A/S Fannon: Thank you, Alfonso, for your kind introduction. You made a point saying how the region looks to develop its natural resources to promote I think you said social and economic well-being. I absolutely concur, and that’s the way in which we approach our job within the State Department because the recognition is that energy is more than just BTUs or barrels, but energy is foundational to economic progress and providing for the development of countries. It’s a critical input.
And I think in this time, I mean we’re meeting virtually due to COVID. COVID has had a dramatic impact on all of us in so many ways but especially in the region. According to the IMF the forecasted pre-pandemic growth was going to be marginal. Very marginal growth. But now post-COVID projecting nearly 9 percent contraction in the region.
I just returned from a trip to Brazil, Ecuador, Chile just last week and I saw the effect that COVID is having on those countries. That’s why we believe it’s critically important that the energy sector writ large will be a driver for recovery, a driver for growth, and a meaningful one.
I’d at least like to acknowledge we’ve been engaged with certainly in the region, and you noted correctly the U.S. is the biggest partner in the region and we’re committed to that level of partnership. We in 2018 launched a program called America Crece which speaks to, it’s a whole of government initiative which seeks to have broader, deeper economic cooperation and through all the ways that one can look at that. But I lead the energy pillar of Crece. It seeks really to catalyze the private sector to invest, so we engage with the governments to help identify the opportunities that it sees, what are the plans the governments have for their own development and what is it that we can do and where can we tap into the U.S. private sector to invest in the countries?
We look at energy, again, writ large and it’s based on the path that each country has for itself. We were speaking very briefly prior to getting on about Chile, my time in Chile and how they just launched this very innovative, ambitious plan on hydrogen and so each country has a different approach based on its own plan and its own specific endowment, whether that’s natural resources or sun or what have you. But we work in partnership with these countries.
Seeing the crush that COVID has had on economies across the world but in the region in particular, it’s just underscored to me the importance of ensuring that recovery is built on foundational principles of transparency and competitive procurement, predictable, clear and stable regulatory investment frameworks that balance risk and return. We’ve seen the pain that’s caused by what effectively becomes predatory investment and this is a time when people are hungry, people need to advance their economies and it’s critically important that countries stand true to the historic principles of transparency and fairness and open procurement practices.
But right now we’re driving forward with Crece. We’ve as of today signed MOUs with 12 countries. I was recently with Secretary Pompeo in Colombia, in Guyana, for example, where of course Guyana has this new incredible discovery of oil. It’s potentially transformative for that country and the region in fact, so we partnered with Guyana under a Crece framework to provide the government with support on how to manage its oil spill response to ensure that it’s produced responsibly and with the highest environmental standards and also to strengthen the government’s capacity to manage this new revenue resource. Today they’re producing about 100,000 barrels but in a few years they’re projected to be up closer to 800,000 barrels per day, so this is going to massively transform their economy and the country has an opportunity to do things the right way.
Also in July I convened a bilateral conversation with Ecuador’s wonderful Energy Minister Ortiz. We had a great discussion focused on collaboration in the electricity sector, hydrocarbon sectors, how to attract private sector investment. And of course when I was just in Quito we advanced those dialogues to talk about renewables and they’re seeking to upgrade a refinery, catalyzing private sector investment.
My deputy recently participated in an IEA OLADE Ministerial Roundtable in early October which focused on how to implement a sustainable and resilient post-COVID economic recovery. So we continue to push, we’re not allowing COVID just like you’re not allowing COVID to stop this important conference, we’re not allowing COVID to stop or even slow down our engagements under Crece and some of our other bilateral frameworks.
We have MOUs with partner governments across the region and we’re, we start the MOU high level discussion and then we break that down into specifics. We have bilateral formal working groups with Panama, Jamaica, Brazil, Ecuador, Colombia where we bring in the entirety of the U.S. interagency to support countries and their objectives. We have in Panama looking to grid security and electricity, how we’ve worked in the broader Caribbean region, and we bring in other experts to support. I mentioned Ecuador already, what we’re doing there. In Central America we’re helping national and regional electricity regulators and grid operators optimize the regional power network, working through SIEPAC to improve reliability.
When I was just in South America, we’re working, we’re in dialogue with SINEA to develop a regional energy market which is something I see, it’s increasingly a global issue where countries they recognize that each country may have a different comparative advantage based on its own particular resource endowment. But together they can create a broader market where it will attract more investment, it will ensure high standards, and it will provide lower energy prices for their countries to the benefit of all citizens. So it’s an exciting time in this regard and we’re very much looking forward to advancing some of those issues.
We have been working in the region for a long time. We previously worked on engineering to form a proposed Chile-Peru Interconnect, and we continue to work in coordination with the IDB to help Colombia, Ecuador and Peru ensure reliability on the Ecuador-Peru Interconnect.
So there’s so much going on, and whether it’s in electricity or we go over to the oil and gas sector where if a country like Argentina, they wanted to develop an off-shore bid round and they hadn’t done so in many years, so we went in and helped them to develop both the new tender process as well as support on oil spill response.
The result was that the Argentine government was able to attract interest from 13 companies, a total of 995 million dollars, and a U.S. company actually won a couple of the blocks. So we helped them develop where they want to go and then track the best kind of investors at scale.
Also in terms of the context of mining as well, it’s an increasingly important area, especially as we talk about energy transition. It increases the need for responsible mining. So we have considerable work through that framework as well, which are complements to Crece.
Why don’t I pause there. I’m looking forward to the questions. I could go on for a very long time, but Alfonso, thank you for the kind invitation and I look forward to continuing this dialogue.
Moderator: Thank you very much Mr. Fannon
I would like to ask you some additional questions because I know that the officials from our member countries are very interested in some of the aspects that you have mentioned.
Thank you for your remarks. I understand that, under your leadership, your Bureau created an initiative that deals with good practices and governance in the mining of energy materials that are used in renewable energy, electric vehicles, energy storage facilities and mobile phones, among other products. Could you please tell us more about the link between the initiatives and these critical resources that are very important in the development of the future energy market.
A/S Fannon: Thank you for the question.
The pandemic, and we know and certainly your audience and you do saw the economic impact COVID has had on investment. I believe the IEA found that globally oil and gas investment post-COVID is down 30 percent globally. By contrast, renewables have increased investment year on year some six or eight percent. So even in the face of this incredible once in a 100 year kind of demand shock that we find ourselves in the pandemic, renewable investment is increasing. Which is positive for sure.
But the question we have to wrestle with is what are the inputs into renewables? And the World Bank, the International Renewable Energy Agency, the IEA have all started to really look into this question which is to achieve various clean energy or climate objectives, what does that mean for renewable deployment at scale? And by implication, what is the impact on the minerals that allow for those renewables? And the World Bank did a report in 2017, they recently updated it some months ago, and they concluded that to achieve these targets the mineral demand growth will have to for certain minerals, clean energy minerals, will increase over 500 percent in the next decade.
Now that’s an exponential demand increase. Certain minerals are what they call cross-cutting like Lithium, Graphite, Nickel, they’re parochial to electric vehicle batteries. But Copper is something that is foundational to electrification more broadly. And what we see is, we’ll have for the next 20-30 years another couple of billion people living on the planet. We see a semi-middle classes all around the world. This means that the calls for, in my view, clean energy will only increase, not decrease, because it’s a bottoms-up phenomenon. People demand cleaner forms of energy.
When you start this cross-cutting, the World Bank looked into this question because of the cross-cutting nature of Copper. In the last 5,000 years humans have produced 550 million tons of Copper. In the next 25 years we’ll have to produce that again. Just the scale of what we’re talking about is exponential.
So the question I was really wrestling with here is where are these minerals? Where are they on the planet? How are they being produced? And as we see environment, social governance, activism and certain other things, it’s critically important that they’re produced in the most responsible way so that the energy transition conversation is really built on inclusivity and everyone benefits. But that’s not what’s happening.
We see some negative media reports.
I think the current system is manageable but if we see the exponential growth in the near-term and mid-term the current system can’t handle that so we have to think about how do we ensure that we have this inclusive growth, that minerals are produced in a responsible way so it ensures that the world gets the minerals it needs and that the countries from which minerals are developed get the full benefit.
So what we did, the United States is very proud of our own record of mineral development but we know we’re not the only one. We came together and we partnered with four other countries — Australia, Canada, Botswana and Peru — countries with very long histories of responsible minerals development, and we posed the question are there commonalities, even though we’re very diverse countries, diverse geographies, cultures, regulatory environments. Are there certain elements that we all share and that we can then share with the rest of the world?
So we formed the Energy Resources Governance Initiative, or ERGI, to identify global best practice from a government to government point of view and to help countries develop their resources sector, improve their resources sector so that they are part of this inclusive growth and in my mind that the market describes a premium for those commodities coming out of those countries.
So we launched ERGI and we developed an on-line toolkit, ERGI.tools. It’s open access. It’s free to anyone. And it provides specifics on how a country can develop its own resources sector from development of a geologic survey all the way through stewardship through mine life and provide an actionable toolkit.
So we have the organization which is this convening organization for governments to talk with each other. Recently we actually convened 20 countries to discuss responsible minerals development for clean energy. But we have a toolkit.
Secondly, information is helpful but other countries are coming along to invest in helping countries to implement the toolkit. Information without implementation is just fine, but we need to help move things forward. So if a country wants assistance to implement the toolkit we’ll help them do so. In this year along we’ve spent over $10 million to help countries implement the ERGI toolkit.
Thirdly, everywhere I go around the world countries want more U.S. investment and Crece, as I mentioned, is also seeking to catalyze the private sector because you need private sector to really move the needle here Private sector capital is critically important.
So what we’ve done is we’ve integrated ERGI’s principles into U.S. Development Finance Corporation which is a $60 billion institution which can then commit capital in partnership to catalyze private sector investment.
So what they’ve done is adopted ERGI’s principles as a priority or a preference in terms of their capital criteria and where they’re going to invest.
So we’ve got the convening of the organization, we’ve got the tool kit and information, we’ve got implementation, technical assistance to implement the tool kit. And thirdly, which is the big solution, private sector capital being catalyzed by the DFC.
We need to ensure that this supply chain is done in a responsible way. I know the International Energy Agency, an organization which was founded to ensure energy resilience, particularly in the oil market because of the concentration of certain producers of oil, they concluded recently that the concentration of some of these minerals from the mine site but also in the processing is far more concentrated than oil.
So we see these bottlenecks that are existing and to meet this exponential growth it’s critically important that we develop a new resilient, responsible mineral supply chain for the future.
But it’s not too late. We have time to do it. Together we can do that. We can build that supply chain, one that’s inclusive for all that that drives our boats.
Why don’t I pause there?
I’m clearly passionate about this issue. I believe in it. I’ve been very pleased with the level of adoption and how this issue is now being taken up by important fora all around the world and we’re increasingly engaged on this and Latin America has a critical role to play given its resource endowment as well as its drive to develop their economies responsibly.
Moderator: Thank you, Mr. Fannon. This topic is very, very interesting and if we want to develop the energy transition there are of modifications in the supply chain that need to change.
You recently visited a number of countries in Latin America. Could you please tell us more about the trip’s objectives and achievements?
A/S Fannon: I was recently also, I was just in Chile, Brazil and Ecuador. Prior to that I was with Secretary Pompeo to Suriname, Colombia and Guyana. I mentioned the Guyana portion. Also in Colombia we helped launch Crece cooperation on developing their Copper to effect the energy transition we just talked about.
We worked on my most recent trip, looking to [inaudible] interconnections to create this regional market. In Brazil, met with government officials on creating tenders for natural gas, to help their natural gas market. In terms of mining, we signed an MOU and established a U.S.-Brazil Critical Minerals Work Group which is very complementary to the same work we’re doing under ERGI to help do more in Brazil. And I met with the private sector throughout. In Ecuador met with Minister Ortiz and the whole team to talk about a variety of issues — wind, solar, natural gas, transmission system and mining as well.
In Chile, I mentioned Chile with respect to their very ambitious hydrogen plans. I also met and I’m very pleased to see that U.S. companies are having a significant role in these countries. AES is making, a Virginia based power producer, is making huge investments there. In fact AES became the largest power producer in the country in less than 20 years. They’re also in Brazil and they’re expanding there. Lithium production, a U.S. company called Albemarle is looking to expand in Chile. Alcoa. We’ve got a lot of U.S. private sector investment. And by partnering with the United States, under Crece, under ERGI, we’re ensuring that these countries are recognized for responsible, they’re responsible producers, they’re responsible targets for investment, and we want to bring more U.S. countries to the region.
I was a very, very good trip. COVID’s not going to slow us down.
Moderator: Thank you, very much, Mr. Fannon from the United States Department of State for joining us in this face to face and very nice dialogue.
It has been a pleasure and I’ll leave the space to my colleagues for the second panel. Thank you very much, Mr. Fannon.
A/S Fannon: Muchas gracias Alfonso. Fue un placer.