Former Ambassador to Ukraine Carlos Pascual Visits Kiev to Talk Energy
February 4, 2013
The government of the United States and the government of Ukraine discussed the importance of working together to strengthen energy security for Ukraine and Europe during the February 4th meeting of the Bilateral Energy Security Working Group (BESWG) under the auspices of the Strategic Partnership Commission. The BESWG is co-chaired by Ambassador Carlos Pascual, Special Envoy and Coordinator for International Energy Affairs, U.S. Department of State; and Eduard Stavitsky, Minister, Ministry of Energy and Coal Industry, Ukraine. The meeting focused on Ukraine’s energy sector reform initiatives, energy diversification and efficiency projects, and ongoing U.S. technical assistance for Ukraine. Ambassador Pascual overviewed changing global and European gas markets, and noted Ukraine’s valuable natural resources, gas transit and storage system, gas interconnections with its neighbors, and potential for increased energy efficiency as tangible and realistic means for the GOU to continue its energy diversification efforts in the near and long-term. He also congratulated Ukraine on the recent signing of the Production Sharing Agreement (PSA) with Royal Dutch Shell, and encouraged signing PSAs, currently under negotiation, with U.S. companies ExxonMobil and Chevron. Ambassador Pascual served as Ambassador of the United States to Ukraine from 2000 to 2003.
“Enerhonahlyad,” Channel 5, February 5, 2012 (repeated on Feb 7)
Larysa Hubina, host: U.S. Department of State Special Envoy on Energy Issues Carlos Pascual thinks that by developing its own gas production, both traditional and non-traditional, Ukraine may become a serious player in the European energy market. Recently, Carlos Pascual was in Kiev to attend a session of the bilateral Energy Security Working Group and agreed to give an interview to our program.
Larysa Hubina: Mr. Ambassador, first of all I’d like to thank you for your time. I know that a session of the U.S.-Ukrainian working group on Energy Security has just taken place. Are there any outcomes that you can tell us about?
Ambassador Pascual: (in Ukrainian) First of all, it’s a pleasure to be with you tonight, thank you very much. (in English) We had an excellent meeting. It’s my first participation in this energy working group with Minister Stavytskyi. It was critical that we have this opportunity to talk with one another, because the global market and regional markets in energy, especially in gas, are changing radically, and they are creating huge opportunities for many countries throughout the world. In the United States, we’ve had the ability to increase our production of gas by more than 25 percent, and of oil by more than 33 per cent in the last five years. In Europe, there have been many changes that have taken place in the marketplace to encourage much more competition, and this creates new opportunities for Ukraine. So, that’s what we tried to focus on – where are the opportunities, how Ukraine can participate, how that can strengthen Ukraine’s economic position and its energy independence.
Larysa Hubina: Today, in your meeting with the Prime Minister you said that the steps that Ukraine is taking in the energy sector may turn Ukraine into an important energy center in Eastern Europe. Only because of the beginning of shale gas exploration? Is it such a breakthrough for our country?
Ambassador Pascual: Shale gas is an important contribution to Ukraine’s future energy potential, but there are many other possibilities that Ukraine can realize. Ukraine has massive energy resources: it has gas, both shale gas and conventional gas, it has coal, and it has huge potential for savings through energy efficiency. In the past few years Ukraine has put in place new legislation, production sharing legislation, that has opened the doors to contracts with some of the biggest, most important international companies, like Shell, Chevron, ExxonMobil. And these contracts can lead to billions of dollars’ worth of investment coming into the Ukrainian economy, producing yet more resources that can contribute to your economic growth and also doing it in a way that can potentially improve your environmental profile.
Larysa Hubina: In Ukraine, by the way, a lot of critical remarks are heard, in particular, regarding the environmental aspects – both from environmentalists and from politicians. Do you think there is more politics in such statements, and how should one deal with those?
Ambassador Pascual: Concern is always a good thing; we should always ask questions. But we should also answer them with facts, and this what we’ve been trying to do in the United States. So, what we’ve done in the United States is look very carefully at the development of shale gas resources and the potential impact on air quality, on water, how you use the chemicals and fluids that are involved in fracking, whether there is an impact on seismic activity; we’ve been documenting those lessons, and we’ve been trying to share them with our friends throughout the world.
In Ivano-Frankivsk, for example, in November, we jointly sponsored a workshop that brought experts from the United States, including from some of the states that have been involved in regulating the development of shale gas, so that they can share their lessons. And we’ve encouraged this kind of discussion, because the more the countries and communities know about how to properly develop this resource, then the better chance that it can be used in a way that can benefit an entire nation, and, indeed, it can have positive global impacts.
In the United States, in 2012, it was the first time in our history that we generated more electricity with gas than we did with coal. The result of that was that our CO2 emissions were the lowest that they have been in the last 20 years. So, imagine this globally, if there is the capacity to have a greater use of gas to allow countries like China to switch from coal to gas, to allow countries like Saudi Arabia to switch from using oil to generate electricity to gas – with gas always having much lower carbon dioxide content. These things alone can have some of the biggest impacts environmentally, globally, over the next decade.
Larysa Hubina: In Ukraine, when talking about shale gas earlier, they always would cite the example of Poland – this country is a neighbor. And when it happened last year that ExxonMobile said it considers shale gas production in Poland to be not profitable, it was a kind of signal. Can such situation repeat in Ukraine? What guarantees does our government have, having concluded agreements with Shell and Chevron?
Ambassador Pascual: There are never guarantees on geology. That’s something that God either gave you, or He didn’t; and you can’t invent it, if you don’t have it. And geology can vary quite a bit from location. But two points here, I think, are really important. The first is that the initial explorations that have been done within Ukraine indicate that there can be quite a significant potential for the development of gas. The second is that the cost of that risk is borne by the company – they pay for the investment. And so, obviously, they are going to get a profit. But what Ukraine doesn’t need to worry about is whether or not they are going to be investing money and having it wasted. This is something that is part of the entrepreneurial process of taking resources, making sound judgments, and bringing the best technology. And one of the things that Ukraine can take some positive hope in is that these companies are going to bring the best expertise and the best technology in, because that’s what’s going to give the companies the best prospect for being able to actually then make a profit.
Larysa Hubina: In Ukraine, gas is also always politics. Don’t you think there is a connection between Ukraine having signed the agreement with Shell in Davos and Russia nearly simultaneously presenting Naftohaz Ukrainy with a $7 billion bill? Is Ukrainian shale gas of concern to Russia?
Ambassador Pascual: I’ll let Russian and Ukrainian politicians figure out how to manage those issues and the politics between the two countries – it’s a bilateral issue between the two. But here’s the good news: that, increasingly, gas is becoming a global competitive market. And the more competitive it becomes, the more companies and countries have to play by international rules that are understood and that are transparent. For example, because of the increased use of liquefied natural gas in Western Europe – the use of it has increased about three times over the last decade – it’s created a much more competitive market, and now LNG coming from many parts of the world – from Qatar, from Trinidad and Tobago, from Norway – is competing with Russian gas. The share of Russian gas in the market has decreased. There is increased stability on the part of consumers to negotiate with the suppliers, and in the end, this is going to create a more stable market, it’s going to be better for consumers, it’s going to be better for companies. And if that happens, it starts to take away the politics and allows business to play the role that it should play, which is to set the ground rules for how companies compete against one another.
Larysa Hubina: Improved situation in the gas market should be reflected in the agreements between countries, right? Maybe, Ukraine, in this sense, will have an easier time negotiating with Russia? What do you think?
Ambassador Pascual: I think that really depends on Ukraine more than anything else. Ukraine has a great opportunity right now. You have three major international companies in the process of negotiating contracts here for production that can put you in a productive capacity that you have never had before. Ukraine has one of the best underground storage systems for natural gas in all of Europe. Throughout Europe, the nature of the gas market is changing completely. There are changes that preclude monopolies in the ownership of the pipelines, that require interconnection between countries, that require that gas be able to flow west to east and north to south, and all of these create the foundations for competition and trade that never existed before. So Ukraine can be a gas supplier, a gas transporter, a gas storage center, a gas trading center.
Larysa Hubina: Ukraine is also building an LNG terminal, and that’s an opportunity to receive liquefied gas from different corners of the world – you mentioned this. Can liquefied gas from the United States arrive in Ukraine?
Ambassador Pascual: I think, the first thing that Ukraine is going to have to do is, actually, work out the terms with Turkey on whether it is going to be possible for LNG to be able to move through the Bosporus. I think, the other thing that’s important is for Ukraine to look at this not from the perspective of whether it can buy American gas, but it has huge opportunities to buy gas from many locations, even closer to Ukraine – whether that be Israel, whether it be Cyprus, whether it be Norway – there are tremendous market opportunities right here in the region. And finally, there are possibilities that exist, for example, for Germany to import gas and to re-sell it to Ukraine, and now, with the interconnections that exist between countries, for that gas to come back to Ukraine, potentially, even at a lower price than what Ukraine is paying right now from Russia.
Larysa Hubina: In your opinion, how many years away is Ukraine from its energy independence? How soon will these technologies to produce shale gas start working at full capacity?
Ambassador Pascual: Energy independence or greater energy security is going to come in stages; it’s not going to come one day overnight. The first thing that Ukraine can do to increase its energy security is, actually, to put in measures that encourage even more energy efficiency. Ukraine right now has three times the energy intensity that the rest of Europe has. The cheapest energy is the energy you don’t use. The second piece is the measures that Ukraine can start to negotiate to be able to import gas from multiple neighbors, because this possibility didn’t exist even five years ago. It exists today. The production of gas here in Ukraine may take six-seven years and may seem like a long time. But the benefit that it will bring Ukraine, put in place together with all the other positive types of changes that I mentioned, can result in a situation where in a decade Ukraine has really established its energy security. In historical terms, making those kinds of changes in a decade is really quite phenomenal.
Larysa Hubina: From the time when you were Ambassador in Ukraine till your visit to Kiev now, how much have things changed in Ukraine?
Ambassador Pascual: In the political system, in particular, there are many of the same issues that result in the same kind of competition that existed a decade ago, and Ukraine is continuing to work through those. And we wish Ukraine and the Ukrainian people the best, as you continue to build the political system which is accountable to the people. We have seen in the energy sector developments that are historic and can really help create a strong economic foundation for Ukraine.
When I was here I always used to say that Ukraine is a European state. I still believe that, and I still wish for Ukraine the opportunity to demonstrate that in the structure of its politics and economics, that the character of the state that it has is one that is European, and that it can be recognized as such by all people.
Larysa Hubina: Thank you very much, let me shake your hand.