Opening Keynote The opening keynote speaker, Daniel Yergin, was introduced by Angela Stent. Dr.

Yergin set the stage for the CERES Energy and Security in Eurasia Conference by addressing the impact of shale gas and tight oil on the global energy market. He began his address by reflecting on some of the many changes in global energy policy that have occurred since CERES last conference on the topic ten years ago, which he had also addressed, and how they had affected the writing of his new book The Quest: Energy, Security and the Remaking of the Modern World. (www.danielyergin.com) Ten years ago, global energy demand was heavily weighted towards the countries of the Organization for Economic Cooperation and Development (OECD) with less attention paid to the rest of the world. Today the world is witnessing a change in focus as energy demand increases in emerging and fast-growth markets and is flat or declining in many OECD countries. Environmentalism and renewable energy have evolved dramatically over the past ten years. Then climate change had not really gained political traction, whereas today it is a major factor in energy policy around the world. Renewable energy has made dramatic strides in terms of growth and scale over the last decade, but immediate prospects in many countries are now hampered by economic austerity and the reliance on government subsidies. Global attitudes towards nuclear energy have changed over the past ten years. The momentum of the nuclear renaissance was stopped by the Fukushima accident in 2011. Now the picture is very mixed. China is committed to significant growth in nuclear energy, and France depends on it for over 75 percent of its electricity. Germany, on the other hand, has signaled an end to nuclear energy within its borders by 2022. Anti-nuclear sentiment is now a major issue in shaping Japans new energy policies Dr. Yergin focused on the global concern over energy availability, which is directly related to the expansion of shale gas and tight oil. Yergin stated that as late as five years ago there was a fear that the world would soon run out of oil and gas, as emerging markets like China put further stress on the global market. Today this fear has generally been assuaged due to new technologies and development of new sources. He cited the remarkable growth in U.S. oil output. While hydraulic fracturing and horizontal drilling have been around for decades, it was the recent fusion of these two technologies early in the last decade that has changed the global energy market. Ten years ago the question facing the U.S. was how much natural gas it would have to import; now the question is how much the U.S. should export. Yergin noted that in 2008, U.S. natural gas output began to increase. Shale gas extraction has increased U.S. output and now accounts for 37% of total production. The shale gas and tight oil industry now supports 1.7 million jobs, has increased the competitiveness of the U.S. economy, and is leading to companies reinvesting in U.S. manufacturing. The success of shale gas extraction led to efforts to apply the technology to oil extraction very successfully in the United States. While the Russian government has been critical of shale gas, Rosneft and Lukoil have voiced interest in tight oil extraction. Yergin stated that he does not foresee shale gas and tight oil extraction making the U.S. completely energy independent. Rather, he sees that the U.S. will continue to become less dependent on imports, and with Canada providing a growing share of total imports. Yergin concluded his address by stating that these new forms of energy extraction will not go global quickly, but that the global pricing system will be affected by these new energy sources, especially if the U.S. becomes a major exporter of natural gas.

Panel One: Prospects for Russian and Caspian Oil The first panel discussion, chaired by Eugene Rumer, focused on the future of Russian and Caspian energy projects. Thane Gustafson discussed the challenges facing the Russian oil industry going forward. The sources of oil production inherited from the Soviet Union are producing less, and primary shareholders are now being asked to make their first large post-Soviet investment in extracting from new sources. The Russian oil industry faces a slew of challenges according to Gustafson, including its relationship to the government, unreformed tax codes, lack of diversity within the oil sector, and very little foreign participation. The Russian oil industry is veering in two directions today. The shale gas and oil boom plays an important role in the conversation about Russias oil future. Russias initial reaction was enthusiastic as the country is estimated to contain a large amount of oil shale. There are still questions as to whether the deposits have matured into hydrocarbons and whether or not they are extractable. The other direction for Russian oil is the Arctic. The Arctic is a project for the future while shale is possible now. Gustafson said that Rosneft is at the center of Russias oil future and currently it is trying to pursue both directions. Brenda Shaffer spoke on Caspian oil exports and lessons that can be learned from energy developments in the region. Shaffer argued that the Caspian energy market matters and that the political jockeying of the 1990s was important. Political involvement is important to the security of supply, according to Shaffer. Energy affects politics and as such, it is logical that politics should have a say in energy, opposed to the let the market decide attitude of many energy companies. Shaffer debunked the myth of peace pipelines, insisting that there is no precedent of their construction bringing peace to a region. She also criticized the idea that stability is needed to launch energy projects, stating that only a minimal degree of stability is required. Georgia will remain central to the regions energy market, but its future stability and orientation remain to be determined. Shaffer concluded with her argument that the Caspian does matter because of its potential impact on oil price stability and possible liquefied natural gas (LNG) market if a global LNG market fails to materialize. Pavel Baev returned the conversation to the topic of Russian interests in the Arctic. Baev stated that the recent energy battle between Brussels and Moscow has made the Arctic an important theater for both sides. The Arctic is an area where Russia has a position of strength. Russias border and claims in the Arctic are incredibly large and it is positioned militarily to be able to better utilize the region than other states. Putin has expressed great passion about the Arctics energy potential but initial hopes have been confronted with harsh realities. Echoing Gustafson, Baev stated that the future of Russian energy policy is unclear and contains few guidelines. The hopes of Arctic oil being a quick fix due to shallow waters and close proximity to land were dashed as Russian oil firms discovered that Arctic oil was slow, expensive, and not the fix they needed. Russia has failed to expand its continental shelf claims due to the poor quality of its initial application and is falling behind other states on this matter. While Baev noted that Russia has shown it can be cooperative, he also argued that Russia is sliding into self-isolation, which will complicate cooperation in the Arctic and beyond.

Lunch Keynote The lunch keynote speaker, Ambassador Carlos Pascual, was introduced by Diana Sedney of Chevron. According to Sedney, the U.S. government has been a vital partner for industry in dealing with Eurasian energy politics, and thus the selection of Ambassador Pascual as the keynote speaker is appropriate. Ambassador Pascuals extensive diplomatic experience in energy-rich countries means that he understands the geopolitical importance of energy resources, and he has worked to make energy diplomacy one of the pillars of global security. Ambassador Pascual centered his keynote on the geopolitical implications of recent changes in the global energy industry, particularly with regard to Europe and Eurasia. He discussed three global energy revolutions. The first revolution is the changing demand for energy. In 2012, non-OECD countries for the first time accounted for a larger share of energy consumption than OECD countries, and the bulk of demand growth in the future will come from outside the OECD. As such, the balance of supply and demand in large developing countries will be a key determinant of world energy prices. It is thus in U.S. interests to help these emerging economies to satisfy their energy needs in order to arrest the growth of world energy prices. Ambassador Pascual observed that the demand side in non-OECD countries is not a major part of U.S. energy diplomacy and must be deliberately incorporated to a greater extent in the years ahead. The second revolution is in energy production. The growth of oil production from shale formations in the U.S. and plateauing demand mean that domestic oil and gas resources will increasingly be able to satisfy U.S. needs. However, Pascual stressed, we should still care about the global energy market, since growing global demand and tight spare capacity mean that even small fluctuations in supply can dramatically affect world energy prices. Third, Ambassador Pascual discussed the radical changes in the global gas markets. In 2012, for the first time, the U.S. produced more electricity from natural gas than from coal. In large part, this is due to the rapid growth of shale gas production from 1% of U.S. production in 2005 to about 35% in 2012. Other established gas producers are also likely to increase production in the years ahead, and new producers will also contribute to export growth. In terms of the geopolitical implications of the shale gas revolution, Pascual observed that gas imports to the U.S. have been redirected to Europe, which has created greater competition in the European gas market. Together with the anti-monopoly provisions of the EU Third Energy Package, this development is likely to lead to the emergence of a highly competitive European gas market in the coming years. After briefly addressing Israeli gas production, the Southern Corridor, Kurdish oil, and the Iran oil sanctions, Pascual noted that Russia has only just begun to react to the radical shakeup of the global energy industry over the past half-decade. Russias response will be particularly important in shaping the development of the East Asian gas market. Russia will play a major role in determining whether this market develops in a way that promotes competition or monopolistic point-to-point control. Ambassador Pascual concluded by reminding the audience that, while gas may be a bridging fuel to satisfy short-term energy demands, it is not a panacea for environmental concerns. One plausible scenario sees a global temperature increase of 3 degrees and a CO2 concentration of 650 parts per million by 2050. Natural gas has to be integrated with renewables in addition to serving as a bridging fuel while renewable energy sources become less expensive.

Panel Two: Prospects for Russian, Caspian and East European Gas The conferences second panel discussion, chaired by Jeffrey Mankoff, focused on the Eurasian gas industry. Matthew Sagers began his presentation by noting that recent developments in the global gas market mean that the traditional gas superpowers can no longer do as they please. Just a few years ago, Russia and the CIS were concerned that demand for gas would soon outstrip supply, but now such concerns are gone. Demand in Eurasia is likely to be flat in the mediumterm future, while European demand is unlikely to grow significantly in the years ahead which makes finding new export markets particularly crucial. Chinese demand, on the other hand, is growing rapidly, but for over a decade China has failed to reach any significant energy agreement with Russia. Thus, the essential problem is that the transition from conventional to unconventional gas has already taken place, yet the Russian energy industry particularly Gazprom has not yet made this transition. Within Russia, the share of non-Gazprom producers has reached 27%, versus 10% just a decade ago, and demand for Russian gas is flat. So what is the future of Gazprom? Domestic demand, Sagers noted, remains the largest parking place for Russian gas production, yet Russia faces the choice of continuing to subsidize low domestic prices or to allow those prices to rise in order to bring new revenues into the budget. Theresa Sabonis-Helf discussed the future of energy security from the point of view of Central Asias rising gas suppliers. Since these countries are landlocked, Sabonis-Helf observed, point-to-point monopolies remain the norm. Indeed, only in 2007 was Central Asian gas first shipped out of the region through a route other than Russian pipelines. Sabonis-Helf argued that Central Asian gas producers have become increasingly strategic in terms of their use of gas exports to China for domestic development goals. Uzbekistan and Kazakhstan have both committed to being transit states in the Turkmenistan-China pipeline system, in return for Chinese assistance in developing their domestic gas infrastructure. The modernization of distribution networks in Central Asia, she concluded, should in turn have a significant environmental impact: it will reduce the emissions from the flaring of associated gas and allow electricity production to switch from coal to natural gas. Jan Kalicki returned to the subject of Russias gas industry, beginning with the observation that Gazprom is facing increasingly severe domestic, regional, and global pressures. Domestically, Rosneft and Novatek are beginning to challenge Gazproms de facto monopoly. In the region, Gazprom no longer controls the transit of all natural gas produced in the former USSR. In Europe, Gazproms 25% share of the gas market has come under increasing pressure from LNG imports and shale gas, while the rise of shale gas has effectively killed the companys plans to export to the North American market. In East Asia, Australia has become a major supplier of LNG, and many of the same obstacles that have obstructed Russian-Chinese energy cooperation over the past decade persist. It seems highly unlikely, meanwhile, that foreign investment terms and the competitiveness of the domestic Russian gas industry will improve significantly in the near future. Novatek, for instance, has been unable to break Gazproms export monopoly, though it is possible that Rosneft may succeed where Novatek has thus far failed. Kalicki noted in conclusion that these are grim days for Gazprom and for the Russian gas industry more broadly.

Panel Three: The Geopolitics of Eurasian Energy The third panel, chaired by Fiona Hill, focused on geopolitical issues related to the Eurasian energy sector. Erica Downs began the panel with an overview of recent Chinese-Russian energy agreements. A series of nonbinding agreements has set the stage for increased oil, coal, and natural gas sales between the two countries. The agreements are mutually beneficial, as Russia seeks to diversify its international energy portfolio and China hopes to bridge the gap between domestic energy supply and demand. While many past agreements have not resulted in significant trade, Downs believes that the most recent group of agreements stands a better chance of implementation given the role of Chinese capital. The China Development Bank may help break the pricing impasse by offering loans that can be repaid with natural gas exports. This is part of Chinas new approach to ending self-isolation by funding infrastructure projects in emerging economies. China hopes to create lasting connections with these economies through infrastructure projects, and seeks to avoid colonial criticism at the same time. Bobo Lo asked whether Russia was truly pivoting its foreign policy towards Asia. He argued that the pivot to Asia is more illusion than substance. Russias focus remains squarely on the U.S. and, according to Lo, Russia views China as a competitor for Western technology and trade. While Russia and China appear to be natural energy partners, Lo did not see the latest agreements breaking the cycle of disappointment that has plagued past energy pacts. China is Russias partner of last resort, and while Chinese capital may help to weaken Russian reluctance, China will never be Russias first choice. As for the geopolitical significance of the Sino-Russian relationship today, Lo named it as one of todays most overrated notions. While the two countries may work or stick together on areas of agreement, they differ substantially in their views on many strategic issues, including their attitudes towards the U.S. While the two will work together when convenient, they do not pose a strategic threat to the West because the Sino-Russian relationship is not strategic, but rather a cynical partnership of convenience. Roger Kangas concluded the panel with a discussion of Central Asia and the U.S.s dwindling presence in the region. Kangas began his talk by saying that we can no longer view the region as one uniform bloc deserving of a single policy, because each Central Asian state has adopted unique economic and foreign policies. These differences include each states relationship with China, the U.S., and Russia. The major challenges facing foreign investors in Central Asia, according to Kangas, are financing, poorly developed legal structures, environmental concerns, and security requirements. The U.S. is falling behind in the race due to security challenges. If the U.S. exits Afghanistan and austerity continues, Kangas believes, American chances in Central Asian will dwindle quickly. And while the U.S. has voiced interest in the region for the past twenty years, these obstacles may be too much for American investors, leaving Central Asian states with a choice between China and Russia.