Teleconference with Francis Fannon, Assistant Secretary, Bureau of Energy Resources
Moderator: Thank you. Good day, everyone, from the U.S. Department of State’s Asia-Pacific Media Hub in Manila. I’m Zia Syed, the Hub Director, and I’d like to welcome our participants dialing in for this briefing.
Today, we are pleased to be joined from Washington, DC, Frank Fannon, Assistant Secretary, Bureau of Energy Resources at the U.S. Department of State. We will begin today’s call with opening remarks from Assistant Secretary Fannon, and we’ll try to get to as many questions as we can during the time that we have, which is approximately 30 minutes.
Finally, as a reminder, today’s call is on the record. And with that, I will turn it over to Assistant Secretary Fannon. Please go ahead.
Assistant Secretary Fannon: Yes, thank you so much for that. Good morning, everyone. It’s a real pleasure to speak with all of you today; it’s in our nighttime, of course. I’ve had many trips to the Indo-Pacific region throughout my career, both in the private sector, as well, certainly, in the current role as America’s energy diplomat. And I very much look forward to not doing this virtually, but doing this in person with all of you.
I thought it would be a great time to speak with our colleagues following the East Asia Summit energy ministers’ meeting, which took place on the 20th of November, as well as our most recent Japan-U.S. Strategic Energy Partnership, or JUSEP, meeting held earlier this week. I also wanted to update you on our Asia EDGE, or Enhancing Development and Growth through Energy initiative, and some of the ongoing technical assistance that we have in the region.
The Indo-Pacific is a critical area for energy sector development, and that’s for good reason. We currently forecast that energy demand in this area will grow more than 60 percent and require trillions of dollars of new investment by 2040. So, 60 percent of the globe’s energy demand is going to take place in your region of the world. By contrast, other parts of the world, like Europe, are going to see marginal decline in some of that energy demand. So, the focus is on the Indo-Pacific.
Meeting that energy demand, prompted by the region’s projected long-term economic growth, will require significant investment in sectors such as gas-related infrastructure, the production and deployment of renewables, as well as oil, the production of indigenous oil and gas resources.
Let me say at the outset that one key aspect of the United States’ work in the region is one built on partnership, and that’s also with likeminded countries that advance a shared vision of a free and prosperous Indo-Pacific region. For example, I mentioned the U.S.-Japan Energy Partnership, the Japan-U.S. Strategic Energy Partnership, or JUSEP. And this most recent event was actually a trilateral discussion, and the host of our JUSEP discussion was Vietnam.
JUSEP was launched to help provide market-based, secure, reliable, and affordable energy solutions to our friends in the Indo-Pacific region. And it made all the sense to combine our efforts between the United States and Japan because the U.S. has a variety of programs in the region, and so does Japan. And Japan, of course, is the largest buyer of gas, and the United States is one of the biggest producers in the world, the third biggest exporter of gas in the world, and U.S. gas has really re-shaped the global gas market. It has created a degree of liquidity in the gas market, and with transparency and the non-destination clauses create greater optionality for customers throughout the Indo-Pacific. And these aren’t my words — I’m paraphrasing my Japanese colleagues from the JUSEP meeting. So, it makes all the sense in the world that we, Japan and the United States, partner in this.
At this week’s meeting, we discussed the importance of LNG as a flexible energy platform for Vietnam that will enable it in its transition from more dirty fuels to cleaner fuels in order to meet their significant energy demand surge. According to my friend Vice Minister An, he spoke very forcefully about the growth of Vietnam and how it’s going to see double-digit energy demand growth in the near and mid-term. And, he also underscored the government’s commitment that that growth be met with clean forms of energy such as natural gas, as well as looking to integrate renewable systems.
So, as newer and more efficient fuel sources of energy technology are utilized by Vietnam, the United States and Japan will increasingly provide policy support, commercial solutions, and really seek to mobilize private sector investment.
The United States is also working on many of these issues with multilateral organizations. For example, with ASEAN, I recently participated in the East Asia Summit (EAS) energy ministers’ meeting, on November 20. During this discussion, I met virtually with our EAS partners and underscored the U.S. support for improving the energy security of nations in the Indo-Pacific. The ministerial spoke to the vital role of regional cooperation and collaboration to meet the energy challenges of the future, and in the actual statement, we underscored an “all energy sources and technologies” approach. This includes the role, the continued role and growing role, of natural gas.
During the meeting, I underscored the United States remains committed to supporting nations’ rights to develop their own energy resources. I was pleased to see that occur through the success of this year’s Indo-Pacific Business Forum, where several critical energy-focused commercial ventures and agreements came to fruition. These projects will help ensure an energy-secure future for countries in the region.
These engagements are part of our wider work through the State Department-led whole-of-government initiative that I mentioned: Asia EDGE. Secretary Pompeo launched Asia EDGE just over two years ago, and since then, the United States has dedicated more than $140 million in technical assistance to support energy security, diversification, access, and trade across the Indo-Pacific region. And we have continued this important work throughout the COVID pandemic.
Countries have diverse goals for achieving a better energy future, as they see fit, but they include three key elements. First, a desire to incorporate cleaner energy at scale. Second, a transparent and efficient market. And third, at the core of all of this, is the need for energy security.
Many countries’ citizens are demanding ever cleaner energy and governments are looking to LNG as one policy response. But to integrate LNG into developing gas markets can be challenging. As countries in the region step up to meet these challenges and to establish new regulatory frameworks and transparent markets, they know that they’re not alone. The United States is working in partnership with many of them to lay the foundations for the cleaner energy future that their government wants to see.
Through Asia EDGE, we have multiple technical cooperation agreements throughout the region to facilitate LNG imports. For example, in Vietnam, we worked to help support the government so that the country can holistically plan and prepare for LNG imports. They may want to have LNG incorporated, but you don’t one day just wake up and flip a switch and have tankers and have it integrated. It requires an entire new capacity. And so, we are working to do just that.
In the Philippines, we launched an LNG Investors Guidebook to help the Philippines do that. We’re also continuing to support gas market development in the Philippines.
We believe that countries can gain greater economic benefits and economies of scale by working in partnership with their neighbors. Asia EDGE works across the region to help countries develop transparent regional energy markets, and we do this in South Asia as well – Bangladesh, Sri Lanka, and Nepal have developed a regional energy market. I mentioned our work in ASEAN. We’re working in partnership with Japan to look to develop a regional energy market in the Lower Mekong countries.
We see this this regional cooperation as a centerpiece of the work. Doing this kind of thing leads to innovation, transparency, environmental and health and safety standards for all. And unlike some countries, U.S. companies make their own decisions, free of government direction. When a country partners with a U.S. firm, they’re doing so because it makes good commercial sense for both parties, and U.S. companies, importantly, respect the sovereignty of their host countries. As such, U.S. firms are the partner of choice.
So, we continue to also recognize countries’ sovereignty — the U.S. Government does — particularly the right of South China Sea nations to develop the estimated $2.5 trillion worth of oil and gas reserves in their own waters. Secretary Pompeo has reinforced this message multiple times and made clear our opposition to those who use coercion and push unlawful maritime claims and bully others.
I know I’ve gone on here a little bit, but I think this is important, especially in the COVID era. Despite these challenges, the United States stands ready to support the energy security aspirations of our friends across the region, focusing on an “all sources all technologies” approach. We have seen the energy sector adapt quickly, and this has only reinforced my confidence that our work together can, and will, address the energy needs of the region, and thereby enhance our collective security. Thank you. I look forward to your questions.
Moderator: Thank you very much. We will now begin the question and answer portion of today’s call.
Assistant Secretary, while we wait for journalists to ask questions in the queue, let me ask one question that I was curious about. I know that you’re an expert on critical energy and minerals governance, and I was wondering if you could tell us a little bit about what has been accomplished in this area of energy diplomacy with the Energy Resource Governance Initiative, the ERGI, and how does ERGI apply to Asia?
Assistant Secretary Fannon: It’s a great question, thank you for it. So, one of the things that we assessed is, first, we see a bottoms-up call for cleaner forms of energy. I just used that example of Vietnam, for example. Everyone wants cleaner environments and cleaner forms of energy. But, the question we posed is, well, how do you get battery technology? How do you get these renewables? Where do they come from? And they come from minerals, and there’s a lot more minerals, and as demand for clean energy increases, the demand for the minerals that allow them will increase more than 500 percent.
So, that opens up whole new frontiers for mineral development and processing. And the United States has a long [inaudible] record of responsible minerals development, but we are not the only ones. We’ve partnered with other countries like Australia, Canada, Botswana, and Peru, spanning four continents – five countries spanning four continents to develop a toolkit to help other countries develop best practices so that they are regarded as, and they’re preferred as, a source of supply for clean energy technology companies.
And we’re very pleased with the development of ERGI, and we launched a toolkit – you can go to it, it’s free – at “ergi.tools”. And it’s intended to be an actionable toolkit countries can take to manage their resource and develop an industry for the long term. And also, the United States has – in the last year, we’ve spent $10.5 million in countries to help them to implement the toolkit. And lastly, we’ve integrated ERGI principles into our Development Finance Corporation, DFC, so that it can recognize and prioritize lending and spending in countries that integrate these principles.
So, what we’re seeking to do is create a more responsible supply chain of these critical minerals to achieve the clean energy ambitions. But what we’re seeking to do is avoid the current – we currently have choke points in the system. If 90 percent of minerals are processed in one country or 60 percent of one mineral that’s critical for batteries comes out of one country, that represents a meaningful choke point in the supply chain. It may be working today but it’s not going to work tomorrow when demand increases 500 to 1,000 percent. That leads to price volatility and corporations, the clean energy technology providers, will want to see that alternative supply chain. Our work is seeking to help foster just that.
In the Indo-Pacific region, many of the countries are rich in these minerals and they’re also key locations for minerals processing. And so, we welcome the partnership with the countries in the region. Thank you.
Moderator: Thank you very much. If we could go to Angelica Yang from BusinessWorld in Manila, Philippines. Angelica, please go ahead.
Question: Yes, all right. Good morning from Manila. I have a question for Mr. Fannon. What do you think about the Philippines Department of Energy’s recent ban on new coal projects? Will this reduce our coal capacity in the long run?
Assistant Secretary Fannon: Yes, thank you for the question. I don’t have a specific comment on the policy directive of the Government of the Philippines with respect to banning new coal. The way we work is we work in partnership with countries based on their own self-determined path. We are not descriptive as to whether that is necessarily a good path or a bad path. What we seek to do is help them to achieve their ambition. And increasingly, as I said in my opening comments, countries are turning to gas to transition away from dirtier forms of energy, and the U.S. stands ready to help them to do that.
In the Philippines — we have actually spent a considerable amount of time in the Philippines. I noted Vietnam – but, between Vietnam and the Philippines together, those are probably some of our two greatest areas for gas, development of that market. And we facilitated between those two countries nearly $3 billion of U.S. investment in those countries.
So, we’re excited about continuing the partnership and we think we have a strong foundation for continued collaboration with the Government of the Philippines. Thank you.
Moderator: Thank you. Let me ask you another question. You’ve talked about a lot of the countries in the region, but I wanted to know a little more about how has your partnership with Australia been important for the overall partnerships that you’re growing with Asian countries.
Assistant Secretary Fannon: Australia is a key partner in so many ways. We actually have – I mentioned Asia EDGE and I also mentioned JUSEP. We have multiple, bilateral work that we have ongoing with countries, and Australia is one of those. We have a deep relationship with Australia in so many ways. One of those I mentioned, ERGI. Australia is a founding member of ERGI and has a rich history of responsible minerals development and also has integrated more and more renewables and is becoming a leader in that regard as well.
We led the first annual Energy Security Dialogue – I was proud to do that and signed a memorandum of understanding to form a strategic partnership in the Indo-Pacific in 2018 with Australia. In the context of that MOU is again, fostering a common theme, which is to advance open, efficient, and transparent energy markets in the region. I am pleased to also note that we are about to host our third Energy Security Dialogue very soon, on December 10. Unfortunately, we will do it virtually. But we’re going to continue to explore new ways to collaborate with our Australian partners in energy security. Thanks.
Moderator: Thank you very much. Next if we could go to Danh Le from Zing News in Vietnam. Danh, please go ahead.
Question: Thank you. Good morning. My name is Danh, and I’m calling from Vietnam’s Zing News. I have two questions. First, can you talk more about Vietnam’s role – the Vietnamese role in the U.S. energy policy in the region and in [inaudible]? Can you tell me specifically how the U.S. protects companies which cooperate with the South China Sea nations, when they operate in the region amid challenges from China? Thank you.
Assistant Secretary Fannon: Thank you. Well, Vietnam’s role. We see Vietnam as having a leading role in the region in a lot of ways. One, by virtue of geography. It’s situated in a strategic location to have a meaningful role as an energy corridor, or energy hub, and is building out its LNG import capacity, as is looking to integrate new forms of renewable power, which could then be sent throughout to other regional countries.
I mentioned we have a program focused on developing a regional energy market under the auspices of the Lower Mekong power partnership, and I think that is an extremely interesting and powerful signal, to help create a regional energy market. By creating this regional energy market, countries will have greater resilience for their own systems. Prices will be lower and they will be able to benefit from the relative comparative advantages of their neighbors. Vietnam — one of those is the fact, by virtue of geography — it has significant opportunities to increase LNG import capacity to then be able to send developed power and/or send power or gas throughout the region.
So, we’re working on that. I mentioned some of the deal flow that we are moving forward with. We are very pleased to see considerable U.S. investment. For example, U.S. company AES, General Electric and ExxonMobil have ongoing – and this is just to name a few – but there’s considerable interest in expanding that, and we’re talking investments in the billions of dollars. So, Vietnam has a critical role to play and I was pleased to see Vice Minister An’s leadership and speaking to that role in the recent Japan-U.S. Strategic Energy Partnership dialogue. We have a very close collaboration with the government and continue to help ensure Vietnam is able to efficiently and in a streamlined way, achieve its energy ambitions to the benefit of the Vietnamese people, but also the broader region.
With respect to the South China Sea, Secretary Pompeo, has been extremely clear about our views. Those views have increased in proportion to the behavior of the Chinese Communist Party. Secretary Pompeo first spoke to this issue – it may have been when he first spoke to it publicly, about the actual value of the oil and gas resources in the claimant waters of the South China Sea back during the global energy conference CERA – that’s C-E-R-A – in 2018. And Secretary Pompeo has spoken strongly, and you can look up his speech on that, where he listed the value of the oil and gas resources at the time, that the Chinese are seeking to deny countries their sovereign right to develop.
Since then, the Secretary has continued to speak about this issue, and some months ago recognize the territory, the boundaries – and we do not dispute at all, and he was very clear that we recognize the sovereignty of the exclusive economic zones of countries in the region to develop their own resources free of coercion and bullying, and that’s where we stand.
We don’t comment about future actions. We stand by our word, and we’re pleased to continue our partnership with Vietnam. Thank you.
Moderator: Thank you. Next if we could go to Melo Acuna from Asia Pacific Daily in Manila, Philippines. Melo, please go ahead.
Question: Yes, thank you. My question is somewhat related to the question of my colleague from Vietnam, but let me ask, Assistant Secretary Fannon: How optimistic are you that a network of clean and secure energy sources could still be established, considering the contested areas where these resources are, like LNG in the South China Sea? How do you plan to maneuver? Thank you.
Assistant Secretary Fannon: How do we plan to maneuver? Well, we recognize, as countries and the international community does, the freedom of navigation. And so, we do not expect LNG cargos, just like any other commercial traffic, should be molested by any pirate or state. And that goes for issues like oil transport in the Strait of Hormuz or it goes in areas of the South China Sea and the Strait of Malacca. I mean, these are foundational principles to the international community and the way in which free nations behave amongst one another. We think this is an absolute enshrined right of all nation-states, and so we proceed to call on, and are working towards, collaboration with countries like Australia and Japan as well as [South] Korea and others to continue the free, open Indo-Pacific region.
So, I am confident that that’s happening and it’s increasing, and having greater supplies of gas, building on the waters around the world helps you rise all ships. Thank you.
Moderator: All right. Thank you very much. Let’s go ahead and wrap up the call. Assistant Secretary, do you have any final remarks for the group?
Assistant Secretary Fannon: Yes, thank you very much. I guess I just want to first, again, thank you for your interest. The Indo-Pacific region is critical to the United States, but it’s critical to the world and we want to see everyone succeed. The region is the most dynamic and growing region in the world. We continue to be a partner to the countries in the region, and we work in partnership to help them to achieve their own self-determined energy ambitions. We are not here – as opposed to others – to tell them what to do or what not to do, but to partner with them to help them to achieve their own ambition, what makes the most sense to them and to their people. And that’s our North Star by which the United States operates.
A lot of these countries in the region, we support the concept that they want to see, and they want transparency in the way in which companies operate. And one of the best ways to demonstrate that is to consider and give a transparent process and allow transparent competition. And we believe that if we do that, U.S. companies who bring the best technology, the best health, safety, and environmental records and the best innovation – that U.S. companies will win. And, as an American diplomat, part of my job is to help countries achieve their ambition, and everywhere I go, countries say they want more U.S. investment. Some of the work we’re doing, as I mentioned, the LNG contracts, establishing regulatory frameworks, is to help countries provide the conditions to attract that U.S. investment. And I am very pleased to say that we’ve really been quite successful in doing that. We’ve mobilized significant capital. We now have more than 250 U.S. companies engaged in the region under Asia EDGE, spanning 49 U.S. states, all contributing to the economic prosperity and the development of the Indo-Pacific region.
So, I think the future is bright and the United States stands ready to help all of our partners in the region.
Thank you so much for your time. Thank you to our colleagues in Manila for facilitating the dialogue.
Moderator: Thank you. That concludes today’s call. I want to thank Frank Fannon, Assistant Secretary, Bureau of Energy Resources at the U.S. Department of State. And I also would like to thank all of you participating in this briefing. Please stay on the line for information regarding access to an audio recording of the call. Also, please be aware that a transcript of the call will be posted to our social media platforms and sent out to all of you within a day. If you have any questions about today’s call, you may contact the Asia-Pacific Media Hub at AsiaPacMedia@state.gov. Thank you very much.