The Future of European Energy Security

Transcription

1 The Future of European Energy Security Professor Øystein Noreng, BI Norwegian School of Management Energy and Climate Policy - Supply Security in International Comparison, 12th Annual Meeting of the Reform Group at Schloss Leopoldskron, Salzburg September 24-28, 2007

2 Market stability The common interest is in stable markets with predictable prices, but at what level? There is a fundamental conflict of interest over the division of the economic rent, exacerbated by prospects of peak oil and CO 2 duties There is an equally basic conflict over the control of the industries and the markets, which is pertinent to the rent division If security of supplies has any meaning, buyers should be willing to pay a premium, in money or in political favours

3 Security of supply Topical issue, but what do we mean: volumes or prices? Energy is normally available, also in times of crisis, at a price Consumers need secure supplies at affordable prices Globally, their needs are dynamic, rising In a crunch, consumers usually give volumes a priority over prices, meaning a low price elasticity of demand The price effects are felt more slowly

4 Security of demand Oil and gas exporters need stable markets at prices that make upstream investment worthwhile Oil and gas exporters in most cases are highly dependent upon oil and gas revenues Oil and gas exporters generally prefer to keep the control of their resources In setting the depletion policy of a finite resource, they face the trade-off between economic rent and market share Oil exporters have the discretion to meet rising demand by higher volumes or higher prices, or both Why invest in capacity expansion?

5 A matter of control Presently, control over the oil and gas markets is vested with the exporters The oil price rise since 2003 has shifted financial balances from oil importers to oil exporters, with some exceptions The oil exporters have, so far, been more cautious in their spending than was the case in the late 1970s and early 1980s Consequently, they may keep large surpluses and the ensuing economic power

6 The notion of energy security Stable supplies at stable prices Incremental supplies at affordable prices A question of volume and price risks A question of bargaining strength A question of reciprocity Strength through diversification Strength through interdependence

7 Europe s predicament Energy import dependence will rise from the present level of about 50 per cent to about two thirds by 2030 Import dependence for oil would be above 90 per cent, higher exposure to oil market volatility and Middle East conflicts Natural gas import dependence above 80 per cent, against 50 per cent today, higher exposure to natural gas market supply risk through dependence on few sellers Volume and price risks Weak bargaining position Competition with the United States and China

8 Power in the European gas market Rising demand and declining output raise import requirements Major sources for pipeline gas are Russia, Norway and North Africa, and potentially Iran The gas exporters also have the discretion to meet rising demand by higher volumes or higher prices, or both Incentive to take market share stronger than for oil LNG is the competition, setting the price ceiling

9 Disincentives to gas exporters Cumbersome pipeline access and high transportation tariffs, especially in Germany Taxation, especially in Germany, favouring nuclear and coal over gas Abolition of long-term contracts Obstacles to downstream investment (Russian sensitivity) Horizontal integration, establishment of large gas and electricity groups controlling the market

10 Issues of secure gas supplies Either bilateral links and long-term contracts, or: Open, transparent markets and networks, with easy access and low transportation tariffs, sharing the risk Investment in missing links in transmission Vertical and horizontal unbundling Preferably a European regulator European gas exchanges Non-discriminatory taxation

11 Gazprom s strategy Vertical integration downstream, to be present in the entire value chain Investing in pipelines, distribution companies and power generation abroad Close bilateral links with selected gas importers, first of all Germany Increase volumes to service growing Russian demand and raise exports Preference for the European market, but only on acceptable terms

12 The diversification strategy For oil, limit dependence on Gulf exporters, advance European positions in Africa, Central Asia, Latin America and Russia For natural gas, limit dependence on Russia, advance European positions elsewhere Encourage imports of LNG Consolidate European gas industry Problem: limiting imports from suppliers with the largest potential, Gulf oil and Russian gas

13 The interdependence strategy For reciprocity: offset energy dependence by more comprehensive economic relations, further non-energy trade Further economic integration through free trade Building selective bilateral relations and giving the energy exporters a stake in the European economy Open access to grids to encourage competition Problem: need to develop closer political relations

14 Suppliers and partners Algeria: secure oil and gas supplier, emerging economy, acute need for industrial development, financial surplus Iran: potential large gas supplier, emerging economy, acute need for industrial as well as oil and gas investment Norway: secure oil and gas supplier, huge financial surplus, large investor in EU Russia: indispensable oil and gas supplier, huge financial surplus, large and growing market for European industry

15 The means Focus on interdependence, especially with Russia, with diversification as a supplement Encourage integration and downstream investment that give supplier incentives Propose a free trade area of Europe, Russia, the Middle East and North Africa Disengage Europe from US policies on the Middle East and Russia Initiate oil and natural gas trading in euros

16 Oil prices and exchange rates Brent spot USD/bl Euro/bl USD/Euro ,90 27,89 1, ,00 26,50 1, ,00 24,92 0, ,00 30,78 0, ,40 44,32 0, ,10 52,88 0, Jan-A 65,87 49,40 0,75

17 Oil Prices and Exchange Rates Brent spot 70,00 60,00 50,00 40,00 30,00 20,00 10,00 0, Jan-Aug USD/bl Euro/bl USD/Euro 1,20 1,00 0,80 0,60 0,40 0,20 0,00

18 Current account balances Billion USD Algeria China Euro area European Union France Germany Iran, Islamic Republic of Japan Norway Russia United Kingdom United States