Didier Houssin, Director of Oil Markets and Emergency Preparedness at the International Energy Agency, explains why energy resources are not the problem to worry about.
 | Didier Houssin, Director of Oil Markets and Emergency Preparedness at the International Energy Agency"We don’t have a problem of resources; we have rather a problem of investments." (Photo: IEA) |
What are currently the biggest threats to energy security worldwide?
If you narrow it down, energy security is about the availability of your energy supplies. But it is also about having affordable energy. You can have secure supplies, but a problem of affordability, because energy is getting very expensive, especially for developing countries.
If you talk about the physical supplies and their availability, you have the risk of countries that are politically unstable, like Middle East countries and Venezuela. When the IEA was created in 1974 after the first oil shock, it was this risk that governments had in mind.
Nowadays you have a new set of risks like civil unrest, which we see in Iraq and Nigeria. That may be as threatening a problem as embargos and conflicts between producing and consuming countries.
Energy security seems to mean something different in various parts of the world. Why is that?
It depends on the energy sources. If you talk about oil, it is really an international commodity that is marketed worldwide, and if there is a problem somewhere in the world, it is becomes a worldwide problem.
When we talk about coal, it is also an international market with skyrocketing prices, but the situation is different. Only ten percent of all coal is traded internationally. For instance, coal consumed in the U.S. is produced in the U.S., so you have less problems of security of supply. With gas, it is really still a regional issue. The problem of gas supplies in Europe is very closely linked to high dependence on Russia, especially in Eastern Europe or Northern Africa. This is really a European problem.
Gas is not as flexible as oil; it needs pipelines and a lot of infrastructure to be transported. With oil, you can always have a new supplier, because it is transported by boat. The gas market is getting more international with the development of liquefied gas which is traded like oil, but it is still only a minor part of worldwide gas markets.
 | Picture Gallery (click on the image to start)How much oil is left? This gallery shows the ten countries that have the biggest share in proven oil reserves worldwide (Photo: Reuters) |
How can countries that depend on imports ensure their energy security?
One thing all importing countries have in common is that self-sufficiency is not an objective anymore. If you look at where the resources are, you see that we are going to be more and more interdependent. The strategy is not to build self-sufficiency, but ensuring an efficient use of energy first. Saving energy – or what we call energy efficiency - is the best way to be less dependent on energy.
In terms of supply, one of the main objectives is diversification. There is a vast need for investment in all developed countries in terms of power production. A mix of all energy sources - renewables, nuclear power (in countries where nuclear is acceptable), or clean coal power plants - would ensure a diversification of power production that leaves you less dependent on imports.
Look at Finland. When they decided to build a new nuclear power plant, this decision was driven by economic factors, but it was also about being less dependent on Russian gas supplies.
Another strategy is to diversify sources. That was done after the oil shocks in the 70s. The imports from the Middle East came down and new investments took place outside OPEC. So the supply of oil had been diversified, but in the future, the dependency on the Middle East will grow a lot, because that is where the resources are.
Could a global recession ease the situation at the energy markets and lead to reduced energy prices?
If you have a global recession, it has an impact on energy demand. But the link between oil consumption and prices is not very strong, because in the transport sector, you have no alternative to oil in the short term. That’s why you see that even with higher prices, demand is quite robust worldwide.
What does the IEA do to improve energy security?
The collective response we have put in place among IEA members to manage disruptions is based on emergency stocks. If we look at stocks in IEA countries, we could live with a disruption of two million barrels per day for two years. That is quite a big amount of oil. With that we could compensate for the disruption of the entire Nigerian oil industry for two years.
How important are politics? Could the OPEC or any other organization or government still influence oil and energy prices?
In the short term, the ability of OPEC to cut prices seems limited, because they are producing at near full capacity. But still they have an influence. They have shown in recent years that they are ready to cut production to defend certain price levels. This is putting pressure on the prices. Even if the oil prices were to go down because of a recession, investors would feel protected because they think OPEC will react to keep the price from going down dramatically.
In consuming countries, governments play a role in how they encourage energy saving and diversification. Subsidies that are put on oil prices in emerging countries like China or Middle East countries are also important, because price increases are not transferred to the consumer. This shields consumers from markets signals that would encourage oil saving and demand restraint. That makes the rebalancing of the markets more difficult.
There have been significant oil discoveries in Brazil recently. Why did they have no impact on oil prices?
There is one important point about the Brazilian discovery: If you invest more, you find more oil. At the same time, you find resources that are very costly to develop. These discoveries in Brazil are very deep water discoveries and from a technological point of view they are a real challenge to develop. It will also take time, between five to ten years. That is why it has no impact in the short term.
There are a lot of plans for new investments on the way worldwide. The problem is a kind of time-lag. Between 1985 and the beginning of the 21st century, when energy was cheap and abundant, investments had been very limited, and now we are paying the bill for this. According to our reference scenario, 22 trillion dollars of investment will be needed in energy infrastructure by 2030.
Where can you still find oil in the future?
Many oil companies are looking at areas where oil couldn’t be found before for technological reasons. It is mostly very deep, off-shore in the Gulf of Mexico, off the coast of Brazil, and in the Gulf of Guinea. You have also the Arctic areas. There also very deep onshore reservoirs, even in the United States.
Easy oil, however, is either very well-known and explored, or not accessible for political or security reasons. There are lots of resources that are known, but not developed, like in Iraq.
Rather than a lack of resources, it’s the access to resources, the inflation of costs, shortage of equipment, and skilled service personal that are the problems we have to tackle. We don’t have a problem of resources; we have rather a problem of investments.
editor: Thilo Kunzemann
publishing date: May 23, 2008
