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The Producer-Consumer Dialogue and Energy Security

24 April 2004

Beijing, China

Developments in China are breathtaking. And they are not only of domestic Chinese interest and importance. The way in which China chooses to meet challenges in economic development, energy security and safeguarding the environment will truly influence global developments as well. 

A topical case in point is how China's impressive economic growth is reflected in her rapidly increasing and record level imports of oil. China is now the second largest importer of crude oil in the world. China's oil imports are set to increase substantially in the years ahead strongly affecting global markets. 

The world is watching and listening to China. It wants and needs China as an active and responsible partner in international co-operation. The many high level foreign delegations that visit China and the many international conferences that take place here testify to that want and need. 

I am therefore happy and excited to be back in China and honoured to speak on the "Producer Consumer Dialogue and Energy Security". This gives me the opportunity also to present the International Energy Forum. The IEF is not an international organisation in the traditional sense. It is a process of informal, global dialogue on energy at the level of ministers involving, at present, some 60 countries, including all the key energy countries, and the relevant international organisations. Energy security is the core focus of the dialogue at ministers' level in the IEF. 

I would like to commend the Chinese National Committee for the World Energy Congress and Montreux Energy on convening this important roundtable on China's energy future at a time when energy security again is high on the list of international concerns. I hope to see China, with her impressive human and natural resources, play an increasingly active role in the IEF in the years ahead. 

Before going on to the producer-consumer dialogue, let me highlight some figures and trends that I believe should receive thought in our assessment of energy security. 

Rising energy demand 

By the year 2030, world energy demand will have increased by two-thirds of today's level. More than 60% of this increase will come from the developing countries, especially in Asia, as they industrialise and their economies and populations grow. 

The good news is that the Earth's energy resources are adequate to meet this substantial increase in demand. Yet, there are reasons for concern. Concern about security of energy supplies, concern about investment in infrastructure, concern about the threat of environmental damage caused by energy production and use, and also concern about the unequal access of the world's population to modern energy.

Looking ahead to the year 2030: 

Fossil fuels will remain the primary sources of energy accounting for 90% global demand and meeting almost all of the increase. 

Oil demand is expected rise by 60% to 120 mbd. OPEC, particularly producers in the Middle East, will meet most of this projected global increase in demand. China's oil consumption is expected to rise to 12 mbd, one-tenth of the world total. 80% of your oil consumption will be imported. 

Global demand for natural gas will grow more strongly than for other fossil fuels and double in this period. China will have a five-fold increase and most of this will be met by indigenous supply. Natural gas will reach a 7% share of your primary energy supply. 

Global consumption of coal will also grow, though more slowly than that of oil and gas. China, the world's largest coal producer and consumer, will together with India together account for 2/3 of the global increase.

The role of nuclear power is expected to peak at the end of this decade and then decline gradually to 5% by 2030. It will decline in Europe and North America, but rise in some Asian countries. Some governments find the nuclear option interesting as a means to reduce CO2 emissions and to improve security of energy supply. 

Renewables will play an increasing role. Hydropower will hold its share in global primary energy. The group of non-hydro renewables will grow faster than any other primary energy source. Wind power and biomass will grow most rapidly. But non-hydro renewables will still only make a small 4% dent in global energy demand. 

A major human and political concern is that a quarter of the world's population (1.6b of 6.1b) has no access to electricity and two fifths rely mainly on traditional biomass for their basic energy needs. In 2030, a projected 1.4 (of 8.3) billion people will still be without electricity. 

An environmental concern is that global energy related emissions of carbon dioxide are projected to increase by 70%. 2/3 of the increase will come in developing countries. China, now the world's second largest CO2 emitter after the USA, will alone account for a quarter of the increase, but your emissions, an expected 18% of the world's total in 2030, will remain well below those of USA. 

Energy trade, almost entirely in fossil fuels, will expand rapidly and increase mutual dependence among countries. But this can also impose 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 will assume increasing importance for energy security.

World Energy Demand
(IEA figures)
 

Oil
Natural Gas
Coal
Nuclear
Hydro
Other renewables
2000
38%
23%
26%
7%
3%
2%
2030
37%
28%
24%
5%
2%
4%
 

Investments needed 

According to the IEA, total investments of USD 16 trillion are required for the energy supply infrastructure needed to satisfy expected demand in 2030. 

The electricity sector is here the dominant one. Power generation, transmission and distribution will absorb about 10 of the USD 16 trillion. The oil and gas sectors will each exceed USD 3 trillion and coal will require a mere USD 400 billion, the latter of which China will account for one-third. 

Developing countries, where production and demand increase most rapidly, will need almost half of the projected USD 16 trillion. USD 2.3 trillion in China alone, 14% of the world total. 

The energy resources are there and more good news is that total world financial resources should be sufficient to finance the investments needed. Yet, there are challenges, economic and political. 

Economic and political challenges 

The economic challenge will be to mobilise these new investments. The question is how necessary investments will find their way to the energy sector considering competition for funds also from other important sectors of the economy. And more specifically, who will invest how much, in what, and where, in order to manage supply and demand for both present and future generations? 

The political challenge will be 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 goals of sustainable global economic, social and environmental development. 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. This is no less than a mega-challenge. The issues are of such character and importance that they must be addressed in dialogue not only between nations at political level, but also in dialogue between governments and industry. 

And dialogue on these issues will take place when energy ministers meet in Amsterdam a month from now. Investments in energy is the theme for this forthcoming Ministerial. 

A necessary dialogue on energy 

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 impacts the global environment. Energy influences, and is influenced by, international politics. 

The past has shown how energy, especially the strategic commodity oil, and excessive market volatility, can create conflict or exacerbate existing political tensions between countries or groups of countries. Today, we see how international dialogue and co-operation in oil and energy are to mutual benefit and encourage wider economic and political co-operation. Deepened global dialogue and co-operation should continue as an energy mantra for the future. 

Yet, when Norway's former Prime Minister Dr Brundtland, in the late 1980s, called for an informal meeting between 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 given. One just had to live with sharply fluctuating oil prices, instability and mutual insecurity that had even wider adverse economic and political impact. 

The International Energy Forum 

The Gulf War in 1990-91 once again highlighted the importance of oil. A more co-operative atmosphere between producers and consumers ensued in its wake. The process of dialogue at political level across earlier diving lines could start. At the initiative of Presidents Mitterand of France and Perez of Venezuela, the first Ministerial was held in Paris in 1991. It was followed on a more or less biannual basis by meetings in Norway, Spain, Venezuela, India, South Africa, Saudi Arabia and Japan, attracting an ever-increasing number of ministers in what came to be called the International Energy Forum. Discussions have focused on security of energy supply and demand as well as on the links between energy, environment and economic development. 

The series of IEF ministerial meetings has contributed to a convergence of views. The utility of global energy dialogue is no longer questioned. In our globalising world, there is 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. 

Next stop Amsterdam 

Energy Ministers from some sixty countries and heads of international energy organisations have been invited to meet at the 9th International Energy Forum hosted by the Netherlands in Amsterdam in May. In addition to plenary discussions of the meeting's main theme "Investing in Energy. Choices for the Future", Ministers will also address a host of other energy related issues in informal bilateral exchanges. They will interact with leading CEOs in a special International Energy Business Forum immediately preceding, and giving important input to, their own deliberations. 

The purpose will be to: 

  • establish a well-founded and shared perception of the development of energy markets in the coming decades, 
  • assess investment needs and constraints in the mobilization of capital, 
  • discuss possible policies to overcome constraints and meet the challenges, 
  • produce an agenda on investments and related issues for further elaboration within the framework of the IEF, its Secretariat and other appropriate bodies.


Unique dialogue 

Why a new international body when there are so many others around? 

Because the producer-consumer dialogue at political level in the IEF is unique in its global participation and perspective. It is a meeting place not only for ministers of IEA and OPEC countries, but also for ministers of important countries outside these two main producer and consumer organisations; China, Russia, India, Brazil and South Africa to name a few, that will increasingly have substantial impact on the global energy scenario. In the IEF, these and other countries can participate on an equal footing with their peers in OPEC and the IEA. 

The IEF is unique also in approach. It is not a negotiating or decision-making body. It is a forum for discussion, exchange of information and policy views, as well as informal contact at political level. These exchanges have contributed to greater mutual understanding, enabling more enlightened national decision-making and closer co-operation within and between energy organisations. 

New International Secretariat 

At their meeting in Japan in 2002, Ministers endorsed the proposal of HRH Crown Prince Abdullah of Saudi Arabia to establish an international secretariat, headquartered in Riyadh, to further strengthen the process of global dialogue on energy at the political level. 

The new IEF Secretariat started its work in December last year and will assist countries hosting the biannual ministerial meetings. It will help to ensure the continuity of the energy dialogue also between the biannual meetings by organising supporting seminars and roundtables at political as well as experts' level. The focus will be broad and include both global, regional and inter-regional energy issues. The interrelationship between energy, technology, the environment and economic growth will be a prominent perspective. This can include meetings of smaller groups of ministers to discuss issues in a regional or inter-regional context, or global issues among countries most immediately concerned and influential. 

With regard to inter-regional activity under our global dialogue umbrella, let me mention that the Secretariat hosted the first EUROGULF energy workshop in Riyadh earlier this month. This a policy research project rooted in complementary interests of oil- importing European Union countries and oil-exporting Gulf Co-operation Council countries. A future activity might likewise be to host or co-organise with a participating country an inter-regional meeting e.g. between China and other major Asian importing countries and Gulf exporting countries. 

The Secretariat will also contribute to enhanced data collection and transparency. Transparent, timely and reliable oil statistics will give a better understanding of the world oil supply and demand situation to the benefit of both producers and consumers. To that end, six organisations - APEC, Eurostat, IEA, OLADE, OPEC and the UN - have developed a Joint Oil Data Initiative (JODI). The IEF Secretariat is now discussing with these JODI partners the role it might play in coordinating, sustaining and expanding this initiative. 

The Secretariat will interact with governments, industry and organisations with a view to channelling and generating workable ideas for strengthening the global energy dialogue in an evolving global environment. 

Energy Security Tools 

Energy security is something that national and international leaders do and should worry about, not only in crisis situations, 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 focussed 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. 

There are two sides of the energy security coin. Security of supply and security of demand. 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 from abroad to develop infrastructure necessary to produce and export their energy resources. 

For both consumers and producers this implies dependency. 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, as I would, the more positive vision that such dependency can serve as an impulse to improve relations between countries and the overall geopolitical climate. 

Energy security is more than an issue of technical arrangements and infrastructure. It has also to do with economics, politics and the environment. It has domestic and foreign policy implications. And the quest for sustainable energy on the global scene that was highlighted at the Johannesburg Summit, is a matter of energy security in its wider global and long-term perspective. Long-term energy security is not security for one party at the expense of others. It must translate into energy security for all. In this perspective, the further development of a substantive and co-operative producer-consumer dialogue is a prerequisite for our common efforts for energy security. 

Concluding perspective 

Ladies and Gentlemen, the International Energy Forum is an evolving international endeavour to promote an inclusive, global dialogue on energy at the political level. Energy security and stability are core objectives. The IEF is driven by governments at ministerial level and recognises the need for interaction also with other stakeholders, not least private industry. 

The global producer-consumer dialogue is not confined to activity and events that are solely global in participation and scope. It is, rather, the sum of the many co-operative elements involved. It can be seen as a global energy policy interrelationship and network of on-going contacts at political and experts' level, at a bilateral, regional, inter-regional or global level and where international organisations, financial institutions and research institutes, as well as industry itself, have a role to play. 

The China-Montreux Energy Roundtable is one such element in this co-operative network. Our agenda involves short and long term energy issues of relevance to China. These issues are also highly relevant in the wider global energy scenario that is the IEF's framework for activity, not least considering the global impact of developments in China. 

I am hopeful that China will play an increasingly active role in the producer-consumer dialogue within the framework of International Energy Forum as an important part of her efforts to contribute to a secure and sustainable global energy future.