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Global Energy Security in a Multi-polar Energy World

12 September 2006

Vienna, Austria

I am greatly honoured by your invitation to present the International Energy Forum and some perspectives on energy security to this Special Meeting of the Permanent Council. And it is always a personal pleasure to return to Vienna, where I served as Norway's bilateral Ambassador to Austria as well as Ambassador to the UN Organisations up until end 2003. My perspectives will be global and I hope useful as a backdrop to the OSCE's inter-regional and intra-regional scope of activity. This at a time of heightened energy consciousness around the world. After introducing the unique character and scope of the political level dialogue in the IEF, I will briefly re-track the road from producer-consumer confrontation of the past to the co-operative era that we enjoy today. I will highlight shared perspectives that emerged from the 10th IEF Ministerial that took place in Doha, Qatar in April this year. Then sketch what we can expect in terms of an evolving energy mix the next quarter of a century. And conclude by sharing some views on global energy security in a multi-polar energy world. Having done this, I will be looking forward to your responses, knowing that the Permanent Council is in the process of determining what the OSCE might want to do in the field of energy within your wider mandate.

Unique dialogue

At the 10th IEF Ministerial in Doha, Energy Ministers and senior officials of 59 countries, half of them OSCE members, international organisations and CEOs of leading companies gathered to discuss Energy Security as a 'shared responsibility'. The on-going dialogue among Ministers in the IEF is unique in that it transcends traditional political, economic and energy policy dividing lines and affiliations in an ever more interdependent world. The IEF gathers under one global umbrella, Ministers not only of the industrialized energy consuming nations of the IEA/OECD as well as Ministers of the petroleum exporting countries of OPEC. It gathers very importantly also Ministers of key countries that are not members of those organizations, such as China, India, Russia, South Africa and others that increasingly will influence not only the global energy scenario, but the global economic and political scenario as well. The IEF is unique not only in its global perspective and scope, but also in approach. It is not a decision-making organization or a forum for negotiation of legally binding settlements and collective action. Nor is the IEF a body for multilateral fixing of prices and production levels. The informality of its framework has encouraged a degree of frank exchange, which cannot be replicated in traditional and more formal international settings. Ministers meet to discuss common concerns seeking consensus-oriented approaches to energy challenges ahead. The producer-consumer dialogue in the IEF has contributed to a convergence of views and a growing awareness of common interests. The knowledge basis for national decision-making and for purposeful co-ordination of policies within other international fora has improved. The mutual sense of interdependency, vulnerability and win-win opportunity fosters a more conducive atmosphere for long-term co-operation. And difficult short-term issues are being addressed in a more co-operative way than before, when the atmosphere was confrontational. Results of dialogue can be seen in concrete measures taken by both consumer and producer countries individually and by their organizations. Results of dialogue are also evident in statements of policy intent that in times of geopolitical and other uncertainty have sent calming signals to nervous energy markets. Statements made and measures implemented by producers and consumers alike do have impact not least on oil prices and market stability.

Energy a defining issue

Energy security concern is today at the top of the political agenda worldwide. Because energy is important for economic and social development in each and every country. Energy affects commercial and political relations between countries. Energy fuels the world economy and impacts the environment. Energy influences international politics and international politics influence energy developments. Energy a defining issue of our day and age. Considering this wider importance of energy, it is in my view important that Ministers of Foreign Affairs, whose responsibility it is to deal with geopolitical concerns and the totality of their countries' international relations, add their perspectives to those of Energy Ministers in a purposeful and multi-faceted dialogue on energy security. At the IEF Ministerial in April, Ministers identified geopolitical uncertainties as one of the important factors behind the higher oil prices and market volatility of the day. Ministers of some oil producing countries attributed USD 15-20 of the price of the barrel to the prevailing geopolitical uncertainties. In fact, at the Second IEF Ministerial, hosted by Norway in 1992, participating countries had dual representation of both Energy and Foreign Ministers. That was a time of evolving geopolitical realities in the wake of a Gulf War and the dissolution of the former Soviet Union. Perhaps, the time is here again for Energy Ministers and Foreign Ministers to meet jointly and address energy security concern. Given the fact that what one country does in its energy policy also affects important interests of others, I believe that Energy Ministers should have a wider foreign policy consciousness in their energy policy considerations as Foreign Ministers should have an energy policy consciousness in their foreign policy considerations. Geopolitical realities have to a great degree influenced what could, or could not, be done in terms of international energy co-operation. They will continue to do so. But perhaps, our globalising World has entered a stage, where co-operative designs that are practical and make economic sense to an increasing degree will contribute to shaping new and co-operative geopolitical realities. With the hand of national and international oil companies on the steering wheel in addition to the hands of Ministers. 

From Confrontation to Dialogue

For many years, it was politically simply not 'on' for Energy Ministers of consuming and producing countries to meet in a multilateral context. Fifteen years of political-level dialogue in the IEF have broken earlier taboos. Global energy dialogue is now being actively pursued. The past has shown how energy, especially the strategic commodity oil and market volatility, can create conflict or exacerbate political tensions between countries or groups of countries. An image of confrontation had developed between producers and consumers of petroleum. The oil crisis of 1973-74 in the wake of Middle East war, and the use of oil as a political weapon, had pitted petroleum producing and consuming countries antagonistically against each other. OPEC, established in 1960, and the IEA, established in 1974, had emerged as the bi-polar and multilateral expression of conflicting producer-consumer interests. Co-operative relations could develop on a bilateral basis between most oil producing and consuming countries. But multilateral approaches to build bridges and establish a structured producer-consumer dialogue and co-operation foundered in the Conference on International Economic Co-operation in Paris and again in UNCTAD in second half of the 1970s. 
The UN Commission on Environment and Development emphasized in its report 'Our Common Future' almost twenty years ago the importance of energy for sustainable economic and social development as well as for environment. And not least the importance of oil prices for international energy policy. 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, Dr. Brundtland called in the late 1980's for an informal 'Workshop' of Ministers of energy producing and consuming countries to discuss the resource and market perspectives as well as the links between energy and environment. Many were ready to try, but important countries regarded the very idea of a dialogue on these matters at political level as a non-starter, even as outright dangerous. Some seemed to regard the differences and conflicts between producers and consumers as permanent facts of life, a divide that no political level dialogue could bridge, or should even attempt to bridge. The Gulf War in 1990-91 highlighted again the geopolitical and economic importance of oil. It proved a turning point for the idea of dialogue at political level. A more co-operative atmosphere between producers and consumers ensued. It had become increasingly clear that sharply fluctuating oil prices were detrimental to both producers and consumers and that 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 co-operative mantra. The first Ministerial meeting, in what developed as the informal energy dialogue in the IEF took place in Paris in 1991. 

Shared responsibility

Not surprisingly, oil was again a key topic when Ministers discussed energy security at the 10th Ministerial in Doha. They noted that world economic growth had remained strong despite increasing oil prices and market volatility. They expressed concern over effects of sustained high price levels on the world economy, and especially on developing countries. Ministers confirmed their shared interest in reduced market volatility and prices at reasonable levels for both consumers and producers. They noted increasing producer and consumer interdependencies. Present higher oil prices were attributed to a number of factors, including increasing demand, tight up- and down stream capacities, intervention of non-industrial actors and geo-political developments, which contribute to increased anxiety in the market. Ministers underlined the importance of strengthening dialogue and co-operation not only between governments, but also between governments and industry with a view to 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. The consensus is that the world will continue to rely strongly on fossil fuels, oil, natural gas and coal, supplies of which are ample. Ministers thus underlined the need to accelerate the development of cleaner fossil fuel technologies and alternative sources of energy and to increase energy efficiency. They also emphasized the need to facilitate specialized education and training of human resources. Ministers 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, is crucial for the long-term energy security of both consumers and producers. They furthermore underlined the importance of transparency and exchange of data for market predictability and thus for the investments required to enhance energy security. They reaffirmed their support to the Joint Oil Data Initiative, JODI for short, which the IEF Secretariat is coordinating, with the support of the IEA and OPEC, APEC, Eurostat, OLADE and the UN. And they envisaged the initative, in due course, being expanded to include also other sources of energy that are important in the world energy mix. JODI is a concrete outcome of the producer-consumer dialogue. A flagship activity of the Secretariat. A unique inter-organizational co-operative vehicle to increased transparency and reduced volatility in the oil market, contributing to better predictability for investment decisions crucial to overall and sustainable energy security.

G8 Summit support

Themes focused on by Energy Ministers in Doha were given enhanced and high-profiled emphasis by the G8 Heads of Government at their annual Summit this summer, under the Presidency of the Russian Federation, the world's largest producer of oil and natural gas. At the very top, in the very first operative paragraph of their St. Petersburg Plan of Action for Global Energy Security, the Heads of Government invited the International Energy Forum to study ways of broadening the dialogue between energy producing and energy consuming countries on increasing transparency, predictability and stability of global energy markets including information exchange on their medium- and long-term respective policy plans and programmes. In the second operative paragraph of the G8 Plan of Action, Heads of Government welcomed the implementation of the Joint Oil Data Initiative and pledged to take further action to improve and enhance the collection and reporting of market data on oil and other energy sources by all countries including through development of a global standard for reporting reserves. They invited the IEF to work on the expansion of JODI membership and to continue to improve the quality and timeliness of data. The IEF Secretariat is greatly encouraged by and eager to respond to the G8 invitations within the framework of our overall activity to strengthen and deepen an on-going global dialogue on energy. 

An Energy Scenario

The increase in global energy demand foreseen in the years ahead is substantial. The resources are there, but timely investments in infrastructure of some USD 17 trillion, half of this in developing countries, have to be made to meet projected demand over the next 25 years. Experts expect that by 2030 energy demand will increase by more than half over today's level. Fossil fuels will remain the primary sources of energy and account for four-fifths of total demand. According to IEA projections, oil would account for 34%, natural gas for 24% and coal for 23% of the energy mix. These fossil fuels would dwarf the 5% share of nuclear, the 4% share of hydro and other renewables as well as the 10% share of biomass and waste. The IEA 'business as usual scenario' sees fossil fuels meeting 85% of the total increase in global energy demand by 2030, most of which will come in the developing countries as they industrialize and their economies grow. Global energy related CO2 emissions would grow correspondingly. Emissions would increase by more than half (52 %) from today's level. Three quarters (73%) of this increase would come from developing countries. Today, a quarter of the world's population (1.6 billion of 6.2 billion people) lacks access to electricity and two-fifths rely mainly on traditional biomass for their basic energy needs. Experts estimate that 1.4 billion people, out of an expected world population of 8.1 billion people, will still lack access to electricity in 2030.

Energy Security

Energy security is a national imperative, a sovereignty issue. But also a global issue in an increasingly interdependent world. An energy world that is becoming increasingly multi-polar. The cluster of issues related to energy security are being addressed bilaterally and in regional, inter-regional and global contexts. Not only in a short-term crisis perspective, but also in a long-term perspective as production and consumption patterns as well as requirements for investments in infrastructure evolve. Energy security is a broad-based issue and no longer focused purely on oil. Energy efficiency, strategic petroleum reserves and stock-holding, fuel-switching, substitution options, diversification of resources and spare capacity are along with emergency responses key options for security of supply. Energy security policy has often been inward looking, wary of dependence on external sources, especially on areas with political uncertainties. Recent international energy developments have induced some importing countries to regard energy dependence on others with increased caution. Energy importing countries want security of supply from energy exporting countries. Energy exporting countries in turn want security of energy demand in energy importing countries. They may in addition want and need investments and technology from abroad to develop infrastructure necessary to produce and export their energy resources. If security of supply and security of demand are two sides of the same coin, then one side of the coin should not be permanently up and the other permanently face down. Nor should there be a 'lucky today and unlucky tomorrow' coin-flipping scenario. In our IEF dialogue, 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 energy importing countries. Road maps are not always easy to make, and even when made can sometimes prove difficult to follow, if not deemed irrelevant. But the realistic road maps that are possible to chart for energy security, could give useful guidance for the investment decisions needed to secure adequate energy supplies. There is a geographical mismatch between the centres of oil and gas reserves and centres of consumption. This means that energy trade is poised to expand rapidly, increasing mutual dependence between countries. This poses new challenges. Vulnerability to disruptions of energy supply due to terrorist onslaught or technical mishap can increase. Maintaining the security of international sea-lanes and pipelines assumes increasing importance for energy security. Some would 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, if it cannot be avoided altogether. Others would argue that energy dependency ties countries closer together also economically and can serve as an impulse to improve also political relations between countries and the overall geopolitical climate. Interdependence can be good. And interdependence can be bad. For it to be good and sustainable, it has to be mutually beneficial - win-win. Energy security is more than an issue of technical arrangements and infrastructure. It has also to do with economics, geopolitics and the environment. It has domestic and foreign policy implications. Long-term global energy security is not security for some at the expense of others. The further development of a substantive and co-operative producer-consumer dialogue is a prerequisite for our common efforts for energy security. And in this effort, industry itself has a crucial role to play in addition to governments. 

Multi-polar energy world

The quest for sustainable global energy security is highlighted not only by Energy Ministers in the IEF. I have already mentioned the G8 Summit focus. This quest was highlighted also at the 14th UN Commision on Sustainable Development in New York in May. Energy, in its wider global and long-term perspective, is the Commission's focus theme this year and next because of the importance of energy for meeting the Millennium Development Goals. As global focus now is being put on issues of energy security, regional and inter-regional energy co-operation is also being strengthened around the world. This gives impetus to the global energy policy interrelationship. Parallel processes of global and regional co-operation are important to energy security in a multi-polar energy world. Regional and interregional co-operation can provide stepping-stones to global approaches and co-operation. Such regional and inter-regional co-operation should not go off in different, globally disruptive and conflicting directions. The processes should be parallel, going in the same direction, and thus be mutually supportive. The biennial IEF acquires added importance as a global meeting point for the mosaic of regional and inter-regional energy ambition and co-operative designs. And the IEF Secretariat can play a useful role as catalyst link. Interacting with regional processes of energy co-operation, the Secretariat has the opportunity to convey IEF global dialogue perspectives, while taking back to our global endeavour the focus and interests of particular regions. The OSCE has among its membership major energy producers and consumers and transit countries that are playing an important role in the mosaic of international energy co-operation. Clearly, the potential to develop mutually beneficial regional and inter-regional energy co-operation, in addition to and in support of your other energy affiliations. As an integral part of the wider global picture. Energy co-operation that could give further impulse to the further economic and political co-operation that you have on your agenda.

New Asian Energy Identity

Let me mention a new regional feature of consequence in a changing and multi-polar energy world. What I would call the emergence of a New Asian Energy Identity. India convened in January last year a 'Roundtable of Asian Ministers on Regional Co-operation in the Oil and Gas Economy' in association with the IEF Secretariat and with Kuwait as co-host. It gathered Energy Ministers of the principal Asian importers (China, Japan, Korea, India) and West Asian (Gulf) producers. Ministers representing half of the World's population, the bulk of the World's remaining proven oil and gas reserves and also the greater part of the surging global energy demand expected in the decades ahead. It was the first time that they discussed energy security, stability and sustainability on a regional Asian basis. The IEF Secretariat also facilitated a supplementary Roundtable of Ministers of the principal Asian consumers and North and Central Asian producers held in November last year, again convened by India and this time co-hosted by Russia and where several other OSCE countries took part. At both Roundtables, Ministers recognized very importantly that the Asian oil economy is integral to, and inseparable from, the global oil economy. Both of these regional Asian dialogues will continue with follow-up meetings taking place next year, for the former in Saudi Arabia with Japan as co-host. The latter in Turkey with Azerbaijan as co-hosting country.

In conclusion, Excellencies, Ladies and Gentlemen, 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 challenge lies in operationalizing this imperative in a fair and sustainable way. In national policies as well as in bilateral, regional, inter-regional and wider global co-operation. The producer-consumer dialogue in the International Energy Forum is above all a confidence-building process. A truly global dialogue among Ministers of energy producing and consuming countries, industrialized and developing countries, across traditional political, economic and energy policy dividing lines. A dialogue in which Ministers focus on energy security and address the links between energy, environment and economic development. A dialogue through which Ministers can promote their national interests in the wider context of promoting common global objectives as well.