.
You mentioned going through Danish waters is a stumbling
block. Are there any other situations like that where it could
be blocked as well other than Germany just simply not accepting
it?
Dr. Mitchell. Well, I think that is an excellent question.
With regard to Nord Stream 2 specifically, in addition to the
Danes, there are other countries that this project--whose
territorial waters this project would traverse--that I think
are considering, for example, the environmental effects,
looking closely perhaps if not at similar legislation, looking
at the broader question of where they will stand on this as it
goes forward.
Our approach has been to speak up, particularly with those
countries that are likeminded in not wanting to see this go
forward to the detriment of European energy security.
We also at the EU level continue to encourage again--and I
cannot say this strongly enough--the EU to use the tools that
it has. And I think there is a fairly broad political consensus
in the EU as a set of institutions to move against Nord Stream
2, to use existing tools, to develop new ones. The problem in
this and so many other areas of EU energy policy is uneven
execution largely because of political resistance from large
member states like Germany. We will see what happens as the
Germans pull their new government together, but to be clear, I
think the country that could do the most to stop this project
is Germany.
Senator Johnson. Thank you.
Senator Shaheen?
Senator Shaheen. Well, thank you.
Is there any reason to think that a new governing coalition
in Germany might change the country's position on this
pipeline?
Dr. Mitchell. Well, it remains to be seen. Obviously, there
has been a lot of recoagulation of the political variables in
Germany in the last month or so. But I think it is clear that
the Germans also have a stated commitment to multilateralism
and to the European Project that is equally important for both
of the major parties that are now talking about forming a
coalition.
I think U.S. diplomacy helps. I think it helps when the
Germans hear the concerns of fellow EU and NATO member states.
It is something we would not like to see them ignore. And I
think we have to use this political opening before the gelatin
mold has really set with that government to impress upon them
the sense of responsibility that Germany should have for
European energy security.
Senator Shaheen. Well, I was there in October with a group
from the Senate, and I was encouraged to hear--at that time
they were thinking about a different coalition--that they might
reject the pipeline. So I do think there are some scenarios
that might allow that to happen.
Can you tell me whether the United States is going to
continue--or maybe it already has decided to continue--the high
level discussions on energy issues that were established with
the U.S.-EU Energy Council back in 2009? Is this something that
the Trump administration wants to continue, and have you had
any meetings in this last year?
Dr. Mitchell. Thank you for that question.
We remain active with the U.S.-EU Energy Council. My
understanding is that we are working on dates for a meeting in
the spring.
Senator Shaheen. So there has not been a meeting so far
this year?
Dr. Mitchell. Not that I am aware of. There has been lower
level coordination, but the----
Senator Shaheen. No. Mr. McCarrick, has there been a
meeting this year?
Mr. McCarrick. No. As the Secretary was saying, there has
been lower level coordination. We are looking at hopefully a Q1
meeting.
Senator Shaheen. And do we have an agenda yet for that
meeting, and are there items that you are particularly
concerned that we need to address as part of any discussions?
Mr. McCarrick. I think it would build on the energy
security themes that we are talking about. These discussions
have always been--although I was not there, I have been told
that discussions are very, very fruitful in terms of getting
people together and fortifying our allies to stay the course.
So we are very, very focused on trying to set that up for the
first quarter of next year.
Senator Shaheen. Great.
Dr. Mitchell, you talked about the formation of the new
supervisory board for Naftogaz in Ukraine. It was my
understanding that the recent members of the board had resigned
because of political meddling. Are you referring to that board,
to a new board? Can you tell me what the status is currently?
Dr. Mitchell. Thanks for the question.
Yes, that is correct. There was a mass resignation. I am
referring to the more recent reformulation under U.S. and IMF
pressure. The Ukrainians moved to set up a new supervisory
board that has a majority of independent experts. I want to be
clear that while that is very positive, we have yet to see the
Ukrainians sign and commit to this. So we continue to keep up
the pressure, raise this in our meetings with Ukrainians.
I think more broadly, if I could comment on the reform
landscape more broadly, we are very concerned about steps
backward, and this is something that Senator Murphy raised as
well, particularly the reluctance to create an independent
anticorruption court and in recent weeks, attempts to
politicize and move against the leadership of NABU, the
anticorruption agency.
Mr. McCarrick. Just to clarify real quick, the board is
like a slate, and all we are waiting for is for somebody to
sign it. And once that is enacted, the board can move hopefully
swiftly to enact some of the reforms needed such as unbundling.
It is a very big issue. So we need to see continued progress,
appointing the board and making it official would be a very
good step.
Senator Shaheen. So what do we think accounts for the
backsliding that we are seeing?
Dr. Mitchell. Well, I would say bearing in mind the scale
of progress that the Ukrainians have made, if you look at post-
communist societies, that transition is one that is very
difficult even in the best of circumstances. I think the
Ukrainians have enacted an extraordinarily upwardly ambitious
reform agenda under conditions of geopolitical duress with a
war on. I think that is a big part of it. I think also
politically----
Senator Shaheen. But just to put a finer point on that, so
are you talking about public pressure that is objecting to some
of the reforms that have been put in place?
Dr. Mitchell. I would say there are two things. First, it
is geopolitical and military. There is a war on, and I think
that has a tendency to create a pressurized environment
politically.
I think, secondly, at the political level, there is always
a temptation for national leadership to prioritize reelection
over the hard decisions that are needed for reform.
Senator Shaheen. No, that never happens in democracies.
[Laughter.]
Dr. Mitchell. In this case, I think particularly as Ukraine
moves beyond the low-hanging fruits of reform and more towards
the deeper structural, these are difficult and painful reforms
even in the best of circumstances. I think the fact that the
Ukrainians have kept up that pace is something we should
continue to recognize as long as in our messaging we are
keeping up the drumbeat of support for continued reform.
Senator Shaheen. So do we think Naftogaz is in danger of
losing support from the IMF and the EU if they do not put these
anticorruption measures in place, if they do not get the slate
of members signed?
Dr. Mitchell. Well, if the Ukrainians are not able to make
decisive progress on both the anticorruption court and on the
issue of gas tariffs, I think they very much jeopardize IMF
funding. And this is a point that we have made repeatedly. The
Ukrainians have proven very responsive to our concerns when we
have raised them. So we will see what they do.
Senator Shaheen. You both mentioned the Krk Island-LNG
terminal in Croatia. I have heard recently that there are some
real obstacles to getting that moving forward. I do not know.
Mr. McCarrick, I guess I should ask you. Do we know what the
status of that is and what the challenges are and whether we
think there are any huge obstacles to actually getting it put
in place?
Mr. McCarrick. We have been continuing to provide them with
technical support. The message that I have received is that we
need to provide some more political support. As with a lot of
these issues----
Senator Shaheen. What do you mean by political support?
Mr. McCarrick. More active engagement by the State
Department with Croatia to continue to move it along is the
best way I can put that.
Senator Shaheen. I am very concerned--and I know some other
members of this committee are as well--about increased Russian
influence in the Balkans and the potential for some of the
countries there to withstand the pressure that they are going
to be getting. And obviously, energy security is a critical
piece of that. So what more should we be doing? Is the State
Department looking at ramping up that kind of political support
for this project, or are there things that this committee can
do to make it clear that we think it is very important and we
want to be as supportive as possible?
Mr. McCarrick. I have had members of my team over there,
and they have been reporting back that we need to send some
more senior folks over there. And so we are planning that
travel for Q1 of next year.
Dr. Mitchell. And if I could just add to that, Senator, we
did have a team there in November, and we continue to urge at
all levels, I mean, all the way up to the president, the
criticality of Krk Island. Unlike in the Baltic, where you have
now two, one Polish, one Lithuanian, this is really our only
bet at present in the Adriatic.
What is needed specifically--I mean, our focus is on
technical and financial support kind of on one level and then
the diplomatic and political. I think the technical and
financial is primarily about getting the legal framework, and
especially the export tariff regime is absolutely critical
because without that, with tariffs being as high as they are,
the ability to take LNG and get it into the rest of the region
is impeded.
On the political level, I think it is about continually
raising this with the Croats and their neighbors, which kind of
also trickles back down and speaks to the issue of tariffs I
think is really the most critical.
Senator Shaheen. Thank you.
Thank you, Mr. Chairman.
Senator Johnson. Senator Young?
Senator Young. I want to thank the chairman for holding
this hearing and welcoming me, someone who is not a member of
this subcommittee, so that I can ask some questions of our
esteemed witnesses here.
Secretary Mitchell, in your testimony you say that energy
security of our allies is a fundamental U.S. national interest.
You also say the administration is pursuing a European energy
security strategy.
So I understand that the administration is soon going to be
producing their national security strategy and making that
public.
Given the importance of energy to our international
security and our domestic prosperity, will energy security
feature prominently in this new national security strategy?
Dr. Mitchell. Thank you for that question, Senator Young.
And it is good to see you again.
It does figure prominently, and the national security
strategy that has been put forward emphasizes a three-part
approach to energy as it relates to U.S. foreign policy, those
three tenets being open markets, to promote exports, and the
energy security of U.S. allies. The third of those planks is
the umbrella for the diversification of fuel types, countries
of origin, and routes that are the emphasis of my remarks
today.
Senator Young. Okay. Very good.
I noted recently in the news that Russian ministers were
visiting with the Saudis to discuss oil markets and coordinate
some of their efforts, the Russian production efforts, with
OPEC. That has been tried before, and we will see whether or
not anyone blinks as market forces continue to influence their
decision-making.
But that reminds us that what we are dealing with here, as
we think about European energy security, is oftentimes--I mean,
there are global forces that dictate these prices in addition
to the regional forces.
So is the administration developing a national energy
security strategy to cover all regions, not just Europe, with
this in mind?
Dr. Mitchell. Thank you for the question.
And let me start by saying that as we know, we are talking
about, with oil and gas, fungible commodities. The Russian
Federation I think in its foreign policy and use of energy as a
political weapon has suffered disproportionately from the low
price environment. And so I would expect to see continued
attempts at coordination with other suppliers. I think the
Russian role as a not stabilizing presence in many parts of the
Middle East can also be understood partly through that
geopolitical lens and vis-a-vis Iran.
I think with regard to the strategy that you are asking
about, the national security strategy that has been drafted
does emphasize energy security. There is a European component
of that, but the three broad tenets of open markets, promoting
exports, and ensuring the energy security of allies relates to
the world as a whole and not just to Europe.
Mr. McCarrick. Secretary Mitchell--if I might, Senator
Young.
Senator Young. Please.
Mr. McCarrick. We have been working--the State Department,
the White House through the interagency has been working on a
macro international energy strategy that will be applicable
both in terms of regions and in terms of supply. So that will
be coming out shortly.
Senator Young. Okay. Well, I will look forward to that
being published. Do you anticipate in the next few weeks or
couple of months?
Mr. McCarrick. It is in the interagency.
Senator Young. Okay. I will try and figure out what that
means later on.
Let me move on to something else. Russia has demonstrated
the will and capacity, as you have indicated in your prepared
testimony, to use energy as a tool of coercion and intimidation
against our allies and partners. You cite, one of you, a
Swedish study that found 55 instances in which Russia cut off
energy for political purposes in only 14 years. Yet, you also
note that 11 EU member states continue to rely on Russia for
more than 75 percent of annual gas imports.
On November 1st, I convened a subcommittee hearing on
energy and international development. Among other witnesses was
a fellow Hoosier, Paul Mitchell, of Indiana's Energy Systems
Network. And he testified at that hearing that innovation
exists in our private sector which can help create business
opportunities for Americans and also further our national
security interests. So there is a lot of innovation in this
energy space.
And so I guess my question to you is how can we better
utilize American energy resources and private sector innovation
to help our allies and partners reduce or even eliminate their
vulnerability to Moscow's coercive use of energy.
Mr. McCarrick. I think that is a great question, and I
think the way we do that is, first of all, domestically.
Obviously, the fracking boom has been very good for our country
and increases the possibility of us exporting LNG.
The technology aspect is fascinating to me because I just
got back from a conference in Portugal, and the companies and
the innovations in LNG right now are moving at a breakneck,
speed and they are reducing the costs of both gasification,
transportation, regasification. It is to the point where
American LNG is going to be evermore competitive going forward.
As for how we help our allies, I think one of the things we
can do is increase supply, and we are looking at various
projects around the world, the Western Hemisphere, as to how we
can export our technologies and help other countries develop
their natural resources, which again would add supply to the
market and reduce the influence of actors like OPEC or Russia.
Senator Young. In light of what an economist would call a
positive externality, in light of the benefits to the public
that are not captured in the price of our energy markets, are
there things that our government should be doing at the federal
level or perhaps things we should stop doing to facilitate yet
more innovation in this space to yet further increase the
energy security of our partners and allies in Europe and beyond
perhaps?
Dr. Mitchell. If I could, Senator, I think that is a very
important question. And we have, in the case of Europe with
Russia next door, a player, Moscow, that is very well-versed in
the use of energy as a weapon, which is politics. And I think
the best answer to that and what the U.S. has traditionally
promoted and continues to promote is the market, the market as
the best option for diversifying European energy. And
consistent with that, the national security strategy, in
emphasizing as the second tenet, promoting exports I think is
really important, LNG, being perhaps foremost, but I would add
renewables. The State Department is coordinating with Commerce
to look at how we can support this plank of the strategy in a
more fulsome way in the days ahead. Innovation in the private
sector--I think encouraging that here domestically.
But also on the European side, to your question
specifically, I think when you look at things like
regasification and renewables in terms of how do we help at the
government level, I am not a great believer that government
can, at the end of the day, provide a solution better than
markets. But I think where we can help is where our businesses
face barriers operating in Europe, and that can come in the
form of e-regulations, national regulations, but also in
Central and Eastern Europe some of the rule of law issues that
can impede a level playing field.
So we have to advocate in our diplomacy for a level playing
field. We have to speak up on regulations that
disproportionately penalize our companies. And I think we have
to encourage allies, including some of our closest allies, who
have ongoing business disputes that may be partly political in
nature to quickly and amicably resolve those cases so that
there is not a chilling effect on U.S. investment more broadly.
Senator Young. I see that my time has run over. I just
would conclude, thanking both of you for your testimony and
invite Mr. McCarrick to Indiana to visit with Energy Systems
Network because they have specialized for a number of years now
in working on these public-private partnerships tying
innovation to different governmental and nongovernmental
entities to solve challenging global problems like this. Is
this an invitation you can accept?
Mr. McCarrick. I look forward to hearing more about it. My
very first internship was in the private sector initiatives
office for President Reagan. So I am very well aware of, since
college, public-private partnerships working well.
Senator Young. I am grateful for your consideration.
Senator Johnson. That sounds like a definite maybe.
Senator Young. Yes, that is right. [Laughter.]
Senator Johnson. Senator Menendez?
Senator Menendez. Thank you, Mr. Chairman.
Thank you both for your testimony.
I want to follow up on Senator Young's last line of
questioning. And, Secretary McCarrick, energy is a global
market. Is that fair to say?
Mr. McCarrick. Mostly yes.
Senator Menendez. So unlike the Russians where they may
very well direct energy to a location for the purposes of their
politics beyond what is the best economic factor that they
could achieve, to the extent that we are producing more energy,
we are producing it in the context of exporting it in a global
market. We do not direct our energy. Is that fair to say?
Mr. McCarrick. Correct.
Senator Menendez. So when we talk about creating more
energy for exportation, it seems to me that the realities of
affecting places like Ukraine, where we would have an interest
to offset the challenges of Russia and what they seek to do to
bring Ukraine to its knees, at the end of the day, we need a
more directed effort. I sometimes wonder whether or not--I know
that ardent believers of the marketplace believe that
everything can be resolved through it.
But it seems to me that if you are going to say that we are
going to create more energy beyond for domestic consumption for
exportation, that then, yes, you will add to the global supply,
but whoever is the biggest buyer in the global supply will take
that supply. So if Japan needs more LNG, maybe they will be the
higher bidder. It will not go to Ukraine. It will not go to
other places we care about.
So do we ever think about if we are going to use energy as
a way to not only create opportunities for jobs here at home--
do we ever think about using energy in a way that also matches
our national interests and national security interests?
Mr. McCarrick. Well, I think we have in many ways.
Senator Menendez. Outside of putting it in the greater
marketplace.
Mr. McCarrick. No, understood. I guess what I look at is
the efforts the U.S. Government has had in terms of convincing
European countries to open gas terminals and keeping their
options open and making sure that the options are there for
them to receive LNG from us.
And we have also contributed efforts to increase the
interconnectivity of Europe through pipelines and also through
trying to supply them with gas from other sources such as the
Southern Gas Corridor.
Senator Menendez. Let me ask you this. As you are, I am
sure, both no doubt keenly aware, some of our most stalwart
European partners have expressed concerns about the law that
Congress passed earlier this year, leveraging sanctions against
Russia for its ongoing occupation of Ukraine, for its
interference in our elections, for its continuing human rights
abuses, among other things. These included sectoral sanctions
against Russia energy development projects.
Now, I am sure you are also both aware that the United
States and its allies have not always started seeing eye to eye
on the question of sanctions. But when the United States has
led efforts to financially isolate and target destabilizing
actors, ultimately our allies, in pursuit of shared security
concerns, have joined our efforts, and that makes them more
stronger and effective.
What steps has the administration taken to specifically
implement provisions in the Countering America's Adversaries
Through Sanctions Act that has notably targeted Russian energy
sectors?
Dr. Mitchell. If I may, Senator. Thank you for that
question. It is a very important issue and one that I have
focused a lot of attention to, as has the Secretary.
With regard to CAATSA specifically, we are implementing. We
have issued public guidance on sections 221, 225, and 232.
I think it was appropriate and worthwhile that the
legislation, particularly on 232 in energy, directed the State
Department to consult extensively with allies. I think that was
wise in light of the archipelago of sanctions that we have in
various efforts, not only vis-a-vis Russia, but also Iran,
where we are working with European allies to ensure the
effectiveness of those sanctions. We took that very seriously
and spent a lot of time talking to and listening to our allies
and to their concerns.
We are currently reviewing some transactions, and I do not
want to comment on those publicly. I can say that we take it
very seriously. We have sent some initial reports to Congress.
I know we are working on a Ukraine-related report that is
coming up for January.
I would simply say that sanctions are a tool, and to be
effective, they have to be used wisely. It is important that
they not hurt our allies more than they do our rivals or
competitors, and also that as has happened in the past with
other families of sanctions, the guidance, how this is
executed, evolves with the realities.
Senator Menendez. I get all of that. I get all of that. I
have been the architect of the greatest number of sanctions in
the Congress over the course of 25 years. So I get that.
My question is--and the consultations or something that we
build into the law, absolutely necessary. But are we going to
be hearing within the near future about some specific actions
taken against the Russian energy sector as contemplated in the
law? Just give me a yes or no and give me a time frame. I am
not even asking you which ones.
Dr. Mitchell. We are reviewing transactions now.
Senator Menendez. That does not mean anything to me.
So at some point, part of the oversight of Congress is
going to be what are you doing to actually pursue sanctions in
this regard. The administration seems to have a reticence as it
relates to sanctions on Russia. So there is no use of Congress
passing legislation to enable the administration to get Russia
to move in a different direction if there is a reticence in
doing so. So I am looking forward to seeing when you actually
do something.
Let me ask you this. There have been some interesting
discoveries and limited development of energy resources in the
eastern Mediterranean, Cyprus, Israel, among others, who have
been reliable U.S. allies and partners. What prospects do you
assess for further development of energy resources in the
eastern Mediterranean, and how can that change the dynamic for
Europe, for example, if we can find the ways in which both the
development of those energy sources and its transmission or its
pipelines can be achieved? Do you see that as an opportunity?
Dr. Mitchell. Thank you for the question.
Yes, I do see that as an opportunity. We followed it
closely. It is potentially promising and could be part of that
broader mix of sources for Europe. The political dynamic, in
the case of Cyprus specifically, I think deserves most of our
attention on that issue. We recognize the right to develop the
resources. We also continue to hold the position that any
resources that are developed should be shared equitably in the
case of Cyprus between the two communities. And we continue to
encourage both sides----
Senator Menendez. Between the two communities, meaning the
occupied part of Cyprus?
Dr. Mitchell. Well, we continue to encourage the
development of a bizonal, bicommunal federation.
Senator Menendez. I know. This is the only country in the
European Union that is part of the European Union that has a
sovereign identity which we somehow would suggest that their
energy development can be dictated by countries outside of its
sovereign identity. Forget about Cyprus for the moment. That is
a slippery slope. If you are going to let Turkey determine
what, in fact, Cyprus can or cannot do in the development of
its resources in that whole part of the eastern Mediterranean--
not that Turkey has proven itself lately to be a particularly
great ally of the United States. So I hope that that is not the
State Department's philosophy as it relates to how that
development takes place.
Dr. Mitchell. Well, thank you for your concern, and I share
the concern. I understand the point that you are making.
I would just say that any sustainable, long-term
development of those resources will require a political
component. And again, we continue to say that any resources
that are developed should be shared equitably, and we encourage
both sides to reduce tensions and define a common future.
Senator Menendez. I am all for resolving tensions and
defining a common future, but I am also not for having a
country who is part of the European Union and has all of the
other relationships and has been a relatively good ally of the
United States, particularly in critical moments, to be forced
to determine that their sovereignty is somehow beholden to some
other country. We would not accept that. I do not know any
other country that would.
So, anyhow, I look forward to working with you on those
issues.
Senator Johnson. Senator Barrasso?
Senator Barrasso. Thank you, Mr. Chairman.
This is on Nord Stream 2, the pipeline, and whoever feels
best qualified to answer.
You know, Russia continues to undermine peace and security
in Europe through a variety of mechanisms, including the use of
energy as a weapon, as you just mentioned, Secretary Mitchell.
Russia is Europe's main energy supplier. Russia also has
significant ownership of Europe's energy infrastructure,
including pipelines, distribution, storage facilities. The
European Union members have identified the risks that have been
associated with Europe's reliance on Russian energy and have
been moving toward a more unified EU energy policy.
We in the United States have been working closely with our
partners in Europe to promote energy security through energy
diversification in the types of energy, the source of energy,
and the routes of energy flow to Europe.
But despite the important work, I am still very much
concerned about the recent actions in Europe demonstrate a lack
of seriousness, in my opinion, in addressing Europe's reliance
on Russia, and the prime example is the Nord Stream 2 pipeline.
The proposed pipeline would run from Russia, under the Baltic
Sea directly to Germany. Nord Stream 2 would follow the path of
the original Nord Stream pathway and would double the capacity
of Russia's gas exports to Germany. Russia, with assistance of
five European energy companies, is working to make Europe more
reliant on Russian gas by undermining the diversification of
Europe's energy resources, supplies, and routes.
So several European countries have raised concerns, as have
I, about Nord Stream 2. I think it is undercutting sanctions on
Russia, increased Russia's political leverage over Eastern
Europe. In addition, it is estimated that pipeline would cost
Ukraine about $2 billion a year in natural gas transit fees.
In the legislation, Countering America's Adversaries
Through Sanctions Act, the United States reaffirmed these
concerns. The law states that it is the policy of the United
States to continue to oppose the Nord Stream 2 pipeline, given
its detrimental impacts on the European Union's energy
security, on gas market development in Central and Eastern
Europe, and on energy reforms in Ukraine.
The law also imposed sanctions on U.S. and foreign entities
who invest or engage in trade that enhances Russia's ability to
construct energy export pipelines.
So can you talk a little bit about the administration, what
plans the administration may have to impose sanctions on
individuals who are investing in Russia's energy export
pipelines projects such as Nord Stream 2 and what efforts the
administration is taking to demonstrate the United States
continues to oppose Nord Stream 2?
Dr. Mitchell. Thank you for the question, Senator Barrasso.
And let me say that I share you concern about Nord Stream 2.
And it has been a longstanding U.S. policy and interest to
fight this project as something that is not in the interests of
European energy security.
The CAATSA legislation--section 232 that bears upon this
explicitly called on the State Department to coordinate closely
with allies. And I would note that that set this section apart
from 231 by my reading. The Congress went out of its way to
direct us to keep in mind the concerns of allies. So I think
our view has been to see that sanctions broadly as a set of
tools, which we have in place vis-a-vis Russia and Iran and
elsewhere, really require close coordination with allies. And
what we did not want to do, in keeping what we understood to be
the spirit of the legislation, we did not want to open up new
gaps between ourselves and allies at a moment when we need to
hold ranks on sanctions across the board.
Having said that, our position continues to be to raise
repeatedly and very strongly with our European allies that Nord
Stream 2 is, as Secretary Tillerson said 2 weeks ago, an unwise
project. The same with Turk Stream. It circumvents Ukraine, all
the reasons that you have given, the loss of revenue, the
Baltic States, Poland, et cetera. Again, this is a political
rather than a commercial project.
What we are doing on that specifically right now, we are
speaking up. So myself and the Secretary on a regular basis
raise this with German counterparts. We raise this at the EU
level. Again, I think the formation of the new German
Government gives us an opportunity to raise this in a way that
calls on the Germans to show responsibility in a European
context.
We are encouraging EU action both through the existing
framework of the Third Energy Package but also the revision of
the EU gas directive, which is directly aimed at Nord Stream 2,
and encouraging member state action working with the Danes and
others to look at how Nord Stream 2 would affect their
interests and their territory.
We are also encouraging competing projects, Baltic Pipe,
IPL, others.
I think broadly on CAATSA, because it is still very early,
I think it is premature to make a determination about Nord
Stream 2 absent contractual information because that is what
the guidance that we have in place says. But I can simply say
at this point that it is a concern. We raise it on a regular
basis, and we are looking at it very closely.
Senator Barrasso. You mentioned Ukraine because they are
traditionally very dependent on Russian natural gas. Russia has
continually used that dependence as a weapon to intimidate, to
influence, to coerce. The Government of Ukraine has been trying
to take some steps to reform its energy sector to improve
energy security. But let us face it. Despite having incredible
resources, the energy sector continues to face a lot of
challenges and is really performing below potential in Ukraine.
Can you talk about efforts the State Department is
currently taking to help Ukraine increase its energy security
and its reliability and their efficiency? What can we do there?
Dr. Mitchell. Yes, sir. Thank you for that question. That
is a very important issue and a priority for us at the bureau.
Let me just say that the political and geopolitical future
of Ukraine is intimately linked to how well we succeed in this
task--we being the United States, Europe, and Ukraine. We are
working now on a Ukraine energy security plan as called for
under section 257 of CAATSA. That is underway now. A report is
due to Congress in January. We are jointly developing that
strategy in coordination and consultation with the Ukrainian
Government.
I do not want to prejudge what will be in that strategy,
but let me just say that broadly our focus continues to be on
two things with the Ukrainians on energy: one, to use our
assistance programs to encourage reform of the Ukrainian energy
sector, diversify sources, fight corruption, which is one of
the biggest impediments to Ukraine unlocking its energy
potential, and integrating with European markets; and then
secondly, technical support to boost domestic production, which
I think the Ukrainians have made tremendous headway on since
2014, and to increase energy efficiency.
We have been encouraged by some of the most recent reforms
particularly the move towards a more independent Naftogaz
supervisory board. We want to see that actually consummated and
acted upon. And we continue to keep up the messaging on gas
tariffs. That is an ongoing process. It is something that I
raise on a regular basis, that the Secretary raises on a
regular basis. And I think as you will see in our Ukrainian
energy security plan that we present to Congress in January, it
is something we take very seriously.
Senator Barrasso. Mr. Chairman, do I have time for one more
question?
Senator Johnson. Sure.
Senator Barrasso. Okay, thanks.
I am going to talk about Spain a little bit. They have a
potential to greatly reduce Europe's reliance on Russian gas.
The LNG terminals and gas pipelines from Africa have a combined
import capacity of about 80 billion cubic meters of gas per
year for Spain. This represents three times Spain's annual
consumption. So Spain is not importing the full capacity
because of the inability to then transport it to other areas in
Europe. There is currently insufficient pipeline capacity to
transport that natural gas from Spain to Eastern and
Southeastern Europe. Europe has been working on adding some
interconnectors and reverse flow capabilities from its
pipelines in order to transport natural gas to countries that
are at risk of being cut off by Russia. Progress has been
limited.
Could you talk a little bit about, since Spain has this
greater import capacity than the volume of natural gas they
consume, what efforts are being taken to allow this excess
capacity to be used in other parts of Europe, particularly the
more Russian-dependent countries?
Dr. Mitchell. Absolutely, and I am glad that you raised
that, Senator. It is not a subject that attracts attention very
often but it absolutely critical. All you have to do is look at
a map of LNG import terminals in Europe to see the overwhelming
majority of Europe's LNG absorption capacity is Spanish. And
the absence of sufficiently robust infrastructure from Spain
into France really is a missing link in the overall puzzle.
I think part of this also reflects the broader problem that
the United States has encouraged our allies for a long time to
get at, which is, again looking at a map, the infrastructure is
overwhelmingly east to west. There is very little north-south.
There is very little intra-European. The United States
continues to raise that broadly with our allies.
I think with regard to this issue specifically, we would
like to see the EU list Spanish-French interconnectors as a
Project of Common Interest. And that is where our diplomacy can
help. It is something that I think in the past the United
States has occasionally raised but not been assertive about,
but it is something that we can continue to raise in the days
ahead. And I appreciate you raising it. I think it is a
considerable impediment to European energy security.
Senator Barrasso. Thank you, Mr. Chairman.
Mr. McCarrick. Actually just to echo the Secretary's
thoughts, I was just in Portugal 2 weeks ago--so include
Portugal in that framework--and had long conversations with
Ambassador Glass about combining what Portugal has and Spain
has and connecting it with Europe because it is essential.
There is a lot of capacity in those terminals that is not being
used right now.
Senator Barrasso. Thank you very much.
Thanks, Mr. Chairman.
Senator Johnson. Thank you, Senator Barrasso.
I really have just one further line of questioning, but it
is going to go right back to what I was attempting to do in my
first line of questioning.
Secretary McCarrick, you mentioned in your testimony that
Lithuania, by building the terminal there, was able then to
negotiate a 20 percent reduction in its price of natural gas
from Russia. And I realize this is not a direct linear
relationship here, but 20 percent of =365 billion would be
about =73 billion of savings if you diversify and you can hold
your suppliers accountable and get a better price.
So I am an accountant. I come from the private sector. It
just seems obvious to me that what you want to do is increase
the number of suppliers to provide you with that bargaining
power. And that is what I find so puzzling about this entire
conversation. It is just so obvious that Europe has to
diversify its supply chain, which means it has to diversify its
delivery systems.
What is the stumbling block? I am not a real good diplomat
here. We speak in diplomatic terms, but I mean, I want to know
what and/or who, what nation is the stumbling block to actually
having this occur? Either one of you.
Mr. McCarrick. I think it is a combination of factors.
Senator Johnson. So start with the priority. What is the
biggest stumbling block and then kind of go on down, list the
facts.
Mr. McCarrick. Some of the legacy regulatory issues have
impeded the growth of this. Some of it is political, I believe,
in nature.
Senator Johnson. So you think that is the top one, legacy
regulatory impediments.
Mr. McCarrick. Indeed.
Senator Johnson. Can you be specific on those?
Mr. McCarrick. I can provide you with examples later. I do
not have them right in front of me right now.
[The information referred to above follows:]
Mr. McCarrick's Response to Senator Johnson
U.S. exports of liquefied natural gas (LNG) were unnecessarily
delayed over the past eight years due to legacy regulatory impediments
established by the previous Administration. For example, the Federal
Energy Regulatory Commission (FERC) issued Draft National Environmental
Policy Act (NEPA) guidance that created additional requirements for LNG
export terminal projects. Moreover, not only has the FERC process seen
delays, approvals from other federal agencies also experienced delays,
even after passage of the Energy Policy Act of 2005 that was
specifically intended to expedite the approval process and prevent any
unnecessary delays. A 2012 study conducted by the Interstate Natural
Gas Association of America (INGAA) Foundation shows that federal
approvals for natural gas related infrastructure saw a nearly 400%
increase in delays. And a 2013 Government Accountability Office (GAO)
report found that the Department of Energy's review of export
applications was not a standardized process, leading to uncertainty for
industry.
Lastly, the final decisions for multiple LNG projects during the
previous Administration, including terminals in Oregon and Texas, were
delayed or denied. The delay or denial of these approvals hampered our
ability to help our allies and partners diversify their energy sources
and to promote and more free and fair global energy market.
Senator Johnson. Okay. We will keep going.
Mr. McCarrick. I would also say political issues. There are
certain views from certain countries in Europe that gas is not
as clean as we think it is, and so they are looking for
different sources in terms of fueling.
Senator Johnson. Which would be what?
Mr. McCarrick. Well, wind and solar.
Senator Johnson. But defining that is enormously----
Mr. McCarrick. Again, the French are very anti-fracking,
and so their nature is to say, well, we are not going to take
gas from the U.S. because it is fracked gas.
Senator Johnson [continuing]. Is that also the impediment
to pipelines through France from Spain? They are so dependent
on nuclear power.
Mr. McCarrick. I have not looked into the issue, but I
imagine, yes.
Dr. Mitchell. If I could just add to that, Senator Johnson.
I think you are raising in many ways the key issue. And if I
had to rank the obstacles, I would just put a huge one at the
very top, and it is overwhelmingly political. And I think it is
the impediment that large Western European member states and
particularly Germany.
Senator Johnson. There we go. Is that not the elephant in
the room?
Dr. Mitchell. Absolutely.
Senator Johnson. I think we should get that on the table so
we understand that is where our diplomatic efforts have to
reside and say, hey, if you want a safe and secure Europe, if
we want to help out Ukraine, we need to get real here and we
need to start investing more money. We have got to have the
north-south corridors. We have got to be smart about this, and
we have got to block Nord Stream 2 because that is going to be
totally counter to what our efforts really need to be long-
term.
Dr. Mitchell. I agree with that, and I would say Germany is
a very important ally to the United States. But on energy
security, Germany gets it wrong, and it gets it wrong in a way
that hurts other EU and NATO member states both financially and
geopolitically.
I would say that in the case of Germany--and I could list a
few other countries primarily in Western Europe--the countries
that are most eager to phase out nuclear, to prohibit shale,
that frown on coal, that fight projects like the Three Seas
initiative, which is all about north-south infrastructure, are
the same countries that are promoting projects like Nord Stream
2.
Senator Johnson. Well, we are probably going to be taking a
trip over to Europe. Maybe you could help arrange a meeting
with those individuals in Germany where we can make that point.
Senator Murphy?
Senator Murphy. Thank you very much, Mr. Chairman.
I wanted to just tie together in maybe one last question or
two the discussions we have been having about whether or not
traditional market approaches can work. One of the reasons that
I am advocating for spending money on energy security and the
way that we spend money on traditional defense security is that
I am concerned that there is not a traditional market solution.
And we have sort of teased at some of the reasons why I have
that concern today, but I wanted to maybe wrap it all into one
question.
The first question is, to the extent, as Senator Menendez
said, that we put LNG into a global market, will it go to
Europe? We cannot as a policy matter tell that gas, that LNG,
where to go. And you have raised a couple issues as to why it
might not land there: one, tariff structures in Europe, and B,
the fact that there are better prices in other parts of the
world. So I would love you to tease that out a little bit more.
And second, the market is distorted, as we have mentioned,
by the Russians who put massive subsidy into maintaining their
energy dominance over Europe. So even if we were able to solve
some of these tariff issues, let us say, why would we believe
that the Russians would not respond by making a substantial new
investment or subsidy in the product that they are sending to
make sure that they maintain that relationship with European
energy states?
Those seem to be two pretty significant issues, the fact
that there are better markets for LNG, other places besides
Europe right now, as we start to move stuff out of the United
States, and that the Russians will always respond with subsidy
unless we have the capacity to offer that same kind of subsidy.
And when I say we, I mean the United States and Europe
together.
Dr. Mitchell. Thank you for that question, Senator. And I
think you are raising an important issue.
On the subject of LNG specifically, you are right that
because this is a fungible commodity and it is going to follow
price, most of it goes to Asia. And just to give the stat on
that, it is, I think, 10 percent, so .3 bcma out of a total of
3.2 bcma that the United States exports. Only that 10 percent
goes to Europe.
What I would say, though, is that where LNG makes the
biggest near-term impact--and long-term it is potentially
revolutionary both for our economy and for Europe in a
geopolitical sense. Where it makes the biggest near-term impact
is it changes the calculus particularly for small eastern
countries when they go to negotiate a deal with Gazprom. If
they have options, it changes everything. It gives them
leverage that they did not have before. Gazprom loves to lock
little Eastern European countries into straitjackets of long-
term contracts.
If you have almost any other option, however much on the
horizon it is, if there is an LNG terminal that is being
completed, it dramatically changes the dynamic at the
negotiating table. Lithuania is exhibit A. We want to see an
exhibit B, C, D, E, F across the region. And in that sense, the
fact that it is going to Asia, while that may be the central
fact from a commercial standpoint, geopolitically there is a
ripple effect to that. And that is part of why we want to keep
encouraging it.
I would say broadly that there is overwhelmingly a market
solution for these things. I think the role of government I see
as being primarily about removing barriers on our side and on
the European side of the Atlantic. So on this side of the
Atlantic, for example, we have not shown alacrity frankly until
this administration in really working to remove some of the
barriers in export licensing, for example, or overall
willingness of the Federal Government to see LNG get onto the
water. I think the previous administration, for a variety of
reasons, was loathe to do that, and I think it has had a
tremendously positive effect for this administration to
accelerate those efforts.
On the European side, I think encouraging the development
of infrastructure is key. That is something that is primarily
about diplomacy. I think government does have a role to play
there when we are talking to allies. But ultimately it is going
to come down to whether companies decide on a commercial basis
to invest in projects. So I would argue that there is a role
for government. I think it is primarily about diplomacy, and it
is about removing barriers.
Senator Murphy. Mr. McCarrick?
Mr. McCarrick. The only thought I would add is, again, the
technology aspects to this. The idea that there is no floor for
Russian gas is probably a false narrative. The more competitive
we can be in terms of LNG, the more we can drive down the
markets and the more attractive we can make our product to the
Europeans.
I guess maybe I am brimming with optimism on the technology
side of it because I just came from this conference where
everybody was talking about reducing cost and doing it with
advanced technologies. And so I would like to think that we can
be evermore competitive going forward and really be an
alternative to Russian gas.
Senator Murphy. We constantly, over the course of my time
in the Senate, have underestimated the lengths that Russia will
go in order to protect its interests in and around its
periphery. I hope that we do not underestimate what they will
do and the subsidy they will provide in order to continue their
energy dominance. And I hope that a clear-eyed calculation
about what Russia will do will inform our policy going forward.
Thank you very much.
Senator Johnson. Senator Shaheen?
Senator Shaheen. Thank you, Mr. Chairman.
One of the concerns that I have about this conversation is
that we have spent now an hour and a half talking about energy
issues in Europe and not once has anyone mentioned energy
efficiency and the demand side of energy. One of the reasons
Ukraine has had so many energy issues is because they were the
least efficient country in Europe in terms of using energy.
So can one of you talk about what we are doing in any
energy conversations to raise our interest in encouraging
energy efficiency? And again, that is a place where U.S.
companies have been at the forefront of developing off-the-
shelf technologies that address efficiency, whether it is in
lighting, heating, whatever it is. And so I would hope that
that is part of any conversation we are having with countries
in Europe.
Dr. Mitchell. Thank you for that question, Senator Shaheen.
It is an absolutely crucial component, and it is one that in
our diplomacy when dealing with European allies and partners on
energy security, we do raise on a regular basis.
Let me start with Eastern Europe, which I think you are
right to highlight. In the case of Ukraine, energy efficiency
could make all the difference, and even at the small margins,
the outcomes are potentially dramatic. I do not want to preview
too much of the Ukraine energy security strategy that we are
putting together as part of CAATSA that will come to Congress
in January, but I will just say that increasing energy
efficiency is part of that second plank of our current approach
in Ukraine, and it is something that we raise on a regular
basis.
The gains that the Ukrainians have made in the last few
years on energy efficiency, both at the household level and in
an aggregate sense, is really dramatic. And there are other
cases in Central and Eastern Europe where encouraging that
could do a lot of good.
One of the ways that we encourage it in Europe as a whole
is, as you say, with regard to U.S. technologies and renewables
and I think broadly across the board in energy efficiency, the
United States is a leader in developing technologies in this
regard. We promote greater energy efficiency in Europe on a
regular basis in conversations.
But I think one of the ways that we can do this in the near
term, there are a growing number of disputes in Europe that
relate to U.S. companies. One very prominent case in Poland
involves a U.S. company that operates in renewables that has a
chilling effect on other U.S. companies who would look at
Central and Eastern Europe. So I think we want to encourage our
allies to make progress on cases that could have that chilling
effect. There are barriers in many European countries that
prevent U.S. technologies from operating on a level playing
field, and so we want to make headway against those.
I think this is consistent with the NSC's energy pillars,
the open markets promoting exports. I think also just helping
to reduce dependence on fossil fuel has been and always will be
part of that mix. In particular, I think the U.S. engaging with
Europe through IRENA, the International Renewables Energy
Agency--we are currently working--the Department of State is
working with Commerce to explore ideas for how we can better
promote U.S. options in Europe in the realm of energy
efficiency and renewables. And that is an ongoing process that
I think, in support of the White House's NSS, could do a lot of
good.
Senator Shaheen. Well, I agree. And just to be clear, I am
a big supporter of renewables, but I am really talking about
the demand side, the efficiency side here, which is different
than renewables. And I hope that that is part of every
conversation that we are having.
Also, in our military, we have seen the benefits that the
U.S. military has gained from adopting some of these
technologies and strategies, and I would hope we are sharing
those as well.
You mentioned CAATSA and the efforts under CAATSA. And
Senator Menendez expressed his concern about how quickly we are
implementing some of those provisions. As you are aware, I am
sure, one of the provisions requires the administration to
report to Congress by February on Russian oligarchs and their
potential ties to the Kremlin's dealings. I hope we have your
commitment today that we will see that report on time and with
real substance.
Dr. Mitchell. Yes, ma'am, you do.
Senator Shaheen. Thank you.
Can either one of you discuss whether the administration is
considering using the secondary sanctions that are allowed to
prevent the Kremlin from manipulating the energy sector?
Dr. Mitchell. That is something that has been a subject of
internal conversation. For reasons similar to those that I gave
earlier, I am hesitant to speak too much publicly about where
we are at on that.
Senator Shaheen. Okay. You do not need to say any more. But
let me just say I hope that that is under consideration, active
consideration, because if it is not, I can assure you that I
will come back--and I would bet other members of this committee
will come back--and put that as a requirement that should be
considered as we are looking at ways that we can influence and
respond to the Kremlin's corrupt behavior.
Mr. McCarrick. Can I make one point on sanctions real
quick?
Senator Shaheen. Sure.
Mr. McCarrick. One of the things that Senator Menendez said
was that if we are not sanctioning companies, we are not doing
our job. But I think one of the things that we need to realize
that sanctions have a chilling effect going forward. The
companies are afraid to do business with Russia because they
will be sanctioned going forward. So I think we need to focus
that the sanctions are actually doing something that people are
not seeing necessarily because the investment is not happening.
Senator Shaheen. I hope that is the case. I think any kind
of data that can indicate that that is in fact what is
happening would be helpful.
I just have a final question and that is around Turkey. As
we have seen over the last year, President Erdogan and Turkey
have moved closer to Russia and to Putin, and we have seen a
lot of coverage of their S-400 missile defense system deal that
Russia has provided to Turkey.
But one other area has been in the energy sector, and they
are talking about a pipeline across Turkey where the energy is
not really going to go to Turkey.
So do you have any theories about why Erdogan would be
willing to cozy up to Putin to do this kind of a pipeline when
Turkey does not seem to be getting any benefit?
Dr. Mitchell. I do not have speculation to share with you
on that matter specifically. I would be happy to look into it
more closely and get back to you.
But I will say broadly on Turkey that one of our greatest
concerns right now is the pattern of behavior that we have seen
in recent days, particularly with regard to the treatment of
our locally employed staff, the detained Americans. It is a
strategic relationship that is vital so we continue to work
closely with the Turks as allies. And we continue to raise
concerns in many areas, including S-400, which the Secretary
has raised, I have raised. This is part of our ongoing
conversation with the Turks and will continue to be.
Senator Shaheen. Thank you.
Thank you, Mr. Chairman.
Senator Johnson. Thank you, Senator Shaheen.
One thing I do like to do is give the witnesses an
opportunity just to either summarize your comments or maybe
answer a question that was not asked. But I will start with
you, Secretary McCarrick. Nothing?
Mr. McCarrick. Nothing.
Senator Johnson. Okay, that is fine.
Secretary Mitchell?
Dr. Mitchell. I might just try to end on an optimistic note
that I think we are all well aware--and certainly you in this
subcommittee are because you follow these issues for so long--
of the bleaker aspects of European energy security, the
wintertime cutoffs, which continue to be an unfortunate
reality. I would just say that, broadly, the picture is
improving over time, in part because the United States
continues to play a proactive role, but also because of the
efforts of our European partners.
If you went back to 2014 and the start of the Ukraine war
and then you kind of fast forwarded to now and you looked back
and you tried to kind of have a panoramic view of the
situation, I think first and foremost the advent of LNG as an
option--Senator Murphy, I understand your view and your
concerns, but I think it continues to make a critical
difference. The end of destination clauses has made a huge
difference in creating better pricing. I mean, the uneven
pricing structures where you get a vast disparity, almost
double the amount that people are paying for energy consumption
in Eastern Europe versus Western Europe. I think Ukraine is
less vulnerable than it was. And as more options come on line
in LNG and in other fields around Europe and also as the
European Union hopefully continues to take seriously its
obligations on the Third Energy Package, I think the trajectory
is broadly positive. It is something that we have to be
diligent about encouraging.
Senator Johnson. Thank you, Secretary Mitchell.
First of all, I could not agree more. It is amazing if you
are a monopolist and all of a sudden you even have potential
competition, how you might start modifying your behavior, much
less actual competition. So the example of Lithuania is pretty
powerful. So, again, it is obvious the direction we need to
take and we need to make sure we can get rid of some of those
impediments, the stumbling blocks.
But, again, I want to thank the witnesses.
I really want to thank my Senate colleagues here. This was
a well-attended hearing. It just shows you how important this
issue is.
So, again, thank you for your service to the country.
With that, the hearing record will remain open until
Thursday, December 14th at 6:00 p.m. for the submission of
statements and questions for the record.
This hearing is adjourned.
[Whereupon, at 11:32 a.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Response to An Additional Question for the Record Submitted to
Dr. A. Wess Mitchell by Senator James E. Risch
The European Union's Third Energy Package was an effort to
further open up the gas and electricity markets in the EU.
However, Nord Stream 2--and more importantly the companies
funding its construction--appear to be recreating an energy
monopoly over gas supply in Europe.
Question 1. Can you please provide a list of the companies funding
the construction of Nord Stream 2? How do you see this consortium
affecting competition in the European gas market?
Answer. The five companies funding the construction of Nord Stream
2 are Uniper (German), OMV (Austrian), Shell (Dutch), Wintershall
Holding (German), and ENGIE (French). Nord Stream 2, if built, could
affect the economic viability of other potential pipeline and
interconnector projects within Europe as they would become less
competitive. Nord Stream 2 would also affect competition in the gas
market because it would allow Russia to bypass Ukraine as a transit
route and tighten its dominance as a source of gas in much of central
Europe, strengthening Gazprom's ability to dictate pricing. The Nord
Stream 2 pipeline project is currently not under the EU Third Energy
Package, though a proposed revision by the European Commission to
update its Gas Directive would apply the Third Energy Package to Nord
Stream 2. Were the Third Energy Package applied to the project, the
European gas market could still be distorted due to the scale of Nord
Stream 2 (55 bcma). If Third Energy Package third party access rules
were applied and no third party actors besides Gazprom booked capacity,
the project could still move 27.5 bcma in volume.
__________
Responses to Additional Questions for the Record Submitted to
Dr. A. Wess Mitchell by Senator Edward J. Markey
Russia Filling a Diplomatic Vacuum in Middle East
President Trump's unwillingness to put forward ambassadorial
nominees, to key countries such as Saudi Arabia and Egypt, has
signaled a diplomatic retreat from the Middle East and allowed
Russia's sphere of influence to grow. The visit in October by
Saudi King Salman to Russia, during which Gazprom and Saudi
Aramco signed a memorandum of understanding, and the December
11 talks between Russian President Vladimir Putin and Egypt's
President Abdel Fattah al-Sisi on, during which both sides
signed a $21 billion deal to start work on Egypt's Dabaa
nuclear power plant are good examples.
Question 1. Assistant Secretary Mitchell, are you concerned by
Russia's relationship with Saudi Arabia? What do the Saudis hope to get
out of a closer relationship with Russia? What is behind Russia's
attempts to broaden its role as an energy supplier in the Middle East
and Asia?
Answer. Saudi Arabia is a strong partner of the United States, and
the United States remains committed to the security and stability of
the Gulf region. For decades, we have demonstrated this commitment
through continued efforts to enhance our diplomatic relationships and
build defense capacity across the region, particularly through
promotion of security agreements, Foreign Military Sales, exercises,
training, and exchanges.
Russia is pursuing a more active foreign policy in the Middle East,
and remains an important player in Asia. Putin has prioritized outreach
in the Middle East to key powers such as Saudi Arabia and Iran to
pursue commercial gain and assert Russia's ``great-power'' status. This
often takes the form of playing a spoiler role, as Moscow is
threatening to do in the Middle East, where it is complicating
multilateral diplomatic initiatives aimed at conflict resolution.
On October 5, King Salman became the first Saudi monarch to visit
Russia. President Vladimir Putin hailed the visit as a ``landmark
event.'' After the summit, Salman and Putin signed documents on energy,
trade, and defense, and agreed to several billion dollars' worth of
joint investment.
Russia seeks additional markets for its energy, not only for
political leverage, but for economic benefit. In June 2015, then-Deputy
Crown Prince Mohammed bin Salman attended the annual St. Petersburg
Economic Forum--the first time the prince became publically involved in
energy issues according to press reports at the time--where he met with
Putin.
During the October 5 visit to Moscow by King Salman, Saudi Arabia's
national oil company Aramco signed several energy-related memorandums
of understanding (MOUs). The agreements were signed at the Saudi-Russia
Investment Forum, jointly organized by the Saudi Arabian General
Investment Authority (SAGIA), the Council of Saudi Chambers, and the
Russian Direct Investment Fund (RDIF). One MOU, between Aramco and
Russia's state-controlled gas company, Gazprom, calls for increased
cooperation along the natural gas value chain, potentially including
exploration, production, transmission, storage, or liquefied natural
gas projects. Aramco also signed an MOU with Gazprom subsidiary Gazprom
Neft, Russia's fourth largest oil producer, to cooperate on drilling
and pumping technologies as well as research and development. Neither
MOU is binding.
These recent developments between Saudi Arabia and Russia are
notable and demonstrate that Putin's sway in the Middle East remains on
the upswing. The United States must closely monitor this trend and be
more diligent than ever about cultivating and maintaining allies in the
Gulf region.
Question 2. What are the terms of the deal between Gazprom and
Saudi Aramco, and the deal between Russia and Egypt?
Answer. On October 5, during a visit to Moscow by King Salman,
Saudi Arabia's national oil company Aramco signed several energy-
related memorandums of understanding (MOUs). The agreements were signed
at the Saudi-Russia Investment Forum, jointly organized by the Saudi
Arabian General Investment Authority (SAGIA), the Council of Saudi
Chambers, and the Russian Direct Investment Fund (RDIF). One MOU,
between Aramco and Russia's state-controlled gas company Gazprom, calls
for exploring ways to cooperate along the natural gas value chain,
potentially including exploration, production, transmission, storage,
or liquefied natural gas projects. Aramco also signed an MOU with
Gazprom subsidiary Gazprom Neft, Russia's fourth-largest oil producer,
to cooperate on drilling and pumping technologies as well as research
and development. Neither MOU is binding.
We understand on December 11, 2017, Director General of Russia's
state-owned nuclear energy company Rosatom, Alexey Likhachev, and
Egypt's Minister of Electricity and Renewable Energy, Mohamed Shaker,
reportedly signed Notices to Proceed on contracts for the construction
of the El Dabaa nuclear power plant during a visit to Egypt by
President Putin.
According to the press reporting, Rosatom will build four VVER-1200
units of the El Dabaa plant in the Matrouh region on the Mediterranean
coast, as well as supply nuclear fuel throughout the plant's entire
operational lifetime, which could be more than 60 years. Rosatom will
also conduct personnel training and will assist its Egyptian partners
in the operation and maintenance of the El Dabaa plant for the first 10
years of its operation. Russia will reportedly finance approximately 85
percent of the project's total cost, through a 13-year, $25 billion
loan at three percent interest.
Intermediate Nuclear Forces (INF)
Russia has started trying to bend the rules of arms control
agreements such as the Intermediate Nuclear Forces (INF) Treaty
and Open Skies Treaty. Russia's trying to force the United
States and other parties to these agreements to acquiesce to
its wishes by allowing it to continue behaving in ways non-
compliant with its obligations is an example of coercive
diplomacy.
Question 3. How can the United States push back against Russia's
non-compliance with these treaties and build consensus amongst other
participants and with our European allies to do the same?
Answer. The administration takes its arms control obligations
seriously and expects the same from Russia. This includes taking active
measures to enforce compliance when other parties are in violation of
their arms control obligations. The administration is pursuing
diplomatic engagement with Russia to pressure it to return to
compliance with its Treaty obligations, closely coordinating and
sharing information with regional allies and partners. In concert with
these diplomatic efforts, the administration is also pursuing economic
and military response measures to impose costs on Russia for its
ongoing violations and to place the United States in a stronger
position to defend itself and its allies and partners should Russia
fail to return to compliance.
Ground-launched Cruise Missile (GLCM)
The Wall Street Journal reported November 16 that the Trump
administration has begun preliminary research on a new, road-
mobile ground-launched cruise missile (GLCM) that if tested
would violate the treaty. The report also indicated that the
administration has informed Russia and NATO defense m[i]nisters
of the decision.
Question 4. On what basis does the administration believe that
developing and possibly deploying a new U.S. GLCM will convince Russia
to return to compliance with the INF Treaty?
Answer. Since 2013, the United States has repeatedly sought to
engage Russia to take meaningful steps to return to compliance;
however, Russia has consistently declined to do so. The administration
firmly believes the United States cannot stand still while the Russian
Federation continues to violate the Treaty. While the United States
will continue to pursue a diplomatic solution, we are also pursuing
economic and military measures intended to pressure the Russian
Federation to return to compliance. This includes a review of military
options for conventional, ground-launched, intermediate-range missile
systems, which would enable the United States to defend ourselves and
our allies, should the Russian Federation not return to compliance.
This step will not violate our INF Treaty obligations. We are also
prepared to cease such research and development activities if the
Russian Federation returns to full and verifiable compliance with its
INF Treaty obligations.
Question 5. Doesn't this provide Putin a propaganda victory and a
``legitimate'' reason to blame the U.S. for the collapse of the INF
Treaty and begin deploying large numbers of illegal missiles without
any constraints?
Answer. The administration has been clear that the United States
remains firmly committed to the INF Treaty, which has been a pillar of
international security and stability since its inception. That
commitment includes a strong willingness to enforce compliance when
other parties violate their arms control obligations. Unfortunately,
this pivotal agreement is under threat today. Despite repeated U.S.
efforts to engage the Russian Federation on this issue, Russian
officials have so far refused to discuss the violation in any
meaningful way or refute the information provided by the United States.
The administration is taking treaty compliant steps in order to
preserve the Treaty and working closely with our allies and partners to
make clear that it is up to Russia to take the next step to preserve
the viability of the INF Treaty.
Question 6. How did our NATO allies react to the news that the
United States plans to develop a new road-mobile GLCM that if deployed
would necessarily be placed in Europe? To your knowledge, are there any
NATO or East Asian allies that would allow the United States to base a
new road-mobile ground-launched cruise missile on their territory? If
the development of a new GLCM becomes a controversial issue within the
alliance, wouldn't that play into Moscow's efforts to divide the
alliance and take the spotlight off its violation?
Answer. The Trump administration has worked very closely with our
NATO and East Asian allies regarding Russia's violation of the INF
Treaty to ensure we remain united in our response. Our allies are
acutely aware of the threat posed by Russian intermediate-range strike
capabilities and support U.S. efforts to preserve the viability of the
INF Treaty. On December 15, the North Atlantic Council released a
statement identifying a Russian missile system that raises serious
concerns and urging Russia to address these concerns in a substantial
and transparent way.
__________
Responses to Additional Questions for the Record Submitted to
Mr. John McCarrick by Senator Edward J. Markey
While Russia has been a negotiating partner in the 6-party
process, Russia has recently taken a more active role in the
North Korea nuclear crisis. Foreign Minister Lavrov said
December 8 that Moscow was prepared to try to mediate between
Washington and Pyongyang.
This offer came on the heels of a report from Japan's Asia
Press International news agency on December 6 that the price of
diesel oil in North Korea was down 60 percent and the price of
gasoline had dropped 25 percent from early November due to
``massive amounts'' of fuel flowing into North Korea from
Russia.
Question 1. Has the Department of State been able to verify these
reports that Russia has been supplying ``massive amounts'' of fuel to
North Korea? How much fuel does Russia provide to North Korea?
Answer. We have reviewed the Japan Asia Press International news
agency's story alleging Russia is behind the surge of fuel supplies to
North Korea. We have not seen indications Russian fuel supplies have
increased through the border provinces, as the article alleges.
Historically, Russia has been one of North Korea's two sources of
refined petroleum products, through the Independent Petroleum
Corporation (IPC), which the Treasury Department designated as a
sanctioned entity under Executive Order 13722 on June 1, 2017. Since
the institution of U.N. Security Council resolution 2375's quota on
North Korea's imports of refined petroleum products on October 1, 2017,
Russia has not submitted formal notification to the U.N. of refined
product exports to North Korea. Moreover, to our knowledge, Russia does
not currently supply North Korea with any crude oil.
Question 2. As the international community places more pressure on
China to cut off oil shipments to Pyongyang, could Russia fill the void
and become the swing supplier to the regime? If China cuts off oil,
will Russia step in?
Answer. Russia has historically supplied refined petroleum products
and crude oil to the Democratic People's Republic of Korea (DPRK). As a
large exporter of both crude oil and refined petroleum products, Russia
possesses the capacity to meet the DPRK's relatively small fuel
consumption needs. Russia's ability to rapidly substitute for any
reduction in or halt to Chinese crude oil supply, however, would likely
contravene U.N. Security Council resolutions. Russia is bound by UNSCR
2375 that obligates it to ship no more crude oil to DPRK than it did in
the year prior to the September 11, 2017 passage of UNSCR 2375--
therefore, it legally cannot surge to provide more oil to DPRK than it
has in the past year. Russia would face significant logistical and
infrastructure hurdles if it tried to do so, though it would possess
capacity to compensate with refined petroleum products. Rigorous
implementation of existing U.N. Security Council resolutions
restricting fuel supplied to DPRK, as well as sustained diplomatic
engagement, will be vital to enforce any further reductions to the
DPRK's petroleum imports.
Question 3. Please give us a sense Russia's relationship with
Pyongyang. What are Russia's strategic concerns regarding North Korea?
Does Russia have unexplored levers of influence of the rogue regime?
Answer. In general, Moscow shares China's reluctance to
substantially increase pressure on the DPRK due to concerns about
destabilizing Kim Jong Un's regime. Russia remains one of North Korea's
principal economic enablers which helps ensure the survival of the
regime, although China remains North Korea's principle economic
pipeline and accounts for over 90 percent of DPRK trade. Even though
Russia-DPRK bilateral trade has averaged little more than $100 million
annually for over 20 years, Russia is the second largest destination,
after China, for North Koreans working abroad. Remittances sent home
provide a significant source of revenue for the DPRK regime. Russia's
long-term Northeast Asia engagement includes talk of linking the Trans-
Siberian and Trans-Korean railroads and constructing a natural gas
pipeline through the DPRK to the Republic of Korea (ROK) which could
bring in billions of dollars in new revenue if completed. Russian
willingness to sign economic deals with North Korea and invest in its
economy is premised on this strategy.
On security matters, Russia, like China, is concerned about a long-
term U.S. military presence in East Asia and continues to criticize the
U.S. deployment of the Terminal High-Altitude Area Defense (THAAD)
system to the ROK on the grounds that it would harm Russia's strategic
deterrence. Russia has also joined China in calling for a ``freeze for
freeze'' approach, in which North Korea would suspend nuclear and
ballistic missile testing in return for a cessation of U.S.-ROK
military exercises.
Along with U.S. allies and partners around the world, the United
States hopes Russia will press the DPRK to realize that the only path
to a secure, economically prosperous future is to abandon its unlawful
weapons programs that endanger international peace and security. Russia
has regularly criticized U.S. military exercises and sanctions and
called for dialogue to resolve tensions with North Korea.
Our goal is to seek Russia's cooperation to ensure the full
implementation of all U.N. sanctions pertaining to recent U.N. Security
Council resolutions in response to DPRK provocations and to convince
Russia to take positive measures to pressure the DPRK, including
deporting the DPRK laborers currently in Russia. As the Secretary said,
we are continuing our dialogue with Russia with regard to North Korea.
The Secretary has discussed directly with President Putin the need for
Russia to join China and us in the pressure campaign on North Korea.
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[all]