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2013 CERES Conference: Energy and Security in Eurasia (Summary)

2013 CERES Conference: Energy and Security in Eurasia (Summary)

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On Monday April 8th, 2013 CERES held a conference on energy and security in Eurasia. Keynote Speakers were: Daniel Yergin and Carlos Pascual. Panels covered topics such as Prospects for Russian and Caspian Oil, Prospects for Russian, Caspian and East European Gas and The Geopolitics of Eurasian Energy.
On Monday April 8th, 2013 CERES held a conference on energy and security in Eurasia. Keynote Speakers were: Daniel Yergin and Carlos Pascual. Panels covered topics such as Prospects for Russian and Caspian Oil, Prospects for Russian, Caspian and East European Gas and The Geopolitics of Eurasian Energy.

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Opening Keynote
The opening keynote speaker, Daniel Yergin, was introduced by Angela Stent. Dr.Yergin set the stage for the CERES Energy and Security in Eurasia Conference by addressing theimpact of shale gas and tight oil on the global energy market. He began his address by reflectingon some of the many changes in global energy policy that have
occurred since CERES’
lastconference on the topic ten years ago, which he had also addressed, and how they had affectedthe writing of his new book 
The Quest: Energy, Security and the Remaking of the Modern World.
(www.danielyergin.com)Ten years ago, global energy demand was heavily weighted towards the countries of theOrganization for Economic Cooperation and Development (OECD) with less attention paid tothe rest of the world. Today the world is witnessing a change in focus as energy demandincreases in emerging and fast-growth markets and is flat or declining in many OECD countries.Environmentalism and renewable energy have evolved dramatically over the past tenyears. Then climate change had not really gained political traction, whereas today it is a major factor in energy policy around the world. Renewable energy has made dramatic strides in termsof growth and scale over the last decade, but immediate prospects in many countries are nowhampered by economic austerity and the reliance on government subsidies.Global attitudes towards nuclear energy have changed over the past ten years. The
momentum of the “nuclear renaissance” was stopped by the Fukushima accident in 2011. Now
the picture is very mixed. China is committed to significant growth in nuclear energy, and Francedepends on it for over 75 percent of its electricity. Germany, on the other hand, has signaled anend to nuclear energy within its borders by 2022. Anti-nuclear sentiment is now a major issue in
shaping Japan’s new energy policies
Dr. Yergin focused on the global concern over energyavailability, which is directly related to the expansion of shale gas and tight oil. Yergin statedthat as late as five years ago there was a fear that the world would soon run out of oil and gas, asemerging markets like China put further stress on the global market. Today this fear hasgenerally been assuaged due to new technologies and development of new sources. He cited theremarkable growth in U.S. oil output.While hydraulic fracturing and horizontal drilling have been around for decades, it wasthe recent fusion of these two technologies early in the last decade that has changed the globalenergy market. Ten years ago the question facing the U.S. was how much natural gas it wouldhave to import; now the question is how much the U.S. should export. Yergin noted that in2008, U.S. natural gas output began to increase. Shale gas extraction has increased U.S. outputand now accounts for 37% of total production. The shale gas and tight oil industry now supports1.7 million jobs, has increased the competitiveness of the U.S. economy, and is leading tocompanies reinvesting in U.S. manufacturing.The success of shale gas extraction led to efforts to apply the technology to oil extraction
very successfully in the United States. While the Russian government has been critical of shale gas, Rosneft and Lukoil have voiced interest in tight oil extraction.Yergin stated that he does not foresee shale gas and tight oil extraction making the U.S.completely energy independent. Rather, he sees that the U.S. will continue to become lessdependent on imports, and with Canada providing a growing share of total imports. Yerginconcluded his address by stating that these new forms of energy extraction will not go globalquickly, but that the global pricing system will be affected by these new energy sources,especially if the U.S. becomes a major exporter of natural gas.
Panel One: Prospects for Russian and Caspian Oil
The first panel discussion, chaired by Eugene Rumer, focused on the future of Russianand Caspian energy projects.Thane Gustafson discussed the challenges facing the Russian oil industry going forward.The sources of oil production inherited from the Soviet Union are producing less, and primaryshareholders are now being asked to make their first large post-Soviet investment in extractingfrom new sources. The Russian oil industry faces a slew of challenges according to Gustafson,including its relationship to the government, unreformed tax codes, lack of diversity within theoil sector, and very little foreign participation.The Russian oil industry is veering in two directions today. The shale gas and oil boom plays an important role in the conversation about
Russia’s oil future. Russia’s initial reaction
was enthusiastic as the country is estimated to contain a large amount of oil shale. There are stillquestions as to whether the deposits have matured into hydrocarbons and whether or not they areextractable. The other direction for Russian oil is the Arctic. The Arctic is a project for the
future while shale is possible now. Gustafson said that Rosneft is at the center of Russia’s oil
future and currently it is trying to pursue both directions.Brenda Shaffer spoke on Caspian oil exports and lessons that can be learned from energydevelopments in the region. Shaffer argued that the Caspian energy market matters and that the political jockeying of the 1990s was important. Political involvement is important to the securityof supply, according to Shaffer. Energy affects politics and as such, it is logical that politicsshould have a say in energy, opposed to the
let the market decide
attitude of many energycompanies.Shaffer debunked the myth of peace pipelines, insisting that there is no precedent of their construction bringing peace to a region. She also criticized the idea that stability is needed tolaunch energy projects, stating that only a minimal degree of stability is required. Georgia willremain
central to the region’s energy market
, but its future stability and orientation remain to bedetermined. Shaffer concluded with her argument that the Caspian does matter because of its potential impact on oil price stability and possible liquefied natural gas (LNG) market if a globalLNG market fails to materialize.Pavel Baev returned the conversation to the topic of Russian interests in the Arctic. Baevstated that the recent energy battle between Brussels and Moscow has made the Arctic animportant theater for both sides. The Arctic is an area where Russia has a position of strength.
Russia’s border and claims in the Arctic are incredibly large and it is positioned militarily to be
able to better utilize the region than other states. Putin has expressed great passion about the
Arctic’s energy potential but initial hopes have been confronted with
harsh realities.Echoing Gustafson, Baev stated that the future of Russian energy policy is unclear andcontains few guidelines. The hopes of Arctic oil being a quick fix due to shallow waters andclose proximity to land were dashed as Russian oil firms discovered that Arctic oil was slow,expensive, and not the fix they needed. Russia has failed to expand its continental shelf claimsdue to the poor quality of its initial application and is falling behind other states on this matter.While Baev noted that Russia has shown it can be cooperative, he also argued that Russia issliding into self-isolation, which will complicate cooperation in the Arctic and beyond.
Lunch Keynote
The lunch keynote speaker, Ambassador Carlos Pascual, was introduced by Diana Sedneyof Chevron. According to Sedney, the U.S. government has been a vital partner for industry indealing with Eurasian energy politics, and thus the selection of Ambassador Pascual as the
keynote speaker is appropriate. Ambassador Pascual’s extensive diplomatic exper 
ience inenergy-rich countries means that he understands the geopolitical importance of energy resources,and he has worked to make energy diplomacy one of the pillars of global security.Ambassador Pascual centered his keynote on the geopolitical implications of recentchanges in the global energy industry, particularly with regard to Europe and Eurasia. Hediscussed three global energy revolutions.The first revolution is the changing demand for energy. In 2012, non-OECD countries for the first time accounted for a larger share of energy consumption than OECD countries, and the bulk of demand growth in the future will come from outside the OECD. As such, the balance of supply and demand in large developing countries will be a key determinant of world energy prices. It is thus in U.S. interests to help these emerging economies to satisfy their energy needsin order to arrest the growth of world energy prices. Ambassador Pascual observed that thedemand side in non-OECD countries is not a major part of U.S. energy diplomacy and must bedeliberately incorporated to a greater extent in the years ahead.The second revolution is in energy production. The growth of oil production from shaleformations in the U.S. and plateauing demand mean that domestic oil and gas resources willincreasingly be able to satisfy U.S. needs. However, Pascual stressed, we should still care aboutthe global energy market, since growing global demand and tight spare capacity mean that evensmall fluctuations in supply can dramatically affect world energy prices.Third, Ambassador Pascual discussed the radical changes in the global gas markets. In2012, for the first time, the U.S. produced more electricity from natural gas than from coal. Inlarge part, this is due to the rapid growth of shale gas production
from 1% of U.S. productionin 2005 to about 35% in 2012. Other established gas producers are also likely to increase production in the years ahead, and new producers will also contribute to export growth. In termsof the geopolitical implications of the shale gas revolution, Pascual observed that gas imports tothe U.S. have been redirected to Europe, which has created greater competition in the Europeangas market. Together with the anti-monopoly provisions of the EU Third Energy Package, thisdevelopment is likely to lead to the emergence of a highly competitive European gas market inthe coming years.After briefly addressing Israeli gas production, the Southern Corridor, Kurdish oil, and theIran oil sanctions, Pascual noted that Russia has only just begun to react to the radical shakeup of the global energy industry over the past half-
decade. Russia’s response will be particularly
important in shaping the development of the East Asian gas market. Russia will play a major role in determining whether this market develops in a way that promotes competition or monopolistic point-to-point control.Ambassador Pascual concluded by reminding the audience that, while gas may be a bridging fuel to satisfy short-term energy demands, it is not a panacea for environmentalconcerns. One plausible scenario sees a global temperature increase of 3½ degrees and a CO
 concentration of 650 parts per million by 2050. Natural gas has to be integrated with renewablesin addition to serving as a bridging fuel while renewable energy sources become less expensive.

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