TFR 48 – Maintaining Energy Security in a Global Context

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Regaining energy security became a high priority task for policymakers in Trilateral countries when the first oil shock hit in the fall of 1973. The Arab oil embargo and tripling of oil prices brought profound economic disruption felt for years to follow. The political disruption was also substantial. The Organization of Petroleum Exporting Countries (OPEC), especially its Arab component, emerged as a powerful player on the international political scene. The second oil shock at the end of the decade—and the associated Iranian Revolution—reinforced energy security concerns.

A policymaker casually surveying the international scene in the mid-1990s would conclude that energy security has been successfully regained. The threat of disruption to energy supplies is of little immediate concern. OPEC is currently weak. Since the spike in prices during the Gulf War, international oil prices, as Figure I demonstrates, have been relatively steady at levels below (in real terms) those of the mid-1970s.

But some underlying trends arouse concern that our countries may drift into danger over time. That concerti, given energy’s broad economic and political importance, led the leadership of the Trilateral Commission to ask us to prepare this report.

In particular, Figure 2 indicates that dependence on the Persian (or Arabian) Gulf oil exporters is rising and projects that the percentage of world oil production provided by Gulf exporters will, by 2010, edge back to the levels of the early 1970s. In energy planning terms, 2010 is not far away.

Moreover, in 2010 the Trilateral countries will constitute a significantly smaller share of much greater world energy consumption than was the case in the early 1970s (see Figure 3). The Trilateral countries need to think of energy security in a global context.

This rising vulnerability to disruption, in a more fully globalized context, is the organizing concern driving the first three, rather brief chapters of this report.

Chapter I looks in more detail at the projected rise in dependence on the Gulf oil exporters. It is possible to imagine scenarios in which such high levels of dependence will not re-emerge, and there are factors—policymakers can build on some of them—which may make such high levels of dependence somewhat easier to manage than they were in the early 1970s. Nevertheless, the reemergence of such substantial dependence needs to be a serious, ongoing concern for policymakers in Trilateral countries.

Chapters II and III examine two broad areas in which Trilateral policymakers must continue to work together to limit vulnerability to disruption. Chapter II focuses on the arrangements for coordinated responses to emergencies developed in the framework of the International Energy Agency (IEA) and casts them forward in time. Some voices in our countries doubt the continued utility of strategic petroleum reserves held by some Trilateral countries and devalue IEA-centered arrangements for coordinated responses to emergencies, for sharing in solidarity the pain of disruptions. We disagree. Chapter III focuses on security in the Gulf region. The broad political/military context in the Middle East is different today than it was in the early 1970s (the 1973 Arab-Israeli War helped trigger the first OH shock), but the region remains unstable. The rise in dependence on the Gulf exporters will reinforce the importance of security in the Gulf region.

Energy security has three faces. The first involves limiting vulnerability to disruption given rising dependence on imported oil from an unstable Middle East. The second, broader face is, over time, the provision of adequate supply for rising demand at reasonable prices—in effect, the reasonably smooth functioning over time of the international energy system. The third face of energy security is the energy-related environmental challenge. The international energy system needs to operate within the constraints of “sustainable development”—constraints which, however uncertain and long-term, have gained considerable salience in the energy policy debates in our countries.

The second face of energy security is the primary concern shaping Chapters IV-VI of this report. Chapter IV focuses on the energy policies of Trilateral countries. Chapter V focuses on energy investment and the broader energy outlook in Russia, Central Asia and the Caucasus. Russia and the Newly Independent States formed out of the old Soviet empire in Central Asia and the Caucasus constitute an area from which large additional supplies of oil and natural gas may flow on to international markets in the coming years and the energy sector will be of crucial importance in the development of these countries. The most striking increases in energy consumption in the coming years are likely to occur in developing countries, led by China and other rapidly industrializing economies in Asia. Chapter VI focuses on the energy dynamics of rapidly industrializing countries.

Chapter VII, our nuclear energy chapter, bridges the second and third faces of energy security. Nuclear energy technology first emerged as a means to meet rising energy demand at a reasonable cost with a supply more secure than oil imported from the Middle East; but it may be that nuclear power will make its greatest contribution to energy security in a long-term sustainable development context. If the growth of greenhouse gas emissions eventually needs to be severely constrained, the role of nuclear power may dramatically increase.

Chapter VIII is devoted to the environmental challenge. We look first at the threat of global climate change associated with rising greenhouse gas emissions from burning fossils fuels, and then at the acid deposition and urban air pollution challenges also associated with the burning of fossil fuels.

For a decade or more, the trend has been toward greater market-orientation in the energy policies of Trilateral countries. The gains from more market-oriented policies constitute a theme that runs through many chapters of this report. At the same time, as discussions among the three of us have indicated, questions remain about how much markets can achieve. Each of the three faces of energy security provides a perspective from which doubts can be expressed. How can markets on their own take care of our societies’ vulnerability to disruptions in an emergency due to heavy dependence on imported oil from an unstable Middle East? How can markets, notoriously short-term on their own, reliably take care of our societies’ long-term interest in adequate energy supplies for rising demand at reasonable prices? How can short-term markets take care of the long-term challenge of “sustainable development”?

This debate becomes rather sterile if cast in either-or terms. The question for policymakers is to set the right framework conditions for markets, to utilize the virtues of markets for public as well as private purposes, to incorporate the “externalities” (protection against disruption, long-term supply concerns, environmental protection) in as market-oriented a setting as possible.

Authors

William F. Martin, Chairman, Washington Policy and Analysis, Inc., Washington; former U.S. Deputy Secretary of Energy
Ryukichi Imai, Distinguished Research Fellow, Institute of International Policy Studies, Tokyo; former Japanese Ambassador to Kuwait, Mexico and the Conference on Disarmament in Geneva
Helga Steeg, Professor of International Energy Policy Ruhr-University Bochum, Germany; former Executive Director, International Energy Agency (IEA)

Table of Contents

Table of Contents

Introduction: The Three Faces of Energy Security
I. Persian Gulf Exporters and International Markets
A. Persian Gulf Exporters and World Oil Supplies
B. The World Economy’s Dependence on Oil
C. More Producers, in a Traditional Commodity Market
D. The Integration of Interests
II. Coordinated Responses to Emergency Situations
A. The First Oil Shock
B. The Second Oil Shock and the Beginning of the Iran-Iraq War
C. The “Tanker War” and the Gulf War
D. Looking to the Future
III. Security in the Persian Gulf
A. Arab-Israeli Peace Process
B. External Threats
C. Internal Threats
IV. Trilateral Countries: Governments and Markets
A. North America
B. European Union Countries
C. Japan
V. Energy Investment in Russia, Central Asia, and the Caucasus
A. Overview of Russian Energy Sector
B. Foreign Investment in the Russian Energy Sector
C. Pipeline Politics in Central Asia and the Caucasus
VI. Energy Dynamics of Rapidly Industrializing Countries
A. Energy Infrastructure Expansion
B. Energy Developments in China
C. Energy Developments in East Asia
D. Other Regions
VII. Nuclear Energy and Long-Term Energy Security
A. United States
B. Canada
C. OECD Europe
D. Japan
E. China and Developing East Asia
F. Central and Eastern Europe and the Former Soviet Union
VIII. The Environmental Challenge
A. Global Climate Change
B. Acid Deposition
C. Urban Air Pollution
D. Medium-Term and Long-Term Technological Options
Summary of Policy Conclusions

  • Topics: Economics, Energy, Security
  • Region:  North America, Europe, Middle East, Pacific Asia
  • Publisher:  The Trilateral Commission
  • Publication Date:  © 1998
  • ISBN:  0-930503-73-2
  • Pages:  117
  • Complete Text: Click here to download
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