Transforming the global energy system

Kimberly White/Reuters

As energy ministers from more than 50 countries gather for the International Energy Forum in Cancún, Mexico, at the end of March, the need–and opportunity– for dialogue between producers and consumers is more relevant than ever.

With energy demand continuing to rise strongly in the oil and gas exporting countries, energy ministers are increasingly confronting some of the same problems OECD energy consumers have long faced: how to restrain demand, how to protect the environment and how to diversify energy sources. Maintaining energy security, promoting stable economic growth and preventing global warming and climate change are real challenges. The costs are high, so the sooner we start, the more manageable they will be. Moreover, many of the steps we need to take have wider economic benefits.

Quite simply, current global energy trends are just not sustainable. Continuing on today’s energy path would mean rapidly increasing dependence on fossil fuels, with alarming consequences for climate change and energy security. We meet in Cancún only weeks after the landmark conference on climate change in Copenhagen. Governments are now addressing the targets they will need to set and the actions they will need to take to avoid catastrophic global warming later in the century.

The energy sector will be critical in this, and the IEA’s World Energy Outlook 2009 sets out how energy policies might be adapted to achieve stabilisation of CO2-equivalent concentrations in the atmosphere at 450 ppm (known as our “450 scenario”), limiting the global temperature increase to 2°C. Undertaking such an energy transition will not be possible without using every opportunity we have at our disposal to enhance international co-operation. It is a huge task–but feasible, if we act now.

In tandem with the ministerial gathering at the forum, it is also customary to bring together leaders of the major national and international energy corporations for the International Energy Business Forum. Joint discussion with the ministers, and the informality of these exchanges, are a vital part of dialogue process. A worry for both CEOs and ministers this year will be how well the world economy is coming out of the recession, and how the critical levels of investment in the world energy economy can be sustained.

Combating energy poverty must also be a priority. By our estimates, 1.5 billion people still lack regular access to energy supply, mainly in rural Africa and South Asia. Universal access could be achieved with $35 billion of additional investment per year–only about 6% of global annual power-sector investment on current plans. The accompanying increase in primary energy demand and CO2 emissions would be very modest.

In any realistic scenario, demand for oil and gas will continue to increase over the next two decades, prices are likely to rise and revenues to increase in real terms. Of course, sustained investment on an enormous scale will be necessary to enable producers to benefit fully from this rising demand. Helping that investment materialise will require clear, concerted policy action in the short and medium term against a backdrop of more efficient, open, predictable and transparent markets, physical and financial.

Energy markets and volatility have been a particular concern for many governments, both producers and consumers. Although oil prices have been relatively stable over the past year, price fluctuations and volatility are, to a certain degree, normal features of any market. But we should do everything we can to avoid the huge price swings we saw in 2007 and 2008. When growth in oil and gas demand returns, markets will need to be reassured that investment is in place to meet it.

To this end, access to reliable and timely energy data is essential. The Joint Oil Data Initiative (JODI), of which the IEA was a founding member, has been influential in improving the transparency of markets. This can only work on a worldwide basis. The IEA has worked closely with the other six JODI partner organisations–APEC, Eurostat, International Energy Forum (IEF), OLADE, OPEC and UN Statistics Division– in contributing up-to-date statistics to a central data base. These statistics shine a light on monthly and annual levels of production, stocks, trade, processing and demand. We welcome the recent steps that have been taken to extend the initiative to gas and the consideration being given to including data on upstream investment.

The IEA has been looking closely at the various factors driving volatility and, together with the Japanese government, organised an expert workshop in Tokyo in February 2010 bringing together market participants, regulators and other government and business representatives. Meanwhile, we have outlined a programme of co-operation at expert level with OPEC and the IEF secretariat to take forward work in this and other areas, thereby strengthening the producer-consumer dialogue.

The IEF has played an important part in enhancing this dialogue. Representatives of the major energy importing and exporting countries have been meeting every two years since the first producer-consumer dialogue meeting was hosted by the French government in 1991. It is now the world’s largest regular gathering of energy ministers. The IEA has been a strong supporter of this producer country–consumer country dialogue and an active participant in the work of the forum since the beginning. The IEF attracts not only IEA and OPEC countries but also Russia, China and India, as well as a range of developing countries for most of whom energy is a vital economic issue. Since 2005, non-OECD countries have represented more than 50% of the world’s primary energy demand, and over the next 20 years they will account for almost all of the very substantial increase in demand that we are likely to see. Only by working together can we ensure cleaner, more stable and secure energy markets for the future.


References

IEA (2009), World Energy Outlook 2009, Paris.

Visit www.iea.org and www.ief.org  

©OECD Observer No 278 March 2010




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