Ambassador Keith Smith is a Distinguished CEPA (Center for European Policy analysis) Fellow in Residence. Ambassador Smith was previously a Senior Associate at the Center for Strategic and International Studies (CSIS). He retired from the U.S. Department of State in 2000, where his career focused primarily on European affairs. From 1997 to 2000, he was U.S. Ambassador to Lithuania, with additional posts in Europe, including Hungary, Norway and Estonia. In addition to several other State Department assignments, he most recently served as Director of Policy for Europe and Senior Advisor to the Deputy Secretary of State regarding U.S. assistance programs in Eastern Europe. Since 2000, Smith has been a consultant to several energy companies and has lectured on Russian-European energy issues in the United States, Poland, Belgium, Norway, United Kingdom, Germany, Czech Republic, Estonia and Lithuania. He is the author of numerous articles on international energy issues that have appeared in over 30 newspapers around the world, including the Financial Times and International Herald Tribune. Smith’s most recent publications include “Unconventional Gas and European Security: Politics and Foreign Policy of Fracking in Europe,” “Managing the Challenge of Russian Energy Policies,” and “Lack of Transparency in Russian Energy Trade.”
Ambassador Smith, thank you for taking the time to speak with us today. Based on your biography, you have spent the past two decades actively engaged in Eastern European energy policy and affairs. How has the situation changed since you became Ambassador to Lithuania in 1997?
Several things have changed, most of all, my perspective. Beginning in the early 1990s I became much more aware of the use of energy as a political weapon on the part of Russia. I was first made aware of the issue of energy as a weapon in 1992. I was stationed in Estonia for the State Department and suddenly oil and gas were cut off for political reasons. In order to stay warm, we had to sleep in a hotel with blankets piled over us. These kinds of moves by Russia were intended to force the Baltic States to follow Moscow’s insistence that its military officers be allowed to remain in the Baltic States. After some help from the West, Russia re-opened the pipelines. Over a separate two year period (1998-2000), I watched Russia shut off oil flows from the Druzhba pipeline to the Mazeikiu oil refinery nine times. These latter disruptions made me determined to look more closely at this type of coercion.
Can you elaborate on some of those external influences?
Some Western European greens are promoting unsubstantiated claims about damage to the environment and public health from fracking. There are also environmentalists pushing to stop any kind of hydrocarbon development whatsoever and immediately move to a fully renewable system. This policy is wildly unrealistic. Finally, there are power companies, such as the coal and nuclear industries that oppose natural gas development in central Europe. And of course, there are the Russians themselves, who don’t want to lose their stranglehold over European gas markets. They promote propaganda campaigns designed to frighten the public away from hydraulic fracturing.
Of course, Russians have been fracking in west Siberia for some time, so this reflects the usual hypocrisy out of Moscow. Some greens, however, are legitimately motivated by their environmental concerns, but others are front groups for Russian interests.
We know that in the short term, American LNG supplies are not a solution to the immediate threat of disruption of Russian gas supplies. There’s also the issue that LNG import prices are higher in Asia than in Europe, creating incentive for companies to move product to Asia, rather than Europe. Given these factors, what other options are on the table? What advice would you give energy policymakers, not only here in the United States, but also in Poland and Ukraine?
First, we need to change the approval process for LNG export facilities, and also allow crude oil exports from the United States. Right now, ever since 1973 (OPEC oil embargo), Congress only allows refined oil products to be exported. But refineries in Europe need crude supplies. We could also release 500,000 barrels per month from our strategic reserves, and send some of that to Europe right away, in a form of swap.
There’s no question—LNG exports to Europe are no quick fix, and American companies are incentivized to ship gas to Asia because LNG import prices are higher there. American gas production has already impacted the European market in a positive way, because we’re already not importing gas, which loosens up the market. Regarding the second part of your question, of course the U.S. government can’t tell companies to send gas to Europe, but the fact that we’re not buying LNG from abroad frees up supplies for Europe.
Additionally, I think it would help if the Department of Energy and the President more publicly announced oil and natural gas production statistics in the United States—they need to aggressively publicize those numbers on a quarterly or monthly basis. Improving public education will sway the opinions of some in Europe who are skeptical of the long-term impacts of the shale boom.
There’s also the matter of technical assistance—FERC could help with regulators in Ukraine with best practices and other measures to make their energy market more transparent and competitive. And maybe the U.S. and EU can make a strong case for price reduction by Poland, which can transport gas through existing pipelines to Ukraine.
Finally—the U.S. should really encourage the EU to stand firm on non-completion of the South Stream pipeline. That pipeline is being constructed in order to provide Russian gas to Europe by bypassing Ukraine. If Russia can bypass Ukraine, then Ukraine is in an even worse position than it is in now. If Russian gas needs to move through Ukraine to reach the rest of Europe, it gives Ukraine more economic clout, which is very important for them at this point.
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