Middle East Economic Survey
VOL. L
No 47
19-Novem
OPEC/SUPPLY/DEMAND
Dialogue For Global Energy Security: The Role Of The IEF
By Arne Walther
The following is an abridged version of a lecture given by Ambassador Arne Walther, Secretary General, International Energy Forum (IEF), to the Center for Strategic and International Studies (CSIS) in Washington on 7 November.
Energy and the environment are center-beam in the international political spotlight of our day. Energy security continues to top the political agenda for energy importing as well as exporting countries, and for industrialized as well as developing economies. We are all “addicted” to energy because every country needs energy to reach its economic and social objectives. Energy also affects commercial and political relations between countries, and fuels the world economy. Production and consumption of energy impact the global environment. Energy influences, and is influenced by, international politics. Energy is a challenge for the industry set to harness it, and a challenge for leaderships that would govern it. Energy goes to the core of political, economic and environmental interests of individual countries, as well as of the global community. It is difficult to imagine an area, where nations are more interdependent than in the confluence of energy, environment and economic development.
Spotlight On Energy
With the international spotlight on energy, questions are being asked. Are there sufficient energy resources? Will the investments needed to develop them be made in time? Will energy be accessible and affordable on an equitable global basis, or only for the privileged few? Will there be a conflict and scramble for resources adversely affecting sustainable global developments? What about the environment and climate change? Will we see new patterns of energy cooperation shaping new geopolitical realities? Or, will established geopolitical realities be a stumbling block for wise and sustainable patterns of energy cooperation?
Energy and environmental uncertainties are prompting countries and groups of countries to re-think fundamental policies. “Diversity” is widely seen as key to policies for energy security, with a diversity of suppliers and in energy-mix for the consumers, and of markets for the producers. But the policy tuning of one country to meet new challenges and reduce its particular energy uncertainties can also exacerbate uncertainties or create new ones for others. Amid the uncertainties, there is a fundamental certainty. The world will need more and cleaner energy, used in a more efficient way, accessible and affordable to a larger share of the world’s population. The political challenge lies in operationalizing this energy imperative in a fair and sustainable way, through national policies as well as in bilateral, regional and wider global cooperation.
The shorter-term perspective is challenging. The longer-term one is even more daunting. The increase in global energy demand foreseen in the years ahead is substantial. Most of this increase will come in the developing countries as they industrialize and their economies grow. Patterns of energy production and consumption, the energy mix as well as investment requirements, will evolve in a changing geopolitical environment. And these energy developments will influence that changing geopolitical climate.
Global Focal Point
The global producer-consumer dialogue in the IEF acquires increasing importance as nations revisit and modify established policies, and shape new ones, in their quest for energy security. Global dialogue on energy in the IEF transcends traditional political, economic and energy policy dividing lines. It gathers under one global political umbrella ministers of the petroleum exporting countries of OPEC and those of the industrialized, energy importing countries of the OECD/IEA. It also gathers ministers of countries outside these organizations, such as Russia, China, India, Brazil, South Africa and others, that will have increasing impact on the global scenario.
Producer-consumer dialogue has played its part in ushering international energy affairs out of an era of mistrust and confrontation into one of greater understanding, better awareness of long-term common interests and convergence of views and outlooks. The knowledge basis for national decision-making and for purposeful co-ordination of policies within other international organizations is better than before. Results can be seen in concrete measures taken by both consumer and producer countries individually and by their organizations. The results of dialogue are also evident in statements of policy intent that in times of geopolitical and other uncertainty send calming signals to nervous energy markets.
The IEF can increasingly serve as a global focal point for the wider Global Energy Policy Interrelationship of co-operative contacts among governments at political and officials’ level and on bilateral, regional, inter-regional and global basis. Not only governments, but also oil companies, the broader energy industry, financial institutions, international organizations and other stakeholders have their integrated role to play in a widened co-operative interrelationship.
The Case For Dialogue
The importance of energy dialogue and the IEF’s role a cooperative mechanism are enjoying increasing international recognition by ministers, individually and by regional and global energy organizations. Not least the G8 Heads of Government, at their Summits in Gleneagles in 2005 and St Petersburg in July 2006 encouraged IEF ambitions. Yet, for many years, it was politically simply not “on” for energy ministers of consuming and producing countries to meet in a multilateral context. The strategic commodity, oil, and market volatility could create conflict or exacerbate political tensions between countries or groups of them. The oil crisis of 1973-74 in the wake of the Middle East war, and the use of oil as a political weapon, had pitted petroleum producing and consuming countries antagonistically against each other. OPEC and the IEA emerged as the bi-polar and multilateral expression of conflicting producer-consumer interests. While cooperative relations could develop on a bilateral basis, multilateral approaches to build bridges and establish a structured producer-consumer dialogue foundered in the Conference on International Economic Cooperation (CIEC) in Paris and again in United Nations Conference on Trade and Development (UNCTAD) in the second half of the 1970s.
New Cooperative Mantra
It became increasingly clear, however, that sharply fluctuating oil prices were detrimental to both producers and consumers and there could be no long-term winners in troubled energy markets. Less volatility in energy markets and stable prices at a reasonable level for consumers and producers emerged as a shared ambition and new cooperative mantra. The World Commission on Environment and Development acknowledged in its report “Our Common Future” in 1987 the importance of energy for sustainable economic and social development. It recommended that new mechanisms for encouraging dialogue between consumers and producers be explored.
On that note the Chairperson of the Commission and Prime Minister of Norway, Gro Harlem Brundtland, called at the World Economic Forum in Davos in 1989 for an informal “Workshop of Ministers” of energy producing and consuming countries to discuss the resource and market situation, and outlook, as well as the links between energy and environment. Many were ready to try, but some important industrialized countries regarded the idea of a dialogue on these matters at a political level as a non-starter, appearing to regard differences and conflicts between producers and consumers as a divide that no political level dialogue could bridge, or should even attempt to bridge.
Globetrotting Trek
The 1990-91 Gulf War highlighted again the geopolitical and economic importance of oil. A more cooperative atmosphere between producers and consumers ensued in its wake. At the initiative of Presidents Mitterrand of France and Perez of Venezuela, a “Ministerial Seminar” of Producers and Consumers was held in Paris in 1991 breaking the political ice. It was followed by an informal “Ministerial Workshop” in Norway in 1992 that broadened the dialogue from the traditional bi-polar IEA-OPEC configuration to involve Russia. The process of IEF Ministerials then moved to Spain in 1994, Venezuela in 1995, and India in 1996, acknowledging the importance of Asia and the growing energy needs of the emerging economies as integral dimensions of the global energy policy interrelationship.
Ministerials followed in South Africa in 1998 and Riyadh in 2000, where King ΄Abd Allah of Saudi Arabia, then Crown Prince, proposed the establishment of a permanent Secretariat and offered to host it in Riyadh. The IEF Ministerial in Japan in 2002 endorsed the Secretariat proposal. The new Secretariat presented itself at the 9th IEF in the Netherlands in 2004, where the 1st International Energy Business Forum was convened for direct interaction between CEOs of leading energy companies and IEF Ministers. Qatar hosted the 10th IEF Ministerial and 2nd International Energy Business Forum in April last year.
Shared Responsibility
In Qatar, ministers noted that world economic growth had remained strong despite increasing oil prices and market volatility, but expressed concern over effects of sustained high price levels on the world economy, and especially on developing countries. They confirmed their shared interest in reduced market volatility and prices at reasonable levels for both consumers and producers. They attributed higher oil prices to a number of factors, including increasing demand, tight up- and down-stream capacities, intervention of non-industrial actors and geo-political developments, which contributed to increased anxiety in the market.
Ministers underlined the importance of strengthening dialogue and cooperation not only between governments, but also between governments and industry with a view ensuring reliability, security and affordability of energy. They called for a stepping up of investments across the energy chain to meet the substantial increase in demand required for global economic growth and social development in the years ahead.
Ministers urged accelerated development of cleaner fossil fuel technologies along with alternative sources of energy and increased energy efficiency in a world that would continue to rely strongly on its ample supplies of fossil fuels, oil, natural gas and coal. They underscored that improved access to markets, resources, technology and financial services, bolstered by fair and transparent economic fiscal and legal regulatory frameworks, and by good governance, are crucial for the long-term energy security of both consumers and producers.
Flagship Activity
The Joint Oil Data Initiative (JODI) is a concrete outcome of the producer-consumer dialogue. Coordination of this unique inter-organizational transparency initiative is a flagship Secretariat activity, with the active participation and full support of our partner organizations; the Asia Pacific Economic Cooperation (APEC), European Communities, IEA, the Latin-American Organization for Energy Cooperation (OLADE), OPEC and the UN. Our partner organizations joined hands to set up the Joint Oil Data Exercise in 2001 following the call by ministers at the 7th IEF in 2000 to do something about the lack of data transparency seen to cause excessive oil price fluctuations. They established the JODI as a permanent mechanism in 2003. The IEF Secretariat assumed the co-ordination of JODI in 2005 and manages the JODI World Database with the objective of improving the quality and transparency of international oil statistics.
More than 90 countries, representing 90% of global supply and demand, are now submitting data to JODI through our partner organizations. The data cover production, demand and stocks of seven product categories: crude oil, LPG, gasoline, kerosene, diesel oil, fuel oil and total oil. JODI is promising work in progress with great potential.
IEF ministers underline the importance of transparency and exchange of data for market predictability and for the investments required to enhance energy security. They envisage in due course being expanded to include also other sources of energy that are important in the world energy mix. The IEF Secretariat will present to the 11th IEF a feasibility study on the potential expansion of JODI to include natural gas.
Energy Security And Interdependence
Energy security is the core objective of the political level dialogue in the IEF. While energy goes to the very core of national interests, it is also a global issue in an increasingly interdependent world, an energy world that is becoming increasingly multi-polar. Deliberations in the IEF have shown how multi-dimensional the challenge of global energy security is. There is no quick and lasting fix. For nations to talk about energy security at political level, bilaterally, regionally and globally is good. But actually doing something about it is better and requires dialogue and partnerships also among governments and industry. Some argue that dependency on others in so important and strategic an area as energy constitutes a political and economic risk that should be reduced to a minimum, not be avoided altogether. Others argue that energy dependency is not only practical and inevitable in a globalizing world, but that it ties countries closer together also economically and can improve the overall geo-political climate.
For energy interdependence to be good and sustainable, it has to be mutually beneficial. The political level dialogue in the IEF highlights both sides of the energy security coin: security of supply and security of demand. For both consumers and producers this implies dependency on the other. Ministers of some energy-importing countries are requesting a “road map” from energy-exporting countries on future supply. And ministers of some energy-exporting countries likewise requesting a “road map” on future demand from the importing countries.
New Asian Energy Identity
Energy cooperation in Asia is taking a new form and deserves special mention in light of its potential. Recognizing the global impact of energy developments in Asia, the Secretariat is facilitating the process of Roundtables of Asian Energy Ministers initiated by India in January 2005. Ministers of the principal Asian importers and West Asian (Gulf) producers, representing half of the world’s population, the bulk of the world’s remaining proven oil and gas reserves and, very importantly, the greater part of the surging global energy demand expected in the decades ahead are now interacting on broad regional Asian basis issues addressing energy security, stability and sustainability.
The Secretariat assisted the further development of this new Asian Energy Identity at the Second Asian Ministerial Energy Roundtable that Saudi Arabia hosted and Japan co-hosted in May 2007. This Asian process that will continue with a 3rd Roundtable of Asian Energy Ministers that Japan will host in 2009 facilitated by the IEF Secretariat and with Qatar as co-host. Kuwait will subsequently host the 4th Asian Ministerial Roundtable, and Korea the 5th.
Rome And Beyond
The 11th IEF Ministerial in Rome in 20-22 April 2008 offers a new global opportunity for ministers to address the energy resource challenge. They will update their outlooks with regard to supply and demand, as well as market conditions, with a view to finding ways to remove bottlenecks to energy security and to enhance market stability. They can further discuss how to promote the substantial energy investments where and when needed. Ministers can seek to identify policies towards a sustainable energy future addressing issues such as environmental and climate change concern, better access to energy for developing countries, the importance of developing cleaner fossil fuel technologies as well as alternative sources of energy. Ministers will interact with CEOs of leading national and international energy companies in the 3rd International Energy Business Forum preceding their internal discussions.
If “All roads lead to Rome”, the road of energy dialogue does not end there. Neither energy nor dialogue is a goal in itself, but a means to promote sustainable economic and social development, while strengthening relations among countries in the wider political perspective. The dialogue under the IEF umbrella is, above all, a global confidence-building process among ministers of energy producing and consuming countries, industrialized and developing countries, across traditional political, economic and energy policy dividing lines. It is a dialogue in which ministers focus on energy security and address the links between energy, environment and economic development. They can also promote their national interests in the wider context of promoting common global objectives as well. In that perspective, there can be no final destination, there will always be new horizons.
Given the strategic importance of energy to each and every country, I do not see the establishment in the near future of a global energy organization, where national decision-making would be relinquished and replaced by binding global energy governance. But through the myriad of established and future new partnerships between governments and between governments and industry, I do see the producer-consumer dialogue in the IEF as a vehicle to develop a Global Code of Energy Conduct. A Code of Conduct that is advantageous for all to follow. To deviate from this in pursuit of short-term advantage at the expense of others would be tantamount to shooting oneself in the foot, at the very least.