Natural gas has many benefits such as low Environmental Impact and low Carbon Emissions than most of the other energy sources. It is the fuel thats most compatible with the use of Renewable Energy however security of supply in natural gas is more challenging than any other fuel source was natural gass physical qualities make it complicated and expensive to shift. Consequently theres a greater need in the coming decades for policies and government involvement to secure security of natural gas. Policy should focus on improving the security of supply in europes most vulnerable markets. Observers may speak of a Single European Energy Market but this is an illusion. States in europes periphery have a bigger security challenge than those in the west or other parts of europe. Natural gas sectors must be properly organized to guarantee security of supply regardless of the origin of the gas supplies or even the poll situation. Supply disruptions most frequently result from technical glitches or extreme weather. One of the Biggest Challenges has been the winter of 2012 due to extreme weather. Next the United States and europe should make sure that kiev gets its gas in order. A they have engaged in disregard for payments. This behavior endangers Energy Security supply to europe. Additional natural gas supply can also approve the supply in europe. The most promising new source is the southern gas corridor. Beginning in 2012, this project will bring natural gas into Southern Europe. This project is the first in decades to bring new volumes into europe and not just rerouting exist volumes. This also reaches the specific gas markets of Southern Europe which have previously relied on a Single Source and are the most vulnerable. Spurs can be built to additional markets in europe such as the balkans. They will bring new jobs in Southern Europe such as albania, greese, ititaly. Russia and iran have noticed the strategic choice. It needs continued eu and american support to make sure russia doesnt undermine it. Russia may stable to destabilize georgia. Continued u. S. Interest in resolving this conflict is important from moving a potential means for russia to destabilize the region. Another potential source of natural gas is from israel and cypress. This can be very useful for the region itself. The ability of these resources to Service Peace pipe lines i believe are overstated. Energy trade reflects existing peaceful relations, it doesnt create them. It also exacerbate existing potential conflicts and not resolve them. They can eradicate conflicts over water and essentially to remove any water shortages in the region. The increases Water Supplies to israel, jordan and the palestine territories. The new resources can also improve affordable electricity in the u. S. Which is very important for future prosperity and peace. In recent months there has been speculation that tehran could also become a source of supply to europe. While they have the second largest reserves the natural gas in the world. This is surprisingly an importer of natural gas. If they tried to launch a gas export project to europe, russia would surely block it. Over many years, their strategic competition between iran and russia especially in the sphere of natural gas export. Throughout europe moscow employs policies to be the dominant supplier in europe. They fund bogus environmental actio actions. Moscow utilizes this to protect its dominance in europe and remove the nonprofit status from the organization thats receive the funding from omoscow. Another mechanism that moscow can exploit is manipulation of gas hub trade in europe and this should be countered. Last, washington and brussels should clarify to nato and eu members that belong to these organizations that it entails organizations to protect the securi security. Up until this year, brussels has increasingly pulled out of the visit of ensuring Energy Security but the market pace alone will not be enough to encounter a relentless russia. National and eu institutions must take a more active and strategic role and the ut shoni states should support this. Thank you. Thank you. Mr. Chow. Chairman murphy Ranking Member johnson im honored to testify on Energy Security and the ongoing crisis in ukraine. When it comes to Energy Supply in europe we focus on natural gas supply. It is interesting to ponder why because europe is more dependant on oil supply. The level of anxiety is much higher with gas than oil. Why . The root causes are in part related to incomplete market integration in europe when it comes to gas and electricity. The gas markets have been dominated by long Term Contracts at fixed volumes with prices indexed to oil. Suppliers have restricted competition with destination clauses and control over pipe lines. These Business Practices were supported not only by major suppliers but also by incumbent countries that pass on the higher cost of gas to consumers. Consequently european markets in gas and Electricity Distribution ip sfr f infrastructure not not well connected. What can we do to help our allies and trading partners. The first point is that weve already done a lot through the shell gas boom. These supplies became available for western europe. Despite initial denial of the nature of the shell gas phenomena. It was forced to meet the market by adjusting down ward. As a result, european imports of russian gas increased by 13 last year, half of which transferred through ukraine. American european ong import facilities are currently operating at very low utilization rates. Even if usong exports were available today they would not be imported by europe but east asia where spot gas prices are double that of european gases. The benefits to europe lies not in the qualities it might receive but future price formulation in markets. It may no longer rise and fall with oil prices. The competitive advantage to shell gas revolution provided the u. S. Economy with lower gas and electricity prices coupled with reduced gas emissions has also caused europeans to he reexamine their energy policies. With renew efforts to further market utilization, enforce competition rules and rethink the use of energy resources. In the meantime the crisis in ukraine caused by russian action presents danger to European Energy security. These countries rely on russia for almost all of their gas imports. Much of which transferred through ukraine. Ukrains corrupt Energy Structure created vulnerabilities for itself and neighbors. The current government is left with mounting gas debt to russia. This led to the cut off of russian supply to ukraine on june 16th. Ukraine depends on russia normally for 60 of its gas demand. In either case, are there ready substitutes . If the already delayed injection of gas into western ukrainian Storage Facilities does not begin soon, ukraine will run out of gas before the start of winter. The Ukrainian Government would be left with a winter with the choice of letting its own population freeze or taking gas from russia destined for european markets for the own use. If they want to further destabilize ukraine and provide it is an unreliable transit partner. It is in rushs interest to prolong negotiations. The european gas market is surprisingly complacent about the situation. Spot gas prices have dropped significantly although gas Storage Capacity has risen, actual storage is not as high as it could be. The risk of miscalculation is high. Meanwhile russia is pushing the south stream pipe line which would pass uk an all together. I instinctually question economic negotiations brokened by european leaders. It has become serious when negotiators stopped talking to the press. Long term sustainable economic transactions cannot be placed mainly on political conditions which tend to change as we discovered with the russian ukrainian gas deals of january 2006, january 2009, april, 2010, and last november. Raising matters to the highest political level as europe has done only invites russia to make political command demands such as accommodation of the occupation of crimea, stopping further economic sanctions. The only issue is to strengthen ukraine. The Energy Minister observed first hand and up close the blunders made by previous Ukrainian Governments on policy. Concrete policy action is required. What knees to be done for the Energy Sector in ukraine is unknown especially with natural gas. What i have been missing with the capacity to execute reforms in a orderly and systematic way. Reform depends foremost on ukrainian leaders. They require consorted warner siftance if they are to be successful. As long as ukraine is weak, it is an open invitation from russian opportunism and aggression. Neither ukraine nor the west will have another chance bettered by the opportunity created by the crisis for energy reform. The situation cried out for american leadership, working closely with europe and the donor community. By injecting resources with the provision of assistance. A policy must be done with sound analysis not wishful thinking. Thank you all for your testimony. Mr. Chow, i wanted to ask you a question about the effect of a prolonged crisis in ukraine. So say that it would accrue to russias benefit because it would undermine faith in ukraine on behalf of the eu. I think theres sort of three in my mind 3 possible outcomes. Im sure you can add to them. One is the one that you suggest that it will undermine european faith in ukraine and compromise enthusiasm for marring together ukraine and the eu or ultimately with nato. Second, it could increase enthusiasm for alternate routes of gas to europe south stream as the primary example. It could also be a tremendous wake up call, the straw that breaks the kam ecamels back in of prompting europe to do the things necessary to become much more Energy Independent of russia. Why is my third alternative not just as as you plausible as the first two . Thank you, senator, for that important question. I hope youre right but i think youre sitting in russias shoes, europe got a wake up call in january, 2006 when gas was cut off to ukraine. It got another wake up call in january of 2009 when instead of a three day gas cut off, europe suffered a three week gas cut off. It has done precious little so far accept for the steps that i have already mentioned. Its response to the invasion of crimea as well as russias adventurism may i say in southEastern Ukraine has been relatively weak and disunited. From Vladimir Putins head, the way he sees it and he may be miscalculating, the time is on his side, not on europe or ukraines side. Let me ask that question of the other three panelists. A simple question that isnt simple. Does a prolonged crisis harm ukraine more or russia more with respect to future dynamics over eu membership or future continued reliance on European Energy. Mr. Lucas you had your hand up so ill go to you and mr. Shaffer. I think you frequently get wake up calls and then it goes back to sleep again. I think the question here is the time frame. I would slightly disagree with mr. Chow that i think the previous crises have stimulated quite a lot of activity in europe. We do now have a pretty much north south gas grid with better storage. Weve had the Third Energy Package which has reduced russias monopoly power. This means were if they cut the gas off right now we got three months before it would start to bite. Thats quite nice but in terms of the sort of stuff you were talking about to make a real difference, were talking years. You know . If we stopped right now in five years time we could have a really resilient if not independent but a europe that had lots of energy and storage. The gap between three years and five years is the vulnerability. What russia knows is that they can threaten stuff which scares politicians just like here. We have a fragile recovery. The politicians are desperate not to have stuff thats going to harm growth and jobs and so on. An energy interruption worries what it does to business confident. Thats thats a powerful weapon for the russians. They just have to threaten this stuff. We already think of ways to make this conflict go away rather than trying to whip it. Ms. Shaffer. I think russia set up a really perfect strategy to actually set up ukraine against europe because basically the gas is still flowing to europe. The only way for ukraine is get the gas is to disrupt the supplies to europe and not take it into storage for future system. As winter approaches, its spinning kiev against europe. If you look at previous European Response to this krieps is was north stream. Building a pipe line from russia to gem any to circumvents states. We might be more responsible to the southern corridor. Theres another alternative. While the Third Energy Package is great in terms of principals in a very Perfect World with all the gas trade, its very nice. I think in the reality of russian behavior while its manipulation of gas hubs at price. Of course they can flood the market, deny the market and really effect these prices. I think what we need in europe is a paradigm change. They based the Third Energy Package on the american model. The market has done a great job here in increasing u. S. Energy Security. The u. S. Has thousands of gas buyers. Hundreds of gas producers. The largest gas producer only has 3 of the market. Each has about a third of the market. Its a completely different game. What europe needs is a paradigm shift that gas is not a commodity. It is a utility. When we grew up, we called it a utility. Not something that you just trade. When you think about it its a public good which needs much more public involvement. Yes. May i add that i do think that what really is at stake is a competition of two systems. Our liberal societies and putins idea that hes going to use the time before we get our act together to export his liberal ways of running a society. I must say what you encountered in bulgearia in that he is targeting the weakest link. I must add one of the biggest problems is not directly related to energy but that the perception of the russian threat is very very different in western europe, in northern europe, Southern Europe and let me say eastern europe. In eastern europe, i think im worried. Im really worried that russia with the multiple tools in his tool box, putin using energy, all kinds of other tools to influence the Eastern European and Central European countries which he feels was once part of his sphere of influence. Its just not fair that they are now on the other side. Lmr. Ambassadors you asked fr a soft ball so i will throw it to you. With as put what is is putin thinking. I think putin is thinking right now, first of all, he says my goal was to destabilize ukraine enough to that it is definite that ukraine will not be part of the western institutions. The European Union or nato. This was his first goal. I think he has achieved that. He will resort to all kind of means to stop trouble when the moment comes and it looks like things are too smooth. Right now hes totally satisfied with running or owning quote unquote, crimea. I have no doubt that of course, at any moment he can turn the switch on and we will be back to a lot of trouble. The fact that we dont see him visibly present eastern ukrainian conflict at this moment does not mean that he is not fully in control of the insurgencies. Mr. Lucas. Yeah, i think mr. Putin thinks that were weak and hes winning. I agree. I was always in support of strong sanctions hopefully targeted one thats were painful to him, not us. When we were talking about sanctions that were a double edged sword i really wanted to stop talking about them because they werent going to be implemented and they had no effect. When we were in poland, i dont want to identify the individual telling us this but i think weve had this since confirm that had apparently 100 to 110 russians control 75 of the wealth. Certainly being from the outside in, hearing how effective the sanctions were against North Koreans just top leaders, denying them their access to Bank Accounts was the most effective sanction. Why dont we target in a far more robust fashion those 100 to 110 individuals that really do rely on the west for banking and disburse. That type of thing . I couldnt agree with you more senator. Were looking for magic sanctions that dont hurt us and do hurt putin. Unfortunately there arent such things. Every country has got something to lose because russia has done a good jb of building up null nerabilities. I think the visa sanctions are a really powerful weapon. We have laws against Money Laundering in this country and my country. Banks are supposed to know know the people before taking their money. How is it possible that these officials are coming and putting hundreds of millions of dollars through our payment and financial system. How is it possible that he was allowed to list on the London Stock Exchange when it feasted on the corpse they buy their as sets for nothing, 8 billion of western shareholders money goes down the tube. And than they were allowed to list on the one of the outeld stock exchanges. Powers that fee enforce your laws. I think we should start by enforcing our own law