oil and gas contribute about a third of russian gdp and high oil prices contribute significantly to gdp growth. so in order to underpin its ability to keep oil and gas, well actually oil production at competitive levels with the u.s. there is this race for exploration in the arctic which is one of the areas that we've heard about. in order to basically develop the next generation of oil and gas projects in russia, russia will need the help of the international oil industry. and as a result, it is already lining up with some of the world's biggest corporations like exxonmobil, eni of italy, norway's statoil. each which bring important political and commercial and technological inputs that are essential for russia today. i think while gas program

dismissed the need for shale gas technology and its development in russia one of the areas that is important in the discussion today is that neighboring ukraine has vast, unconventional gas resources and these resources are being targeted by again the international oil industry. shell sign ad production sharing agreement in eastern ukraine which is on hold right now. chevron has an agreement, a production-sharing agreement in western ukraine for unconventional gas. and in a sense, i suppose if ukraine were to stablize you could see these projects moving forward. russia state oil company rosneft has been very supportive of the development of unconventional oil resources in russia and it has team up with exxonmobil. in may it teamed up with bp on a pilot project in the volga,

urals, exxonmobil is in siberia. u.s. energy information estimated that russia's technically recoverable shale resources are 75 billion barrels of oil. the largest in the world, the u.s. ranks second. so in a sense, there's this energy competition between the u.s. and russia but for russia energy is also a lifeline for its economy. now that bring us backs to one of the subjects of today. given its proximity to russia, the e.u. has developed direct oil and gas pipeline links to its eastern neighbor. the level of russian dependence varies by countries in the e.u. but if you see which countries are most dependent on russian gas, it would be germany number one, is the largest importer from gazprom. there is austria and countries of eastern central europe are very dependent on russian gas.

when you think about the new pipeline talked about for russia, which would be involving ukraine to the extent that if the south stream gas pipeline were built would marginalize the need for ukraine's gas network. but the countries that are promoting the need for south stream, are austria and latest one to sign up and countries of eastern central europe because they are very dependent on russian gas and their economies are hurt if gas supplies are cut. and in about half of the 28 e.u. member states russian gas accounts for more than 41% of their consumption. in the end i think what we need to look at as well, if we look at the e.u., i think for russia the european union, e.u. 28, croatia is the latest member and turkey, they comprise its largest trading partner and they take the majority of russian gas

exports with over 50% being shipped across ukraine. and for gazprom europe is the largest of its three markets and it's going to try to hold on to this in terms of revenue and profit and, you know, gazprom sells some gas of course in russia which is a very big market. it is the domestic market. countries of the former soviet union and it has started shipping some lng to asia but we can not forget europe is really the heart of gazprom's market for its gas. i think china will develop over time but, as a result i think what we need to keep in mind as this ukraine and russian relationship develops is that in any case one of the things that russia will look at, whatever happens is that it is determined to build, maintain the relationships it has in europe as we've seen. it wants to build a new pipeline

into europe and, it will continue to try and not only hold on to its current gas share in europe but to build the share up because europe, it has determined in the future will probably need more russian gas. thank you. >> thank you very much, julia. i will move to the podium to moderate our discussion and thus vacate a spot for the ambassador who i think will join us shortly. so think of your questions. who has questions? yes. right there. identify the name and institution for the panel. >> hi. nye name is -- [inaudible] just visiting here. so the discussions about energy in ukraine supposedly but i

heard a lot about russia but as far as ukraine is concerned, there was modernization that was used. i heard that ukrainian, ukrainian economy is 2 1/2 more inefficient than russian. so, isn't there a lot of space to improve the energy consumption in ukraine so it is much less dependent on russia's gas and, well, any comments on this? >> who wants to talk about energy efficiency? go ahead. >> i can take a first stab. getting prices right in ukraine is step one. you can put seven or eight other countries in that category of the in a system where everyone's electricity and gas prices are subsidized, you have demand which is far higher than it need be otherwise. you need governments to change

that system and you only don't subsidize the poor and subsidize everybody is very difficult to do and requires creating a subsidy system that targets people. that worked for world bank and imf. that is diplomatic work for the u.s. and leverage we're trying to give to ukraine to promote those kind of reforms. until you do that, you have countries, companies like shell and chevron that want to develop shale bass in ukraine who they hope can export to countries that can make market price. only when you get internal reform in ukraine that the domestic market will be attractive. there is lot of work to be done. absolutely you can do more on energy efficiency and pricing but no one will invest in energy efficiency unless you save money on electricity bill to to invest higher technologies better windows or thermostat, until you

pay the for the electricity you're consuming you don't have a price signal. and that is important to do. >> i might add a comment here there's a real problem and challenge in terms of the timing of these issues. when you talk about shale gas development in ukraine, and i hope that there will be plenty available pause if, to the extent there is, the development of resources also a little bit on the offshore side perhaps, that will make it possible for ukraine to have a more, a less dependent policy on other countries. but, in order to get to that point, this is, this is not something you should do overnight. something that requires years of development, exploration, development and production. so the question is, how do you build that bridge from where ukraine is presently, which is highly dependent on external sources to one that is less dependent. here is where i think the e.u.

really has to step up because there is, the possibility of using the pipes that have been taking the gas in, more for european consumption and, been making that gas available to ukraine. where does the u.s. come in? if we have a more liberal export policy as david is pointing out including exporting lng and obviously that wouldn't go to ukraine directly but it would be going to europe. that requires rigasification facilities in europe. that is an investment. in turn you are able to back in more immediately available gas to the european area which in return will make it possible for europe to be more responsive in this bridge, this time bridge to ukrainian requirements. so how do you justify this in your own mind? obviously all of this is money, right? it is not something that is a free good. i believe it is very important to focus public debate on the

investment required to have a safer and more secure neighborhood, european neighborhood in which ukraine plays a key role. and, you know, i don't mind the advocacy on national security ground for taking steps to ramp up the rigasification, to pending time that might be more available in ukraine's space and certainly won't cover all of ukraine's requirements. very important thing to focus on. i was reminded of that because of the last time that, poroshenko's predecessor was about to sign that european deal, you remember that?

there was a $20 billion factor and putin immediately stepped up and said, we'll give you $20 billion in credits and we'll reduce the gas prices overnight. meantime we were suck our thumb i'm sorry to say, figuratively about this. when you think about $20 billion compare that to at least two trillion and looks like almost four trillion we've spent on iraq and afghanistan, you have to wonder about our sense of proportion in terms of our national security strategy. in $20 billion of investment in the security of europe in my mind is lot more important than the number of expenditures we've had to make because of an ill-conceived iraq policy. and we really have to get into this debate about making the right invests for the right things and not throwing money at the wrong things. i think ukraine is -- of that

action. >> subsidies in ukraine of energy have been up to 40% of purchase price. that is one of the most, if not the most energy inefficient economy in the world in the past. at the heart of the imf program which ukraine is now implementing are reductions in energy subsidies as well as eliminating the overvalued exchange rate. a key internal political issue for ukraine is that some of energy intensive industries in eastern ukraine at realistic market prices for energy will be negative value added producing companies. how the government deals with that economic challenge at the same time it has a security challenge in eastern ukraine will be, will be very interesting to see. of course you have seen prime minister yatsunuk refer to his interim government as kamikaze government because in fact he was planning to implement tough

energy price realism. >> let me ask all of you a question about the region on more broadly. seems here in the united states, north america we've been fortunate in many ways. one way despite our various adventures in the middle east we haven't had to think of energy con chum and production largely in geopolitical or geostrategic terms. it just hasn't had to be a part of our national mindset of energy. yet in the region we're talking about overwhelmingly clear it is vital and essential. there doesn't seem to be connective tissue between points of consumption decisions you were talking about and for example, politics. your cross-section of ukrainian is not necessarily picturing vladmir putin when deciding how much gas to use, how efficient windows to put in their apartment, et cetera. that is just on the efficiency side. you could scale all the way up

to, oligarch level production throughout ukraine. there are other economies too where their hand is actually strengthened by increasing energy dependency of neighboring countries and so on. how, what is the smart way to have a region-wide conversation that actually does connect the dots for, not just ordinary people, but people at the point of the tap and the spigot and investment decisions operationally about energy with the geopolitics, so these things don't continue to exist somehow in relationship to each other but divorced? i don't know if that questions makes sense. thoughts? >> well, a quick comment. read frank's chapter in our book here. nice way of advertising the book, which talks about the politics of energy and how difficult it is, how very challenging it is and you know, there's no easy answer to the very good question that matt

puts but it seems to me that when you think of assistance to ukraine, and i think people are in the mood to talk about that, even despite the general anti-assistance atmosphere, certainly in the european context and i would hope also in the u.s. context, i think it is well worth making an investment in, in inducements, for example, for energy efficiency. here in this country the power companies with the encouragement of the states are inducing us to in fact cut back on our energy consumption for a very good reason. they don't have to build more power plants which are very expensive. well, similarly, if we can build in, and i know that david had a lot to do with that thinking when he was in the state department, build into your assistance program as well as our energy strategy the idea

that an investment, multilateral, european-u.s., in helping ukraine cut out those subsidies and, reducing the pain of those, of that cutout, so just not ukrainian burden, that's a far better investment i think than many other things as i was trying to suggest earlier, that we throw our money around at, because it has intrinsically so much to do with the course of the country in ukraine and, as ukraine becomes more sort of market-oriented and based, it becomes more resilient, both internally and in terms of its relationship with the countries around it. >> i have to agree with jan. politics are really hard in europe. it is probably a mistake to call it region and europeanwide

solution. western europe has different economic interests than central east european states and they're not going to change. just like frank's chapter here, it is hard enough in our country but you ever the strategic interest of the country and you have economic interests of entrenched interests. i think the other challenge you have you need a bridge. if you go to bulgari you were ambassador in bulgaria, you say we have indigenous gas and we'll bring you alternatives, their answer is yeah, for the next nine years what are we going to do when gazprom cuts off our gas? you have to have some interim solution country by country. for the u.s. we have to look more bilaterally. but for the e.u. the question is, are they going to look at that broad interests that you have identified and act on it or will it be the lowest common denominator as we have seen? it is hard to bank on that changing but it is only if we see the european union take on that strategic interest and make

hard political choices like, being able to move gas from spain all the way to ukraine, to break some of these, these gazprom interests. that is a germany problem. that is a u.k. problem, that is a brussels problem. that's a big lift. so i think that would be the answer to your question. the e.u. would have to lead those changes and drive the countries to it but i think for the u.s. we can't expect that is going to happen and we have to work in smaller bites. >> right. by the way there are still going to be countries i would imagine, john, like bulgaria will be pr battleground, political battleground where the other parts of this region that have disparate interests will invest in lobbying the opposite way, right? i mean they're doing that to some extent now i guess. >> yes. it's, energy policy is a hard sell. domestically it is hard to get people interested. at one level, at another level you're talking in the united states about a very, very simple equation that most people can

understand. we want our country to be less dependent on foreign sources of energy and the europeans can kind of condense it all into, we want to be more diversified and less dependent on gas in particular coming from the east. it would seem to me that with some enlightened leadership, both in brussels and in washington we could put those two imperatives together today, that would help the united states help europeans. i take your point, david, europeans, we need to differentiate a bit between the bulgarians and the germans but if we were to, let's say, convene a summit which we set a goal of helping the europeans reduce their gas dependence on russia by 25% in the next two to three years i think that would get moskow's attention. it would certainly answer our own and european interests. and interestingly, i think a lot

of people in russia would applaud that as well because many of the russian economists, and especially economists i talk to say, only that kind of competition is really going to force the russian economy and russian energy sector to diversify itself and especially to modernize in a way that makes it a more efficient producer in the end. >> i think one of the thinks to keep in mind, european has majority of dependence on pipeline gas and the pipeline gas is dominated by russian gas and those ties are going to be very difficult to break, when you think, gazprom has about 617 bcm of gas it could produce. it is producing under 500 right now. there is just this enormous quantity of gas in russia that really should be oriented to european markets. so i guess. the question really for the future, to some degree in

europe, yes, lng will be option of some magnitude, is how can you get a cooperative relationship that works better? because 20 years from now, i think what you may find is that the other pipeline forces are going to be diminishing. the one that is left really the russian source of pipeline gas. that is not going to go away. so i don't know how you get from here to there but eventually there has to be a solution because that is where the resources are. >> question here. please wait for the microphone. and introduce yourself. >> my name is elaine. i'm a russian-ukrainian american. so i am ex-ukrainian speaks russia and born in germany and has relatives all over the united states and russia and ukraine and many other european countries. so with globalization of the world, the energy is, having a

different, a different meaning for me especially because my family is so multinational. and, right now, we all talk about the strategy for the energy sector and we talk about, that yes, ukraine can do shale gas fracking which we like, don't like here in the united states. in some countries in europe, we say, okay, we will deliver more energy to the european union. however, when i speak to my relatives in ukraine they're worried about winter coming. the utility bills go up. what is your opinion on long-term strategy for ukrainians? and how valuable is the situation of mr. poroshenko right now? if he can not hold on the prices for utility bills and people go into winter and winter in ukraine, believe me, is very, very cold, without a clear

policy what happens to the general population, ukraine will not survive this winter. so what is your opinion and how do you think the situation can be solved in -- >> very short term, are we going to see another winter gas war? bill? >> let me broaden it beyond gas war. if ukraine does not make the energy efficiency changes that the imf is demanding, it will lose western support. it is as simple as that. ukraine is broke. it has no option to continue subsidizing the price of energy and price of gas in ukraine up to 40% or 25% or whatever. there is going to be short-term adjustment. it will be tough in ukraine, there is no getting around that. the most important thing for ukraine is start becoming more efficient in use of energy, consume less of it. that will improve its market power relative to russia. it will reduce potential debt it

has to russia and get energy at an efficient market price for the future. then ukraine can take advantage of other economic reforms because only with market prices for energy will investors have a good idea what kinds of investments in industry and agriculture and makes, what kinds do not. it will be tough in the short-term but liberalizing the economy and bringing a market price for gas are essential. >> we still need to put a finer point on tough in the short term. i think if i understood the question right, the leverage equation changes dramatically, the political leverage changes dramatically when people have to heat their homes. >> that's right. ukraine could survive a shut off of russian gas up to september and it is not true for the winter. diplomatically you need to avoid a shutoff of flows and you need to make sure storage is full and you maximize what you can bring in. no, there is no short-term

alternative. you couldn't bring enough goal coal or oil to heat ukraine. >> frack something longer term. >> fracking is longer term. >> could i add to that the short-term alternative is not there for russia either. russia needs ukraine. 84 bcm of gas last year moved across ukraine, of 161 that was consumed by europe 28 members and turkey. russia also needs ukraine. my impression there will be some sort of agreement on the price. i mean, this pricing issue is up for debate right now and russia has cut supplies to ukraine but there has to be an agreement for russia as well. so short term i think for ukraine the issue is, that there's a need on both sides to find a solution and that there has to be gas this winter. i agree with you. and if, you know there isn't gas flowing across ukraine into

europe, then that is issue with the european union i think russia wants to avoid having, any sort of gas cutoff in the winter. >> i would add to that, even though i'm not a great sanctions fan, i am very much struck by the impact of targeted sanctions. at a time that the russian economy is gdp growth is going down to one or less percent, and before it was in the 7% range the economic consequences of being totally antagonistic, i think are becoming clearer and i think that's having impact on putin and his circle in terms of how they view this. secondly, there is an opportunity as i tried to make the point in my opening of a longer term view in which you take another look at shared

ownership of trunk pipeline in ukraine. it was tried before under very different circumstances. but if the possibility is there for the e.u. to, and ukraine, and russia to have shared ownership with the golden share and the decision-making voice being ukraine's, that could be incentive for shorter-term approach in terms of pricing. after all, pricing of gas for ukraine has always been politically driven in russia. they were doing everything they could to force the ukraine into eurasian union. that failed. ukraine now is moving in another direction. the question is, how can you keep up, as much of a relationship with ukraine in these different circumstances? well the way to do that perhaps, is to talk to, use the prospect of longer-term cooperation in a

way that that induces russia to even forgive some of the debt that ukraine owns, owes russia for past gas consumed as part of a deal involving shared equity approaches to the trunk pipeline. it requires a different political environment to start doing this but i think, each side is beginning to recognize the limits of a zero sum strategy here, and, what we need to do i think, as a policy matter is to come up with ideas like this, that show that there are plus plus solutions that are far better than, you know, continuing this mindless violence in the east mindless violence in the east of ukraine and antagonizing the west to the extent that sanctions will be invoked. so all of this i think can be made into a strategy. how you get public support and congressional understanding,

that's beyond my, i don't know but i do know that much more progress can be made strategically if we approach this in the right way. >> jan, you weren't kidding when you said you were an optimist earlier. the gentleman in the blue-collar right there. >> realistic optimist. >> i will give you that. >> ron davis, former state department. over the past 15 years gazprom has invested in e.u. companies, gas systems. . . countries. could you comment on how that factors into this whole matter of reducing dependence, eu dependence on russian gas. >> ukraine and europe. >> let me, a couple of things. i guess, the e.u. antitrust

policy would end russia both supplier and owner of the downstream transportation infrastructure needs to be enforced and forcefully. you're right, as long as gazprom directly or indirectly controls transportation in europe, then, then it is going to make it harder for these european countries dependent on those flows to resist them and give them more that is going to make it harder for those european countries dependent on those close to resist them and give them more leverage. in fact that's the case now. europe bans destination causes the theoretically you should be able to use resell russian gas where we want but the fact that it has interests in pipelines means you can't move that gas unless gazprom so so so that impedes the ability ultimately to move to reverse flow of natural gas from anywhere else from the border of. >> or anyplace else you can get into europe to where you want to go. that really is the crux of this.

they not only need to reverse some of the ownership that's fair but they have to make sure it doesn't go forward because you are right they have a chokehold. it's just not very visible. >> could i just make a quick comment on back? you know we all have this view of this gigantic state within the state gazprom which can do all kinds of things to other people. again in the spirit of realistic optimism, let me just point out that in russia itself there is increased competition over gas. ross left is moving into the guest territory. they all have very close associations with them. i think putin is a little bit fed up with the dysfunctionality of gazprom so .1. point number two, gazprom says if you don't want to have our gas we can move it to the asian side side and baqubah from europe and all sorts of horrible

things would happen. so if you take a look at the asian theater it is heavily subscribed by qatar, australia, potentially the western coast of canada. if the u.s. gets its act together ourselves. the idea that the russians shift their gas over to the east or that this deal with china has all of the price issues resolved, you notice the one thing that was kept secret was pricing. and i think it must be pretty obvious to us why that is because the chinese are not going to pay the russians the kind of prices that the ukrainians or anybody else would pay. that's ridiculous. so there room for maneuver of gazprom has always been overstated in the debate and the degree of competition over gas control in russia is increasing. those are strategic opportunities and you know we ought to get our act together here little bit and think about

how we can help ukraine, how we can influence russia how the e.u. can get into the act in a way that really is a net benefit and then think about again and i apologize to those who think it's unrealistic that there is a plus, plus solution which is frankly better than where we are now. it won't satisfy everybody but it's better than what we have. >> the gentleman in the white shirt, yellow tie. wait for the mic please. >> thank you. i am a faculty member at the university of the district of columbia and my question is you talk about congressional support and you talked about this lack of congress understanding what's happening with russia so we kind of talked around it so what would that look like? what would congressional support look like for ukraine and russia and what could we do and talk to our representatives on how to have that conversation?

>> jan? >> i think on the ukrainian side it would take the form of congressional willingness to pass a special appropriation for ukraine to help with some of these economic problems that we have described it would send a signal to brussels, to moscow but especially the people of ukraine that we are putting our money where our mouth is. with regard to russia i think there is really just a dearth of any contact between the russian duma and the u.s. congress, between the senate and the russian federation council. the number of contacts that used to be 10, 15 per year have dwindled to almost zero nagl and we need to work much harder on our side to try to reestablish the links between the leaders in the parliaments of both countries and the staff, especially the staff, to help dispel some of these mythologies

that really do nothing to foster a better understanding or better policy make in towards each other read in the absence of that you get laws in russia banning the adoption of russian orphans by americans or you get the magnitsky law and the united states which however well-intentioned that might've been i think was a negative in terms of u.s.-russia relations. >> well, we are very fortunate to have been joined by ambassador carlos pascual who is the energy coordination and the head of the bureau of energy and natural resources at the state department. also former u.s. ambassador to ukraine bill miller in the ram and former u.s. ambassador. i don't know if there are any others that we are simply well represented here for state department regional hands and former u.s. ambassador of mexico. carlos to give you an overview of course we have talked about

the impact of the crisis in ukraine come ukraine russia relations the acute johnson may come this winter when the bargaining positions get very tough. we have talked to ambassador beyrle and how different the relationship between russia and the west is not because of the depth of economic ties and the fact that those are in fact being used in the context of a political crisis. we talked of course more broadly about the region including the sort of southern belt of the small giants, little giants. i guess bill courtney called them baby giants. osi by john, kazakhstan and turkmenistan and a great many other themes that i would like to give you the opportunity may be to talk for a few minutes on your perspective and then we can still have time for a few questions. >> thank you and my apologies that i could not be with you throughout the entire discussion. i'm glad that i was able to join.

i joined the lunch and jan twisted my arm and asked if i would come in for a few minutes so thank you for tolerating my coming at the last minute and to all of our good friends and colleagues. i think one of the starting point is we to look at in this issue is the radical change that has happened in the european gas market because as you look at the tensions between russia and the ukraine you can't take that out of the wider context of what has happened in europe. so after the last gas crisis between russia and ukraine in 2009 europe has taken extraordinary steps to put in place a much more competitive gas market and put in market rules under its third energy package so that not one single company could own the gas, on the transit systems and own the distribution systems. so in effect it has begun to enforce a competitive environment. it has taken away a small thing called destination clauses which has a huge impact. previously when a country bought gas for example germany or

france they would have to get permission from gazprom to reexport that gas. the e.u. has made that illegal in the european market and sell once germany gets that gas they can sell to whomever they want to. that's absolutely critical to this concept of reverse was going back to ukraine. europe has also put in place very extensive infrastructure investments that are still not complete. there are some countries like bulgaria that are not part of the network but now basically you can physically move gas from west to east, north to south, where you previously could not have made massive investments in regasification facilities and the other dig impact that we have seen in the marketplace is actually caused by the united states. the united states now is producing much more gas than was ever envisaged. we have increased our natural gas production by 35% over the last five years. as a result of that we are importing just about five

billing lng a year where was previously in the position that we would be worth reporting 80. particularly 2,112,000 hubble out of those supplies were directed for the european market and those changes, increased availability of supply the infrastructure and the policy changes have allowed every single major western european utility to renegotiate their contracts with gazprom to lower the price and extend financing principally in 2011 and 2012 and that took place. the reason i was so critical is the importance of that market power has created in the european contacts. the critical objective for ukraine is to be brought into that community of european energy, european energy so that they are part of the strength of a community of 400 million consumers and not just left alone. they can be part of those rules

and be treated in the same way as that market has treated them they are in a much stronger position than they are otherwise. that is in the foundation of where we have been trying to move. one of the things we just got a note about energy in the ukraine is in part of politics and economics in the country since independence right bill? to control the gas system and controlled money in one election has been a reality in the past so one of the things for this government is to change that and cut a link to the past and bring greater transparency to the energy system and bring greater if christians say since ukraine consumes three times more energy for the production of ginebra gdp than any other country in europe. so what are we trying to do? i think first to give that a little bit of perspective, let me just run over the numbers in my apologies if you have done this already, stop me. right now ukraine consumes about 50 billion cubic meters of gas

every year. 28 comes from russia. they produce about 20 and they get to an so-called reverse flows. in effect using the european market that takes advantage of limited pipeline capacity that currently exists to move gas in a sense backwards through the system from poland and hungary. so one of the challenges is how to work with ukraine to be able to change that equation in order to create greater energy security. in the short-term one of the things we have been working on its expanding those 2 billion cubic meters of gas to something that could be much larger. poland is at a maximum level of a rate of 1.5 billion cubic meters a year. hungary could be 6.1 billion cubic meters per year. they are currently at three. the recently increased a little bit. we are working with both the ukrainians that hungarians and

gas suppliers to understand how they might be able to take that further. slovakia has not had an interconnection that they have recently reached an agreement with ukraine to complete building a physical interconnection that will allow 3 billion cubic meters a year to flow starting in september and that could be expanded with compression to between eight to 10 billion cubic meters a year. so in effect if you take those possibilities of what it means is by the end of 2014 more or less ukraine could potentially have 5 billion cubic meters of gas when you take into account the amount of time that's available for it to flow and by the end of the next heating system which would be april 1 of next year that they would have an additional 10 billion, total of 10 billion cubic meters of gas that would become available to them through these rivers flow mechanisms. the other critical thing to look at his storage.

right now ukraine has about 14 billion cubic meters of gas in storage. they have to keep about five in the system and not maintain the structural integrity of their wells. there's the potential to them to build that up a little bit more because right now in the summer they are producing more than they are consuming. they are bringing in some end from reverse flows so if you take that into account, ukraine potentially has sufficient gas between reverse flows production and storage to keep them in reasonable shape until about december. that becomes the timeline in which they have to reach this agreement with russia in order to be able to restart gas flows and the sooner that they do it the better. one of the reasons that it's important for ukraine to be able to do it is that there is a limitation on the size of the pipelines that can actually move gas from russia to the west. so at a certain point during the winter when russia's consuming and russia is consuming in

ukraine is consuming if there aren't pre-positioned supplies and ukraine you'll end up with the gas shortage so you have to have a certain amount that is already fare. so let's look at what this could be like in a year if there are some measures taken on energy efficiency. ukraine continues to produce 20 billion cubic meters. they have 10 billion cubic meters in reverse flow so that's 30 billion cubic meters. they reduce consumption by five than they are in a position where the amount that they would have to import from russia would be decreased to say 15 billion cubic meters as opposed to 28 that they are doing right now. that becomes a doable scenario. there a lot of things that have to happen to make it possible. what is really interesting is if you look out a decade. they're what we see is first ukraine has signed production sharing contracts with shell and

chevron. it has extensive shell gas capabilities. it also has great capabilities from the redevelopment of existing wells where they can produce more conventional gas from fields that simply stop producing. they have been using the same soviet technology since the 70s and what those changes in technologies realistically ukraine could actually double its production of gas to a range of 40 to 45 billion cubic meters in the course of a decade. it could expand its reverse flow capabilities. 10 is the minimum that i could do and without trying real hard it could potentially bring that up to 15. so just between those two things, production and reverse flows ukraine could be in a position of producing or having access to 50 to 60 billion cubic meters of gas. total consumption right now is 50. if it puts in place energy efficiency measures depending on how efficiency balance is off

with future economic growth ukraine realistically could be in a position where within a decade it can make the choice of whether it imports gas from russia. and if it is commercially advantageous for it to do so it can and if it's not it won't. so part of what we are doing is not only trying to help ukraine work through the short-term scenarios but be able to put in place the mechanisms that are going to allow it to work with private investors to be able to boost its production over time. that's something that the united states is engaged in and working with the ebrd the european union the ifc is interested. the world bank has been another important player so all of us are engaged in that process. the final thing i just want to say on the negotiation process between russia and ukraine. here the e.u. really has been absolutely critical and they have done and it's outstanding

job. they have been led by the european energy commission. essentially the approach that the e.u. has taken is to say that we have tried to create a competitive gas marketing year. we are extending that gas market and the rules of that gas market to ukraine which is part of the european energy committee. as part of the gas market there a few things you have to do. one is you abide by market prices. so the e.u. put on the table a proposal that gave the number of options of what prevailing market prices would be. the second piece of that is if you buy the gas you can trade it so that there is a freedom to trade and have reverse flows, something that gazprom has protested that the e.u. is supported in the third is if you consume the gas you have to pay your debts. here are ukraine has faced a real problem because they have significant buildup of deaths to gazprom.

what they have also agreed e.u. put on a table is that they would immediately make payments if in fact there was a package agreement around all of these efforts. russia walked away from that proposed agreement for one basic reason. there were issues of price and it related to debt but what was really a sticking point was the ukrainians in the e.u. supported them on this, said that they needed a mutually agreed contract that was not simply a russian adjustment to an earlier negotiated contract where russia decides to get a discount. what is the reason for that tax for that text of prevailing contractors from 2009 during the period of pershing go. when russia took crimea they decided there was no longer a need to give a discount so from

a political perspective that has become imperative for ukraine to be able to say there is a new contractual relationship that sets the foundations for our future gas relationship which is mutually agreed and not dependent simply on the unilateral discount. so that's the starting point where things need to move from here ideally to get the sides back to the negotiating table. the e.u. has indicated a willingness to do that and ukraine has indicated a willingness that it would return back to those negotiations. gazprom is still not responding positively but i hope in the end that gazprom will also see that europe is its largest market for gas and it needs to be seen as gas supplier in this new competitive world of gas that we see internationally and that also will benefit from an agreement at relationship that they would work out together. >> carlos that is what we get when they put you on the spot

with 30 seconds to prepare. i think we are in pretty good shape. thank you. >> jan and i have negotiated because we are out of time. one round of several questions and then get the panel a chance to very briefly close and we hope we weren't -- won't run to harbor. right there. >> theresa with the national war college. i want to ask about the storage. ambassador pascual you notice there were 14 billion cubic meters in ukraine right now. ukraine storage capacity as far as i know is 30 billion cubic meters. i want to understand the ownership of that storage. is there a transparency problem or a part russian ownership problem? in what sense is the storage and ukraine usable and what sense does it continue to be usable?

>> what are the u.s. as goals in the energy field in ukraine and what are the instruments to achieve those goals? my question is for ambassador pascual and further investors who want to answer. we manage it your cranium affairs but not u.s. interest. secondly technically ambassador listens intently to your presentation and i still don't understand. do you support -- because everybody agrees around the table that they do not have any other short-term options before this coming winter. other than restoring the flow of gas of its interrupted and that demands that payment. >> the last question right here.

>> david goldwyn spoke about propagating natural gas on conventional natural gas. >> my name is -- and i'm with "mother jones." propagating natural gas and i'm wondering what has been done on this front so far, whether the united states is stepping up these efforts in light of the crisis in crimea and it was also he felt not enough is being done on this front at what more we like to see being done on this front? >> what are we just go from here down to carlos. >> deferred to one investor for another. >> on stores you are correct they have about 13 billion cubic meters and five they have to maintain their and they cannot

use. that is gas which is within ukraine's ownership whether there are specific entities within ukraine's fuel -- owned portions of that gas is not completely clear. one of the things that has been abridged going forward is that the european union maintains a system for real-time reporting of gas stores gas movements and gas supplies they are posting it on line on a weekly basis but that has been an important step forward in promoting transparency about what gas stores they have available. in terms of what ukraine has to work with the heavy pretty good deal to work with. in terms of u.s. policy goals in ukraine i think they are goals that are almost universal which is to be able to see within ukraine and within europe and environment for the development of natural resources which

happens in the context of competition and diversification and supplies. that is good for consumers to have that kind of competitive environment. all of us seek to have multiple suppliers to satisfy our energy needs. it's a source of greater energy security. we want to be able to have an environment that allows us to develop our own energy resources and creating the right kind of an varmint that attracts by the investment to that because that's absolutely key is fundamental. it's those basic things i've been at the heart of u.s. policy and they are not that different from the way we explain the way we would do with other countries throughout the world. in terms of ukraine hang its death -- debt is more important what the united states said is that ukraine insisted pay its debt. one part of that proposed agreement is the day after the package was agreed to is that ukraine would make a payment of $1 billion.

the critical issue here is that ukraine has put on the table and the e.u. has been supportive of this site you should have a package arrangement that deals with the whole set of issues. what are the rights and arbitration? the following week you don't just get into another dispute over another issue and you really have the foundation to be able to move forward. goldwyn sm called the shale gas technical exchange program. it's now focused on unvex algas. -- unconventional gas. the united states has been engaged with many countries throughout the region to exchange best practices on the development of shale and to exchange best practices on developing unconventional gas resources. the final thing i just want to say is the importance of recognizing that the issues we

are dealing with here on energy fundamentally involve, fundamentally involve commercial players and private players making investments on the basis of what they think is going to be commercially viable and sustainable. so we all need to try to work together to help the countries that are involved in these disputes to be able to create an environment that allows commercially sound decisions to be reached that are in the economic interest of all of the countries and not have geopolitical factors be the driving factors of those commercial arrangements. the foundation for those arrangements really needs to be what makes commercial sense and that is one of the things i'm trying to do. >> i will differ to david because it's the shale gas question. >> thanks for the question. actually i thought the u.s. was i understand stepping up its

support for ukraine but in ukraine in all these countries really the point of the global shale gas initiative that technology exchange program is for our government to help other government -- governments regulate properly. the real challenge in most of these countries other than what is the local benefit and are the government sharing their revenues in a way that will help local development is how do you get regulators comfortable that they can protect groundwater that they can mediate between agriculture and the locality, that they can avoid seismicity issues and that's into regulation and is also leveraging all the things we have learned in the last three years about the need to require baseline testing of water, distance to a aquifer's setbacks disclosure. all these things which we learned the hard way need to be the starting point for these european question -- countries.

they ought to move from the initiative to how we should do it and there's a discomfort on u.s. policy not at the state department but if this discomfort with how do we support development of gas at the same time we are promoting a climate change initiative. the answers we can do both as long as you do it safely. i would like to see us do more because i would like to see europe do more. ultimately you can only get so much lng into these countries. until they get to the renewable future a decade off. >> we are so far out of time if they're in a burning comments we can take otherwise we will wrap up. >> i endorse the idea of a package giving incentives to

develop both short-term and longer-term approaches and one of the things here to keep in mind competition is not only a matter of the european space that there is more competition in the russian space. .. and gas prom are competing themselves, so the notion of encouraging a market-based approach should not be dismissed out of hand. the critical challenge is to develop a political environment in which a stabilization of the crisis in ukraine makes it possible to talk sensibly again about how it's in the economic interest not just of the west, but frankly, of the east to adopt these approaches. everybody will be better off. and i think that's the opportunity. through crisis, you get to an opportunity. >> well, let's thank our panelists for this fantastic discussion and all of you -- [applause]

thank you for joining us.