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. Last Updated: 07/27/2016

The Case for Energy Cooperation

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In less than a month the Group of Eight will convene for a summit in St. Petersburg, and energy security will loom large on the summit's agenda. Never has there been a moment when the issue of energy has been more important to the future of the global economy and global security. Never has there been a moment when Russia's role in that energy future has mattered more. Never has there been a better moment to revitalize the U.S.-Russian energy partnership. And never has there been a better moment than the St. Petersburg summit for Russia to paint a compelling picture of its vision and reliability as an energy producer.

Russia is already a world-class energy player. The only issue is how Russia will choose to take advantage of the opportunities before it and overcome some significant challenges along the road ahead. All of us have a stake in Russia's success, but it is Russia and its people who stand to gain the most.

Russia's oil and gas sector faces two broad kinds of challenges: getting its hydrocarbons out of the ground, and then efficiently delivering them to the market.

Getting the hydrocarbons out of the ground will cost a lot. The Russian energy sector will need billions of dollars in investment in the medium term. Much of that capital and know-how exists in Russia; but attracting foreign capital and additional specialized know-how will also be very important, especially in tackling increasingly complex technological challenges like the Shtokman gas field project. Both domestic and foreign investors will look carefully at the risk-return tradeoffs before they move forward and at the emergence of a clear and predictable investment framework.

Russia's ongoing efforts to rework its energy-tax regime are a welcome step. Establishing the right incentives is important everywhere in Russia, but particularly important in the greenfield regions like Eastern Siberia, the Far East and the continental shelf. As theWest Siberian fields age, it will be hydrocarbons from these far-flung regions that will replace the lost barrels and cubic meters. Realizing the potential of these regions will depend greatly on smart and timely decisions by the Russian government to attract and hold investors. The sooner those decisions are made, the better for all of us.

Once out of the ground, the oil and gas needs to get to markets -- both domestic and foreign. On the oil side, Transneft has ramped up export capacity, most notably through the expansion of the Baltic pipeline system. Bold new projects are also planned for pipelines to the Pacific Ocean and the Barents, Baltic, Black and Caspian seas. This is to say nothing of the proposed gas pipeline to China. Again, this will take a lot of capital, so it is crucial to create the right investment incentives.

It is natural that the Russian government and Russian companies are looking increasingly to overseas markets for downstream investment opportunities, and not simply as a destination for raw-material exports. We welcome this. As they expand both upstream and downstream projects, Russian firms -- like firms everywhere in the world -- will find that the market rewards transparency and punishes opacity. Good corporate governance and sound business practices, reinforced by everything from downstream acquisitions to IPOs, will lead to a better competitive edge, more profits, and an enduring place among the super-multinationals.

Partnership is an overused term among diplomats. But in the case of Russia, the United States and energy, the power of the argument for partnership between us is obvious. Russia is the world's largest producer of hydrocarbons; the United States is the world's largest consumer. We both understand that energy security has to mean security for buyers and suppliers alike -- governed by the market, supported by stable and predictable regulatory and tax regimes, and shaped by a long-term vision of the need to diversify sources and transit routes. Greater energy efficiency is key. So is careful attention to the environment, as Russia demonstrated recently in its decision to reroute the planned pipeline around Lake Baikal. A steady and open transition to market pricing, including among Russia's neighbors, is a natural step. Expansion of liquefied natural gas infrastructure worldwide is in both our interests. And we both have a deep interest in expanding alternatives to hydrocarbons, especially in civilian nuclear energy, where the United States and Russia have both unique historical responsibilities for leadership and unmatched technological capabilities.

There is already a solid, practical basis for a Russia-U.S. energy partnership. ExxonMobil's leadership of the Sakhalin I project has been a remarkable success for both our countries. So has the partnership between LUKoil and ConocoPhillips. Chevron has a significant stake in the Caspian Pipeline Consortium, whose early expansion will bring substantial benefits to Russia and all the partners in the CPC. Russian companies are investing in valuable partnerships in the United States in areas like energy efficiency and hydrogen. A genuine two-way street is beginning to emerge.

In energy, as in many other areas in our relationship, the United States and Russia have a great deal more to gain by working together than by working apart. That does not mean that we will always agree, or that there won't sometimes be elements of competition between us. We have obviously both had our share of disappointments and frustrations with each other. But next month's G8 summit in St. Petersburg, as well as the bilateral summit between Presidents Vladimir Putin and George W. Bush that will precede it, is a rare opportunity to reinforce the common ground between us on energy. It is an opportunity to put real substance into our energy relationship, so that dialogue is underpinned by expanding commerce and investment in both directions. And it is an opportunity for Russia and the United States to demonstrate that "energy security" is not just another slogan, but a product of responsible partnership.

William Burns is the U.S. ambassador to Russia.