BAKER INSTITUTE STUDY PUBLISHED BY THE JAMES A. BAKER III INSTITUTE FOR PUBLIC POLICY AT RICE UNIVERSITY NO.21 FEBRUARY 2003 U.S.–RUSSIA COMMERCIAL ENERGY SUMMIT In May 2002, U.S. president George W. Bush and Among those who spoke on the importance of Russian president Vladimir Putin announced a the new partnership were Russian energy minis- new U.S.–Russian dialogue. This “dialogue” rep- ter Igor Yusufov, Russian economic and trade resents an unprecedented political alliance, minister German Gref, U.S. commerce secretary friendship, and economic partnership between Donald Evans, and U.S. energy secretary the U.S. and Russia at the highest levels of gov- Spencer Abraham. The summit was organized by ernment, creating opportunities for strengthen- the U.S. and Russian governments, the U.S. ing ties and developing many spheres of cooper- Energy Association, the American Petroleum ation. Among the many important strategic Institute, American Chamber of Commerce in areas for potential cooperation between the U.S. Russia, U.S.–Russia Business Council, the City of and Russia is the energy sector. Houston, and the Baker Institute. In a follow-up to the May 2002 announce- In recent years, both the U.S. and Russia have ment, Washington and Moscow convened the been seeking to enhance their national energy U.S.–Russia Commercial Energy Summit on agendas and recently have found that their October 1–2, 2002, in Houston, Texas. The main interests are dovetailing, raising the importance plenary sessions for the meeting were held at the of the Energy Summit. James A. Baker III Institute for Public Policy. Top officials from both nations emphasized The meeting was aimed at the development of the strategic importance of this cooperation Russian/American joint strategies for coopera- throughout the session. Presidents Bush and tion in the energy sector. This inaugural summit Putin, during a meeting they held in St. brought together senior government officials Petersburg on November 22, 2002, also made a and corporate executives representing more point to highlight the first Commercial Energy than 70 American and Russian energy compa- Summit as a key step in the energy dialogue nies. The session led to the creation of a com- launched by the leaders earlier in the year. In a mercial working group to focus on key issues joint statement, the presidents said, “The such as market development, strategic reserves, Houston Summit created new avenues for dia- investment, regulations, education, and prob- logue and cooperation on energy issues and led lem solving. to decisions on concrete new investment proj- The summit laid out a framework and road ects and programs and business arrangements.” map for the cooperative effort between In the keynote address that closed the sum- American and Russian firms in the energy sector. mit, James A. Baker, III, former U.S. secretary of 1 state and honorary chair of the Baker Institute, development—a growth rate he expected would discussed the mutual benefits of closer be matched in 2002. The Russian minister pre- American–Russian cooperation in developing dicted that Russian oil production would expand Russia’s energy assets. Baker explained, “The to 8 million barrels per day (b/d) within the commercial advantages to cooperation between next few years, based on new investment and the U.S. and Russian energy companies is really new technologies. quite obvious, but the commercial stakes—even Russia and the newly independent states of its though they are huge—are only part of the southern flank are ranked second in undiscov- broader economic advantages that will flow from ered oil potential after the Persian Gulf, holding closer U.S.–Russian cooperation in the energy about 27 percent of the world’s total. The region area.” ranks first globally in undiscovered natural gas Continuing, Baker noted that “the early and potential and will be an important supplier of oil efficient development of Russia’s oil and gas and gas to Europe and Asia. Russia itself resources also will represent a substantial eco- accounts for 13 percent of the world’s energy nomic boon to Russia in terms of jobs, generat- production, third after Saudi Arabia and the ing economic growth and bolstering Russia’s U.S. In 10 years, the Caspian Basin countries balance of payments. And, of course, to the near Russia could represent an additional 3 to 4 extent that American companies are involved, it percent of world oil production, while Russia will benefit American businesses and consumers itself is hoping to see its crude output rise from through lower and steadier petroleum prices. over 7 million b/d in 2001 to over 10 million But, not least and perhaps most important of all, b/d by the end of the decade. the full development of Russia’s immense poten- Russia’s hydrocarbon supplies are badly need- tial by increasing diversity of international sup- ed by the expanding world economy, whose oil ply will reduce considerably the risk of instabili- and gas requirements will continue to grow sig- ty in a world petroleum market that remains nificantly in the coming decades. An improve- dominated by the volatile Middle East.” ment in the Russian oil and natural gas industry The Bush administration has been champi- is in the interest of not only the U.S., but also oning the importance of developing more other significant players such as the European diverse energy supplies as a means of both Union (EU), Japan, South Korea, and China, national and global energy security especially in since it would add to world supply and thereby light of the new geopolitics created in the after- lower energy costs. math of the September 11, 2001, attacks on the U.S. officials stressed the importance of U.S. The U.S. administration would like to pre- Russian energy supplies to the global economy. vent future oil price shocks and lessen depend- “All of this [cooperation] enhances global ener- ence on supplies from the unpredictable Middle gy diversity and global energy security goals that East. both of our countries share,” said U.S. com- In stressing Russia’s potential as a leading merce secretary Donald Evans in his opening global oil and gas supplier, Russian energy min- remarks to the summit. Evans emphasized, ister Igor Yusufov, in his keynote address, noted “Global energy security is one of the greatest that his country currently controls about one- challenges we face today.… It is recognized as third of the world’s gas reserves and that in 2001, one of the most important priorities of Russia experienced a 7 percent increase in oil President [Bush’s] national energy plan.” 2 Commerce secretary Evans stressed that both in Congress. The plan, developed by Vice the U.S. and Russia play a pivotal role in global President Dick Cheney’s cabinet-level task force, energy markets. The U.S., for one, he said, “is calls for less U.S. reliance on Middle East energy the largest producer and consumer in the world supplies by cultivating domestic production and and is also the world’s largest net importer of alternative sources and strengthening ties with energy.” As for Russia, it has the advantage of allies that are producers, including Canada, being well positioned because, “as well as being Mexico, and Russia. the third largest [energy] consumer in the Russia clearly sees further development of its world, it is also one of the world’s largest crude oil and natural gas sectors as an important exporters, second to Saudi Arabia,” Evans said. element of its future economic growth. Russian He pointed out that Russia is not only blessed energy minister Yusufov echoed his American with the largest natural gas reserves in the world, counterpart’s observation that there was a great but it also is the global leader in gas exports. deal of similarity in the two nations’ energy Noting that the U.S. Commerce Department has plans. “They even complement each other recognized Russia as now having a market-based because we do have some undeveloped economy, Evans said, “Its market economy is an resources in the Russian Federation that can important step leading to expanded trade and become very reliable sources of energy supplies investment for Russia.” for the United States,” Yusufov explained. Washington looks to Russia now as a poten- Turning to the importance of American tially reliable supplier of crude to the U.S. mar- investment in his country’s energy sector, the ket, not only helping it with energy security by minister noted, “The operating of our existing diversifying American imports and satisfying its fields and operating fields with difficult own growing demand, but also being mindful resources [to recover] will require major innova- that larger volumes of Russian crude and gas tion in the industry, which in turn will require entering into the global energy market will help major investments. Here is an opportunity to lead to international price stability. involve advanced technology, which is being U.S. energy secretary Spencer Abraham elab- developed in the United States…. The major orated on this point, observing that “the chal- success in providing political stability in the lenges of energy security and environmentally Russian Federation makes it a reliable partner to responsible economic development enter into the U.S.” every calculation of every nation.” Stressing that However, the opportunity to participate more there are similarities in the approach between proactively in Russia’s oil and gas industry is not U.S. and Russian national energy plans, without many challenges. U.S. private sector Abraham said, “We’re both on the verge of work- attempts to become involved in Russia’s energy ing toward completion of energy legislation.” In sector during the 1990s had mixed results.