The Oil and Glory Interview: U.S. Eurasian Energy Czar Richard Morningstar

Posted by: Steve LeVine on July 16

Richard Morningstar talks much about déjà vu. In the late 1990s, then-President Clinton appointed him as Washington’s first special envoy for the Caspian Sea. Against strong headwinds, he attempted to persuade, cajole and muscle Big Oil into building the Baku-Ceyhan pipeline. A hostile BP, Exxon and other companies declared that they would love to build the line, but that there simply wasn’t enough oil. Russia said it might fire on any installations built in the sea. Time and new turmoil within the oil industry changed BP’s attitude, and the geostrategic pipeline became a fact in 2006. Today, after a decade teaching law at Harvard and Stanford, Morningstar is back in the same job. The task? To persuade not just companies, but also several countries to build yet another pipeline – a much-troubled natural gas line called Nabucco. He just attended a signing ceremony among five of the proposed transit countries in Ankara. O&G caught up with Morningstar by cellphone as he passed through the Frankfurt Airport on the way back to Washington.

O&G: Nabucco supporters argue that the pipeline is necessary because Russia uses or will use its dominance of the natural gas supply in Europe for political leverage. Is the argument valid?

Morningstar: That gets into why Russia does what it does. Does Russia play commercial hardball to get the best deal it can, or as a political weapon? I think that Russia does want to maximize its commercial benefit. The result is that sometimes it has political implications. The benefit of Nabucco is that it does provide diversity of gas supply to Europe. It does develop the Caucasus and Central Asia. Though Nabucco won’t cure Europe’s energy security, it will provide a natural gas source, especially for countries that were cut off during the disputes between Russia and Ukraine.

Q: Some people including me thought that, had events turned out differently in Iran, it might have become the needed source of natural gas for Nabucco. Are the post-election events in Iran a setback for Nabucco?

A: It had not been anticipated that Iran gas would be part of Nabucco. Our policy has been clear – we don’t think that Iran should participate in Nabucco now. We’ve reached out, but it takes two to go to the prom. I don’t know what impact events of the last few weeks in Iran will have. If we can resolve our nuclear issues, we might be able to resume normalized relations.

Q: There is as yet insufficient natural gas to support Nabucco. Are the Europeans getting the cart before the horse in terms of emphasizing the pipeline before having the gas?

A: This reminds me of the talk in 1998 and 1999. At that time, the talk was that there wasn’t enough oil for Baku-Ceyhan. Sure enough, BTC is up and going. The supply issue needs to be dealt with, but this agreement [in Ankara] will help push those issues.

Q: But BTC started off with a supply of oil in Baku. Nabucco starts off with none.

A: But there was also a lot of concern in the early years that there wouldn’t be enough oil out of the western Caspian. That “you are on a fool’s errand.” We stuck to policy, and it ended up working out. The Ankara ceremony is similar to those early days.

Q: Is Nabucco getting away from its original reason for existence, which was to provide Turkmenistan and the rest of Central Asia with a non-Russian transportation corridor?

A: If Iraqi gas can be part of the project, that would be great. Azeri gas will be absolutely critical to this project. Turkmen gas will also be important. It may come after Azeri gas.

Q: You speak as though you are confident that Turkmen gas will supply Nabucco.

A: There are going to have to be steps. I was in Ashgabad on Friday, and the president stated strongly and publicly that Turkmenistan wants to contribute gas to Nabucco.

Q: Is Nabucco more of a European issue than a U.S. issue?

A: It’s clearly a European issue. I think we have significant interests as well. They are, one, increasing overall production; two, creating diversity in the European supply and enhancing energy security. We want to see a strong Europe. And three, helping the development of the Caucasus and Central Asia.

Q: What about shale gas, which has been discovered in Europe. Isn’t that something that can help to substitute for gas from a Nabucco line?

A: The Europeans think that shale gas will be much more successful in the U.S. than in Europe.

Q: And LNG from Qatar and elsewhere? Can’t that serve Europe?

A: LNG will be part of it. We are strongly supporting the southern corridor. But it is still only one part of a puzzle. Alternative technology and LNG will both be part of the puzzle. Also the natural gas interconnections between the countries. It may be possible to get the pipeline sanctioned on the basis of Azeri gas.

Q: You are saying that the pipeline is financeable just on the basis of gas from Azerbaijan?

A: The companies and governments say the project is financeable. They are confident they will have enough gas. I am not in a position to say that the pipeline is financeable just on Azeri gas. The European Union has some money – 5% -- and the EBRD is also willing to get involved.

Q: What do you think about the addition of Joschka Fisher, the former German foreign minister, to the Nabucco team?

A: He’s a tremendously dynamic person. He’ll add a lot of vigor to Nabucco. It’s fascinating given the role that [former German Chancellor and Nord Stream Chairman Gerhard] Schroeder is playing. He has a tremendous reputation and lots of influence in Europe. He can help to unify Europe’s position.