Energy Security: A Global Perspective Bob Tippee, Editor, Oil & Gas Journal International Energy Policy Conference October 25, 2012.

Energy Security: A Global Perspective

Bob Tippee, Editor, Oil & Gas JournalInternational Energy Policy Conference

October 25, 2012

Security relativism

Importers ExportersSecurity of supply Security of

demandAffordable, stable

priceAdequate, stable

price

Importers’ concerns

• Disruption to supply, economic disturbance– To influence geopolitics– Due to internal disruption– Due to natural disasters

• Price manipulation, shocks, volatility• Non-commodity costs

– Defense of producers, trade routes– Strategic storage (US ~ $200 MM/year)

How does all this constrain foreign policy?

Oil trade ‘choke points’

Source: US Energy Information Administration

Exporters’ concerns

• Revenue for domestic needs– Funding growing national budgets– Pacifying restive populations

• Uncertainty of huge, long-term investments• Importers’ actions

– Off-oil initiatives– Product taxes, tariffs, import fees, embargos– Antagonistic rhetoric

The need for OPEC crude (MMbd)

PMT=protracted market tightness; PSM=prolonged soft market; DAU=dynamics as usual. Source: OPEC Long-Term Strategy

OPEC’s investment requirements in 2010-20 could range from less than $200 billion to around $400 billion.

Responses—1

• Importers – International Energy Agency– Established 1974; 28 members of OECD– Strategic storage– Information

• Exporters: International Energy Forum– First meeting, 1991; charter, 2011; 88 members– Producer-consumer dialogue– Information

Responses—2

• Saudi-US relationship– US defends Saudi Arabia, trade routes– Saudi Arabia assures supply

• Moderation of OPEC price hawkishness• Maintenance of 1.5-2 million b/d spare capacity

IEA-strategic storage

• Stocks to cover 90 days of net imports• July 2012 coverage

– Total IEA: 187 days (111 industry, 96 public)– IEA net importers: 151 days (87 industry, 64

public)

• Cooperation with non-IEA China, India, several ASEAN members

IEA stock withdrawal capacity

Venezuela, Nigeria

Iraq, Iran

Saudi Arabia, Russia

►

Largest disruption: Iranian revolution 1978-79, 5.6 MMbd

IEA coordinated withdrawals

Event Lost supply1991 Gulf War 4.3 million b/d2005 hurricanes 1.5 million b/d2011 Libyan disruption 1.6 million b/d

Comparable disruptions have not triggered withdrawals: i.e., Iran-Iraq war 1980 (4.1 MMbd); 2001 disruption of Iraqi exports (2.1 MMbd); 2003 Venezuelan strike (2.6 MMbd); 2003 invasion of Iraq (2.3 MMbd)

IEA—information

• Oil Market Report (monthly)• World Energy Outlook (annual)• Individual member energy-policy reviews• Statistics• Books• Others

IEF—producer-consumer dialogue

• Biennial ministerial forums• Business forums

– Precede ministerial forums– Bilateral ministerial meetings

• NOC-IOC forums (two so far)• IEA-IEF-OPEC symposia on energy outlooks• IEA-IEF-OPEC joint workshops and regulators

forums (physical-financial market dialogue)

IEF—information: JODI • Joint Organizations (ex-Oil) Data Initiative• Data exchange; about 100 participants• Evolution

– IEF ministers 2000– APEC, Eurostat, IEF, IEA, OLADE, OPEC, UNSD– IEF Secretariat assumed responsibility 2005– JODI World Database unveiled 2005

JODI basic questionnaire

42 data pointsParticipants supposed to submit on 25th of month for two most recent months.Respondents vary in submission, timeliness, completeness.

JODI expanded questionnaire

Work in progress since 2007.

Global shift 1: oil demand (MMbd)

Source: International Energy Agency, Medium-Term Oil Market Report 2012

Total net oil imports (IEA)

Global shift 2: refining (MMbd)

*From existing projectsSource: OPEC World Oil Outlook, 2011

Total capacity additions: 6.8 MMbd

Global shift 3: supply (MMbd)

Source: Maugeri, Leonardo, “Oil: The Next Revolution,” Discussion Paper 2012-10, Belfer Center for Science and International affairs, Harvard Kennedy School, June 2012.

Global shift 3: supply (cont.)

Note: Before adjustments for depletion, reserves growth; excludes currently producing fields unless under extensive redevelopment.Unrestricted =total plannedAdjusted=after accounting for risk factors.

Source: Maugeri, Leonardo, “Oil: The Next Revolution,” Discussion Paper 2012-10, Belfer Center for Science and International affairs, Harvard Kennedy School, June 2012.

OPEC median budget breakeven crude oil price

From Stevens, Paul, “Oil Prices, Energy Investment, Political Stability in the Export Countries and OPEC’s Dilemma,” Chatham House, October 2012

Observations-1

• IEA:– Focused on OECD—waning consumption, imports– Oriented to strategic storage– Well-developed information scheme

• IEF:– Broader compass, producers and consumers– Oriented to cooperation– Developing information scheme

Observations-2

• Importers deploy “oil weapon” more than exporters

• Supply threats come from nature, internal politics of key exporters

• Production growth lowering supply vulnerability in Western Hemisphere…

• …But supply disruption anywhere hurts developed countries everywhere

Conclusions

• Market shifts softening IEA-OPEC opposition• Strategic storage remains supply-shock buffer• Value of strategic storage as deterrent to

exporter use of “oil weapon” has diminished• Supply security comes mainly from mutuality

of buyer-seller interests• Role of producer-consumer cooperation in

energy security will grow

Questions

• Will US, others acknowledge changes?• Will new W. Hemisphere supply raise

questions re costs of storage, trade-route defense?

• Will Arab Spring issues liberalize or harden exporter regimes?

• How much will exporters pay for stability?• How will changes affect US-Saudi bilateralism?

Auxiliary slides

What is energy security? – 1

Source: Bartis, James T., “Promoting International Energy Security, Vol. 1, Understanding Potential Air Force Roles,” Rand Corp., 2012.

IEA stocks (Dec. 11; MMbbl)

IEA response options