Official Transcripts
Interview by Deputy Secretary of Energy Clay Sell with Western Press
Moscow, Russia
March 14, 2007
DEPUTY SECRETARY SELL: The first reason that I'm here – I am
Co-Chair of the Energy Working Group, which is the
government-to-government piece of the broader U.S. – Russian Energy
dialogue. We meet roughly every year, and in late 2005, I hosted my
Russian counterpart Deputy Minister Matyerov in Washington and he is
hosting me this time. So that was original reason for the trip. I also had the opportunity to meet with the number of government officials and energy sector leaders including Minister Khristenko, and Director Kiriyenko at RosAtom. The Department of Energy has three major areas of interaction with the Russian government. One is our long and quite frankly successful partnership on nonproliferation matters and our efforts to control loose nuclear material in the former Soviet Union. That's an effort that has been on the way for well over the decade and achieved significant successes. In many ways there is a still lot of work to do but it is a very sound basis for a relationship.
Over the course of the last year we have really broadened and we are in the process of broadening our relationship with Russia in the civil nuclear sector. That was part of the subject of my conversations with Director Kiriyenko at RosAtom. We are currently in negotiations on what in American parlance is called a 123 Agreement – a peaceful uses of nuclear technology agreement – that would allow for nuclear trade with Russia and greater collaboration. That was a portion of my business here.
The other work is on the broader energy dialogue. In particularly on the oil and gas sector and what needs to happen so that Russia can serve its own interests by getting U.S. companies and other companies in to the oil and gas sector. We also spent some time with Russian utility sector. So that is the purpose of the trip.
QUESTION: I wonder if you could give us some sense of what you might have heard, if you did hear, from your Russian counterparts beyond what was already said publicly about Bushehr and what's going on with Iran in terms of financing or whether there is a deeper motivation here.
DEPUTY SECRETARY SELL: We did talk about it. It's my view that Russia's interests related to what is going on in Iran are very similar to the United States' interests. We have previously signaled our support, our acceptance of the fuel leasing regime where Russia would provide fuel to Iran, provided that it is used only for civilian purposes and then is returned to Russia, consistent with the agreement. We've been very clear in the United States government about our concerns as to what is actually happening in Iran and the substantial evidence that they are in fact pursuing nuclear weapons program. I believe the actions Russian government has taken from my viewpoint are appropriate and are consistent with our common interests and our common concerns as to what is going on in Iran.
QUESTION: Is it your understanding that Bushehr is now indefinitely shelved or is there a date at which it may reemerge?
DEPUTY SECRETARY SELL: I think there are obviously issues with payment which I don't have the details on. I presume without knowing that there may also be legitimate concerns as to the guarantees that Iran would be required to provide on exclusive civilian use of this technology and this fuel.
QUESTION: Are you worried that the payment dispute might be resolved and Bushehr might be on again soon?
DEPUTY SECRETARY SELL: We are confident that Russia's interests in Iran are sufficiently similar to ours that we will continue to proceed together in confronting the threat posed by Iran's illicit weapons program.
QUESTION: Regarding non-proliferation and particularly the control of nuclear material, I noticed that your trip is also going to take you to Tbilisi where, I assume, you may raise the issue of the Russian man who was arrested with highly enriched uranium last year. Have you discussed this issue with the Russians, particularly what has seemed to be Russian obstinacy in being open about this case?
DEPUTY SECRETARY SELL: Our government has been in discussion with the Russian government, and we both have very significant concerns about the trafficking in illicit nuclear material. And we are concerned about what the incident in Georgia says about that. The good news is that on this particular case an individual is caught, the bad news is that we don't what we've not caught. But I think we continue to have a productive relationship with Russia in trying to confront that threat, as we do with Georgia.
QUESTION: I'd like to ask a question about Central Asia and the Caspian region, especially concerning your trip to Georgia. When you see the chances for future energy stability and also possible energy cooperation with the West after the change in administration in Turkmenistan? And what do you see as the prospects promoting for the Caspian region – the Azerbaijan, Georgia, Turkey route – as a viable energy export route?
DEPUTY SECRETARY SELL: First on Turkmenistan, I think, time will tell, but the initial signs that we are seeing out of Turkmenistan were quite positive. They are locked in pretty long-term agreements for delivery of gas to Russia, so I don't know there will be any great new opportunities in the near time. The Caspian Basin is has an incredible hydrocarbon resource. The Caspian region desires the ability to fully exploit that in a way that makes sense for their economies. One of the things that they need in order to exploit that is the diversity of market routes. And now, with two narrow exceptions, they are completely dependent on Russia for getting their product to market. Any supplier would recognize that to be a negative dynamic – as Russia does – so there are legitimate efforts under way. One of the more notable is the opening of Baku-Tbilisi-Ceyhan oil pipeline, which has the capacity of up to a million barrels a day, to get Azeri oil to the Mediterranean coast. In the future that perhaps carries the promise of Kazakh oil as well. There are also efforts under way for gas pipelines through that region. Russia should draw no negative conclusion from a desire of the Caspian states to have a diversity of access of routes to get their product to market. It's a sound market principle and it quite frankly operates to the benefit of producing countries and consuming countries alike.
QUESTION: Are there any concrete efforts under way from the side of the U.S. to try to promote energy transmission to that region?
DEPUTY SECRETARY SELL: From an international energy standpoint there are vigorous and unapologetic advocates for a diversity of fuels and diversities of routes from a diversity of countries. We think that strengthens the international energy market. Where we have the opportunity we try to lend support for those efforts. As we did, for example, on the Baku-Tbilisi-Ceyhan oil pipeline.
QUESTION: If there is one thing that you would like Russia to do to or that you would like to achieve in oil and gas sector, to liberalize, open up and improve the situation vis-а-vis Russia the rest of the world in energy?
DEPUTY SECRETARY SELL: To finalize the terms and conditions upon which foreign investment is welcome in this sector. There is still uncertainty about strategic industries, due to the uncertainty about the subsoil law. Secretary Bodman has been very clear in previous discussions with Minister Khristenko that we may have a preference as to how we would like Russia to do it, but it is Russia that really has to it to decide how it wants to do it. Just decide, tell us, and invite us in – just as Russia has been invited into the United States' energy sector.
QUESTION: Speaking in terms of investing into the energy sector would the government have a position on American companies investing in the remnants of the YUKOS's assets when it comes up soon for auction?
DEPUTY SECRETARY SELL: Well, you know what our views are on the YUKOS matter. We may well have concerns as to how those assets are going to be sold off, but I'm not aware of any U.S. company interests in those assets.
QUESTION: There have been reports of Chevron being interested.
DEPUTY SECRETARY SELL: I'll say again. The YUKOS matter, the arbitrary application of unclear regulations in this matter, had a chilling effect on foreign investments, and had a chilling effect on an independent oil and gas sector – independent from the government in this country. We are concern about that. In our view, activities of that sort don't operate in long-term best interest of Russia, in the evolution of Russia's energy sector, to the desire and need for advanced technology and foreign capital, and to the benefit of best practices that could be incorporated into the Russian system through foreign companies. That is our view.
QUESTION: This week Putin in Athens to sign a deal on the Greek-Bulgarian pipeline to bypass the Bosporus. In you view, will this result in expanding the CPC pipeline?
DEPUTY SECRETARY SELL: I hope it does. We have worked with our Russian colleagues for some period of time and encouraged them to reach a resolution that would allow the Caspian Pipeline Consortium to expand. I think the possibility of a deal on the BA pipeline bypass may potentially be a positive development that will quite frankly increase the need for Russia to come to a resolution on exactly how it's going to expand the Caspian pipeline. So, I think, it could be very positive. The only thing that we've said about these various Black Sea bypass pipelines is that the market should decide where they go. And it would appear that that is what's happening.
QUESTION: Russia has made recently some general comments on potential interests in developing some kind of OPEC analog in the natural gas market. What is the US position on that both in terms of U.S. interests and whether you perceive that as being in Russia's long term interests?
DEPUTY SECRETARY SELL: As a general matter, we do not think that supply cartels are good for either producers or consumers. Secondly, the national gas market as it exists today does not particularly lend itself to the creation of an international cartel. So, as much as there is discussion about it, and as much as it is reported about it in the press, the reality of that happening is really quite different.
By and large, time has proven that the strict adherence to sound market principles operates to the greatest advantage to both producers and consumers. That is how we think the natural gas market should evolve as it continues to evolve from more of a regional-based market into an international market with an advent and expansion of the LNG market.
QUESTION: I have a question about Shtokman. Originally, it was supposed to be an LNG project with shipment of LNG to the U.S. market. Now that American companies do not seem to be taking part and Gazprom is going it alone that seems to have changed a lot. Gazprom has stated that it wants to ship energy to Europe instead of the United States. Do you have any comment on that?
DEPUTY SECRETARY SELL: It is my view that Stockman offered the promise of, and almost a window to, the future of how the development of technically challenging fields could occur in Russia. As this has been talked about in previous years the notion was that foreign companies would come in; get an equity interest; bring new technology; new business practices; take the risk, but also get the benefit. On whatever terms the Russian want to put out, but consistent with those principles. It appeared after the first round that there was a change of heart – kind of a go it alone effort – by Gazprom and they have suggested that they could perhaps acquired this best technologies on a service contract basis. I'm hard pressed to see how that's really going work to the success of this project or work to the advantage of Gazprom's development of the field. I know that there is a second effort under way to get foreign companies back into the project and I did discuss it yesterday at Gazprom. They are confident that they are going to proceed in a way that will allow foreign companies to participate in fair a way. Time will tell whether that proves to be the case.
QUESTION: Did you have an impression from your meetings at Gazprom that they are really only interested in having foreign companies as contractors and subcontractors in Stockman project? Chevron already said yesterday that it's not interested in being involved in the Stockman project.
DEPUTY SECRETARY SELL: No. It is not that clear. It is kind the way it looks. Gazprom officials indicate that they can provide terms that will be attractive to international oil companies. I'm prepared to take them at the word. I would just say that time will tell. We will see what emerges.
QUESTION: Do you know any details of the second round of this.
DEPUTY SECRETARY SELL: No.
QUESTION: You mentioned you have talked about the utilities.
DEPUTY SECRETARY SELL: Yes.
QUESTION: I was interested what you have been talking about and why you think U.S. companies seem to be so uninterested in Russian utilities?
DEPUTY SECRETARY SELL: I don't know. I just don't know. (laugh)
If you told me they were very interested I wouldn't have particularly known about that. I do believe that reforms are under place. The efforts that Chubias has underway are pretty sound. It strikes me that it will present the opportunity for foreign investment into electricity sector, which would be very positive development.
QUESTION: Can you talk just a little bit about your general concerns regarding Russian energy policy. How concerned is the U.S. about this? Do you think as things stand, they'll be heading in right or wrong direction? Is Russia actually improving world energy security?
DEPUTY SECRETARY SELL: I talked about this in my speech at Carnegie this morning. We have a really sound basis on which to proceed from because of the good relationship we have built at arms proliferation side. At St. Petersburg last summer there was an outstanding global plan for energy security that was signed by all G-8 participants. It called for a transparent, predictable and certain market based investment climate – and Russian signed up to that. And quite frankly it made a lot of sense to me. That they signed up to that, because anything that expands the size of the pie in Russia operates to Russia own interests. Anything that allows them to draw in foreign investment, foreign technology, that allows them to get greater utilization out of this technically very difficult to develop fields operates to Russia interests. The certain investment climate that draws in operates to their interests. It made sense to me that they have provided quite good leadership at the G-8 on this subject. At the same time there is a number of things, which causes concern. And I will mention a few of them. The arbituary application of an uncertain regulatory regime in a way which seems to operate to the disadvantage of independent and foreign investment and operates to the advantage of consolidating energy sector within Russian government. The use of unexpected tax liabilities to put particular projects in the question. For whatever reasons the inability of Russia to clarify the rules for foreign investment in energy sector. So those all are concerns. And we are very straight forwarded in expressing those. At the same time (so I am giving either or answer) we are seeing positive developments. I think that relations between LUKOIL and ConocoPhillips which 25 percent holder of that company is quite positive. Sakhalin-1 the ExxonMobil project is quite a positive development. Chevron's one billion dollar scale investment in GazpromNeft in last few months is a positive development. Foreign investment in Russian energy sector increasing. We might say, oh gosh why they could not increase more quickly. So there positive sides, there sides of concern. That is the nature of this relations and that is why quite frankly it is so important that United States and Russia stay closely engaged.
Last question guys, last question.
DEPUTY SECRETARY SELL: Man, I was wondering when you are going to call the last question.
(Laugh)
QUESTION: Can you just say something more about Chevron's billion dollar investment in Gazprom?
DEPUTY SECRETARY SELL: I can't.
QUESTION: But the figure is in billions of dollars.
DEPUTY SECRETARY SELL: I think it is around a billion dollars. And I don't know, honestly I don't know if that is the scale of the project. Sorry, I kinda flubbed that last question.
QUESTION: Can I ask you about Exxon Sakhalin-1? And also follow up on Alexandropoulos. And I just have about BA. Have you have any reassurances about the chance of expanding CPC?
DEPUTY SECRETARY SELL: No.
QUESTION: OK. And on second one there seems to be dispute with Exxon wanting to export its gas to China. And Russians are trying to divert that away and turn it to LNG. Is it something you are concerned about?
DEPUTY SECRETARY SELL: If I understand correctly the export law gave monopoly rights to Gazprom for exporting gas. But it specifically excepted out production sharing agreements that existed at that time so that is some exception for Sakhalin 1. And that is the matter that has to worked out by very serious players in the Russian gas market. I am confident that it can be worked out.
Greg, real quick.
QUESTION: Real quick. Given the level of insecurity and lack of clarity in the Russian energy sector is it safe for big American energy companies to make big multi dollar investments Russian until they make that visual step back
DEPUTY SECRETARY SELL: The investors will make that judgment