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The Global Producer-Consumer Dialogue on Energy, the Contribution of the International Energy Forum

25 January 2005

Vienna, Austria

Oil prices are in the headlines. Energy security is again high on the political agenda. Government leaders are concerned. Oil importing, industrialized countries warn of the detrimental impact that high oil prices have on their individual economies and on the world economy. Oil-importing developing countries suffer even more than before from increasing oil import bills. Oil-exporting countries are producing what they can to help bring prices down. And making good money doing so. Surging demand in Asia, economic recovery, refinery bottlenecks as well as terrorist attacks and political uncertainties are driving factors behind the higher oil prices that we have today. 

If this shorter-term perspective is challenging, the longer-term scenario 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 industrialise and their economies grow. In this longer-term perspective, production and consumption patterns, 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. 

A Time for Global Energy Dialogue

Clearly, this is a time for global energy dialogue. Because energy is crucial for economic and social development in individual countries. Energy is important for commercial and political relations between countries. It fuels the world economy. Production and consumption of energy impact the global environment. Energy influences, and is influenced by, international politics. It is difficult to imagine an area, where nations are more interdependent than in the confluence of energy, environment and economic development. 

Let me thank the Diplomatic Academy, and associated hosts, for the opportunity to share some perspectives on the importance of energy and the need for dialogue between energy producing and consuming countries.

Vienna has many charms. It is always a pleasure to return. And Vienna is a very relevant place to speak on the producer-consumer dialogue. Austria is a producer of oil, one million tonnes a year. Not very much, some would say. But, if I tell you that it equals the amount of beer that Austrians produce and drink each year, you will realise how substantial your oil production actually is. In contrast to beer, where Austria is self-sufficient, your imports of oil, however, are greater than your production, fourteen times greater. Austria is a member of the International Energy Agency, the most important organisation of industrialised oil consuming and importing countries. Austria is also the host country for OPEC, a co-sponsor this evening, the most important organisation of oil producing and exporting countries. This coming Sunday, Vienna will again be centre stage in the energy world when OPEC ministers meet. 

I do not know if there are corresponding international producer-consumer organisations for beer. As a substantial producer and consumer of beer, it is second nature to Austrians to demand stable prices at a reasonable level, especially in your favourite 'beisl'. Likewise, stability in the oil market and prices at a reasonable level are shared objectives for both oil producing and consuming countries. 

I am speaking this evening from the vantage point of the International Energy Forum. To avoid any misunderstanding, I should perhaps make clear that I will be speaking on oil and energy, and not on a dialogue on beer. And since our venue is the Diplomatic Academy, I shall touch on perspectives that are relevant also to foreign policy. 

The IEF gathers not only IEA and OPEC countries, but also important producing and consuming countries outside these organisations. In the IEF, Ministers meet for informal dialogue across traditional political, economic and energy policy dividing lines. The focus is on energy security and the links between energy, environment and economic development. 

Let me continue by saying a few words about the recent past, then highlight the unique character of the dialogue in the IEF. I will give a few figures to indicate the direction that energy developments seem to be going and mention some of the shared perspectives that emerged from our ministerial meeting in Amsterdam in May last year. Then a few words on energy security, before concluding by highlighting something that I believe will become a new and forceful regional dimension of the global energy dialogue. The contours of a new Asian Energy Identity. 

The Seven Political 'C's of Energy 

But first let me introduce as a framework for this lecture what I would call the seven political 'C's of Energy. Not the Seven Seas of planet Earth, but 'C's as represented by the third letter of our alphabet. These seven 'C's are: Concern, Competition, Conflict, Co-operation, Consensus, Conservation and Confluence.

The first 'C' is energy concern. We simply cannot do without energy, in our homes and in the world. We need it for survival. It fuels economic and social development. Political leaders and individuals are, and should be, concerned about energy security and the energy challenges ahead. 

As energy demand grows, so will competition, the second 'C'. Competition for energy resources and between resources. Competition is good when it makes everyone try a little harder. But it should be transparent, fair and on a level playing field. Competition is bad when it leads to the third 'C' - conflict.

We have seen how conflict in energy can negative economic and political consequences. The objective of dialogue is to reduce the scope for conflict and to foster the fourth 'C' - win-win co-operation. Co-operation between some stakeholders should, however, not be lethal to others. 

We are aiming for the fifth 'C' - a global consensus on energy based on the awareness of long-term common interests. An element of this consensus is the sixth 'C' - Conservation. We will need more of energy and must improve energy efficiency, for many reasons.

You cannot isolate energy from everything else. That brings us to the important seventh 'C' - confluence. Confluence of the streams of energy, environment and economic development into a sustainable and equitable Common Future. 

Dialogue of the Interdependent

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. For many years, it was politically not 'on' for energy ministers of consuming and producing countries to meet in a multilateral context. It now is. 

In that more confrontational past, voices for energy dialogue could be heard from time to time. But persistent voices against were louder. When Norway's former Prime Minister Dr. Brundtland, in the late 1980s, called for an informal workshop of ministers of energy producing and consuming countries, there were those who regarded the very idea of a dialogue at political level as a non-starter. Some even thought it outright dangerous. The differences and conflicts between the two groups of countries were seen as a fact of life. One just had to live with sharply fluctuating oil prices, instability and mutual insecurity, and with the adverse wider economic and political impact this would have. 

International developments and the Gulf War in 1990-91 highlighted the importance of oil and proved a turning point for the idea of dialogue at political level. A more co-operative atmosphere between producers and consumers ensued in its wake. At the initiative of Presidents Mitterand of France and Perez of Venezuela, the first Ministerial was held in Paris in 1991. It broke the political ice and was followed by informal ministerial level meetings in Norway, Spain, Venezuela, India, South Africa, Saudi Arabia, Japan and the Netherlands. An ever-increasing number of ministers have come to take part in what developed from a Ministerial Workshop to become the International Energy Forum. 

Unique in scope and approach

Sixty-three countries and eleven international organisations participated at the 9th IEF Ministerial took place in Amsterdam in May last year. Never before had so many energy ministers gathered in any one place at any one time. 

The producer-consumer dialogue at political level in the IEF is unique in its global participation and perspective. I have mentioned that it involves not only ministers of IEA and OPEC countries, but also ministers of important countries outside these two main producer and consumer organisations; China, Russia, India, Brazil and South Africa, to name a few, that are increasingly impacting the global energy scenario. In the IEF, these and other countries make their voices heard on an equal footing with their peers in the IEA and OPEC. 

The IEF is unique also in approach. Ministers discuss common concerns, present their policy views and listen to those of others. They look for consensus-oriented approaches to energy challenges. The IEF is not a decision-making organisation or a place where negotiate legally binding settlements and collective action. Nor is the IEF a body for multilateral fixing of prices and production levels. Decisions are made on a national basis in capitals. 

IEF ministerials are also the venue of a series of bilateral meetings. A market place for energy ministers, where they can meet all their important colleagues in a time efficient manner, get to know each other better or make deals, without the press and other colleagues necessarily getting to know about it. I might mention that since all the OPEC ministers were attending the Amsterdam ministerial last year, they had an informal meeting there the day before discussing the market situation and preparing for the decisions they would be making at their formal OPEC Ministerial a few weeks later. In the fringes of the IEF ministerial the next two days, they had the opportunity to meet also bilaterally with ministers of important consumer countries, and many of them did.

IEF ministerial meetings have contributed to a convergence of views and a growing awareness of the simple fact that we are all in the same boat. Greater stability and predictability in energy developments are increasingly seen as a shared goal that can facilitate long-term economic planning and have a positive influence on political developments as well. The mutual sense of interdependency, vulnerability and win-win opportunity has improved the 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. 

An Energy Scenario

Experts expect that a quarter of a century from now, energy demand will be almost two-thirds higher than today. Fossil fuels will remain the primary sources of energy and account four-fifths of total demand. Oil will amount to 35%, natural gas to 25% and coal to 22% of the energy mix. These fossil fuels will dwarf nuclear's 5%, hydro and other renewables almost 4% and biomass and waste's almost 10%. 

Fossil fuels will meet 85% of the total increase in global energy demand by 2030, most of which will come in the developing countries. Global energy related CO2 emissions will grow correspondingly. A 60% increase from today's level. 70% of this increase will 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 bio-mass for their basic energy needs. In 2030, we expect that 1.4 billion out of the world's 8.1 billion people will still lack access to electricity.

Put in simple terms, the world will need more and cleaner energy used in a more efficient way. It should be accessible and affordable to a larger share of the world's population. 

Amsterdam Conclusions

The Amsterdam Ministerial voiced concern about the high oil prices. Ministers agreed that economic recovery worldwide, especially in developing countries, would benefit from stable oil prices at a reasonable level. Both producer and consumer countries should take action to ensure sustainable price levels. 

Ministers considered present oil and gas reserves sufficient to meet the world's increasing energy needs, provided that necessary investments are made in time. Unhindered access to capital, energy technology and markets would promote the development of production, transit and transport capacity. The sovereign rights of states over their natural resources were reaffirmed. The commercial objectives of oil and gas companies were recognised.

Ministers echoed the strong message from CEOs of leading energy companies in the preceding International Energy Business Forum that stable and transparent economic, fiscal and legal frameworks need to be in place to attract sufficient foreign direct investment and other resources. Transparency also with respect to oil production and stocks was seen as important to that end. 

Ministers underscored the importance of investments in cleaner fossil fuels and of reducing the detrimental effects of growing energy use. The importance of developing alternative energy sources was stressed. Their vision was a smooth transition to a new energy era for the longer term, facilitated by the presence of still ample oil and gas reserves.

The importance of energy for sustainable development and follow-up of the Johannesburg Summit was also emphasized, especially bearing in mind the energy needs of a growing world population. 

Energy Security

This brings us back to energy security. A complex and broad-based issue. It is about oil, diversification of supplies and energy mix. It is about investments, technical arrangements and infrastructure. It also has to do with overarching imperatives of economy, politics and the environment. Energy security has domestic and foreign policy implications. It translates into producer-consumer interdependence, where mutual vulnerability and win-win opportunity is the name of the game, short-term and long-term. 

It is estimated that total investments of USD 16 trillion are required for the energy supply infrastructure needed to satisfy global demand in 2030. The economic challenge is to mobilise needed new investments in competition for limited funds with other important sectors of the economy. The political challenge is to ensure a common energy future where energy supply and demand can be balanced in such a way as to promote, and not jeopardise, the political goals of sustainable global economic, social and environmental development. 

And global energy trade, almost entirely in fossil fuels, is set to expand rapidly. Inter- and intra-regional trade in oil can double in the next 25 years. The mismatch between where these sources of energy are produced and where they are used will increase, linking regions and sub-regions closer together, but also posing new challenges. Vulnerability to disruptions of energy supply, due to politically motivated sabotage or technical mishap, can increase. Maintaining the security of international sea-lanes and pipelines on- and offshore will assume increasing importance for energy security.

There is no quick and lasting fix to the challenge of global energy security. The cluster of issues related to energy security must be addressed in on-going dialogue not only between nations at political level, regionally and globally, but also in dialogue and partnerships between governments and industry. 

New Kid on the Global Energy Block

At the IEF Ministerial in Riyadh in 2000, Crown Prince Abdullah of Saudi Arabia suggested the need for a Secretariat to support the producer-consumer dialogue, what until then had been an informal process without any fixed institution. He offered Saudi Arabia as host country for this new body. The idea was endorsed at the following Ministerial in Japan in 2002. And the Secretariat started its work in December 2003. It is funded on the basis of annual voluntary contributions from participating countries, including Austria. 

A cardinal task for the new International Energy Forum Secretariat in Riyadh is to support host country Qatar, and co-hosts China and Italy, in preparing the next Ministerial that will take place in Qatar in 2006. The Secretariat will help to ensure the continuity of the ministerial level energy dialogue also between the biannual meetings by organising supportive meetings and roundtables. It can play a catalyst role by facilitating regional and inter-regional activities and linking these to the global dialogue endeavour. 

A New Asian Energy Identity

An example of this is the 'Roundtable of Asian Ministers on Regional Co-operation in the Oil and Gas Economy' hosted by India in New Delhi earlier this month in association with the International Energy Forum Secretariat and with Kuwait as co-host. The petroleum and energy ministers of the 'big four' Asian importers - China, Japan, India and Republic of Korea were there. So were the ministers of the main exporters in West Asia - Saudi Arabia, Iran, Kuwait, the UAE, Qatar and Oman - as well as Malaysia. Ministers 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. They gathered to discuss for the first time on a regional Asian basis an issue of utmost national and international concern - energy security, stability and sustainability.

The backdrop was the much higher oil prices over the last year, energy security concerns as well as increasing Asian energy interdependence. With energy hungry, growing economies in the East and South. With ample reserves of oil and gas in the West. Today, East and South Asia rely on West Asia for four out of every five barrels of their imported oil and West Asian nations send two out of every three barrels of their oil exports eastwards in Asia. 

Ministers recognized that while the Asian oil economy is integral to, and inseparable from, the global oil economy, the share of Asia in global production and consumption will progressively increase. They underscored the shared desire for market stability and that prices be sustained at levels which encourage Asian consumers to increase their purchases of Asian produce on the one hand and encourage Asian producers to promote investments in oil and gas for Asian consumer destinations on the other. Ministers exchanged views on the scope for improving Asian markets. They underlined the importance of strategic storage and crisscross investments linking Asian producers and consumers closer together. 

The Delhi discussions manifested a distinct awareness of increasing energy interdependence in Asia. What we now see emerging is a new and evolving Asian Energy Identity. Ministers agreed to continue their dialogue to establish an Asian consensus at a second roundtable in Saudi Arabia, to be followed not only by a third roundtable in Japan, but also by a fourth in Kuwait. These will be facilitated by the International Energy Forum Secretariat. 

This new regional energy dialogue will promote wider regional economic and political co-operation as well. It will be an important dimension of an evolving multi-polar global energy order. Developments towards an Asian strategic partnership in energy will have global impact. The Secretariat can play the role of catalyst link between this new regional process and the global dialogue endeavour in the IEF. 

Dialogues within the Dialogue

We are facilitating also other regional dialogues within the global dialogue. At the request of the Energy Minister of Russia, we took part in the 4th Russian Oil and Gas Week and held a joint roundtable with Russian authorities on Eurasian energy co-operation in October last year. We are involved in the EuroGulf project on energy relations between the EU and GCC, the Gulf Co-operation Council. The Energy Ministers of ASEAN+3 (China, Japan and Korea) have requested us to facilitate a meeting with a larger group of Middle-East exporting countries later this year. We are discussing facilitation of regional meetings hosted by South Africa and Mexico as well. The UN has invited us to contribute to the focus that they will put on energy and development in 2006-2007, following up the Johannesburg World Summit. 

A Third Pillar

Support to the host country of the biannual IEF ministerials and facilitating supportive meetings in between are two pillars of Secretariat activity. A third pillar is to contribute to enhanced oil data collection and transparency. 

We hosted two weeks ago in Riyadh a meeting with the six organisations - APEC, Eurostat, IEA, OLADE, OPEC and the UN - that have pioneered and developed the Joint Oil Data Initiative (JODI). The objective of this joint effort, which is now established as a permanent mechanism, is to improve the quality and transparency of international oil statistics. More than 90 countries, representing 95% of global supply and demand, are now submitting data. 

Data and statistics are very technical in appearance. But available and unavailable oil data influence prices and markets and have political impact. Recognising that accurate and timely data are important to reduce market volatility, and willing to contribute reliable data, Ministers have endorsed the Secretariat assuming a co-ordinating role in this international and inter-organisational endeavour. JODI coordination is set to become a flagship of our activity and will contribute to market stability and energy security. 

Dialogue of the Interdependent

Let me conclude, Ladies and Gentlemen, by emphasizing that the International Energy Forum is an evolving international endeavour driven by governments at ministerial level. It provides a venue for ministers of energy exporting and importing countries, of developing and industrialised countries, to put their concerns and policy views on the table and to listen to, and better understand, those of others. An informal dialogue of the interdependent, where Ministers can identify effective and sustainable ways of promoting global energy security across traditional political, economic and energy policy dividing lines.