Ambassador Cekuta said that energy security is a core consideration for a country’s political security, economic well-being, and stability, adding that for this reason, it has been a central factor in Americans’ thinking about our national security and that of our allies and friends for decades.
"Our rude awakening came in the 1970’s with the OAPEC boycott of the United States and other countries in response to the Yom Kippur War. Americans realized the need to act to ensure our economy and well-being could not be again threatened the way it was in 1973. The price shocks accompanying the collapse of the Shah at the end of that decade reinforced that message, and reinforced our determination to act. The U.S. strategic petroleum reserve, the creation of the International Energy Agency, the implementation of various regulatory measures at home, the search for new oil sources, and the push for increased energy efficiency and new energy technologies all resulted from the determination to prevent a repetition of the security threats resulting from the suddenly constrained oil supplies of 1973 and 1979," said Ambassador Cekuta.
He noted that today, one must accept the continued harsh reality that energy supplies can be interdicted. This interdiction can occur as a result of natural events such a major hurricane in the Gulf of Mexico, as recently has been seen. Or it can occur due to a decision by another country’s government to use its control of the supply or flow of oil or natural gas to achieve a political end.
"Rather than focusing on those threats, I would like to use my time here this morning to examine what countries can do to bolster their energy security. As I am U.S. Ambassador to Azerbaijan, I will use that country as a case study," said Ambassador Cekuta.
"Azerbaijan is one of the world’s oldest oil provinces. Although growing up in the United States I learned about Edwin Drake and that first oil well near Titusville in Pennsylvania, the reality is that there were commercial oil wells many years before that on the Absheron peninsula, near what is now Azerbaijan’s capital. Azerbaijanis are proud to note the world’s first oil tanker, first oil pipeline, first offshore rig, and first deep sea oil rig were all developed there. One of the largest spikes, in real terms, in the global oil price occurred when the Bolsheviks invaded and conquered Azerbaijan in 1920. That invasion also ended the first parliamentary, constitutional democracy in the Muslim world," said Ambassador Cekuta.
Today, according to Ambassador Cekuta, Azerbaijan is again in the news. "In 1994, it began to develop newly discovered crude oil deposits in the Caspian and to build a pipeline to move significant amounts of crude oil out to the Mediterranean and the rest of the world in a way that avoids both Russia and Iran. The discovery and development of the Shah Deniz II gas deposit makes Azerbaijan again an important contributor to European – and thus global – energy security," Ambassador Cekuta said.
Ambassador Cekuta stressed that the Southern Gas Corridor Project, with a budget in excess of $40 billion dollars, and a 3,500 km pipeline crossing six countries, going from below sea level to elevations of more than 2,500 meters, provides a new source of natural gas to millions in Europe, boosting energy security globally. "It is one of the largest capital projects underway today in the world. It brings together the U.S. and other national governments as well as the European Union. Azerbaijan’s state oil company, SOCAR, and BP participate as shareholders in each of the project’s components. BP is leading the work on the project working closely with several other partners," Ambassador Cekuta said.
Ambassador Cekuta emphasized that despite the technical and geopolitical challenges, the project is doing well. "Looking at the four chief components, the development of the giant Shah Deniz II gas field itself is 97% complete. The expansion of the massive Sangachal terminal south of Baku is 99.8% complete, and construction of the pipeline across Azerbaijan and Georgia is 98% complete. Construction of the Trans Anatolian Pipeline or TANAP is 93% finished and work on the Southern Gas Corridor project’s fourth component, the Trans Adriatic Pipeline TAP, which will initially bring 10 bcma of gas to Italy, is 57 percent complete. The companies report first gas to customers in Georgia and Turkey looks to be on schedule for 2018 via SCP and TANAP, with delivery of gas to Italy scheduled for 2020 via TAP," Ambassador Cekuta said.
Ambassador Cekuta said that the Southern Gas Corridor project underlines the fact that energy security does not just happen, adding that it requires commitment, creativity and sustained efforts, particularly by the private sector and governing authorities. It requires massive amounts of financial and intellectual capital.
"In the case of the Southern Gas Corridor, there are the technical challenges of deep sea, offshore drilling, of developing ways to tap and extract the gas – under high pressures – and bring it to the surface and market. It is not easy, but a point that company executives and technicians have repeatedly made to me is that the technology being developed in Azerbaijan to extract gas from the Shah Deniz II field will be used elsewhere, including to get at hydrocarbons in the Gulf of Mexico.
But while none of this discovery, recovery, and shipment of energy supplies would have happened without the private sector, I have to point out the role governments played – and continue to play. First, as I noted, Azerbaijan’s government realized the need to attract reputable, experienced firms, listened to those firms, and acted to create the conditions needed for those firms to commit and develop the oil and gas deposits present. This experience underlines an important point, and one I have seen too often neglected: geology is not enough. Above the ground realities – rule of law; a stable market-friendly investment and business climate, transparent, fact-based, consistent, and predictable regulatory processes – are essential factors. In the end, these factors will determine whether a company invests in country X or in country Y," Ambassador Cekuta said.
Ambassador Cekuta also noted the role foreign governments can play in bringing parties together, helping identify and resolve problems, and helping keep a project moving ahead. "Building on Acting Special Envoy Sue Saarnio’s remarks yesterday, let me talk a bit about the role the United States government, in particular the Department of State, has played over the past twenty years in Azerbaijan to advance international energy security," Ambassador Cekuta said.
"For a number of years the State Department conducted focused diplomacy to help draw attention to the extensive oil and gas deposits in Azerbaijan and countries on the other side of the Caspian, and to help bring about the development of those gas deposits and make them available to the world’s markets. This effort continues. I note the message Secretary Tillerson sent the meeting of the Southern Gas Corridor Ministerial Advisory Council in February, the letter President Trump sent to Azerbaijani President Aliyev on the opening of the annual Caspian Oil and Gas Show in June, and Secretary Tillerson’s speech last month at the Wilson Center outlining U.S. policy towards Europe. There is also the testimony Assistant Secretary for Europe Mitchell and Deputy Assistant Secretary for Energy McCarrick delivered the other day at the Senate Foreign Relations Committee.
Let me focus on some of those statements for a moment. “I value the partnership the US and Azerbaijan have built together over the last quarter of the century and look forward to its continued growth,” President Trump said in his letter. “The U.S. remains strongly committed to the Southern Gas Corridor and welcomes the efforts of Azerbaijan and its international partners to complete it. I appreciate Azerbaijan’s important role in global energy security, including the development and exportation of energy resources from the Caspian region.” And as Secretary Tillerson said last month, speaking more broadly, “The Ukraine crisis also made clear how energy supplies can be wielded as a political weapon. Enhancing European energy security by ensuring access to affordable, reliable, diverse, and secure supplies of energy is fundamental to national security objectives ," Ambassador Cekuta said.
However, Ambassador Cekuta said, one should not lose sight of other factors that contribute to a country’s, to a region’s, to the world’s energy security. Azerbaijan is important not only as a supply source for hydrocarbons. It but is also developing into an increasingly important transit hub, which makes it key to another global venture: the New Silk Road.
"At the end of October, the Presidents of Azerbaijan and Turkey, along with top figures from Georgia and a number of Central Asian countries officially inaugurated the Baku-Tbilisi-Kars railroad. This new modern rail link, along with the new port of Alat south of Baku on the Caspian, will provide a surface route connecting East and South Asia with Western Europe. Rather than taking 35 days to move goods by ship between Shanghai and Hamburg, these new rail and ferry links could enable goods to travel this same distance in eleven to fourteen days. These new surface connections augment the air corridor already used through Azerbaijan’s airspace, in addition to the new, modern air cargo facilities there.
"These developments underline Azerbaijan’s importance as a new commercial transportation corridor. Like the ancient trade routes, this New Silk Road should facilitate entrepreneurial and value-added business along its route. But there is a U.S. strategic interest as well – and a strategic interest rooted in very practical matters. Azerbaijan provides another route into and out of Afghanistan. This route is not just important for moving military materiel, but also for farmers and other Afghans to sell their legitimate products, such as the pomegranates and nuts they have long exported. It will help integrate the countries in the Caspian Basin and Central Asia with each other. It can serve, as did its namesake, as a nexus for cultural, educational, and intellectual exchanges as well as greater innovation. I might suggest it could strengthen connections between the people of Central Asia and the Caspian Basin with Europe as well," Ambassador Cekuta said.
Ambassador Cekuta also stressed the government role in energy security or in major projects like the new Silk Road. "But as I outlined in talking about the Southern Gas Corridor and other projects, the private sector plays an integral role. It is the private sector which discovered and figured out the ways to tap the large Shah Deniz II gas field under the Caspian. If business people do not see pricing, efficiency, or other commercial advantages in the surface links across Eurasia, those links will not be used," Ambassador Cekuta said.
"Energy security, economic growth, and the construction of major international infrastructure projects all need private sector involvement. To attract and keep that involvement, governments must create and maintain the right environment: one where market forces are able to function, creative ideas are allowed to flourish, and laws and regulations are developed and implemented on a fair, consistent, and transparent basis.
"During my time as Principal Deputy Assistant Secretary for Energy in the State Department, one of the things which I saw as the revolution in oil and gas production took off in the United States was the critical role of above the ground factors. The geology was crucial – no one is going to drill where the rocks aren’t right – but again and again I saw companies pull out of other areas, even areas with interesting geology and invest instead in potentially more challenging tight oil or shale gas deposits in North Dakota, the Permian Basin, or in Pennsylvania. Again and again, executives and experts mentioned the same points to me. Access to financing, the right labor pools, transportation infrastructure and the ability to move capital in and out were essential to them. So too was confidence that in a dispute, the courts would function and decide fairly. Another factor repeatedly cited was a regulatory climate where regulations are not capricious and are implemented fairly, predictably, and transparently," Ambassador Cekuta said.
Azerbaijan has taken important steps in engaging with energy companies, in working out contracts, and in giving the terms of production sharing agreements full force and effect of law in Azerbaijan, said Ambassador Cekuta.
"They have also worked with the United States, the European Union, and with national governments to maintain progress on the Southern Gas Corridor and address problems as they arise. As the new Silk Road moves ahead, it will be important for Azerbaijan’s government follow this same model in order to ensure that project’s success," said Ambassador Cekuta.
Ambassador Cekuta reiterated that energy security is an essential component of a country’s national security. It can be addressed internally, as countries seek to boost supplies, improve the transmission/availability of energy within their borders, and encourage conservation and diversity of supply.
"However, for most countries, there is going to be an international component. Oil or gas may need to be imported. There may be important oil or gas deposits inside a country which require outside expertise or financing to develop and exploit. Another country may be considering – or have a record of – constraining supplies of oil or gas as a political tool. It may be necessary to develop international partnerships to move a country’s oil and gas to world markets.
"For all these reasons, a key aspect of my time as Ambassador in Azerbaijan has been focused on continuing the successful completion of the Southern Gas Corridor and other projects which will get oil and gas out of the ground and into world markets. With the Shah Deniz II field soon coming on line and the first gas expected in 2018, we are hopefully on the verge of an important success -- one which will strengthen regional and global energy security. We celebrate that success, and we will continue to deepen our engagement on those things – rule of law, transparency, independent judiciaries – that will nurture that success for years to come," said Ambassador Cekuta.