Introduction:
The following is the text of a speech on “The Middle East and Global Energy Needs,” delivered on October 21 by David L. Goldwyn, Assistant Secretary of US Department of Energy, at the Middle East Institute's 54th Annual Conference, held at the National Press Club in Washington, DC.
There is, understandably, a high level of interest in the situation in the Middle East today, the current tight oil market conditions and projections for the future. At no time since the 1970s has OPEC been as much in the news.
Let me begin with a brief review of the importance of the Middle East to the world’s energy picture.
I. Importance of the Middle East:
Ensuring American access to Middle East energy resources has been a vital national interest of the United States for some time.
2/3 of the world’s proven oil reserves are in the Middle East – 261 billion barrels --more than one-fourth of the world total in Saudi Arabia alone.
1/3 of the world’s proven gas reserves are in the Middle East -- 16 percent of these reserves are in Iran alone.
While non-Middle East oil producers and non-OPEC producers have steadily increased their share of the world market, Middle East OPEC production, in particular that of Saudi Arabia, remains central to the world oil market.
Middle East oil represents one third of U.S. oil imports – some 2.53 million barrels a day. And, while Canada is now our largest source of total petroleum imports, Saudi Arabia remains our single largest source of crude oil.
On the world consumption side, global energy demand is rising.The EIA has projected global energy demand will increase by 50 percent between now and the year 2020.
Of total world energy consumption in 2020, EIA predicts 37 percent will be oil, 29 percent will be gas, 23 percent will be coal and 11 percent will be from other sources.
U.S. oil consumption, the highest per capita consumption in the world, is forecast to increase by 25 percent between now and the year 2020. [from 20 mbd to 25.1 mbd] During the last eight years, energy demand overall has grown by 14 percent.
Demand is growing most rapidly in the DEVELOPING WORLD.A study completed earlier this year for the Center for Strategic Studies found that “by the year 2020, the developing countries of the world will be consuming more energy, in absolute amounts, than the industrialized countries of the world.”
While the share of oil, coal and nuclear power, in terms of total energy consumed, is expected to decline, the share of natural gas will increase.
I just returned from a trip to China, the world’s second largest energy
consumer and greenhouse gas emitter after the United States. Chinese demand for oil is expected to nearly double in the next 10 years to 7.2 million barrels/day and fifty percent of this oil is expected to come from foreign imports by the end of the decade.
It is clear that oil and natural gas from the Middle East will be very important for many decades to come.
II. Current State of the Oil Market:
How concerned should we be about this picture and what are we doing to address it?
First, let me address the issue of the short term – and then I will outline some of the important long-term measures the Department of Energy has been taking in this area.
In 1998 a number of factors coincided, not least of which was the Asian economic crash, to cause the price of crude oil to drop precipitously. This dramatic price slump hit the economies of oil producing countries hard.
Beginning in March 1998, OPEC instituted three tiers of production cuts in an effort to lift the floor on oil prices. The third of these cuts became effective in April 1999 -- at a time when world demand and Asian demand for oil had swung back quicker and stronger than anyone had predicted.
As a result, we found ourselves in 1999 with a worldwide shortfall in crude oil averaging over 1 million barrels per day. This situation caused refiners worldwide to draw down stocks to historically low levels as the higher crude prices squeezed margins.
The United States, along with other nations has worked hard to increase understanding of the need for greater oil production this year. Secretary Richardson underscored the severity of this situation and the need to put more oil on the market in an expedited manner.
Thanks in part to the leadership of major producers, including Saudi Arabia, Mexico and others there are 3.5 million more barrels per day on the market than there were last year.
The Administration also took an important and positive step by swapping oil from our Strategic Petroleum Reserve. Domestic stocks of both crude oil and refined products had reached unusually low levels.
There was a growing concern in the market that we may not have sufficient inventories to get us through the winter smoothly. The action we have taken addressed this specific concern by adding inventories to the market.
In doing so, we have enhanced the likelihood that refiners will continue to operate at high utilization rates, and build stocks of refined products, such as heating oil, as we move into the winter.
At both times of crisis and times of quiet, active energy diplomacy has remained one of our most important tools in dealing with fluctuations in the energy markets.
We work on a regular basis with our allies in Europe and Asia, and international organizations like the International Energy Agency, to share information about the establishment and management of reserves and to plan for severe supply disruptions.
We continue our efforts with producing and consuming nations and developing countries to improve oil market data for more efficient markets.
The upcoming Consumer/Producer summit in Riyadh on the 17th of November is an important opportunity to enhance our cooperation in this area.It is fitting that this summit will take place in Saudi Arabia. Saudi Arabia has been a consistent and reliable supplier and we appreciate their leadership.
This is the first summit of this kind that will be attended by a U.S. Secretary of Energy. Among other things the objective of this forum is to strengthen the partnership among energy producers and consumers and to study the links between energy, environment and economic development.
We share a common interest with producers in seeing oil prices stabilize at a lower level in the near future. The Administration continues to work daily toward this goal.
III. U.S. Policies for Energy Security:
In his recent speech before the National Press Club, Energy Secretary Richardson outlined five principles of U.S. energy policy designed to enhance our energy security and reduce our dependence on foreign oil over the long term. They are:
Reliance on Markets.
Support for diversity of energy supply through targeted incentives and regulations
Promotion of government/industry/consumer partnerships to increase our future energy choices
International cooperation on global energy and environmental issues and,
Reliance on cutting-edge science and technology to improve the production and use of traditional fuels, energy efficiency and renewable energy.
I will touch briefly on a few of these elements of long term U.S. policy and then I want to mention the important issue of producer ‘reform’.
Diversity of energy supply:
The spike in oil prices that we are experiencing is a stinging reminder of how important it is to maintain a diverse supply of energy from multiple sources. Diversity is key to our search for greater energy security.
The Administration has worked to diversify our suppliers of oil. Last year we imported oil from 40 different countries, including nations in Africa and Latin America. Where we once imported 6.19 million barrels per day from OPEC governments, we now import 22 percent less. In addition, we have been working hard to attract investment and to pry open new markets in Africa, Latin America and the Caspian region.
Efficiency and Renewables:
When you talk about world energy needs you cannot overlook the demand side of the equation. We clearly have to improve our efforts to reduce demand through improved efficiency and reduced waste.
The Department of Energy has sought to take the lead in the area of ‘efficiency’ promoting measures at home and abroad. There is much more we can and should do in this area.
Longer-term measures we have been supporting in the U.S. include:
Accelerating new ethanol plan production;
Replacing diesel-generated electricity with renewable energy sources
Substituting natural gas vehicles for petroleum-based ones, particularly in fleets and niche markets;
Accelerating development and use of high efficiency automobiles under our Partnership New Generation of Vehicles – to triple fuel economy;
Aggressive renewable energy goals for bioenergy, solar and wind energy; and
Support for a broad R&D portfolio that is focused on energy efficiency, renewables and improved use of fossil fuels.
We have also taken this message of efficiency and alternatives on the road – to Africa, Asia and Latin America in particular.
I have just returned from China where the government plans to spend some $35 billion in renewable energy equipment development and manufacturing from now to the year 2009.
Using new technologies and alternative fuels we can reduce oil imports by 700,000 barrels a day by 2010 and 1.5 million barrels a day by 2020. An increase of only 3 miles per gallon in auto efficiency would reduce demand by nearly 1 million barrels per day -- about 10 percent of our imports. These breakthroughs will eventually transform the global energy picture.
IV. Need for Producer Reforms:
High levels of population growth and a lack of economic diversification cut real per capita income in many of producer countries by more than 40 percent over the last 20 years.
We have sought to encourage producers in this region to take a variety of steps that would open up their economies, modernize power sectors, reduce public sector costs and create greater efficiency across the board.
As you look around the region you can see several areas where important progress is being made:
Egypt has made important strides in privatizing state-owned enterprises since 1991. It has liberalized rules for foreign investment and upgraded its electricity sector – increasing its generating capacity by 40 percent;
In Bahrain, Oman, Qatar and UAE there has been longstanding support for investor participation from other countries in their respective oil and gas industries.
Qatar has also taken important steps toward privatization, including the formation earlier this year of the Qatar General Electricity and Water Corp (QGEWC) and the public offering in December 1998 of the telecommunications company Q-tel -- the largest initial public offering ever placed in a GCC state.
A number of U.S. companies are working with Qatar on projects that will help meet additional demand for natural gas throughout the region in the years to come. On-going discussions and negotiations related to energy transportation arrangements in the area will help push forward the important agenda of regional economic integration in the Gulf.
There are also signs of change in Algeria. Licensing procedures for upstream investment in oil and gas are being streamlined. If properly implemented, these steps should result in increased transparency, clearer selection criteria and a shorter decision-making cycle.
Finally, in Saudi Arabia and Kuwait, there have been some important steps toward greater openness including: Kuwait’s encouragement of international oil companies to participate in the further development of its oil sector, especially in the northern fields; and Saudi Arabia’s decision to solicit proposals from investors eager to participate in the Kingdom’s upstream gas and related downstream projects in power, petrochemicals, and desalination plants.
These steps are encouraging.
But, much more is needed.
Measures taken today will reap high benefits for these economies down the road when the market inevitably swings back – away from high prices.
Diversification will go far to help guarantee longer term economic growth in Middle East producer countries and is as much in the interest of consumers, such as the United States, as it is for producers themselves.
V. Conclusion:
The events of recent weeks have once again brought home the importance of the Middle East and the sometimes-fragile political backdrop that our energy relations with these countries must operate against.
More than ever at this time, we can see the important role for active energy diplomacy that helps support greater energy cooperation, enhanced choices and long term energy security for consumers.
Source:www.mideasti.org.
© 2000 Mena Report (www.menareport.com)
