The Cohen Group: News: Op-Eds: Meeting Energy Supply Risks


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January 5, 2006, Thursday

Meeting Energy Supply Risks
By Marc Grossman

AMERICANS NEED to recognize the importance to the United States of what Gazprom, Russia's state-owned gas monopoly, did to Ukraine and, by extension, to Europe, by squeezing gas supplies to Ukraine. Last week, Gazprom raised the price of the natural gas it supplied to Ukraine nearly fivefold. When the Ukrainians refused to pay, Gazprom cut off the gas, affecting not just Ukraine — which lost 100 percent of Russian imports — but also Austria, Hungary, Poland, Slovakia, Romania, Germany, France, and Italy. All the countries reported drops in gas supplies that run through pipelines crossing Ukraine. A compromise deal was reached yesterday. Gas is flowing again, but the threat is clear.

The Russians claim that Ukraine was "stealing" Europe's gas and that Ukraine should no longer benefit from old price arrangements. Ukrainians are sure they are being punished for the Orange Revolution and their dreams of joining the European Union and NATO.

Why should the United States care about this? First, because it says something about President Vladimir Putin's Russia. Putin took over the leadership of the G-8 bloc of industrial countries on Jan. 1. Ironically, he has chosen the security of energy supplies as a focus for Russia's G-8 presidency.

Second, the United States should care because America is highly dependent on others for energy supplies. Yet Americans continue to avoid meeting the challenge of energy security. US oil dependence distorts US foreign policy, making it harder to pursue the war on terrorism and promote democracy in the Middle East. Through our oil purchases, Europeans and Americans have helped Iran build up hard currency reserves reported to be over $29 billion, some of which fund the nuclear program in Iran we are committed to stop. By buying billions of dollars worth of oil products from Venezuela, we also pay for President Hugo Chavez's support of Fidel Castro, opposition to the Free Trade Area of the Americas and his weapons purchases, some of which end up in the hands of Colombian narcoterrorists.

If the United States wants to avoid being held hostage, like Ukraine or Europe, by a major source of its energy, there are five things it must do.

First, the administration should revive one of its best, but now forgotten, ideas: the 2001 commitment to a North American Energy Initiative designed to increase reliable energy supplies, promote modern infrastructure and technology improvements, increase efficiency and conservation, and create a modern North American electricity grid.

Canada is America's leading supplier of imported natural gas, electricity, and oil. In a world of $60-per-barrel oil, Canada's oil sands provide a viable new source of energy that puts Canada in second place in the world's proven oil reserves. While Mexico has more work to do to free its energy sector, in 2004 Mexico was the second-largest exporter of oil to the United States. Both countries offer more secure energy supplies than the Middle East or Venezuela.

Second, the United States must dramatically increase the efficiency of its use of oil. The Rocky Mountain Institute estimates that changing the way America does business could save 50 percent of consumption. The oil giant Chevron ran advertisements at the end of 2005 saying that if automakers improved fuel economy across the board by just 5 miles per gallon, it would save more than 22 billion gallons of gas a year.

Third, the United States must substitute for oil. Hydrogen-powered cars, biofuels, and natural gas (which all three North American countries have) are places to start.

Fourth, the United States should continue to support multiple routes for moving energy out of the Caucasus, such as thepipeline that runs from Azerbaijan through Georgia into Turkey. While Russia has a right to compete in global energy markets, it is not in US interests for Moscow to have a monopoly on supply or distribution. Fifth, US energy security needs to be a priority. The United States will never be energy independent, so let's not waste time debating policies to meet that objective. But surely the lesson of Gazprom's action in Ukraine is that the United States needs to start working on all fronts, and especially in North America, to make sure that it is not a victim of someone else's agenda.

Marc Grossman, former undersecretary of state for political affairs, is vice chairman of The Cohen Group in Washington.

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