Owen Rolt, Head of Energy Transition, Reuters Events: I now have the pleasure of being joined by Assistant Secretary Francis Fannon for the Bureau of Energy Resources at the U.S. Department of State. Assistant Secretary Fannon oversees U.S. foreign policy in the critical intersection between energy and national security, and promotes U.S. interests to ensure energy resources are used to increase economic opportunity, stability and prosperity around the world. Assistant Secretary Fannon advises the Secretary of State on strategies to promote universal access to affordable and reliable energy resources, and to strengthen energy security through policies that advance diverse, transparent and secure global markets for all energy types.
Assistant Secretary, thank you for joining us today.
Assistant Secretary Frank Fannon: Thank you, I’m delighted to be with you.
Rolt: Let’s jump straight into it. As we know, the world is not only contending with COVID at the moment, but as we’ve been discussing today, also with energy transformations across different sectors. The EU, in particular, recently announced its European Green Deal and also must contend with greater diversification of energy supplies. So within this context, I’d be interested to know how you’re engaging with your European allies and partners?
Assistant Secretary Fannon: Yeah, thank you. It is a critical question. We do find ourselves in a strange moment of a variety of pressures that are accelerating trends that predated COVID. COVID, has affected the global economy, of course, but also in terms of energy investment, energy choice and selection. And what we found globally is investment in oil and gas and traditional fossil based energy, it has dropped some 30%. By contrast, renewables has increased year on year about 6% globally. This demonstrates that even in the face of economic uncertainty, that the march toward renewables and having cleaner forms of energy is sustaining. From my perspective, I see the calls for this energy transformation really is reflective of a bottoms up call based on societies around the world. I have a global remit, as you know, and I see it everywhere I go. It is this call by global publics to demand cleaner environments and cleaner forms of energy. So it’s there.
With respect to Europe, it was already in the midst of this transformation, but it’s continuing onward. But of course, Europe is not monolithic. It has a variety of different approaches based on preferences of respective populations. But we engage through multiple fora both bilaterally and multilaterally. And with countries all around the world. You mentioned the EU in particular with the Green Deal. Now more than about 30% or close to a third of the COVID stimulus for Europe is a part of the Green Deal by other means to again, accelerate the trend that predated COVID to help restructure the way in which you get energy.
I think it’s critically important to advance the ongoing bilateral and long standing relationship with respect to the United States and Europe for energy diversification. Because with diversification, one gets greater energy resilience and greater energy security. I have spent a considerable amount of time most recently in travels to Greece with the Secretary of State and then I went on to the Balkans. And what we see is this grouping of pressures, both in terms of the energy transition and desire for incorporation of cleaner forms of energy. Some of that is relative to government policy and to be compliant with EU rules. But also, as I said, it’s part of each state one and do that. And then the other part is to have a more resilient energy system and no longer be reliant on the historic incumbent provider, particularly in Eastern Europe, which is Russia.
Increasingly, you see a variety of pressures that are coming together that are encouraging this broader energy diversification. Indeed, much of that is going toward to be cleaner. What we also see is globally whenever renewables are deployed at scale, traditionally natural gas is a foundation of that. And we see U.S. LNG is an important contributor to that, but so is a gas coming from the Caucasus. We now see the Southern Gas Corridor fully commissioned and gas is flowing, which was a multi-decade effort of Europe and also supported by the United States. We also see new diversification for gas where countries have identified the need to increase their options to import gas. And we see that in Lithuania or with Croatia with the commissioning of Krk Island’s gas import. And then when I mentioned with the Secretary, Greece in terms of Southern Europe has really turning into become the gateway toward a broader energy market. And when I’ve continued to travel to Bulgaria and North Macedonia, what we see is this real regionalization of energy systems in a way that I think all of these factors that I mentioned are influencing the formation of. Which I think is really dynamic and an opportunity for considerable investment. Some of these Balkan countries may be relatively modest demand centers, that may not trigger scaled investment. But by creating a regional market, these become scale and really interesting investment opportunities. And the other element is some of the work we do by harnessing the U.S. private sector to bring them in and to have them be an implementer to achieve the ambition of countries going forward.
So it’s a dynamic situation. I think it has considerable upside. I think that the calls for energy transformation, whether they’re reflected with the bottom up or more in terms of government policy coming down, it’s happening and it’s enduring. And the U.S., both in terms of gas technology, and the private sector, continues to want to be the partner of choice for Europe.
Rolt: Okay, that’s really interesting, and it’ll be interesting to see how that continues to develop. You touched on that LNG piece, though I do want to come back to that. But another area I know, that you’re very focused on at the moment is protecting critical minerals and their global supply chains. Of course, President Trump recently issued an Executive Order on the importance of U.S. policy towards critical minerals, which calls to action really the entire U.S. government. So we’d be interested to know within that kind of context, how you and the bureau are using diplomacy to protect critical minerals, and global supply chains from risk?
Assistant Secretary Fannon: Yeah, thank you for the question. And the global supply chain issue that the President issued multiple Executive Orders on this subject. A lot of those are to better understand the U.S. dependency of some of these critical minerals that go into a variety of applications, including defense-related applications. This has demonstrated that the U.S. has significant vulnerabilities and we’re not alone. Europe has recently issued their own critical minerals inquiries, as well as Canada, Australia, Japan. So this is this is a recognition more broadly.
What I’ve looked at is in the context of clean energy transformation. And if one looks at just the numbers, the scale of demand for critical minerals to achieve these various levels of ambition for clean energy deployment to meet climate goals and to just tap cleaner environments; the scale of this growth will be exponential in terms of the minerals. The World Bank, for example, has looked into this question. They initially looked at it in the terms of to achieve the Paris Climate Accords. What would that mean for clean energy deployment globally, and by implication the minerals that feed into that. And they have some pretty remarkable numbers of more than a 500% increase in demand for minerals that go into battery technologies. And of course, battery technology is really the key to addressing large scale, non-carbon emitting power going forward.
And so when you have this 500% or more increase for these minerals, we have to be cognizant of where they come from and what are the implications for both their extraction, production, but also their processing. And we have to be mindful of that because as we call for clean energy transformation, which really is a call to make a better society, a better environment, we want to make sure that that everyone is brought along on that journey. And to that end, we know and the media has reported on some pretty horrific conditions in certain countries with respect to human rights, environmental harm and disempowerment of the local community. So our concern is that as this growth continues, it will increase the spotlight on the supply chain. And we want to make sure that that supply chain is done to advance the better part of ourselves.
So what we did is look at specifically the clean energy minerals. The U.S. proud of its record on responsible development, but we know we’re not alone. And so we partnered with other countries: Canada, Australia, Botswana and Peru to found an organization called the Energy Resource Governance Initiative (ERG), which is a new entity and a government-to-government exchange to understand what is global best practices in multiple areas of resource development. And give a practical toolkit, which is open to the public at . And we can see how can they develop a best in class sector that allows for the empowerment of their society.
So we’re really pleased with the development of ERGI. Just a few weeks ago, I convened 20 countries to talk about this. The world is becoming more aware of the need to have responsible supply chain. So we have the toolkit and we also are backing up that toolkit to help countries implement these best practices. Just this last year alone, the United States has spent over $10 million helping governments implement the toolkit. And then thirdly, we’re catalyzing private sector investment by integrating the ERGI principles into our Development Finance Corporation. We are also talking to the private sector, who are desperately concerned about market concentration of some of these minerals and processing. If 70% of all of one commodity comes from one location that effectively represents a chokepoint. And if you have an exponential growth in demand, you’re trying to squeeze more through an existing chokepoint, which will bring volatility. So we’ve been talking to a variety of corporations, leading companies in the clean energy transition space, who are really concerned and are increasingly calling for the development of a new, more resilient supply chain. So this is an issue that we’re really pleased and quite passionate about. And I think, given this international attention, it will be sustaining over the longer term.
Rolt: Thanks for sharing that with us. That’s , if folks want to find out more about that. So we’ve touched on Europe and obviously, globally as well, given the role you do. And when we look at the Indo-Pacific region, specifically in the dynamic opportunities for energy cooperation on LNG, but also on renewables as well. Obviously, there continues to be opportunity, but there continues to be challenges there with China’s activities programs, like Belt & Road. I’d be interested to know more, as I’m sure our audience would be around kind of what the State Department is doing in the Indo-Pacific region with regard to the energy space and what opportunities have you seen when traveling in the region and engaging with government and private sector counterparts alike?
Assistant Secretary Fannon: Yeah, thanks. Indo-Pacific in terms of energy growth is where the action is. It is it is responsible for 60% of global energy demand growth through 2040. The scale of investments required to achieve just base society needs is in the trillions. So it’s a huge challenge and huge opportunity.
You mentioned China. The U.S. works in partnership with countries based on their own self-determined path. Where do they want to go and is there something that United States, and working with some partners, can do to support those countries to achieve their ambition, whatever that ambition may be. Some of these growing countries like Vietnam, as for example, I think they’re still projected to grow 8 or 9% year on year, which requires about 11 to 12% energy demand growth to meet the economic growth more broadly. It’s tremendous. And we are desperately concerned, and I know other governments are too, about China’s behavior in places like the South China Sea, where they sought to restrict countries who really need this energy, to restrict their ability through coercion, and effectively bullying to not develop their own indigenous resources.
We looked into this question a few years ago, and we looked up the claimant waters, what are the oil and gas resources in the claimant waters in the region. It is valued at $2.5 trillion that China seeks to deny countries the ability to develop for their own to power their own economies. So the Secretary of State has been very forward leaning on speaking in solidarity to countries in the region in support of their own sovereignty. So we’re really concerned about that kind of predatory behaviour.
What we do is work in the region more broadly to help them achieve their ambition. A few years ago, Secretary launched our Indo-Pacific Economic Strategy. I lead the energy pillar of that. The strategy more broadly looks digital infrastructure for energy and I lead the energy component. It’s called Asia Edge or Enhancing Development and Growth through Energy. It’s a big effort, a whole-of-government effort. We now have 10 federal government agencies involved. And it’s really how we apply that as bespoke based on the needs of each country.
So Vietnam or the Philippines I said how much they need energy. They like to have cleaner forms of energy, like the import gas, but you don’t just flip a switch and have tankers show up and be able to incorporate into your system. So we work with regulators to help them to define and understand how to integrate gas into their grids, how to optimize its distribution, and also incorporate renewables. And so it’s been quite successful.
In other areas in India, the Modi administration has very ambitious renewable targets. And they’ve done okay on capacity, but they could do much better on utilization of renewables. What we did is in trying to understand working with them, why are they not achieving their level of ambition at the time horizon that they’d like to? And so we put together a program to help them look into this. We brought over some other federal agencies looking at this question. We have four federal agencies and four on the Indian side. And we’re releasing that through something called the Flexible Resources Initiative to help them also to incorporate gas as an enabler for wider scale deployment of renewables. It’s a really positive program and I think it’s going to be transformative, and also a model for other countries throughout the region.
Asia Edge, as I indicated, governments can help develop the enabling environment; the regulatory construct to provide their reforms, but it’s really the private sector that actually executes. And so we partnered with more than 250 American private firms, hailing from 39 U.S. states, to help make sure they’re aware of these opportunities in the Indo-Pacific and facilitate deal flow as it were. So we’re really pleased with the pace of the project.
I’d also like to just mention we’re not just doing this alone. We also have Japan as a key partner in this and we have a bilateral program with Japan, who’s committed about $10 billion dollars in the Indo-Pacific, or the Asia Edge programming. And we’re also looking at, I mentioned in the Balkans in Southern Europe, the regionalization of energy markets. We see that taking place as well in the Lower Mekong. We have a program called the Japan U.S. Mekong Power Partnership (JUMP) to help develop a regional market to improve the resilience and allow countries to benefit from the region’s own comparative advantages. We’re really pleased to see the progress there as well, which will bring more resilient, more reliable and lower cost power for the citizens there.
Rolt: Assistant Secretary Francis Fannon, thank you for your time and thanks for joining us today.
Assistant Secretary Fannon: Thank you. It’s been a delight