Global Energy Dialogue, 26 January 2011

“Global Energy Dialogue”

I am honoured to have this opportunity to share with you some thoughts on the importance of global energy dialogue for energy security. The JCCP has chosen a very timely and important theme for this year’s annual symposium. “Sustainable Development of Oil Downstream Industry – for Energy Supply Security” is important. Not only here in Japan. But also world-wide. In policies of nations to promote economic and social development. And in the overall relations among nations in the “Great Game” of geopolitics.

The objective of global dialogue on energy, not least on oil and natural gas, is to boost energy security. Global political-level dialogue can serve as a support-vehicle for myriad, necessary technical exchanges among those experts who find, produce and bring to the market the oil so important for the functioning of modern society. I wish the JCCP all success in your important mission to promote producer-consumer cooperation for energy supply security through technical exchanges. And this at a time, when the centre of global economic gravity is well on its move to Asia – it is already here - spearheaded by an ascendant China and India and with Japan remaining an important player not only on the Asian scene, but globally as well.
   
I will be making five main points:

• 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. Oil continues a mainstay of the global energy mix for quite some time.
  
  
• Security of energy supply and security of energy demand are two sides of the same energy security coin and a shared producer-consumer responsibility.
  
  
• Energy security and climate change are interlinked challenges. We would be shooting ourselves in the foot, if we seek to promote one at the expense of the other.
  
  
• Energy dialogue raises our awareness of common long-term interests, helps us avoid misunderstandings and mistrust. It increases transparency and can help us mitigate excessive market volatility and to seize win-win opportunity.
  
  
• Dialogue among producers and consumers of oil should have an eye also to other forms of energy, to environmental concern, to economic development and to political relations between nations.

Let me start by briefly put my own country, Norway, on the international energy map and then suggest some challenges and uncertainties in an evolving global energy reality. From there, I will recall some developments leading up to the global energy dialogue that we have today for energy security, and its thrust. I will touch upon the regional importance of Asia and the Arctic before concluding on the prospects for global energy governance.

Environment-conscious energy-producer

Japan is an environment-conscious energy-importing country. Foreign Minister Maehara mentioned in his New Year’s speech that the stable supply of energy is one of the important pillars of his economic diplomacy.

Norway is an environment-conscious energy-exporting country. We produce ten times as much energy as we use ourselves.  Almost 100% of our electricity, that is 60% of our total energy demand, is generated by emissions-free and renewable hydro-power. Our substantial and reliable exports of offshore oil and natural gas contribute to the security of energy supply of our trading partners. Norway is the world’s second largest exporter of natural gas, only Russia exports more, and the sixth largest exporter of oil. We have vast offshore areas yet to be explored and resources yet to be tapped, not least in the Arctic.

Petroleum activity continues to contribute significantly to economic growth in Norway and financing of our welfare state. It accounts for almost a quarter of our GDP, half of our total exports and more than a quarter of total government income. We have established an Oil Fund, “the Norwegian Government Pension Fund – Global”, now the second largest sovereign wealth fund in the world with assets of around Yen 45 trillion (USD 500 billion). That is the size of the Government of Japan bond issues expected in the coming fiscal year.

The assets of the Norwegian fund are all invested in shares, bonds and real estate abroad in order to shield our domestic non-oil economy from over-heating. 5% of the Fund, around Yen 2 trillion, is invested in Japanese bonds and equities – holding shares in more than 1 300 Japanese companies. Japan is the Fund’s 6th largest investment destination.

Oil has been a “blessing” for Norway. We would like to see oil as a “blessing” not a “curse” for oil-producing developing countries as well. We are sharing our experience in a special programme “Oil for Development” in dialogue with some twenty-five resource-rich developing countries, mainly in Africa. We support them in their efforts to maximize income and manage their petroleum resources in an environmentally sustainable way that generates economic growth and promotes the welfare of the population. Key words are good governance, transparency, anti-corruption in resource and revenue management along with environmental protection.

As an industrialized, energy-exporting country, Norway takes active part in international energy dialogue and co-operation. We co-operate with Japan and other industrialized, mainly petroleum- importing countries in the International Energy Agency, the IEA. Let me recognize here today the efforts of Nobuo Tanaka, the IEA’s Executive Director, to deepen the Agency’s global outlook and integrate the environmental and climate change dimensions of energy policies. 

As a major producer and exporter of oil and gas, Norway has important interests in common and good relations also with other petroleum producers in and outside of OPEC, the Organization of Petroleum Exporting Countries. However, Norway is not a member of OPEC, nor do we have any formalized production agreements with that organization.

Norway and Japan co-operate in the International Energy Forum (IEF), which promotes informal producer-consumer dialogue among Ministers in what is the largest regular gathering of energy ministers in the world. I had the honour of being elected the first Secretary General of the IEF, gratefully with the support of Japan. One of the very first people that I recruited was a Japanese expert to head the Energy Division of the IEF.

An Evolving Energy Reality

Let me suggest some trends, challenges and uncertainties that would impact our evolving energy reality and that would belong in a global dialogue on energy. 

• Global energy demand will grow. The IEA says by 36% between 2008 and 2035.
  
  
• The era of cheap oil may be over, but oil and other fossil fuels will remain paramount in the global energy mix for quite some time.
  
  
• Environmental and climate change concern will also grow and impact energy policy decision-making. Increasing attention will be paid to renewable alternatives, such as solar, wind, tide and bio-fuels, as well as to nuclear.
  
  
• Rising energy demand increases the need to conserve energy and to improve efficiency in energy production, transport and consumption. Here, Japan is in the global forefront. We need to develop smarter and more cost-efficient technologies. We will need, among other things, large scale commercialization of cleaner fossil fuel technologies, such as carbon capture and storage, to reduce the global carbon footprint.
  
  
• The twin challenges of energy security and climate change are increasingly interlinked. Measures to meet the climate change challenge should not jeopardize energy security. Nor should policies and measures for energy security exacerbate climate change.
  
  
• More predictable and equitable investment conditions should be facilitated. Failure to invest when oil prices are low inevitably leads to price spikes when demand picks up. Global energy investments of some USD 25 trillion are needed up to year 2030 to satisfy growing energy demand.
  
  
• We will see increasing cross-border trade in oil due to the geographical mismatch between centres of oil production and centres of consumption. OPEC production will rise and is expected to cover more than half the global need in 2035. Developments in Iraq will be of special interest. I am looking forward to the perspectives that Deputy Minister Al-Shamma will share with us in his key-note presentation after mine.
  
  
• We must consider vulnerability of energy production and supply to politically motivated disruption, terrorist intention and attack, technical mishap – we have the oil spill in the Gulf of Mexico last year fresh in mind - and to forces of nature.
  
  
• Competition for oil will increase, as will competition from other energy resources. Perhaps even scramble for resources in areas of border tension or in areas of disputed jurisdiction, not least offshore, that would have geopolitical consequence.
  
  
• New sets of co-operative relationships between national and international oil companies are in the making. It also has geopolitical implication that governments and their national oil companies now control some 90% of proven oil reserves. It is expected that national oil companies will account for all of the increase in global production from now up to year 2035. The IEF has set up a NOC-IOC Forum to facilitate dialogue among the two sets of oil companies.
  
  
• New patterns of bilateral and regional co-operation among nations are emerging. Nations are opting for policies of energy interdependence or energy independence for their energy security. China, the world’s largest consumer of energy, and others are offering great infrastructure packages to countries on other continents in return for secure access to oil. Last year, China’s “shopping spree” for oil and natural gas abroad accounted for one fifth of all global deal activity in the sector.
  
  
• Energy poverty must be dealt with forcefully, in international solidarity and co-operation. It is unfair and a geopolitical time-bomb that more than two and a half billion people lack access to modern fuels for cooking and heating. And that one and a half billion people lack access to electricity. Access to modern commercial energy can lift them out of poverty and improve health and environment.
  
  
• The shift to Asia of global economic gravity has long-term geopolitical and energy implications. Even now, economic growth in China and India is supporting the global economy at a time of sluggishness in the USA, Europe and Japan.
  
  
• An increasing number of stakeholders will want their legitimate energy say. Calls for more transparency in decision-making and better energy governance will be an additional name of the game.

Uncertainties and vulnerabilities

Energy uncertainties and vulnerabilities, amplified by economic downturn, are prompting countries and groups of countries to re-think fundamental energy security policies. Governments are painting their economic stimulus packages in various shades of “green” opting for a future “low-carbon-emissions” society. The policy tuning of one country to meet new challenges and to reduce its particular energy uncertainties can, however, exacerbate existing uncertainties or create new ones for others.

In our policies to deal with oil and energy uncertainties, we must also expect the unexpected. While we attempt to deal with the many “known unknowns”, we have little choice but to let the “unknown unknowns” come. If unconventional oil and shale gas are “game changers” within the family of fossil fuels, what other expected and unexpected “game changers” inside and outside that family will appear in the years ahead?

New patterns of energy co-operation can shape new geopolitical realities. Likewise new geopolitical realities that replace, merge or clash with longstanding ones will have their impact on energy. Established geopolitical realities may raise stumbling blocks for wise and sustainable new patterns of energy co-operation.

A lot of unanswered questions? Yes, and there are many more. But amid increasing energy uncertainties and vulnerabilities, let me offer a fundamental certainty. That is that 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. 

Dialogue can build confidence and help us to better seize win-win co-operative opportunity in our globalizing and increasingly interdependent world. Dialogue can preempt and correct misunderstandings and mistrust that otherwise could lead to conflict.

In a word, “Global Energy Dialogue” is not societal goal in itself. It is a means, a process, to promote wiser policy decision-making for energy security. Not least for downstream industry, producer-consumer dialogue can help us chart road maps for resource availability and market demand that would give useful guidance for the investment decisions needed to secure adequate energy supplies.

Global Energy Policy Interrelationship

While talking is good, wise, concerted action is better. Governments need oil and other forms of energy to fuel the economic and social development of their countries. Citizens of both energy-exporting and energy-importing countries expect their Governments to provide the benefits of their domestic energy resources, as well as the benefits of energy resources imported from abroad, for the betterment of their lives. The fulfillment or not of public energy expectation can boil down to the very political survival of governments in their domestic contexts.

Given the fact that energy, not least the strategic commodity of oil, goes to the very core of national interests, the global political-level dialogue on energy, as we know it today, did not have an easy start. Mutual suspicion between producers and consumers ran high. The IEA and OPEC were pitted against each other in confrontation. When oil prices were high, the oil-exporting countries were happy, and the oil-importing countries complained and wanted dialogue. When prices were low, the importing countries were happy, and the exporting countries complained and wanted dialogue. When prices were comfortable for both oil-exporting and oil-importing countries, both were happy, no one complained and there was no reason to have a dialogue.

The United Nations Commission of Environment and Development, chaired by former Prime Minister of Norway Dr. Brundtland, highlighted in its report “Our Common Future” a quarter of a century ago (1987) the importance of oil prices and the importance of energy for environment and sustainable development. It recommended that new mechanisms for dialogue be explored. 

At the same time, Norway was advocating a “global energy policy interrelationship”. Our initiative also had the foreign policy objective to transcend the confrontational image that had characterized political and economic relations between producers and consumers. As a petroleum-exporting industrialized country, Norway saw herself in a bridge-building position between the oil-importing countries in the IEA and the oil-exporting countries in OPEC. But we realized that there were many countries in the world outside these two organizations that should have also their say in any meaningful global dialogue on energy.

At the World Economic Forum in Davos in 1989, Prime Minister Brundtland followed up the Norwegian initiative by proposing a “workshop” of government leaders at political level. The objective was to raise the awareness of long-term, common interests, to avoid excessive oil market volatility and promote the stability and predictability that would benefit long-term economic planning. The purpose was also to reduce the political conflict potential often associated with oil and to address the links between energy and environment. The concept of “workshop” was politically motivated to underscore the informality of the Ministerial meeting. This was not about a high-profile multilateral decision-making conference that would have created a lot of political expectation with little prospect of these expectations being met. 

Oil producing countries greeted the initiative with enthusiasm, many oil-importing countries were willing to try, but leading IEA countries had serious misgivings about such a producer-consumer dialogue at that point time.
 
International Energy Forum

Geopolitics matter. A new and more favourable atmosphere for producer-consumer relations followed in the wake of the first Gulf War 1990-1991. The first “workshops” at political level could take place at the initiative of presidents Mitterand of France and Perez of Venezuela, supported by Norway, in Paris in 1991, followed by a “workshop” of foreign and energy ministers hosted by Dr. Brundtland in 1991 in Norway after which the producer-consumer dialogue continued on a globe-trotting trek to other countries and continents to become the International Energy Forum. Japan hosted the 8th International Energy Forum in 2002, when energy ministers discussed investments, energy security and environmental issues.  

To support the political level dialogue in the IEF, Ministers set up an international secretariat in Riyadh, Saudi Arabia in 2003, at the initiative of King Abdullah. Realizing the importance of Ministers interacting directly with CEOs of the main international and national energy companies, the process was expanded to include also an International Energy Business Forum. As another important contribution to energy security, notably security of oil supply and demand, the IEF Secretariat is co-coordinating the “Joint Organizations’ Data Initiative”, originally called the “Joint Oil Data Initiative” supported by the main global and regional energy organizations and where countries accounting for some 95% of global oil production share data on oil production, demand and stocks. The name change is to take account of the initiative’s extension beyond oil.  

At the 12th IEF in Cancun, Mexico in March last year, Ministers issued a declaration of support of enhanced dialogue and will meet again next month in Riyadh to mark the 20th anniversary of global dialogue among energy ministers in the IEF and to approve a Charter for the Forum.

A mantra from IEF Ministers is that security of energy supply and security of energy demand are two sides of the same energy security coin. And that energy security is a shared producer-consumer responsibility. When energy is traded from one country to another through a third country, transit countries have their interests and importance within the wider shared responsibility as well.

Independence or Interdependence

The variety and importance of core national interests will continue to define what is possible to achieve in a Global Energy Dialogue for energy security in a multi-polar energy world. Core national interests of energy-importing as well as energy-exporting countries, of industrialized as well as developing countries. Some countries advocate energy independence, others energy interdependence, in their quest for energy security.

Some would argue that dependency on others on something so important and strategic as oil constitutes a political and economic risk that should be reduced to a minimum, if it cannot be avoided altogether. Others would argue that energy interdependence is inevitable and makes sense in a globalizing world. And that mutually beneficial, win-win energy interdependence not only ties countries closer together economically, but also has the positive spill-over effect of improving political relations between countries and the overall geopolitical climate. 

New Asian Energy Identity

The centre of global economic gravity is on the move eastwards to Asia. Emerging economies led by China and India will increasingly influence our global energy future. What happens outside Asia in our globalizing world will, as before, impact Asian developments. What is new is that what happens in Asia today and tomorrow will to an increasing degree impact the world outside. This goes not only for the economic and political scenario, but also for efforts to enhance energy security and address climate change concern. 

Reflecting this increasing importance of Asia and recognizing the importance also of regional dialogues, “Roundtables of Asian Energy Ministers” under the global umbrella of the IEF are taking place. The first convened by India’s then Petroleum Minister Mani Shanker Ayer in New Delhi in 2006.  Ministers of the principal petroleum-exporting countries of West Asia – the Gulf - and Ministers of the principal petroleum-importing countries of East and South Asia are discussing on a regional Asian basis issues of energy security, stability and sustainability.

The potential of this political level dialogue goes without saying. A regional forum for energy ministers of Asian countries 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. When two-thirds of the oil exports from the Gulf go eastwards in Asia and when three-fourths of East Asian imports come from the Gulf, clearly these Asian Ministers have something to talk about, while also recognizing that the Asian energy economy is integral to, and inseparable from, the global energy economy.

A new Asian Energy Identity is in the making. The first Roundtable of Asian Energy Ministers in New Delhi was followed by a second in Riyadh in 2007 and by a third Roundtable here in Tokyo in 2009. The 4th Roundtable taking place in Kuwait later this year and Asian Ministers have already agreed to hold a 5th Roundtable in Korea in 2013 and a 6th Qatar in 2015. I expect that many more Roundtables will follow. 

From Asia to the Arctic

Let us move to another region, a new frontier, of potentially great importance for global security of oil and gas supply. To the Arctic, where the Continents of Asia, North America and Europe meet and where the ice sheet is melting at an alarming rate, being reduced by an area one and a half times that of Japan per decade.

As the ice sheet is getting smaller and smaller due to climate change, international interest in the Arctic is getting bigger and bigger. More than a fifth of the yet-to-be-discovered reserves of oil and natural gas in the world could be found here. State-of-the-art technology is called for in this challenging and high-cost environment. Norway is already producing and exporting oil and natural gas from her part of the Arctic. Idemitsu is present with shares in blocks on the Norwegian Arctic shelf and was just last week awarded interests in new Norwegian production licenses. The Norwegian flagship company Statoil is in partnership with Russian GAZPROM to develop the enormous Shtokman gas field on the Russian Arctic continental shelf. I understand that Japan has a keen interest in the petroleum potential of the Russian Arctic as well.

While conflict and political unrest may characterize many of the other petroleum provinces of the world, the Arctic stands out as a stable and peaceful region. This above-ground factor increases interest in the below-ground petroleum promise of the Arctic, where both onshore and offshore petroleum developments are expanding into new areas. The biggest concentration is in the Russian Arctic.

When the Russian flag was planted on the North Pole seabed in 2007, exaggerated media speculation anticipated a modern day Klondike and free-for-all-scenario with legal disputes and increased military activity to extend or protect national interests.

It is important to note that all land in the Arctic already belongs to established nation states. It is equally important to note that the area surrounding the North Pole is not land. Under the ice is sea. We already have a robust international legal regime governing the sea here as elsewhere, the core of which is the United Nations Convention on the Law of the Sea (UNCLOS). It stipulates that a coastal state has sovereign rights on its continental shelf, including the exclusive right to explore for and exploit its natural resources. Centre stage in the Arctic offshore are the five coastal states - Norway, Russia, the USA, Canada and Denmark because of Greenland - who enjoy the same rights and responsibilities there as nation states enjoy elsewhere in accordance with international law. 

For Norway, our High North and Arctic is a most important area of strategic focus in the years ahead, on land and on our offshore continental shelf. Our policy is one of dialogue with the states that have interests in the region. It is a policy of strengthening institutionalized multilateral co-operation, such as that we have in the Arctic Council, in which Japan is seeking observer status, supported by Norway. 

Our policy also underscores the importance of intensified co-operation with Russia. We have now reached agreement with Russia on the delimitation of our continental shelves in the Barents Sea and the Arctic – dividing fifty-fifty and opening interesting prospects for petroleum activity in a formerly disputed offshore area half the size of the Japan.

Norway takes her responsibility for managing vast areas in the Arctic very seriously in light not only of great fishing and petroleum interests, but also in light of an alert awareness of concerns related to the environment and ecological balance in the area.

Global Energy Governance

Globalization, economic downturn and the ascent of Asia are redefining geopolitics and challenge the institutional architecture for international co-operation in energy as in other areas. Myriad institutions deal with energy issues – global ones, regional ones and national ones. Some have limited membership. Some are open-ended. Some are decision-making. Some are not. Most address only certain types of energy and not others. Some have a dramatic political backdrop. New institutions of limited energy scope and country membership are being added to the plethora of existing ones. There are also many institutions, such as financial and environmental institutions, set up to deal with other issues than energy, where decisions of consequence to energy policies and markets are made.

There is today no global, intergovernmental institution with supranational decision-making power to deal comprehensively with all forms of energy in our multi-polar energy world. Given the strategic importance of energy to the national interests of each and every country, it hardly seems realistic to expect one in any near future, in which national decision-making would be relinquished and replaced by legally binding multilateral global energy governance.

What we more realistically can do, and are doing, is to constantly improve our “global energy policy interrelationship”. That comprehensive network of inter-governmental energy institutions and co-operative contacts among countries at political and technical level, on bilateral, regional and global basis. Where international organizations and financial institutions along with other stakeholders have their role to play in addition to governments. And not to forget that core to all this is the energy industry itself, not least the oil industry, doing the actual work of finding, producing and bringing much-needed oil and energy to the consumer.

To make this interrelationship more effectual, new institutions and processes, as well as established ones, must take account of an evolving world order and its geopolitics, where the emerging economies assume their increasing, rightful and responsible say. 

Addressing security of oil supply and demand also requires consideration the impact and potential of other forms of energy. A comprehensive dialogue on energy must integrate environmental and climate change perspectives, and that within the even wider framework of global political and economic developments.

In this wider global picture, and returning to the immediate theme of our symposium - “Sustainable Development of Oil Downstream Industry” - there is, I believe, every reason to be confident that oil produced, transported and used effectively in the best possible environmental way will continue to fuel our energy security for many years to come. Oil and its downstream sector will continue to be a forceful engine for the global economic growth needed to fulfill both the political and social ambition of individual nations and the UN Millennium Development Goals in a sustainable world order.