[Joint House and Senate Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


116th Congress }                            Printed for the use of the             
1st Session    }      Commission on Security and Cooperation in Europe                     

======================================================================

	         Pipleline Politics: Energy and 
	                Power in Europe                     


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]




                         July 23, 2019

                        Briefing of the
          Commission on Security and Cooperation in Europe
------------------------------------------------------------------------
                         Washington: 2019





      Commission on Security and Cooperation in Europe
                  234 Ford House Office Building                                                                Washington, DC 20515
                      202-225-1901
                      [email protected]
                      http://www.csce.gov
                         @HelsinkiComm

                                      
                                      
                                      
            Legislative Branch Commissioners



              HOUSE				SENATE
CHRISTOPHER H. SMITH, New Jersey 	ROGER WICKER, Mississippi,
          Co-Chairman			  Chairman
ALCEE L. HASTINGS, Florida		BENJAMIN L. CARDIN. Maryland
ROBERT B. ADERHOLT, Alabama		JOHN BOOZMAN, Arkansas
MICHAEL C. BURGESS, Texas		CORY GARDNER, Colorado
STEVE COHEN, Tennessee			MARCO RUBIO, Florida
RICHARD HUDSON, North Carolina		JEANNE SHAHEEN, New Hampshire
RANDY HULTGREN, Illinois		THOM TILLIS, North Carolina
SHEILA JACKSON LEE, Texas		TOM UDALL, New Mexico
GWEN MOORE, Wisconsin			SHELDON WHITEHOUSE, Rhode Island
                        
          
                 

               Executive Branch Commissioners
               
               
                    DEPARTMENT OF STATE
                   DEPARTMENT OF DEFENSE
                  DEPARTMENT OF COMMERCE
                            [II]







    The Helsinki process, formally titled the Conference on Security 
and Cooperation in Europe, traces its origin to the signing of the 
Helsinki Final Act in Finland on August 1, 1975, by the leaders of 33 
European countries, the United States and Canada. As of January 1, 
1995, the Helsinki process was renamed the Organization for Security 
and Cooperation in Europe (OSCE). The membership of the OSCE has 
expanded to 56 participating States, reflecting the breakup of the 
Soviet Union, Czechoslovakia, and Yugoslavia.
    The OSCE Secretariat is in Vienna, Austria, where weekly meetings 
of the participating States' permanent representatives are held. In 
addition, specialized seminars and meetings are convened in various 
locations. Periodic consultations are held among Senior Officials, 
Ministers and Heads of State or Government.
    Although the OSCE continues to engage in standard setting in the 
fields of military security, economic and environmental cooperation, 
and human rights and humanitarian concerns, the Organization is 
primarily focused on initiatives designed to prevent, manage and 
resolve conflict within and among the participating States. The 
Organization deploys numerous missions and field activities located in 
Southeastern and Eastern Europe, the Caucasus, and Central Asia. The 
website of the OSCE is: .


    The Commission on Security and Cooperation in Europe, also known as 
the Helsinki Commission, is a U.S. Government agency created in 1976 to 
monitor and encourage compliance by the participating States with their 
OSCE commitments, with a particular emphasis on human rights.
    The Commission consists of nine members from the United States 
Senate, nine members from the House of Representatives, and one member 
each from the Departments of State, Defense and Commerce. The positions 
of Chair and Co-Chair rotate between the Senate and House every two 
years, when a new Congress convenes. A professional staff assists the 
Commissioners in their work.
    In fulfilling its mandate, the Commission gathers and disseminates 
relevant information to the U.S. Congress and the public by convening 
hearings, issuing reports that reflect the views of Members of the 
Commission and/or its staff, and providing details about the activities 
of the Helsinki process and developments in OSCE participating States.
    The Commission also contributes to the formulation and execution of 
U.S. policy regarding the OSCE, including through Member and staff 
participation on U.S. Delegations to OSCE meetings. Members of the 
Commission have regular contact with parliamentarians, government 
officials, representatives of non-governmental organizations, and 
private individuals from participating States. The website of the 
Commission is: .


            Pipeline Politics: Energy and Power in Europe

                             July 23, 2019


                                                                        Page
                              PARTICIPANTS

    Danica R. Starks, Senior Policy Advisor, Commission on Security and 
Cooperation in Europe                                                      1

    Ed Chow, Senior Associate (Non-Resident), Energy and National 
Security Program, Center for Strategic and International Studies           3

    Colin Cleary, Director for Energy Diplomacy for Europe, Western 
Hemisphere and Africa, U.S. Department of State                            4

    David Koranyi, Senior Fellow, Energy Diplomacy, Atlantic Council; 
Energy Policy Advisor, United Nations                                      6

    Efgan Nifti, Executive Director, Caspian Policy Center                 7
                               
 
                Pipeline Politics: Energy and Power in Europe
                
                              ----------                              

                             July 23, 2019


    The briefing was held at 11:00 a.m. in Room 1334, Longworth House 
Office Building, Washington, DC, Danica R. Starks, Senior Policy 
Advisor, Commission on Security and Cooperation in Europe, presiding.
    Panelists present: Danica R. Starks, Senior Policy Advisor, 
Commission on Security and Cooperation in Europe; Ed Chow, Senior 
Associate (Non-Resident), Energy and National Security Program, Center 
for Strategic and International Studies; Colin Cleary, Director for 
Energy Diplomacy for Europe, Western Hemisphere and Africa, U.S. 
Department of State; David Koranyi, Senior Fellow, Energy Diplomacy, 
Atlantic Council; Energy Policy Advisor, United Nations; and Efgan 
Nifti, Executive Director, Caspian Policy Center.

    Ms. Starks. All right. Well, good morning, everybody. It's 11, so 
we're going to start. Good morning to everyone, and to our 
distinguished panel of experts. And welcome to this briefing by the 
U.S. Commission on Security and Cooperation in Europe, better known as 
the Helsinki Commission. My name is Danica Starks and I'm seconded to 
the Helsinki Commission from the U.S. Department of Commerce, where I 
was the policy team lead for the Office of Russia, Ukraine, and 
Eurasia. I'm pleased to be here today. We're going to have an amazing 
panel of our distinguished experts, but I would be remiss if I did not 
acknowledge thanks to the chairman of the Helsinki Commission, 
Congressman Alcee Hastings, for the opportunity to be here, as well as 
our chief of staff, Mr. Alex Johnson.
    We're here because part of the mission of the Organization for 
Security and Cooperation in Europe is looking to promote a strong and 
vibrant transatlantic relationship and foster a peaceful and prosperous 
European continent. Slovakia, which holds the chairmanship, has named 
energy security a priority for what the OSCE terms the second 
dimension, the economic and environmental portfolio. And this briefing 
is aimed to move the dialog forward on those issues. We acknowledge 
that energy security, writ large, is multifaceted. It's not just about 
the pipelines. However, if we look at the headlines we know that what 
we're terming pipeline politics has become a key issue of the day in 
discussion here on the Hill, in the administration, and across Europe.
    The United States in the 1990s championed many efforts in terms of 
looking at building the diversity of energy security in Europe, 
particularly in terms of the diversity of pipeline routes, with the 
signing of the contract of the century for the Azeri-Chirag-Gunashli 
oil field, and most famously the Baku-Tbilisi-Ceyhan pipeline between 
Azerbaijan, Georgia, and Turkey. This effort to create new and diverse 
routes across the Caspian was seen as crucial in order to avoid the 
very subject of the briefing, which is the ability for any one country 
to be able to use energy as a political tool and leverage.
    The term ``pipeline politics'' in and of itself has somewhat of a 
negative connotation in the sense that we are specifically talking 
about the potential malevolent use of energy, in some cases to achieve 
foreign policy goals. But in reality, it's actually a much broader 
concept. And I think today we'd like to bring some nuance to that 
concept and talk about what actually is the ability to use energy 
politics, to use pipelines, especially these projects that are long 
term, in some case 20 years developments, for specific short-term 
political goals.
    This discussion has taken on renewed importance recently especially 
since 2014, and the Russian aggression in Ukraine, and the development 
of the Nord Stream 2 pipeline. And today's briefing is an effort to 
sort of take a step back away from the headlines and the rhetoric and 
have a really rich discussion and shed light on the myriad of issues 
that are underlining the current pipeline politics in Europe. So we'll 
look at how this is crucial to the long-term transatlantic 
relationship.
    We'll look at current work in the progress of Nord Stream 2 and 
TurkStream, which I know a lot of people are so anxious to talk about, 
but also the status of the Southern Gas Corridor. But also, what are 
the other efforts that are going on, to put in context the importance 
of these pipeline politics, and who the winners and losers are within 
Europe that are behind this. Further, the U.S. is currently considering 
various measures of carrots and sticks to try to influence the pipeline 
politics in Europe. And part of what we want to discuss is how viable 
this is, given the issues of political and commercial viability.
    Joining me today for this discussion is a wonderful panel. I'm 
going to do a brief, just one-, two-sentence introduction because you 
have bios in your handouts.
    To my left is Ed Chow, the man, the legend. He is a long-term 
colleague. He has worked as an international energy expert across the 
U.S., Europe, the Black Sea, and the Caspian. And many know he worked 
for 20 years at Chevron Corporation, at headquarters and in overseas 
assignments. To Ed's left we are happy to be joined by Colin Cleary, 
who is a career member of the Foreign Service and currently serves as 
the director of energy diplomacy for Europe, the Western Hemisphere, 
and Africa in the State Department's Bureau of Energy Resources. Mr. 
Cleary also served as political counselor at the U.S. Embassy in Kyiv, 
as well as science counselor at the U.S. Embassy in Moscow.
    To his left we're proud to welcome Mr. David Koranyi, who came down 
from New York. He is a senior fellow for energy diplomacy at the 
Atlantic Council's Global Energy Center. Mr. Koranyi also, notably, 
served as undersecretary of state and chief foreign policy and national 
security advisor to the prime minister of the Republic of Hungary, and 
is a member of the European Council on Foreign Relations. Welcome, 
David.
    And last, but certainly not least, Mr. Efgan Nifti, He is the 
executive director and a board member of the Caspian Policy Center. We 
met a couple of years ago at the first Trans-Caspian Forum, and he has 
been a colleague ever since. He previously worked for Georgetown 
University as a research assistant and as a faculty development 
coordinator, and as a lecturer for the Azerbaijan Diplomatic Academy, 
which I believe is headed by the former Ambassador of Azerbaijan to the 
U.S., Mr. Pashayev, a wonderful friend.
    I will now give each of our panelists about 5 minutes to do some 
brief opening remarks. I have a few questions I'd like to ask to start 
the discussion. And then later we will open up for Q&A from the 
audience. And unless until we get a roving microphone, we actually have 
a microphone on the side for questions. And when you ask questions, and 
I'll repeat this, we ask that you give your name and affiliation. And 
please ask a question--statements can be made in comments on Twitter 
after the program.
    So thank you. And, Ed, if you'd like to start.
    Mr. Chow. Thank you. Thank you very much, Danica. I know you want 
to have as much discussion as possible, so I'm going to keep my opening 
remarks very short, and maybe not even use the 5 minutes you gave me.
    It's an honor and pleasure to once again have the opportunity to 
participate in a U.S. Helsinki Commission briefing. As an energy 
expert, I tend to look at pipelines first from the standpoint of 
economics. Permit me to do the same here, in order to set up the 
discussion with my fellow panelists, who are all much more expert in 
politics than I am.
    Mega pipelines are expensive projects. They cost multibillion 
dollars, and they take a long time from conception to completion. Three 
to five years if everything goes well, frequently longer. This was my 
experience working in the region in question on the Caspian Pipeline 
Consortium when I was with Chevron, on the Baku-Tbilisi-Ceyhan pipeline 
and South Caucasus gas pipeline, when the U.S. Government sent me to 
advise then-Georgian President Eduard Shevardnadze on these projects as 
part of the effort that Danica mentioned earlier.
    Although such projects are examined later from a foreign policy, 
geopolitical perspective, they have long-planned commercial 
justifications. Simply, pipelines are sponsored by oil and gas 
producers who seek to bring their product to market in the most 
efficient way possible. In the case of gas pipelines, which are more 
difficult to finance due to the transportation economics of gas versus 
oil and from the different nature of gas markets from oil markets, gas 
pipelines generally also require the involvement of long-term gas 
buyers.
    In the United States the government does not got involved directly 
in building pipelines, except in land acquisition, permitting, 
environmental and safety regulation. In other parts of the world, 
governments may subsidize or invest in pipelines as public 
infrastructure. Nevertheless, unless the government is willing to bear 
the full financial risk, these projects require financially committed 
shippers of oil and gas, and a bankable market or creditworthy buyers 
at the end of the pipe.
    In Washington, there's a lot of talk about whether certain projects 
are economically viable or politically motivated. To me, the pertinent 
test is whether projects are bankable or not. If they are bankable, 
they will be built. If they are not bankable, they won't. And they 
helped examine some of these projects, including U.S. initiative, in 
that context. I hope this helps tee up the discussion for later.
    Thank you.
    Ms. Starks. Thank you, Ed.
    Colin.
    Mr. Cleary. Thank you, Danica, for the invitation, and for the 
opportunity to be here before the Commission. Ed mentioned that he's an 
economist and focused on the economics. My specialty is actually in the 
political side or the geopolitics. And so I'll look at that from the 
U.S. Government perspective. I actually have a statement, so I'll read 
it, and then I look forward to Q&A after that.
    America's commitment to European energy security goes back decades. 
The reason for this is straightforward. The U.S. and Europe are 
connected by deep political, economic, cultural, and historical ties. 
We're invested in Europe's political and economic welfare and 
stability, and energy security is part of that. As is well known, 
Europe relies significantly on Russia to meet its energy needs. Russia 
supplies 40 percent of Europe's gas imports, but the distribution is 
uneven. Thirteen countries approximately, mostly from the former Soviet 
bloc, depend on Russia to meet between 50-100 percent of their domestic 
gas demand. We know that Russia is willing to use energy as a 
geopolitical tool, because they have done so. And we're all familiar 
with Russia's track record of destabilizing countries it feels 
threatened by or seek to dominate. They can use military might or they 
can use effective hybrid tools, such as economic pressure, including 
energy.
    As far as the pipelines, the politics of the pipelines, we regard 
the core rationale for the Nord Stream 2 and the TurkStream 2 pipelines 
as to be fundamentally political, not commercial. Russia's desires to 
bypass Ukraine--is to bypass Ukraine for gas transit. And these 
pipelines are, in essence, diversionary pipelines. The goal is to 
destabilize Ukraine economically and strategically, and to punish 
Ukraine for choosing to step outside of Moscow's geopolitical orbit, 
and in doing so to deprive Ukraine of approximately $3 billion a year 
in gas transit revenue that it's currently getting.
    But it's not only Ukraine that's subject to energy as a political 
weapon. All countries that are highly dependent on Russia for energy 
are vulnerable to Russian political and economic pressure. When Gazprom 
has monopolist or near-monopolist power, it uses it. It has been common 
practice for Gazprom to charge countries that are in favor with the 
Kremlin, such as Germany, less than countries that are in disfavor, say 
Poland. So the differential pricing is due to political factors, 
fundamentally.
    And so the State Department--that's our role--works with countries 
to implement policies and projects that can reduce their reliance on 
Russian energy. Danica mentioned diversification, and I would say if 
you had to summarize it in one word it's to foster diversification.
    One example is diversification through LNG, liquified natural gas. 
I'll point to three cases in Europe that are topical to this--
Lithuania, Poland, and Croatia. They've each led the way with choices 
to invest in new infrastructure, deepening their access to world 
markets.
    Lithuania has a floating LNG terminal that's provided the first 
means for a non-
Russian supply of natural gas to the Baltic states, compelling Gazprom 
to play by free market rules. The result? Gazprom cut the price of 
Lithuania's supply contract by 20 percent and saw its share of 
Lithuania's gas market reduced from 100 percent to a range of 25-55 
[percent], depending on price and demand.
    Poland has invested significant resources in LNG facilities on the 
Baltic, and the results are impressive. Thanks to its far-sighted 
policies, by early in the next decade Poland will have gone from being 
completely reliant on Russian natural gas to being able to meet its gas 
needs without Russian imports. By providing Central Europe with a means 
to import non-Russian gas, Poland's LNG infrastructure can strengthen 
the energy security of its neighbors as well.
    Last, Croatia. The U.S. has been involved in trying to help provide 
technical assistance to a floating LNG terminal in Krk, again, which 
would offer an avenue of diversification in the southern Balkans.
    Another avenue of diversification is nuclear energy. So in addition 
to LNG, new nuclear energy and diversified nuclear fuel supply should 
be included as a viable means to enhance and expand Europe's energy 
diversification. Diversifying nuclear fuel supplies for Russian-built 
reactors, for example, would also promote greater energy security and 
independence for Europe. Renewable energy also plays a role. The EU 
has, as we know, ambitious renewable goals that will help provide 
important diversification and energy security.
    Diplomatically, the U.S. has been very supportive of the European 
Union's projects of common interest. These have provided for greater 
interconnection in the European gas transit system. The projects have 
also supported LNG hookups, as well as such initiatives as Baltic Pipe, 
which is underway to provide Norwegian gas to Poland. So there's a lot 
of avenues of diversification going on.
    I will move quickly. We also support, as you were mentioning, the 
Southern Gas Corridor, which has provided gas--Caspian gas--and is 
another avenue for diversification. That's coming online next year or 
the year after.
    In short, our policy is to foster options, flexibility, redundancy, 
and diversity. It should come as no surprise then that we strongly 
oppose projects that would do nothing to advance Europe's energy 
diversification goals and would maintain or increase its vulnerability 
to Russian malign influence. We count Nord Stream 2 and the second line 
of TurkStream among these projects. Far from advancing Europe's goals, 
these two projects will only reinforce Russia's pernicious influence on 
Europe's national security for decades to come.
    Finally, you're mentioning the big picture. I just want to offer a 
brief comment on the macrotrend that does impact this discussion. And 
it's the shift in the United States from a posture of scarcity to 
abundance in oil and natural gas. Just a couple of quick facts. The 
U.S. is today the world's largest oil and gas producer. We have become 
a net natural gas exporter in 2017 and are projected to be a net oil 
exporter by the end of next year. That is for the first time in 70 
years. And these volumes will continue to grow in the years ahead. So 
it's changing the dynamic and it's giving the United States a welcome 
opportunity to help other countries achieve their energy security 
goals.
    Oil and gas exports from the United States, by adding volume to 
global markets, can lower energy prices. As countries seek to diversify 
their energy supplies, LNG imports from the U.S. can supply them with 
one additional option. There are other options to the Eastern 
Mediterranean. So there's new sources and new opportunities for 
diversification that are very encouraging. So the opportunities are 
growing.
    In conclusion, with reference specifically to Nord Stream 2, we're 
not alone in opposing it. The neighbors in the Baltic largely oppose 
it--some very, very strongly. The European Commission and the European 
Parliament have denounced it as politically inspired. So I would call 
your attention to those. And the United States is far from alone in its 
posture. We consider it a pipeline driven more by geopolitics than 
economics.
    Thanks.
    Mr. Koranyi. Thank you, Danica. And thank you to the Commission. 
It's a great pleasure to be here. Let me just say it's always 
intimidating to be on the same panel with Ed, because when he was 
advising Georgian President Shevardnadze I was about 10 years old, if I 
counted correctly. So, again, it's my great pleasure to be here.
    Let me start on a personal note. In 2009, the last major crisis 
between Russia and Ukraine that impacted European energy security, I 
was posted in Brussels, working in the European Parliament, and then 
subsequently I worked for the Hungarian Government. Let me also 
emphasize that it was a different Hungarian Government. If you follow 
the Hungarian political developments, I advised a different prime 
minister, the predecessor of the current prime minister. And of course, 
I remember very vividly how frantically Europe as a whole reacted to 
the crisis, and how unprepared most of the Central and Eastern European 
countries were back in those days.
    I look at the picture now, a bit more than a decade later, and I 
have to say that we have come a long way. So my own country, Hungary, 
has about 6.3 billion cubic meters of gas storage facility. We are 
actually filling up those facilities as we speak. So by the end of 
September, it will be fully filled. So that means that we have gas 
available for the entire winter, more than 8 months' worth of supply. 
We are in an incomparably better situation than we used to be 10 years 
ago. That's not true across the board, so we have a lot to do still. 
It's a glass-half-full situation. But let's recognize the progress that 
we have made in that regard.
    Danica in her introduction mentioned carrots and sticks. So let me 
start with the sticks. Nord Stream 2 you mentioned already. The way I 
look at it--I've been on the record, I've written articles about Nord 
Stream 2, I'm no friend of Nord Stream 2 and I see its dangers. Yet, I 
find the almost single-minded preoccupation with Nord Stream in 
Washington, DC somewhat unhelpful. I'm not saying it's a constructive 
pipeline. I'm saying that TurkStream, for example, which is aiming to 
circumvent Ukraine from the south--the second leg of TurkStream which 
aims to supply Bulgaria, Serbia, and Hungary is way more dangerous in 
terms of blocking Central and European markets than Nord Stream 2.
    So I would advise a refocusing of efforts--a more balanced effort 
in terms of in addition to focusing on Nord Stream 2, focus on 
TurkStream, and especially the second leg. And then sort of keep it 
coordinated with the Europeans, and make sure that the ongoing pressure 
on Nord Stream 2 and the threat of sanctions is used in a coordinated 
fashion with the Europeans, so that it leads to an agreement with 
Ukraine on the transit agreement.
    This was a complicated sentence--[laughter]--but what I mean is 
that the--at the end of this year, as I'm sure you all know, the 
existing agreement between Ukraine and Russia is going to expire. We 
are in this situation that nobody knows. And that's part of the reason 
why we are putting in so much gas into the storage in Hungary and all 
across Central Europe. It's very uncertain how that agreement is going 
to continue. So if you want to guarantee quantities in the Ukrainian 
pipeline system, in the transit system for the next 10 years, then 
using that leverage, the threat of sanctions, is going to be crucial. 
But again, coordination between the EU and U.S. is critical.
    Let me just say a couple of words about interconnections, which is 
a critical piece of the puzzle. I have had the pleasure to be part of 
the original study at the Atlantic Council that initiated the Three 
Seas Initiative back in the days. And I've been really happy to see it 
evolve to the point that now we are talking about an actual TSI fund. 
So there is actual money put on the table by Central and Eastern 
European States themselves to spend it on finishing these missing 
pieces in Central and Eastern Europe, along the north-south corridor. 
And very concrete suggestion I have in this space, looking at Senator 
Chris Murphy's bill, the potential one billion support for private 
sector investment, mobilization in Central and Eastern Europe, I see a 
very interesting opportunity in terms of co-investing from the TSI fund 
and the Central and Eastern European side, and from this potential U.S. 
pot of money. So that would be a very powerful transatlantic message, 
and actually put the money where our mouth is in terms of finishing 
these missing pieces.
    Diversification. The Krk LNG terminal in Croatia, again, we have 
been talking about it for 10 years. I think there is finally movement. 
I see a good chance of it actually 
happening.
    There still needs to be pressure applied on both Hungary and 
Croatia to remain constructive and to integrate their markets, and to 
come to terms with regard to the equity stakes in the LNG terminal, but 
then also opening up the market so that the gas can be evacuated from 
Croatia to Hungary, and potentially to Ukraine as well. Black Sea, I 
see a very dangerous situation evolving whereby the situation--
political situation and the regulatory regime in Romania has been 
evolving in a way that jeopardizes the exploitation of those resources, 
which will be a very sad situation to witness.
    And then finally, the East Med. So there was a lot of talk, or 
there's been a lot of talk in town about the potential for East Med 
natural gas resources. And I would caution against putting too much 
hope in terms of the East Med becoming a major source of natural gas to 
Europe any time soon. Part of it is just how the pipeline geopolitics 
is, but part of it just the economics--what Ed was referring to at the 
beginning. The reserve base is small. The political issues are 
complicated. The one critical piece of the puzzle there that I would 
pay a lot of attention is to make sure that energy, as such, is 
involved or integrated into the next round of the settlement 
negotiations between the Turkish and the Greek Cypriots, because the 
fact that energy was left out from those negotiations had a very 
detrimental effect on the outcome of the latest round.
    Final point, if I may. We tend to have a very gas-heavy 
conversation in this town when it comes to transatlantic energy 
security. So I would also caution against that. I see conventional 
wisdom has it that Europe, of course, will have an increasing gas 
demand. And this is what this picture is as we look at it today. But we 
live in a fast-changing world. So I see high degrees of uncertainty in 
terms of gas demand in Europe as a whole, Central and Eastern Europe, 
10, 15, 20 years down the line. So I would advise keeping the 
transatlantic energy security dialog a broader dialog than natural gas.
    Thank you.
    Mr. Nifti. Hello, everyone. It's a pleasure to be here. Thank you, 
Danica, for inviting me over here. And it's an honor to speak here. And 
also everybody mentioned about Ed. I also want to mention Ed because I 
took energy classes with him in grad school. So it's another honor to 
be in the same panel with him. I know we addressed multiple political 
issues here. I also primarily focus on more Southern Gas Corridor, 
which is the fourth main energy corridor for Europe that will be 
receiving gas in 2020.
    I'll try to 5 minutes, emphasize five points, actually, a brief 
outlook for European energy outlook, then some remarks on the history 
of the Southern Gas Corridor. Also current State and progress, how we 
are--what's happening with the progress. And obviously another key 
question is potential suppliers, but there are current suppliers for 
the Southern Gas Corridor, but it can be--with the expandable capacity, 
may reach more capacity. And also, what are the potential markets, 
actually, for the Southern Gas 
Corridor?
    I know the Caspian oil and gas history was more about oil up to 
1990s. And U.S. spent a lot of energy and political will in 
facilitating that progress. There was also a commercial project as 
well, but now I think the history is also about how the natural gas 
resources of the Caspian that should be delivered to the European 
continent, also neighboring countries like Georgia and Turkey as well. 
In that respect, I'll briefly give some data. I'll try to be providing 
some data on the European energy outlook, and then move onto the 
Southern Gas Corridor.
    European Energy Union that has been in place for a couple of years 
now has been targeting to diminish European dependency on the single 
supplier, and also diversify resources. But what we see, despite the 
initial projections, now we are--European import dependency is actually 
going to rise to 88 percent in coming years. And it's mostly about not 
the growing demand but rather declining domestic production. And just 
to give you another number on this, is that Europe had been importing 
in 2014 150 bcm of gas from Gazprom. Now it has reached almost over 200 
bcm. So there is a lot of talk out how European Union and European 
partners are trying to diversify, but I think to what extent it has 
been materialized is a big question.
    On the other hand, we can see that, yes, there are other ways to 
diminish the consumption of the natural gas, but with measures on the 
renewables and other supplies. But approximately 24 percent of the 
energy mix will stay natural gas for Europe by 2030. We see that there 
are two major areas of European consideration to receive gas. One is 
U.S. LNG. Another one is resources from East Med, resources from--which 
David mentioned about it--resources from the Caspian, and other places. 
And in that respect, I will also touch base on the few words on the 
Southern Gas Corridor. I wish we had a map here to show it, how long--
--
    Ms. Starks. We have some in the handout.
    Mr. Nifti. It's a long chain of projects for components it has, 
taking gas from the Shah Deniz field of Azerbaijan and delivering all 
the way to Italy. The project is one of the common interest projects of 
the European Union. And I say, the U.S. have been supporting the 
project since the beginning. And although none of the gas reached the 
U.S., but U.S. has been instrumental facilitating the progress. Forty 
billion dollars have--is expected to be invested in this project. And 
around seven countries are taking part, actually, all the way from 
Azerbaijan, Georgia, Turkey, Albania, Greece, Italy, and Bulgaria, in 
that respect.
    As I said, this is the fourth energy corridor for Europe. And I 
would say all the--among all the potential perspective supplies, 
Southern Gas Corridor is the one that is the most solid one that is 
actually being materialized by next year. And we already have seen the 
gas being delivered to Turkey at this stage. What pipelines do we have 
in this project? We have Southern Caucasus pipeline. We have Trans-
Anatolian pipeline and Trans Adriatic pipeline. It's interesting to see 
that in a very short period of time this all seven countries managed to 
bring this happen. That was a key concern in the beginning, I would 
say. And we will expect next year 10 bcm of gas to deliver to Europe 
through Trans Adriatic pipeline.
    So what is the current stage? I personally attended the TANAP 
groundbreaking ceremony by in 2015 in Turkey. And during my travels, we 
had a chance to travel to 20 provinces that TANAP goes through in 
Turkey. And it was a very challenging project. And TANAP project 
actually estimated to be completed with $12 billion investment. Actual 
numbers that we heard last month is around only $7 billion, which shows 
that how successful the parties were in implementing the project. 
Turkey's already receiving gas, as I say, through this project. And we 
can see that incoming months we should see gas being delivered to 
Europe as well. Obviously this is not a big burden, I would say. This 
is--the capacity of the pipelines is around 31 bcm. And with additional 
resources from other places, it can be a bigger capacity.
    In that respect, I would like to mention a few of the potential 
additional resources into that. Obviously, the additional fields in 
Azerbaijan, like Shafag gas, Asiman, and others that can be utilized 
for the Southern Gas Corridor. But on the other hand, I think we've 
been discussing Turkmen gas a long time now, but it hasn't realized so 
far. I think the Caspian Convention that was signed last year on August 
12 is paving the way for that kind of project. But the key question 
here is to see how much of gas can be transported, and also can the 
parties--Azerbaijan and Turkmenistan--agree on the project.
    And also, I would say that there are also deposits in Uzbekistan 
and Kazakhstan can also be--on the eastern side of the Caspian, that 
can be brought to the western side. And also it doesn't also have to be 
a full pipeline--fully capacity pipeline. Instead, we can think about 
interconnector in the Caspian, as we talked about interconnectors in 
Eastern Europe, that can bring gas from the region.
    Obviously, Israeli and East Med resources are also a potential. As 
I say, as David mentioned, those are more far perspectives. But at this 
stage I want to highlight one thing--that this gas will be specifically 
important for the Balkans, Eastern European region, and Italy, from the 
Caspian resources. I identified a couple of markets, but I'm not going 
to touch onto them much.
    I will stop here and thank you.
    Ms. Starks. Gentlemen, thank you very much. You've given a lot of 
food for thought.
    I want to start back on what Ed mentioned, the issue of the 
bankability of these projects, and the viability of these projects, and 
the fact that in the long term, commercial companies are only going to 
do projects that are commercially viable. Sort of a multipronged 
question: One, is it possible that--we'll start with Nord Stream 2 and 
TurkStream, and then we'll move onto other things, but we'll start with 
the hot topic.
    Is it possible that these projects are commercially viable and 
bankable, and are also politically problematic? And if that's the case, 
if they are--and that's an if, that's a question--if they are both 
commercially viable, then part of the question then goes to Colin in 
terms of then how do you deal with the political situation when you 
have market economics pushing in one direction? And we can talk a 
little bit more about that, Colin, too. You mentioned, you know, 
looking at nuclear energy. There was actually an article in the press 
the other day about Rosatom and the potential that they could basically 
effectively also end up with a pseudo-monopoly as well. So when you 
have--let's assume that there's commercial viability. How do you then 
open that and almost move against that, when the winds of economics are 
pointing to a certain direction?
    So, Ed, would you like to maybe start in terms of are they viable? 
And then also specifically, Efgan and David, if you could also mention, 
given the--I think it was David mentioned that TurkStream is more 
possibly dangerous for the Southern Gas Corridor, could you go into 
that a little bit more as well?
    Mr. Chow. Thank you. Could they also be politically motivated? 
Well, of course. Why did Bill Clinton show up at the signing of the 
Baku-Tbilisi-Ceyhan pipeline in Istanbul? Because it supported our 
political aims at the same time, as it needed to be economically 
viable.
    In other words, the oil companies have to make it work financially. 
And BP and other companies did do that. But can it also be politically 
tinged? Yes.
    The point that I was trying to bring up is that if it's mostly 
politically motivated, but economically shaky, let's say--then 
governments have to decide what subsidy they're willing to give these 
projects. And I'm really glad David mentioned Chris Murphy's bill that 
would put a billion dollars into the fund that would support the Three 
Seas Initiative. Otherwise, the U.S. Government is just talking. It's 
not committing any resources behind the project. And in Washington, you 
ask whether a project is real--you ask whether a program is real or not 
by what's the budget number, right? Otherwise, what's your policy? The 
policy is talk up things that someone else will have to pay for, right? 
So it really is quite important. Projects all need political support. 
Projects that cross borders particularly need political support, 
otherwise they don't happen.
    David mentioned something very important, is that from the 
standpoint of U.S. policy TurkStream is much more important than Nord 
Stream 2. Why? Two reasons. One is, Southeastern Europe is almost 
completely dependent on Russian gas imports. Northwest Europe, by 
definition, is diversified already in terms of import sources, because 
they can import gas from Norway, they can import LNG. Even Germany can 
import LNG from Rotterdam, or Antwerp, or wherever. So the Gazprom's 
monopoly power, as such, is much more concentrated in Southeastern 
Europe than it is Northwestern Europe.
    So why didn't we make more of a fuss about TurkStream? Well, I 
would suggest that we had other priorities maybe with Turkey at the 
time. But also maybe we took our eye off the ball a little bit, as we 
apparently have with this S400 controversy as well.
    Why--the other reason is that TurkStream, which takes gas from west 
Siberia, is much more of a Ukraine bypass pipeline than Nord Stream. 
Nord Stream takes gas also from the Yamal Peninsula. So if you are 
producing gas in northern Russia, which Gazprom is doing, the much more 
direct route to the prime market in Germany is under the Baltic than it 
is via Ukraine, which is sourced primarily by west Siberia and gas 
fields whose production are declining because they've been producing 
since the 1970s-1980s. So in that respect the question is, Is there 
political significance to these major megaprojects, the answer is 
absolutely yes. Do we want a policy? The answer is yes. There's no 
reason why, of course, the United States should at all support Nord 
Stream 2. But what resources are we willing to devote--real resources, 
rather than talking about things--to block Nord Stream 2 or to help 
Europe diversify its pipelines? Otherwise, we just sound like we know 
more about European energy security than Europeans do.
    It would be a little bit like if Europeans said to us: Well, you 
shouldn't import oil from Saudi Arabia because they have really bad 
human rights record. Or, you shouldn't import oil sands from Canada, 
because that's got a terrible carbon footprint. Those facts are true. 
But is it really Europe's decision not make what American policy is? Or 
is it America's decision? So I think we need to think about how--what's 
the priority of blocking projects that we may not like in the overall 
foreign policy context?
    Ms. Starks. Before other panelists go, I wanted to let people know 
that in your packets there are few maps in terms of the pipelines, for 
those of you who aren't as familiar. I know this can be a daunting 
conversation.
    And, Colin, wanted to hear from you. And as part of that--Ed 
brought up a point of, you know, do we--who is deciding, you know, what 
is best for European energy security or not? As part of the answer if 
you could address, you know, you mentioned specifically that we--there 
are actually European partners that are in lockstep with the U.S. on 
this. Are they aware, those that are not in lockstep? Are they just 
making a conscious choice that the commercial viability, the price, for 
example, of Russian gas, is just--it's just something that they can't 
work against? You know, we're assuming that they understand the 
potential consequences of having a monopoly. So what would it take to 
get them on board?
    Mr. Cleary. Thanks. Yes, I just would underline that point that you 
made, that the European Commission and the European Parliament--these 
are representative, broad-based institutions of Europe, have both 
declared that the Nord Stream, in particular, is fundamentally a 
political project, and not fundamentally economic. Of course, there are 
commercial aspects of it. It's the opposite of--you know, I wouldn't 
say that there's no commercial dimension to it by any means. But those 
broadly based, representative European institutions have declared that 
fundamentally it's political.
    So we will--it is hardly the United States telling the Europeans 
what to do. And, again, if you look in the Baltic region, Poland's a 
Baltic country. They're strongly opposed. Denmark is giving the whole 
thing a very serious look. The other Baltic--the three Baltic states, 
very concerned. So it's not as if it's the United States is at odds 
with Europe on this question.
    And I'd just say, again, just getting back to the political-
commercial dimension--I mean, this is really fundamentally a political 
situation. You have a country that--Russia--that has annexed territory 
of the transit country. So this is not a normal commercial situation. 
And you have a country that has--is fomenting a war in the eastern part 
of the transit country. So this is hardly a purely normal commercial 
discussion. So the question is not, Does Gazprom want to divert--or, 
Russia, the Kremlin, want to divert supplies out of--away from Ukraine. 
It's why should Europe allow that to happen? That's our--that's what 
we're trying to say. Ukraine has been very adequately supplying--excuse 
me--Europe with 90 bcm of--per annum--of gas. Without problems. The 
problems come when Russia cuts off, when Russia does political 
imposition of cutoffs, as they did in 2006, as they did in 2009. I also 
was living in Ukraine at that time, in 2009, so I remember it very 
well.
    So the issue is really the inherent political nature of this, not 
that it makes sense for Gazprom, which is obviously--has commercial 
dimensions, clearly, but is also an army--it is not an unrepresentative 
arm of--it has representation in the Kremlin and is part of the overall 
power structure. Ukraine has--just to be--just to conclude--excess 
capacity, if were invested in. They're doing 90 bcm per annum. They 
could do more. So there's no need to divert out of that route and 
render it essentially, you know, obsolete. So that's what our point is.
    Thanks.
    Mr. Koranyi. On Nord Stream 2, two quick points. So, one, we are 
now about 40 percent dependent on Russian gas. Yet, I am less concerned 
about European dependence on Russian gas overall than I was 5 years ago 
when that number was lower. And the reason for that has been discussed 
already, that the markets are more competitive, more efficient, more 
transparent for a significant part of Europe.
    But that's not the case for parts of Central Europe yet. So the 
reason why it is so important to pay attention to TurkStream is that 
the timing is very sensitive. So if you look at, for example, Hungary, 
we have a long-term natural gas treaty that expired already in 2016, 
but it was extended essentially up until the end of this year, or the 
next year.
    But we have to renegotiate it with the Russians. And the government 
was hoping, for better for worse, to be in a situation that we have 
alternatives as we sit down with the Russians to negotiate. But that 
didn't manifest. And I don't want to go into the details of why that's 
not the case, but the Black Sea and LNGs through the terminal in 
Croatia are critically important from that perspective. But if 
TurkStream gets there first, then we will be in a locked-in situation. 
It will be much harder to justify the investment into these 
infrastructures. So that's why it's important to rush ahead.
    Another interesting aspect, which is a little bit further down the 
line, but I find it fascinating--Nord Stream 2. So the EU in April 
adopted an amendment to the gas directive, which essentially says that 
third party--or, the third energy package and third-party access is 
also applicable for the offshore section of Nord Stream 2. And it's 
complicated, because there might be exceptions and abrogations, but 
further down the line I could imagine a scenario where this particular 
piece of legislation is being used to put pressure on the Russians to 
liberalize their own gas export market.
    Right now it's only Gazprom who's allowed to export via pipeline. 
The LNG export market is liberalized, but the gas pipeline export is 
not. So because you have this legal piece in place that could compel 
the Russians to be able to say that it's not only Gazprom who feeds gas 
into that pipeline. There are many, like, legal intricacies around 
this. It's not going to happen any time soon. But I see a very 
interesting opportunity down the line there to put some pressure on the 
Russians to liberalize themselves.
    Mr. Nifti. If I may, on this. First, on the commercial viability, 
I'm not going to touch much on the Nord Stream or the TurkStream but 
more on the Southern Gas Corridor, I would say. It is both commercial 
and also strategic project that, you know, we have seen all the seven 
countries working together to facilitate a speedy delivery of the gas 
in that respect. And also, you have 13 companies actually taking part 
in this. If it wasn't commercial, you can't force any company to be 
part of this multibillion-dollar project.
    On the other hand, I think opposing the pipelines or the projects 
is one thing, and also creating new opportunities for the market is the 
key question here as well. In that respect, I would say that existing 
deliveries, now expected to be maybe around 10 bcm. But I think our 
efforts should be both getting more opportunities for the Europeans to 
get more gas. I would say for any given country it is still--pipe gas 
is the most reliable and credible source for many countries still. And 
LNG is something, a phenomenon that is coming on the market in recent 
decades. In that respect, I would say that it's understandable for some 
countries to pursue, again, pipe gas, which some of them still consider 
as more reliable and credible.
    But I think it shouldn't prevent our efforts--U.S. efforts--to 
create more opportunities, both on the LNG side, and also both on the 
pipe gas side, which I mean we see efforts in the East Med, but also on 
the Caspian gas as well. In that respect, we successfully worked 
delivering initial volumes from the Caspian. But I think our time has 
come to build on that success so that the--that volume can be expanded.
    Ms. Starks. You mentioned, Efgan, that there's some work going on 
with Turkmenistan. So a bit of a side question: Are we ever going to 
get a trans-Caspian pipeline with gas from Turkmenistan? I see Ed and 
David smirking. [Laughs.]
    Mr. Nifti. I wouldn't say that everything is rosy or something is 
coming anytime, or imminent. But I can tell that maybe instead of 31 
bcm of Turkmen gas to be delivered to the West, it's a very ambitious 
goal and we don't know if it can even be realized in that respect. But 
we already know that in certain Caspian fields, 5 bcm of gas annually 
is being flared. And any interconnectivity through already existing 
infrastructure in the Caspian, can actually take gas and pipe that into 
the existing infrastructure that have been achieved by SGC.
    Ms. Starks. And I don't want to take up all the time from audience 
questions, but I do have one or two more burning.
    Ed, you mentioned did we sort of miss out of TurkStream as, you 
know, a threat, and David also brought that up. What about Turkey, and 
the political situation there, and the future of what things are 
looking like with Turkey? Is that something that is a threat to the 
current work that's being going on in the Southern Gas Corridor in 
terms of its potential to be a long-term transit partner? Is that 
something that, for example, Azerbaijan is concerned about? David, 
Colin, is that something that the U.S. is at all concerned about in 
terms of the future of the Southern Gas Corridor?
    Mr. Chow. I think diversification is good. And too much 
concentration in any particular route or any particular source is not 
helpful. So if you can afford to diversify, it's better to diversify. 
The politics is really beyond my competence, but I would reflect on the 
time when David was 10 and I was working on the Caspian pipelines. At 
that time, Turkish policy under President Demirel and President Ozal 
even before then, was completely aligned with American objectives. And 
you see Turkey today, there is not complete alignment, shall I say, 
diplomatically, between U.S. policy and Turkish policy, including 
Turkey's relationship with Russia right now. So it is a place to watch 
closely. If you are interested in diversification and routes 
concentrating too many pipelines through Turkey may not be the thing 
that you should be looking for right now.
    Mr. Cleary. Very briefly, no, it's not been--we aren't really 
expressing particularly concern about Turkey as a route. But there is--
you mentioned--there's the potential for the Southern Gas Corridor to 
have, you mentioned, 10 bcm, and we understand that maybe that volume 
could be increased. So it offers additional opportunities, looking 
ahead.
    Mr. Koranyi. So on the trans-Caspian pipeline, I think it was 
Ambassador Richard Morningstar once said that if that pipeline gets 
build in his lifetime, he will be dancing on the streets of Baku, which 
is quite the promise. [Laughter.]
    So I think--I share his skepticism for a number of reasons. On the 
Southern Gas Corridor and additional gas, I have been the most 
optimistic when it comes to Iraqi-Kurdish gas, because I see the 
political problems probably--I mean, they also have political problems, 
but it's probably the most prospective, provided that Iraq as a whole 
internally figures some things out.
    Ms. Starks. And then, last question--you know, we talked about 
carrots versus sticks, looking more at the carrots in terms of what can 
the U.S. do in a positive sense looking in this subject area? Colin, 
you mentioned the importance of U.S. LNG. Given the gas market in 
Europe, to what extent do the panelists believe that U.S. LNG can 
actually be a game breaker in terms of changing the commercial 
viability terms for these projects?
    And then, David, you also mentioned a lot of what's needed in terms 
of the interconnectors, working with Three Seas and other initiatives--
what other things?
    And, Efgan as well, and Ed--what other things could the U.S. be 
doing to support some of these other initiatives that might be actually 
much more helpful in getting the long-term ends that we want?
    Mr. Chow. I mean, certainly the advent of U.S. LNG exports is good 
for gas buyers all over the world. So you have another source of gas 
into a market. That source of gas is not at all linked to oil prices, 
which is the way gas had been--LNG, in particular, has been traded 
regionally around the world--has been oil-linked pricing. U.S. gas is 
not linked to oil prices at all. It puts a cap on how much previous 
dominant players and pipeline gas can charge their customers. So it is 
undoubtably a good thing. More liquidity in the trading markets that 
would lead gas to be traded much more like oil 5, 10 years from now 
than it is today. There's no question in my mind that the U.S. LNG 
exports is 100 percent positive.
    The problem is that people exaggerate the case. People start 
saying, as if they believe that U.S. LNG can substitute for Russian gas 
somehow. But that's not possible. I mean, I hate to say this in 
Congress, to lay out some simple energy facts. Wholesale gas prices in 
Europe are selling about 550 per million Btu right now. U.S. wholesale 
prices are about 230 per million Btu right now. It's seasonally low 
because it's the middle of summer. It'll get closer to $3.00 when 
winter comes. So U.S. LNG is in the money, so to speak, going to 
Europe, because it costs you another $3-5 per million Btu to liquify, 
transport, and regasify the gas on the other end. So you're just about 
there.
    The problem is that when gas prices recover in Northeastern Asia--
it's been depressed because Asia had a very warm winter last year--that 
gas, since the U.S. Government doesn't control the flow of gas, thank 
God--that gas will flow to the highest value market, wherever that is. 
Traditionally, that tends to be Northeastern Europe.
    The other problem is that Gazprom gas costs are very low. It's 
about a dollar per million Btu. And so it can supply gas to Europe, and 
it has in the past, for as low as $2 per million Btu, or $2-3 per 
million Btu. So at that point, if Gazprom wants to protect its market 
share, all it has to do is lower the price of gas that they sell in 
order to push LNG out of the market.
    The fact that the European gas market has changed fundamentally, a 
point that others have made, is really very important. Sometimes I feel 
like we're fighting the battles of 10 years earlier rather than battles 
of today. Why has the European gas market changed? Part of it is the 
gas directive that David mentioned. Part of it is the competition case 
against Gazprom. So many of the discriminatory pricing policies that 
Colin mentioned are no longer possible in Europe. Once gas hits the 
European market, it can flow freely as long as connectors are there to 
move it. So more connectors are needed, for sure.
    You can't charge Poland more than Germany, because that gas from 
Germany will flow back into Poland--if the Polish market were only 
open, which it is not, right, because it's controlled by a state 
company instead. So is there more work to be done in further 
liberalization, further connecting of the markets so that Europe will 
finally have a 500-million-person gas and power market? Absolutely. And 
U.S. LNG is definitely beneficial to Europe, and Asia, and all other 
LNG buyers. But let's not exaggerate its impact.
    Mr. Cleary. Just very briefly, two things. I think the Lithuania 
case that I mentioned earlier does show that introducing the 
competition of the LNG can result in lower pricing. So, for all the 
reasons Ed just said, it is a very good thing. We are just at the 
incipient stages. Three, four years ago there was no U.S. exports of 
LNG. So we've gone from almost zero to--I guess we began 17th in the 
world and now we're at No. 3. And so it'll--the export volumes are 
going to be increasing very dramatically in the next few years.
    So we'll see how this--what impacts this has. It's a global market. 
It's absolutely based on price. And what happens in Asia affects what 
happens in Europe. So it's hard to predict. That's the difference 
between LNG and the pipelines. You have that dynamism and the ability 
to respond to changing circumstances.
    But just--I just want to make the one point of--another point. Just 
I said it before, but the fundamental thing here is not to replace 
Russian gas to Europe, of course. It's to--if we get to the Nord Stream 
or the TurkStream, it's to stop the diversion of gas out of Ukraine. 
For all the harm Ukraine as a country--under siege, under attack--and 
the purpose here of these pipelines, in our view, fundamentally is to 
divert the gas around Ukraine. It's not to end--we're just seeking to 
keep that--work with that transit system, make it viable, and not turn 
our back on a country that's already under attack. So it's not about to 
eliminate Russian gas. It's to prevent them, by engaging in essentially 
warfare through economic means, against Ukraine.
    Mr. Koranyi. Couple points. So U.S. Energy to Europe--actually, in 
the first quarter of this year Europe was already the top destination 
for American LNG. It's happening. In terms of what the transatlantic 
allies could and should do together to put these interconnectors in 
place--a couple of them I mentioned already. Access--what Colin, you 
were just talking about--like, access to LNG markets in general, and 
U.S. LNG in particular, is critically important. If you look at the map 
of Europe overall, then there is no shortage of LNG regasification 
capacity. It's just some of it is in the wrong place. Iberian 
Peninsula, too much LNG capacity. Stands idle most of the time. But 
then it's Central and Eastern Europe. So in Central and Eastern Europe 
you have some capacity still missing.
    So from that perspective, this triangle of Swinoujscie, or the 
expansion of Swinoujscie, the Polish terminal up in the north, Krk I 
mentioned already in Croatia, and the Revithoussa Greek LNG terminal 
expansion are the critical pieces of the puzzle. So I think Swinoujscie 
is on the right track already. There was additional EU funding. The 
Croatian LNG terminal is sort of on the right track. I think 
Revithoussa could still use some support. And then there are these, 
like, little nitty-gritty interconnectors that are not sexy at all in 
the grand scheme of things, but yet critically important to have access 
to the LNG markets. One that was regularly floated but it didn't 
progress is a small 2 bcm interconnector between Hungary, Slovenia, and 
Italy that would give access to Central Europe to the mostly idle, or 
to some extent spare capacity of Italian terminals. So that's critical.
    And then just on Ukraine, again, a critical piece of the puzzle is 
the implementation of the energy package in Ukraine. And Ukraine, 
unfortunately, has been slow in putting that in place, among other 
things. So that's a significant obstacle in preserving Ukraine as a 
viable transit country. So the sooner they can put that legislation in 
place and implement it--and the U.S. has been extremely helpful along 
with the European Union to help them--but it needs political will and 
it needs a speedy implementation to put that in place.
    Mr. Nifti. My two cents on this. I think so much had been said 
about it. I think we should continue our active energy diplomacy in the 
region. I'm specifically talking about the Caspian region, actually. 
And also, U.S. efforts on U.S. LNG and I think the Caspian resources 
are not--are complementary to the European energy security combined. I 
think we also need to--there are some small players in the region that 
are willing partners in that respect. I think we should continue work 
and encourage those willing partners, in respect, to achieve overall 
goals of diversification in Europe. Obviously the gas market is not as 
good as the oil market. It's really hard to reroute your supplies or 
change your supply structure on the natural gas side. But I think in 
that respect careful planning and work, as I say, with the local 
partners, smaller countries in the region, in Eastern Europe and also 
in the Caspian will help that effort.
    Ms. Starks. Great. Well, thank you to our panelists. That was a 
wonderful discussion. I'd like to open it up for questions from the 
audience. We don't have a roving mic, so anybody on that side there is 
a mic on the press table, you can press the button. And for those who 
are on this side, you can use mine. And I will move it over here if 
need be.
    Are there any questions? When you ask a question, please indicate 
your name, your affiliation, and please ask a question.
    Questioner. Should I just speak here?
    Ms. Starks. I can repeat it.
    Questioner. Okay. So my name is Nick. I work for Congresswoman 
Marci Kaptur.
    And one of the security issues, besides dependence on Russian 
energy in general, is I think the rise in corruption we're seeing in 
certain areas--for example, Firtash using corruption in Ukraine to 
stymie progress, or the potential security threat of the Russian Paks-2 
nuclear plant in Hungary, or, you know, Szijjarto working for Gazprom. 
So I guess, what can the U.S. Government do, what can the Congress do, 
to push back against this trend? Is it technical assistance? Is it 
stronger, you know, work with our legal attaches?
    Thank you.
    Ms. Starks. So did everybody hear the question? Okay. So the next 
couple people that have questions might want to go ahead and line up at 
that mic. But the question is, what can the U.S. Government and 
Congress do to push back against some of the corruption and corrupt 
practices that are also hampering the energy sector? Particularly you 
mentioned Hungary, Ukraine.
    Mr. Cleary. Start very briefly by saying that a key aspect of the 
U.S. assistance program, that the Energy Bureau that I'm a part of is 
instituting is on the governance question in the energy sector. So 
we've been working very closely with NAFTAGAS to try and have practices 
that are typical of Europe, the United States, and other open economies 
that will minimize the corruption in the energy sector. As far as 
Firtash, there is a public--there are avenues in Ukraine, and Ed would 
speak much more authoritatively on this than I, that differential 
pricing domestically, where you--you know, subsidize prices, and the 
ability to manipulate those--and Mr. Firtash is associated with those 
practices, as you know.
    So that is something that has to be looked at. The new government 
is reformist. They just had elections over the weekend. There is hope 
that the reformist agenda will also include energy sector, and that 
some of these issues that you're mentioning can be addressed now. But 
they're definitely real. They're definitely important. We have been 
engaged on them. But it's not a battle that is over. It's something 
that we have to keep fighting.
    Mr. Chow. Just on Ukraine--and David can talk about Hungary, Colin 
and I are both very fond of Ukraine. We first met in Ukraine, and I'm 
leaving for Ukraine on Saturday. So I mean, part of the problem of 
Ukraine, as your office and the Congresswoman knows very well, is that 
energy franchises have been something that political interests in 
Ukraine have fought over ever since independence. It is often a subject 
of coalition building even in Ukraine. We haven't had unity of purpose 
in the last Ukrainian Government, I would say, in the last 5 years. 
There's been inside the government fighting on control of energy 
franchises.
    For the first time after independence, Ukraine will have a 
government--a majority party government in place that is committed to 
fighting corruption. And when you talk about corruption to Ukrainians, 
they think about energy about No. 1. So hopefully they will attack that 
problem directly. And the United States should definitely support it. 
Ukraine needs a lot of tough love in this area. Wherever the corruption 
touches U.S. jurisdiction, as Firtash does--did, in the extradition 
case that's going on right now--we should certainly prosecute it to the 
maximum extent.
    Ms. Starks. My colleague, Paul Massaro, who is the second-dimension 
economic officer at the commission.
    Questioner. So thank you very much, Danica. And thank you to Nick, 
who took the words right out of my mouth. So I'll ask a different 
question.
    And that is, sort of out of curiosity, what is the future of the 
Norwegian piece of this whole puzzle, as a major energy exporter. And 
then, if you have time on the second one, Europe, and especially 
Germany, has invested a lot in renewable energy and sort of other sorts 
of styles of energy beyond the pipelines to try to become independent 
of pipeline politics. What's going on there? Has there been success 
there or not?
    Thank you.
    Mr. Chow. Well, I think Norway's very bullish about its gas future. 
So even though forecasters have said that gas production will plateau 
at some point, if you look at Norwegian plans--both from the government 
and company level--they continue to see increases, particularly in the 
far north area of gas production. So Norway's a very, very important--
as most of you know, Norway's not part of the EU. But nevertheless, 
it's a very important major supplier. Norway some years ago got away 
from index gas contracts. So it is pricing to the market, which 
hopefully all other sellers will do as well.
    The second question was----?
    Ms. Starks. Renewables and----
    Mr. Chow. So, an untold story is that renewables and gas work very 
well together, because with renewables your problem is the 
intermittency of wind and solar. And gas-fired power plants are much 
more flexible to work with than either nuclear or coal, which tend to 
be the--so just because you want to expand renewables doesn't mean that 
you don't want gas. The other issue related to Germany is gas is used 
for industrial processes as well. It's not only for power generation. 
So gas--you know, if you're a German chemical manufacturer, for 
example, gas continues to be a very important input.
    Mr. Nifti. One small comment on the renewables side. Latest 
quarterly report by the European Energy Union puts 17 percent on the 
renewables. And I know Germany both is a huge exporter of renewable 
technology for energy, and as well as renewable energy-producing 
technology. And also, on the other hand, it is concept of becoming 
energy hub, which is aspired by many countries in the continent--
Turkey, Germany, Hungary, and everybody else is talking about becoming 
energy hub. And in that respect, a $2 trillion economy, Germany 
obviously has probably that goal as well. And in that respect, 
receiving more gas doesn't hurt.
    Mr. Koranyi. Just very quickly--so on the corruption question I 
just wanted to say two things. One, of course, radical transparency is 
critically important. The involvement of the European Commission in 
negotiating these long-term natural gas supply treaties, as stipulated 
in the EU Gas Directive, is critically important. If there are 
commission officials, the chances are much lower that the corruption in 
these deals will be included. And then I know it's a very controversial 
political issue, but I see individual sanctions, or sanctions against 
individuals involved in some of these controversial projects that could 
be extremely powerful. And I understand that these are--some of these 
are allied countries, NATO allied countries. But individual sanctions 
have been deployed before in this context and have been actually quite 
impactful in terms of behavior. So I would advocate looking into those.
    Mr. Cleary. I'm just going to add very quickly, on Norway I think 
that's a very interesting case, because mentioned earlier that Russia 
provides 40 percent of the European gas imports, and Norway is No. 2 
with 35 percent. That doesn't freak anybody out. Why? Because Norway 
doesn't impose any political--they don't have any political motives. 
They're strictly doing it on a commercial basis. They're not cutting 
anybody off. They're not imposing political conditions. So I think it's 
a good example of it's not necessarily the volume. It's the intent of 
the actor. And clearly the concern of the other actor is the--which is 
the nature of this panel--is the political aspects of what they put 
into the gas equation.
    So Norway is important, as Ed said. The projections are pretty much 
for them to keep going through 2040, you know, at the level of supply 
that they've been doing. I underline again the Baltic Pipe initiative 
with Poland, a new avenue of diversification that they're doing with 
the support of the European Commission. So I think Norway is critically 
important, very significant, but not a problem because they are doing 
it on a purely commercial basis.
    Mr. Koranyi. Just quick on renewables and Germany. So the problem I 
see there is that renewables have been growing pretty impressively. But 
because of their switching off of the nuclear fleet and phasing out of 
the German nuclear fleet up until 2022, if I remember correctly, there 
is going to be a large piece of the electricity puzzle missing. And so 
gas will have to step in. And the other piece of that puzzle is coal. 
And it's unclear what the timeline will be in terms of phasing out coal 
in a German context. It's a highly politicized issue in the context of 
Germany. So it's hard to see. But there is certainly pressure from a 
climate action perspective to phase out coal sooner rather than later. 
And that's going to have effects--have an effect on gas demand as well. 
So it's hard to tell. And of course, on renewable demand as well.
    Ms. Starks. Ma'am, you've been so patient. Please.
    Questioner. Should I come up?
    Ms. Starks. Yes, you can use mine.
    Questioner. Okay. Valera Yegas [ph] from the Voice of America.
    So I have two questions. The first one is, do you see Nord Stream 2 
and TurkStream economically viable for Russia itself? And second, do 
you expect any U.S. sanctions to be imposed on Nord Stream 2? And if 
yes, what kind of impact it could have?
    Thank you.
    Ms. Starks. Could you repeat the first question?
    Questioner. My first question? My first question is do you see Nord 
Stream 2 and TurkStream economically viable for Russia itself.
    Yes, thank you.
    Ms. Starks. So the first question is, are Nord Stream--you know, we 
talked about the issue of commercial viability. And I think our 
discussion was more broadly on Europe writ large. But are Nord Stream 2 
and TurkStream commercially viable for Russia itself? And I think this 
goes to Ed's point about if it isn't, are the governments having to 
subsidize and make up? So that was the first question, correct?
    Questioner. Okay.
    Ms. Starks. And then the second, I'm sorry, was regarding 
sanctions.
    Mr. Chow. At $60 oil, those projects are viable. At below $40 oil, 
maybe not so much. But at today's price of oil what's likely to be the 
price of oil in the future--you know, setting motivation aside--I will 
let Colin address that--that can Gazprom afford to do those projects? 
The answer is yes. I mean, look at other projects it's doing. I mean, I 
have to say, that if you look at the numbers, which is what I tend to 
do, the Power Siberia project is less economically viable than either 
Nord Stream 2 or TurkStream.
    Mr. Cleary. Just on the viability, I mean, again, I'm focused on 
the diversionary aspect of these two pipelines. And I think that is 
politically driven. So that's--the fundamental driver of the decision 
is political. There are economic aspects and commercial aspects, but 
one could easily have used the Ukrainian gas transit system, had it 
updated, renovated, and it would--you know, you could argue a 
commercial case that that would have made a lot more sense. But the 
reason for the diversion is a political one.
    And, again, from the Kremlin's perspective, they have a clear 
objective in mind that they're executing. My--our concern, and what 
we've been expressing is--and expressed by many European partners is, 
why is Europe permitting this? Why are the end users permitting it? 
That's really it.
    As far as sanctions goes, as you know, 2 years ago the U.S. 
Congress passed an omnibus sanctions bill called CAATSA, known as 
CAATSA. And that remains there. It has many different dimensions. And 
so that tool remains available.
    Ms. Starks. Any other questions from the audience? The gentleman in 
the back. If you could come up.
    Questioner. I'm going to crouch here. So I'm Sam Kanen [ph] from 
the office of Congresswoman Katie Hill.
    So I'm wondering, with the completion of Nord Stream 2, because of 
Russia's--due to their dependence on energy exports, we all talk about 
how that would kind of bind Western Europe and the United States to 
Russia and give them leverage. But in any way would the completion of 
Nord Stream 2 bind the United States and Western Europe's needs and 
demands?
    Ms. Starks. So I actually want to add onto this question, if I may. 
So the question is would the completion of Nord Stream 2 bind Russia 
basically to demand from Western Europe and/or the U.S.? But also a 
bigger question I think that we didn't address earlier is, where is 
Nord Stream 2 on the grand scale timeline in terms of Russia's 
expansion into the gas market of Europe? Is Nord Stream in the 
beginning? Is it in the middle? Is it toward the end? Because I think 
that also has an impact on how much it binds, right? You know, are 
they--is this part of the beginning, in the middle, or are we in the 
home stretch? So if I could I add onto that.
    So any takers?
    Mr. Chow. I think you're absolutely right that Russia is terribly 
dependent on energy exports as a source of income. But I would just 
remind you that for every dollar that Russia gets from energy exports, 
80 cents of that is oil and only 20 cents of that is gas. So if you're 
looking at what it's more dependent on, it's much more about oil than 
gas for reasons of physics that I can explain at another time.
    But I see the Russia-Europe gas relationship as a codependent 
relationship, and not just one way. It is true that, as Colin said, 
that Europe is 40 percent dependent on Russia for its gas imports. But 
Russia is dependent on Europe for 80 percent of its gas exports. So 
who's more dependent, right? Is it Europe that's more dependent or 
Russia that's more dependent on this relationship? Well, they're both 
very large, so I would say that they are quite codependent 
relationships.
    As to who has more leverage, I think it depends on how you play 
your cards. So the way Europe has tried to improve its negotiating 
position is by completing market integration, by making sure that 
Russia cannot pit one European country against another in terms of how 
it sells its gas. And the more it liberalizes its gas market, the more 
it enforces its competition laws. You know, I have to say, some of us 
were disappointed that the competition commissioner wasn't tougher on 
Gazprom in terms of fining it for its past malpractices. But the more 
it does that, then Europe's position improves and Russia's position 
erodes.
    Mr. Cleary. Just I've heard--you know, some of the energy experts 
that we talk to consider that these pipeline projects, these grand 
European pipeline projects, may be the last of their kind in Europe. So 
we may--to your question about where does this fall, it could be that 
this is the end of that, and that the more flexible and dynamic LNG 
model would be what would happen more going forward. And that--all of 
this has ramifications, but the ramification in the nearest term, I 
think you've asked a question Danica, is who loses?
    And I'll just say one more time, it's Ukraine. They're going to 
lose in the very near term if these things are built. And they lose 
billions of dollars. They lose the value of their gas transit system as 
an export vehicle, et cetera. So there are immediate costs to--and 
they're very concentrated. There are the other regional costs for 
TurkStream and other dependency aspects regionally. But the Nord Stream 
has a volume of 55 bcm. The TurkStream 2 is 16 bcm. So the magnitude of 
the Nord Stream is just larger in terms of the size. And that's one of 
the reasons why it gets more attention.
    Mr. Nifti. Maybe last--just a few comments on this. We always think 
about all the resources flowing to the West from the Caspian, 
especially. Right now almost 80 percent of Turkmen gas is committed to 
China. There's another emerging market--emerging player in the region 
that we--maybe it's a discussion of another panel in that respect, but 
I would say that--I just want to say that we shouldn't take for granted 
all the resources flowing toward the West in that respect. And there is 
an emerging player in the--especially in the Central Asian region, 
which is putting together a lot of connectivity projects in the region. 
And I think when we talk about pipeline politics this is an issue that 
we'll have to explore in the future.
    Ms. Starks. So, Efgan, you actually just opened up a Pandora's box 
by mentioning China. If I could step in, to what extent is China 
involved in financing or sponsoring energy infrastructure in Europe 
thus far? Is it--are they making--is this a major play as part of One 
Belt, One Road, or other projects?
    Mr. Koranyi. In theory, yes. In practice, I don't really see it 
that much, more in the transportation sector, in other sectors. So far, 
OBOR, the One Belt, One Road Initiative, from an energy perspective 
tends to focus more on Asia and Africa, to a large extent, and more on 
hydro, renewables in Africa in particular. I don't really see--there 
was a lot of Chinese interest in the Three Seas Initiative, but I 
haven't really seen that manifest itself on the energy side that much 
so far, in concrete projects in any shape or form.
    Ms. Starks. Any other questions from the audience? Want to make 
sure.
    So one last question. We only talked a little bit, but, David, you 
brought up the eastern Mediterranean. Efgan also talked about this as 
well. And, David, you were sort of cautioning about what we could 
actually expect in terms of that as another source of diversification. 
Could you talk a little bit more about some of the concerns there?
    Mr. Koranyi. First of all, the quantities are small. And we are 
talking about deep offshore. So it's fairly expensive gas. Second, the 
regional equation is such that it will be very hard to evacuate that 
gas from where it is right now. I'm optimistic about Egypt, actually. 
Egypt in a short period of time became a--it was an exporter before, 5 
years ago. Became an importer. And now because of domestic energy 
reforms and finds in the Nile Delta it's becoming an exporter again. 
There are plans to use the idle Egyptian energy terminals to export 
Cypriot gas. That might still proceed. But we are talking about very 
small quantities. So Aphrodite and Calypso are the two fields that have 
been discovered so far offshore Cyprus. It's not--it's not big. So in a 
European context, I forget the exact number, but it's actually quite 
negligible. So it's not going to be a major source of diversification.
    Israeli gas, it will be very hard to bring it to Europe. The East 
Med pipeline from Israel to Cyprus, and then onwards to Crete and 
Greece--I always considered that a pipe dream. It's complicated from an 
engineering perspective. It's extremely expensive. If somebody's 
willing to put $8 billion on the table, maybe. But I don't really see 
it as a commercially viable project, not to mention some of the 
political difficulties and the exclusive economic zone problems. So I 
see East Med gas relevant in a regional context, in a local context. 
Like East Med gas or Cypriot gas could be very helpful for the Cypriot 
economy, but not beyond the region for the foreseeable future.
    One last point--there was a lot of hope pinned on Cypriot gas 
making it to Turkey, and I think to the diversification of the Turkish 
energy mix, not just for the political problems but also because Turkey 
has been focusing more on coal--indigenous coal resources and have been 
diversifying gas imports from other sources. So I don't really see a 
place for Cypriot gas or East Med gas in general--Israeli or Cypriot 
gas--in the Turkish energy mix anytime soon.
    Mr. Nifti. I will say too much politics involved over there. Plus, 
heavily militarized now. A lot of navies in the Eastern Mediterranean 
right now. And looking into perspective, I will say that the best 
market is the close market, which is, I think, Egypt and Turkey are the 
potential markets for that gas. And I would agree with David on one 
thing, that it's taking a pipeline or anything to Greece and then 
delivering to Europe is a kind of a dream. I would say it can play a 
positive role in the future in terms of settling some of the problems 
in the region, but at this stage I don't see immediate results of that.
    Ms. Starks. Just open up one last time to any questions, and also 
if any panelists have any final statements they would like to make.
    Seeing none, we'd like to thank everybody for coming out. I know 
we're getting into lunchtime and I hear stomachs growling from the back 
of the room. Thank you very much. There will be an official transcript 
posted and the video will be available on our website.
    Thank you so much.
    [Whereupon, at 12:24 p.m., the briefing ended.]

                             [all]

  

            This is an official publication of the Commission on
                    Security and Cooperation in Europe.

                  < < < 

                  This publication is intended to document
                  developments and trends in participating
                  States of the Organization for Security
                     and Cooperation in Europe [OSCE].

                  < < < 

           All Commission publications may be freely reproduced,
            in any form, with appropriate credit. The Commission
            encourages the widest possible dissemination of its
                               publications.

                  < < < 

                      www.csce.gov       @HelsinkiComm

                 The Commission's Web site provides access
                 to the latest press releases and reports,
                as well as hearings and briefings. Using the
         Commission's electronic subscription service, readers are
            able to receive press releases, articles, and other
          materials by topic or countries of particular interest.

                          Please subscribe today.