Last Thursday the Environmental Law Institute (ELI) hosted a panel on “Offshore Oil & Gas in the Arctic: The Next Five Years.” The event was focused on planned lease sales by the Bureau of Ocean Energy Management (BOEM) for the Chuckchi and Beaufort Seas in the coming five years. BOEM is one of three new agencies created within the Department of Interior to replace the former Minerals Management Service. BOEM is responsible for developing and managing the nation’s offshore energy resources, including the leasing of oil and gas blocks on the outer continental shelf. In November 2011, BOEM published its Draft 2012-2017 Oil and Gas Leasing Program requesting comments from the public. Read the notice here. The comment period closes February 8, 2012. Though the ELI program focused on the Arctic - the area likely to draw the most intense comments - the draft covers all proposed U.S. offshore lease sales through 2017. The proposed lease sale dates off Alaska’s coast are 2013 for the Cook Inlet, 2015 for the Beaufort Sea and 2016 for the Chukchi Sea. You can view the draft in its entirety as well several other related documents here.
Among the key thoughts I took away were that the later dates for the Beaufort and Chukchi Seas locations reflect a desire to continue to study the region as well as to afford the opportunity to learn from the drilling slated to occur in these areas in 2012. These leases present significant challenges such as the remoteness of the locations, the lack of supporting infrastructure close by and challenges in conducting spill response in this harsh environment. However, the leases are located in much shallower water than the deepwater drilling currently occurring in the Gulf of Mexico.
The World Trade Organization has ruled against China’s effort to limit exports of industrial materials, The Wall Street Journal reports.
Severe drought is exacerbating a food crisis in Mexico, The New York Times reports.
China lodged a protest over Japan’s plan to name uninhabited islets in the East China Sea, according to xinhuanet.com
The Washington Post reports on an effort in California to reduce the carbon footprint of fuel sold in the state.
United Press International reports that the United Nations has started an online database to share successful climate change adaptation strategies.
Yesterday, China’s nationalist newspaper Global Times published a report arguing that Beijing should make the Philippines pay for increased cooperation with the United States, what Chinese officials perceive as a balancing act unfolding in the region. According to the Global Times:
Given the recent active maneuvers of the US military in China's neighboring area, the lack of a response from China would be inappropriate, though it is also impossible to react strongly toward every move by the US. It is thus necessary to single out a few cases and apply due punishment.
The Philippines is a suitable target to impose such a punishment. A reasonable yet powerful enough sanction can be considered. It should show China's neighboring area that balancing China by siding with the US is not a good choice.
The report adds that Beijing should use economic coercion to compel the Philippines into suspending its ongoing activities with the United States: “China may consider cooling down its business ties with the Philippines. One step forward in military collaboration with the US means a step backward in economic cooperation with China. In the long run, China may also use its economic leverage to cut economic activities between ASEAN countries and the Philippines.”
The call from the Chinese national newspaper comes on the heels of increased military cooperation between the United States and the Philippines. In November 2011, the United States agreed to transfer a second Hamilton-class cutter to the Philippines to provide additional resources for the Philippine Navy to conduct maritime security activities, including in the South China Sea where China and the Philippines have ongoing territorial disputes. Earlier this month, the United States announced that its annual exercise with the Philippine marines will be conducted off of Palawan island instead of the main island Luzon. (Increased Chinese oil and natural gas exploration 50 miles off the island of Palawan has exacerbated tensions between the Philippines and China in recent months.) Most recently, the United States and the Philippines agreed last week to closer military cooperation moving forward. According to The Washington Post on Sunday, “The Philippines said it is considering more joint military exercises and a greater presence by American troops.”
Over the last several weeks, my colleagues and I have been trying to make the case for a national-level dialogue on the Arctic (see CDR Gilreath’s post from Wednesday and my National Journal piece from the first week in January). Our call for a national dialogue is in part driven by the need to build awareness among a larger audience about what the United States is currently doing in the Arctic, and then to have a conversation about what our national objectives are in the High North. Simply put, what do we want to achieve there? How much of a presence do we want to have? Are we willing to forfeit our leadership role to Canada, Russia or other Arctic (or non-Arctic?) states?
This photo – I think – helps get the conversation going. In this photo taken on January 16, 2012 in Nome, Alaska, a fuel tanker docks after being escorted through the ice by the U.S. Coast Guard Healy (the only operational polar icebreaker in the fleet), so that it can deliver more than 1.3 million gallons of fuel to the local community. Is this a priority mission for the Coast Guard, and, if so, is it resourced to continue executing this mission? Let’s have that conversation.
Yesterday, The Wall Street Journal reported that the Obama administration has decided to withdraw its demand for countries pursuing nuclear energy development to relinquish their right to produce nuclear fuel domestically. This is a significant shift from a 2009 agreement between the United States and the United Arab Emirates (UAE) that prohibits the UAE from enriching uranium domestically or reprocessing spent nuclear fuel.
According to The Wall Street Journal report, administration officials cited concerns that U.S. nuclear plant developers could lose a share of the market with a stringent requirement attached to nuclear-cooperation agreements that bound countries from developing domestic sources of nuclear fuel. “U.S. companies once controlled at least 50% of the world market for building nuclear reactors,” The Wall Street Journal reported. “This share has dwindled to around 20%, U.S. officials say, with Russian, French and South Korean companies gaining dominance,” and officials have cautioned that “Washington risked losing business for American companies seeking to build nuclear reactors overseas” if the United States continued to push the nuclear-cooperation agreement requirement.
Moreover, U.S. officials cited concerns that losing nuclear plant development to non-U.S. developers could weaken U.S. efforts to encourage countries to promote stronger nonproliferation safeguards and policies. “To the extent we lose market share, we lose nonproliferation controls and hurt national security,” a senior U.S. official told The Wall Street Journal.
The UK tops the list of countries most vulnerable to climate change, according to The Washington Post.
China has criticized the EU over its decision to ban imports on Iranian oil, The Wall Street Journal reports.
A new study reports that geoengineering is not a cure to the world’s climate woes, according to United Press International.
The Boston Globe reports that communities around Japan’s nuclear facilities remain divided on the future of nuclear energy.
Last week, the Center for Strategic and International Studies (CSIS) released its report, “A New Security Architecture for the Arctic: An American Perspective." The report provides concise summaries of the existing governance regimes for the Arctic and touches on many of the reasons the United States and other nations should care about the Arctic. It reprises the role of the Law of the Sea Convention, Arctic Council and the North Atlantic Treaty Organization. The authors also argue for creation of an Arctic Coast Guard Forum to address security concerns with membership comprised of the eight Arctic Council countries, plus other countries willing to contribute resources to the region.
Two of the key takeaways for me were the emphasis on the failure of the United States to create a comprehensive “large scale economic development plan for the region” and the lack of existing military assets suited to operate in this complex environment to protect, enforce and ensure our interests. From my perspective, the lack of a serious national discussion and investment in Arctic resources, coupled with the continued failure to ratify the Law of the Sea Convention, signals to other nations that we are willing to forfeit our leadership role in the Arctic. The longer we wait to engage in a national dialogue and set a firm course to implement a strategy, the more options we foreclose in the future. As we delay implementation and investment, others gain leverage through the development of critical infrastructure or assets needed to exploit resources in the region, including shipping ports to take advantage of potentially shorter trade routes, ice breakers to keep open sea lanes or allow development of oil and gas fields and patrol vessels to protect fish stocks.
Ideally, we should enter critical international negotiations over governance, use and protection of resources within the Arctic from a position of strength rather than weakness. That is not to suggest that partnerships are bad, or that the United States must have enough government assets to go it alone. Partnerships can be incredibly productive when they are mutually beneficial. Partnerships that are completely one sided in nature have little appeal and are difficult to sustain. Perhaps if we could afford to continue to build assets and infrastructure with nominal concern for costs we could make up for the lack of a comprehensive development strategy through sheer numbers of assets or breadth of capabilities. Yet in a time of financial austerity it would seem far better to invest in assets or partnerships that support a well developed national strategy.
President Obama will deliver his third State of the Union Address tonight. With the focus on the economy and jobs creation, we’re not likely to hear much from the president on the need for the United States to get serious about the Arctic or for Congress to ratify the Law of the Sea Convention. But there are some issues I think the president has an opportunity to address, and I expect we’ll hear much from him tonight on his vision for a clean energy future as it relates to economic security.
In particular, I think President Obama has an opportunity to make the case for doubling down on clean energy investments, despite recent criticisms of the administration’s handling of Solyndra. President Obama has many success cases to point to in making the case for why these investments are good for the U.S. economy and long-term prosperity. For example, last year the administration announced that the Departments of Agriculture, Energy and Navy would match up to $510 million dollars in private sector investments in renewable biofuel projects. This initiative has already helped develop a larger market for alternative fuels and infused confidence in investors.
I don’t believe the president should have much trouble explaining why investing in alternative fuels and renewable energy projects are good for the United States. Most Americans have fresh memories of $5 a gallon gasoline and the toll it took on the U.S. economy in 2008. Moreover, there’s a larger vision that can be achieved through investments in renewable energy and non-petroleum fuels, and the president should press this message: that these government investments will help spur continued private sector investments in alternative liquid fuels, help move the United States away from its outsized dependence on petroleum and provide the foundation for a more resilient economy. Indeed, this is especially important at a time when ratcheting tensions in the Persian Gulf and instability in Nigeria are generating some uncertainty in the global oil market - and the United States certainly cannot endure another shock to the global oil market. The faster we move away from petroleum dependence, the more resilient our economy will be.
As I wrote in last weekend’s roundup, there is a lot of uncertainty looming in Nigeria that could impact the global oil market. A weeklong row between the government and labor unions over the government’s fuel subsidy cost Nigeria about $1.3 billion dollars. Labor unions suspended the strike early last week after Nigerian President Goodluck Johnson agreed to partially reinstate his government’s fuel subsidy.
Despite the brief respite from political turmoil, the country was rocked by a series of bombings throughout the week that reportedly left 256 dead. “The militant Muslim group Boko Haram, which is fighting for rule by Islamic law in the north, said it was responsible for blasts at eight government buildings in Kano on Jan. 20,” according to Businessweek. The same report said that:
The attacks by Boko Haram haven’t affected oil from Nigeria’s Atlantic coast, where companies including Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA pump more than 90 percent of the country’s crude output. Similarly, the financial markets in the southwestern commercial capital, Lagos, haven’t been disrupted by the violence.
Nevertheless, Nigeria’s instability may have long-term implications for the global oil market if violence affects the country’s oil sector. Already, “Brent oil for March settlement advanced as much as 59 cents, or 0.5 percent, to $110.45 a barrel on the London-based ICE Futures Europe exchange,” according to Businessweek.
Energy analysts will need to be watchful of developments in Nigeria as the government continues to grapple with unrest. Moreover, the fuel subsidy issue may again surface as a point of tension if fuel prices rise. According to a report from The Wall Street Journal, “Analysts worry that the [fuel] subsidy cut played into Boko Haram's antigovernment stance, helping it to channel the anger of Nigeria's young disaffected Muslims.” Thus, the issue could continue to affect stability in Nigeria.
Last week, the Center for a New American Security launched its new Flashpoints feature, an online web portal for those studying security in the East and South China Seas. My colleagues in the Asia-Pacific Security Program deserve major kudos for pulling this together. It’s a tremendous resource that will enhance peoples’ understanding of the challenges in the region.
An interesting story in The New York Times describes the tensions between states and the federal government over nuclear regulatory authority.
The New York Times Green blog revisits the issue of agriculture and climate change.
According to Reuters, Turkey is working to reduce its dependence on Iranian oil.
Beijing makes a rare concession on pollution, The Washington Post reports.
Also from The Washington Post, French President Sarkozy urges much tougher sanctions against Iran, including an oil embargo.
A new post by Andrew Erickson and Gabe Collins in The Wall Street Journal’s China Real Time Report blog paints a great picture of how economic opportunities in the Arctic may redraw geopolitical relationships.
Erickson and Collins write that “Denmark has made a strategic decision to prioritize its economic relationship with China and is now becoming the key gateway for Beijing’s commercial and strategic entrée into the Arctic,” including being an advocate for China to have permanent membership on the eight-seat Arctic Council. In particular, Denmark seeks to use Greenland’s mineral wealth (including coveted materials like rare earths, uranium and iron ore) as a means of fostering stronger economic ties with China (Erickson and Collins note that exports have been steadily increasing between both countries over the last several years).
While both may gain in the near term (Greenland in particular will benefit from Chinese investments in infrastructure that the island is thin on, including more power lines and power stations), it is not hard to see that China benefits more from this new arrangement over the long term. As Erickson and Collins describe, “From Beijing’s perspective, having Chinese companies buy several billion dollars per year worth of pharmaceuticals and machinery and doing container shipping business with Maersk is well worth it to gain access to Arctic negotiating tables and Greenland’s minerals.”
Last week, the U.S. Agency for International Development (USAID) released its new climate change and development strategy. The document, according to USAID Administrator Rajiv Shah, provides a roadmap for promoting sustainable global growth that leverages USAID’s long history of development activities, including disaster risk reduction, natural resources management and energy sector reform.
According to the strategy, USAID’s goal is to “enable countries to accelerate their transition to climate-resilient low emission sustainable economic development.” To achieve this goal, the strategy delineates three strategic objectives:
- Accelerate the transition to low emission development through investments in clean energy and sustainable landscapes;
- Increase resilience of people, places, and livelihoods through investments in adaptation; and
- Strengthen development outcomes by integrating climate change in Agency programming, learning, policy dialogues and operations.
What is noteworthy is that the strategy explicitly addresses the budget-constrained environment that USAID must adapt to. “In order to effectively use these resources in a budget-constrained environment, USAID is committed to focusing and concentrating climate change investments for maximum impact,” the strategy reads, recognizing that USAID cannot operate in every developing country that is at risk from global climate change. Indeed, USAID – as we’re seeing with many federal agencies now – must make hard choices about where it will operate. To make those choices, USAID lays out three criteria it will consider when deciding which countries to dedicate dollars to for climate change and development activities:
Nigerian President Goodluck Jonathan announced over the weekend that the government would partially reinstate fuel subsidies, prompting Nigerian labor unions to suspend a strike that threatened to halt Nigerian oil production, the fifth largest source of American oil imports. The strike began on January 9 after the government ended its $8 billion fuel subsidy program on January 1, contributing to a doubling in fuel prices – from about NGN65 ($.39) to NGN141 ($.87) per liter. The government had hoped to use the savings from the fuel subsidies to invest in infrastructure, including oil refining capacity that would enable the country to curb its dependence on importing refined oil products. Instead, the termination of the subsidies triggered massive public outcry that fueled protests and paralyzed the country.
President Jonathan said that under the partial reinstatement, fuel prices would be capped at about NGN 97 ($.60) per liter. Although Nigerian labor unions agreed to suspend their nation-wide strike, some reports note that the trade unions have not agreed to the new capped fuel prices, which may suggest only a fleeting agreement between the government and the unions. Energy analysts will remain watchful of developments in Nigeria, which could contribute to shocks in the global oil market. Indeed, while it is unclear how much oil production could be affected by future strikes given that most of the production process is automated, even minor disruptions could affect global oil prices by undermining confidence in the oil market, especially if tensions in the Persian Gulf worsen.
Nevertheless, the Nigerian government seems to have bought time, helping bring a modicum of stability to Africa’s largest oil producer, which exports more than 2 million barrels of crude oil a day and provides 11 percent of American oil imports. In the long term, however, analysts will need to keep a close eye on Nigeria, especially as other developments in the Strait of Hormuz and other sensitive regions that affect global oil prices unfold.
Building on yesterday’s blog post with recommendations for how U.S. policymakers can encourage cooperation around energy in the South China Sea, here are some quick thoughts on steps policymakers should take to help states in the region adapt to climate change, which, as I point out in my chapter on natural resources in our new report, Cooperation from Strength: The United States, China and the South China Sea, exacerbates the resource issues countries must confront.
Broadly speaking, the United States must help states in the South China Sea region adapt to climate change by supporting humanitarian and disaster relief training, science and technology sharing and climate finance programs. Many South China Sea states are preparing to deal with the effects of climate change, including agricultural destruction, flooding, sea level rise and more frequent and severe storms. With the lack of U.S. legislation to curb greenhouse gas emissions, there is an increasing view that the United States is not a credible leader to help these states confront the climate challenges that await them. Yet, the United States does not need to pass “Cap & Trade” or other controversial legislation in order to help states adapt to global climate change.
One of the challenges with writing a paper like “The Role of Natural Resources in the South China Sea,” one of six chapters that appears in our new report, Cooperation from Strength: The United States, China and the South China Sea, is to make it accessible to a broad audience (i.e., those intimately familiar with resource issues in the region and those who know nothing about those issues at all). To do that I chose to avoid narrow recommendations that would have distracted the reader from the broader message I hoped to convey: that despite the complexity of resource challenges in the region (and potential for conflict), the United States can encourage policies that help promote peaceful competition over resources in the South China Sea, and thereby promote regional stability.
But for those interested, I’d like to share some ideas for how U.S. policymakers can encourage cooperation around several of the issues that I explore in the paper, beginning with energy. As I argue in the paper, the United States needs to focus beyond energy and give attention to fisheries, minerals and climate change, which are important resource issues that affect geopolitical behavior in the Asia-Pacific region. But I thought it would be good to start with energy, given that that’s where a lot of attention has been and is likely to be in the near future (for better or worse). Here’s what I would propose:
First, the United States should propose that APEC measure the hydrocarbon resources in the South China Sea in order to develop more realistic estimates.
Countries in the region are growing increasingly suspicious of unilateral efforts to survey oil and natural gas in contested territorial waters, in part because they may signal that the surveying country intends to develop those resources on its own – including in contested waters. For example, in May 2011, China severed the cables of an oil and natural gas survey vessel in Vietnam’s territorial waters. A similar incident in June 2011 involved a Chinese fishing boat ramming a Vietnamese survey ship. (Visit our Flashpoints feature for more information about these and other incidents.)
Yesterday, the Center for a New American Security (CNAS) released its new report, Cooperation from Strength: The United States, China and the South China Sea, a six-chapter volume featuring a capstone chapter authored by Patrick M. Cronin, CNAS Senior Advisor and Senior Director of the Asia-Pacific Security Program, and Robert D. Kaplan, CNAS Senior Fellow, to help U.S. policymakers understand the trends affecting American interests in the South China Sea. It includes insightful chapters on U.S. strategy in the South China Sea, maritime security, diplomacy and the rule of law, natural resources and partnership building by some of the world’s leading experts on the Asia-Pacific region.
This morning at 9 AM, CNAS will host the launch event at the Willard Hotel in Washington. To view the live webcast, tune in at http://www.cnas.org/LIVE.
We’ll have more on the actual report later.
This weekend, Reuters reported that China may reshuffle its cabinet in 2013 to create an energy “super-ministry” that would take control of China’s now-scattered energy policies. The sweeping reform would merge the responsibilities of agencies like China’s National Energy Administration, the state energy regulator, the National Development and Reform Commission (NDRC), the body charged with setting energy prices, and may even reign in powerful and often amorphous state-owned energy companies, like the China National Petroleum Corporation or China National Offshore Oil Corporation (CNOOC).
Experts say an energy super-ministry may help Beijing bolster is energy security policy. Indeed, a new ministry with centralized powers may enable Beijing to overcome bureaucratic hurdles that have prevented it from creating important energy policies that conflict with bureaucratic interests, such as establishing a strategic petroleum reserve or developing streamlined policy to reduce greenhouse gas emissions. Yet reshuffling the cabinet won’t be easy given the vested interests of energy bureaucrats, as well as other agencies that could be affected by the change. “A government official directly involved in Chinese energy policy said the sprawling NDRC is likely to be the biggest stumbling block in the restructuring plan,” Reuters reported. “The challenge will not merely be the NDRC, already a huge ministry with considerable powers over the energy sector, but also others with a say in policy, like the water resources, transportation or agriculture ministries.”
Despite a warning from the Iranian military that the U.S. carrier should not return to the Persian Gulf, the USS John C. Stennis continued businesses as usual this week, conducting maritime security operations with the U.S. 5th Fleet in support of military operations in Afghanistan. In this photo taken on January 4, 2012, an F/A-18F Super Hornet launches from the deck of the Stennis. Energy analysts are keeping a watchful eye on tensions between the United States and Iran, and the potential effects on global oil prices.
Photo: Courtesy of Mass Communication Specialist 3rd Class Kenneth Abbate and the U.S. Navy.
Oil prices rose slightly on Wednesday due to increased tensions between the United States and Iran. The price of oil jumped more than $4 a barrel after the Iranian military warned on Tuesday that the U.S. aircraft carrier USS John C. Stennis not return to the Persian Gulf. The U.S. military dismissed the Iranian threat, stating that the United States will remain committed to ensuring the freedom of access and navigation of the Strait of Hormuz, an international waterway recognized by longstanding maritime norms, as well as the UN Convention on the Law of the Sea. “The deployment of U.S. military assets in the Persian Gulf will continue as it has for decades," said George Little, the Pentagon’s press secretary.
Despite what appears to many as saber-rattling, energy analysts have cautioned that increased tensions between the United States and Iran could have serious implications on the global price of oil. For example, if Iran were to actually blockade the Strait of Hormuz, through which nearly 20 percent of the world’s oil is shipped, the price of oil could climb by 50 percent in just a few days. “Energy analysts say even a partial blockage of the Strait of Hormuz could raise the world price of oil within days by $50 a barrel or more, and that would quickly push the price of a gallon of regular gasoline to well over $4 a gallon,” The New York Times reported on Wednesday.
CNAS is kicking off the 2012 event season with the launch of Philip Taubman’s The Partnership: Five Cold Warriors and Their Quest to Ban the Bomb. Join us today at 6 PM at the W Hotel’s Great Room for a discussion with Taubman and The New York Times’ Chief Washington Correspondent David Sanger. Taubman will shed light on one of the most divisive security issues facing Washington today and tell the story of the unlikely efforts of five key Cold War players to eliminate the nuclear arsenal they helped create. The Partnership tells the little-known story of a campaign by five men – Henry Kissinger, George Shultz, Sam Nunn, William Perry, and the renowned Stanford physicist Sidney Drell – to reduce the threat of a nuclear attack and, ultimately, eliminate nuclear weapons altogether.
For anyone interested in nuclear proliferation (of energy or weapons), The Partnership is a must read. As The New York Times’ Gary Bass wrote in his review of the book, “Taubman’s book provides an important public service by concentrating on nuclear perils that — despite previous powerful alarms from writers like Graham Allison and Richard Rhodes — continue to slip our day-to-day notice.”