Wednesday, July 12, 2006

Mallias and McFarlane on energy security

The magazine hosted Alexandros Mallias, ambassador of the Hellenic Republic, who spoke about the nexus between energy and security in southeastern Europe, addressing a topic that is a major point on the agenda of the forthcoming G-8 summit in St. Petersburg. The discussion was moderated by former National Security Advisor Robert C. McFarlane (whose own thoughts on achieving energy independence appeared in the Summer 2006 issue of The National Interest and were discussed in TWR).

Ambassador Mallias noted it was a welcome change to have a Greek ambassador asked to speak to a Washington audience on something other than Cyprus or Greek-Turkey relations!

He made several observations:

1) For the first time, the Balkans region provides a secure environment which facilitates the construction of the infrastructure needed to increase the flow of energy from the greater Caspian region to global markets; the expansion of both NATO (to provide security) and the EU (the strongest incentives for promoting democracy and open markets) to encompass the entire region in turn creates conditions for creating a single energy market.

2) Greece, in conjunction with Turkey and Italy, is opening up a "southern route" for natural gas that can accommodate additional supplies coming from Azerbaijan, Kazakhstan, and even Turkmenistan; while preserving good relations with Russia, Greece wants to promote diversification of supply not only for itself but for Europe as a whole. Greece is investing in expanding its tanker fleet to carry LNG and to have more storage and processing facilities in Greece itself to store LNG.

(He had some comments on the Balkans and on Kosovo which I'll relate separately.)

McFarlane noted that while many policymakers and pundits talk very casually about increasing supplies of oil and gas from non-Persian Gulf countries, infrastructure needs are great. Energy transport is, he predicts, a high growth area.

Because so many Western and East Asian economies are now structured as "just-in-time" economies (see Barry Lynn's Winter 2005/06 TNI essay on this!) and owing to the lack of storage and of major inventories of energy supplies, we are subject to massive economic disruptions should there be even a temporary interruption of supply from the Persian Gulf. And the likelihood of a second attack on a Saudi terminal is high.

The next step is to move to alternates. Here, the Balkans offers some interesting possibilities. Mallias had talked about Greek investment in rehabilitating the lignite industry in Kosovo and providing energy to get mines up and running; McFarlane noted that with these huge reserves in place, with additional investment, lignite could be converted into methanol (and Kosovo could become an energy supplier of a key alternate).

Mallias echoed a point raised by McFarlane in his essay: that development and economic growth is linked to a stable and dependable supply of energy at market prices. The Greek approach--expanded cooperation with Russia, development with Turkey of new supply lines from the Caspian, upgraded ties to Algeria using the Greek shipping fleet to bring more LNG into Greece (for reconversion and distribution into the European supply network)--works from the assumption that a market price for energy cannot occur if the customer is dependent on a single source; a competitive price only emerges when you have alternates.

Nick, having also been present I found the question and answer sessions at the end, particularly the question about whether the U.S. attempts to block energy deals from going through with countries it doesn't like, quite interesting. My impression was that the ambassador would be one of those who agreed with Sec. Rice when she visited about using the new southern route to transport gas from the Caspian rather than more Russian gas from Blue Stream.
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