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Energy Security --- A Global Challenge

Energy Security --- A Global Challenge

E. Anthony Wayne, Assistant Secretary for Economic and Business Affairs
Prepared for delivery at a European Policy Centre event
Brussels, Belgium
May 22, 2006

Released by The United States Mission to the European Union

Thank you all for coming. I am pleased to be here today to share with you the perspectives of the United States government on the complex challenge of energy security.

Energy is a fundamental driver of growth and development around the world, and the use of energy has been steadily expanding along with the world economies. For less developed countries in particular, energy is a key enabler of growth, but also a hindrance to growth if not available, or only available, at high prices. Great wealth and prosperity may enhance national security by providing the underpinnings of more peaceful, democratic, and cooperative relations. But they also bring increasing pressure on world energy markets particularly markets for oil, on which most of the world's transportation depends, and markets for gas, on which a growing share of the world's electric power production depends. Greater competition for finite fuel supplies may take the form of higher prices, which curb economic growth and disproportionately affect those developing economies least able to absorb rising costs.

The shrinking reserve of spare production capacity for petroleum, the destruction wrought by Hurricanes Katrina and Rita on the U.S. Gulf Coast, the recent disruptions in supply of Russian natural gas, intermittent violence in the Niger Delta, among other events across the globe, have compelled policymakers in Europe and the United States to re-examine the numerous and varied threats to our energy security. Due to the deep economic ties between Europe and the United States as well as the globalized nature of the oil market and the increasingly integrated natural gas market, events that negatively (or positively) impact the energy security situation of any European nation can have an effect on the energy security posture of the United States, and vice versa. As such, it is imperative that the members of the transatlantic community provide leadership in addressing the challenge of maintaining sufficient, affordable, and reliable world energy supplies in the face of these threats, while at the same time, sustaining global economic growth and environmental stewardship.

The energy sector is becoming global, with a strong, growing interdependence between producers, transporters, and consumers. This is already true in the oil sector, and, with the growing prevalence of liquid natural gas, increasingly the case in Europe's natural gas sector. Attempts to tackle these issues sector by sector or at the national level cannot be wholly effective; we must find solutions across a whole range of interconnected issues, and employ a cooperative approach for dealing with existing and potential risk to global energy supply. We believe that development of transparent global energy markets based on market forces with open access to supplier and consumers is the best method to achieve our objectives on this score.

We are encouraged by the fact that there already appears to be a growing convergence toward these objectives among our friends and allies. EU Commission President Barroso delivered an important energy policy speech on February 9 in Washington, D.C. President Barroso said that it is imperative that the U.S. and EU work closely to promote sound energy policies that foster economic growth and development. He laid out several potential goals for U.S.-EU cooperation:

* Assist development of underexploited energy resources, particularly around the Caspian; * Increase the role of market rules in the energy sector; * Improve supplies through diversification of hydrocarbon sources and promotion of renewables; * Reduce demand by improving energy efficiency; * Maintain competitiveness while pursuing these policies.

As I will outline for you today, the United States' energy security policy contains many of these same objectives, although I will also put forward a number of additional areas for cooperation. We must work together to find ways to accommodate the burgeoning energy demand from rapidly industrializing countries such as China and India, for example. We must also consider needs of energy poor, developing countries as we seek to assist their broader development. In terms of diversification of supply, the advantages of utilizing safe, clean, reliable nuclear power has never been more apparent. Protecting the integrity of our pipelines, refineries, and shipping channels from terrorist aggression will also require the cooperation of nations around the world.

The United States invites its friends and allies to work together in implementing a full range of near, medium, and long-term strategies to enhance global energy security.

Diversification of Supply and Transit

A key factor in global energy security is diversification. This concept is important to producers, transporters and consumers. We actively encourage all nations to facilitate, as practical, the development of a diversity of sources of energy supply and modes/routes of transit in order to lessen the impact of supply disruptions.

European gas consumers are now increasingly focused on the need to diversify their natural gas supplies, increase efficiency, and utilize alternative sources of energy. Such alternatives include the development of gas resources in the Caspian region and the Middle East and East-West transit routes through Turkey. Europe will also want to continue to explore opportunities to expand its gas pipeline links with North Africa. In addition, liquefied natural gas (LNG) technologies are growing increasingly affordable and offer Europe a way to diversify its gas supplies with LNG shipments from North Africa, Nigeria, and the Persian Gulf. Russia, of course, will continue to be an important part of the energy equation for Europe, and the world, for the foreseeable future.

Beyond diversifying the resources of supply and transit routes, Europe's collective energy security can be greatly improved through better integration of the electric, oil, and gas transmission infrastructure systems among energy consuming countries. This winter's disruptions in natural gas supply demonstrate that gas does not flow smoothly among the European nations. Particularly in Central Europe, the pipelines largely only carry westward flowing gas and oil. As many observers have said, more electric, gas, and oil "interconnectors" should be established within Europe in order to achieve efficient and fluid distribution in all directions of needed energy to affected regions during supply disruptions. Diversification of energy supply, of course, also includes non-hydrocarbon-based technologies. Nuclear power will be key for many in meeting the twin challenges of energy security and greenhouse gas emissions management. New technologies have addressed concerns about safety and emerging technologies may greatly reduce nuclear waste. Several nations have already joined us in a multilateral partnership known as the "Generation IV International Forum" which conducts research and development for the next generation of safer, more affordable, and more proliferation-resistant nuclear energy systems. This new generation of nuclear power plants could produce electricity and hydrogen with substantially less waste and without emitting any air pollutants or greenhouse gas emissions. Since the Forum was formally established in July 2001, the United States has led the development of a technology roadmap, and increased support for R&D projects carried out in support of the Forum's goals.

Most recently, the United States has also put forth a bold new vision of the future of nuclear power known as the "Global Nuclear Energy Partnership" (GNEP). Through GNEP, the United States will work with other nations possessing advanced nuclear technologies to develop new proliferation-resistant recycling technologies in order to produce more energy, reduce waste and minimize proliferation concerns. Additionally, these partner nations will develop a fuel services program to provide nuclear fuel to developing nations allowing them to enjoy the benefits of abundant sources of clean, safe nuclear energy in a cost-effective manner in exchange for their commitment to forgo enrichment and reprocessing activities, also alleviating proliferation concerns.

Enhancing the Investment Climate

According to the International Energy Agency, $2.2 trillion in investment in worldwide oil production is needed by 2030 to meet forecasted demand growth. Worldwide, there remain significant reserves of oil and gas which remain untapped, and at the same time, adequate funds are available in capital markets to finance upstream and downstream investments. However, much of the new supplies of oil and gas are concentrated in countries that lack open and transparent investment regimes. The main challenge, thus, is not the physical deficit of such resources per se but rather the need to create, through joint efforts, the proper environment to realize the potential. We welcome measures aimed at attracting private investments and improving the overall sustainability of the energy sector development. Governments that create transparent and non-discriminatory regulatory environments, favorable investment climates, rule of law and physical safety of key energy infrastructure facilities contribute substantially to the achievement of those goals. At the same time, to ensure optimal benefits to all and building of civil society we will encourage adequate environmental impact assessment of such programs.

The U.S. government is also working toward intensifying its engagement with officials in the Caspian and Central Asia. For example, the U.S.-Azerbaijan Energy Dialogue addresses such issues as development of oil and gas resources, regulatory reform, environmental and technological issues, investment climate, market-based development of the electric power industry, investment issues, energy efficiency and renewables, and science cooperation. Similar exchanges are carried out through the U.S.-Ukrainian Bilateral Coordinating Group, the U.S.-Kazakhstan Energy Partnership, and the U.S.-Turkish Dialogue.

In Latin America, the United States helped pioneer the Summit of the Americas Hemispheric Energy Initiative, which brings together the region's energy leaders in a spirit of cooperation. The region has seen many changes in the direction of energy policy, away from the free market liberalization of the 1990s, so our model and our message is not as in vogue as it once was, but we still believe it is the right message. The theme of today is contract renegotiation and the erection of new barriers to energy trade across borders and the spending of oil windfalls, mostly for short term gain at the expense of long term investment.

In Africa, we see that much of the strife in the Niger Delta arises from the belief held by many of that region's inhabitants that the riches generated by the country's oil industry have eluded them due to the corruption and incompetence of government officials. Part of the solution to ensuring that the benefits of oil and gas development are managed in a transparent manner --- not just in Nigeria but around the world --- is the Extractive Industries Transparency Initiative (EITI). EITI is a UK initiative launched in 2002. The U.S. supports EITI as one policy tool in our comprehensive anticorruption/ transparency kit set forth in the G8 Evian and Sea Island anticorruption and transparency initiatives.

Moving to Market Pricing

It is also in our interest to promote a gradual transition to market prices in the economies of the developing world in order to provide for the most efficient utilization of limited world energy supplies. The dispute between Ukraine and Russia over natural gas put the spotlight on below-market pricing for energy in Europe. A similar issue is "administered pricing" policies which are in place throughout the developing world, including major consumer nations such as China. Administered pricing interferes in the operation of markets by insulating consumers from price signals, which in turn encourages demand growth beyond what the markets would ordinarily support.

In addition, to enhancing the flow of energy, coordinated efforts by our fiends and allies to promote an improved investment climate and market-based exchange of oil and gas can also affect the chances for real democratic reform to take root in may energy producing and transiting countries. The lack of transparency into the energy deals by many of these nations only sustains cronyism and stifles the rule of low and efforts for genuine reform. Our energy security, and most importantly, our national security writ-large are naturally enhanced when our neighbors and economic partners are democracies instead of kleptocracies and tyrannies. A Focus on transparency and good governance will also limit the ability of those in energy producing states that recycle our energy dollars to finance terrorist organizations.

Russia's chairmanship of the G8 offers a unique opportunity to such for important commitments on energy security. To be effective, G8 partners need to stress the continuing need for reliability and transparency of energy supply. We should encourage Russia to engage in greater cooperation with the International Energy Agency (IEA) as a non-member country and support greater Russian integration in the global energy system based on market-oriented principles.

Energy Efficiency

Moving to market pricing will be a key step in spurring a great focus on energy efficiency with Russia, Ukraine, as well as the rest of the transitioning and developing countries economies of the world. USAID is launching a new program to assist Ukraine to improve efficiency and respond to the higher gas import prices. In the immediate term energy conservation and efficiency provide by far the most important tool in improving our collective energy security. We support programs that provide for incentives for enhanced energy efficiency, conservation, and reductions in greenhouse gas emissions. USAID will be launching a $1 million energy efficiency program aimed at leveraging $100 million of multilateral development funds for industrial energy efficiency in Ukraine. In the United States, for example, the Energy Star labels, which signal high efficiency in office and home appliances, were initially developed for domestic use, but they have proven so successful that they have been adopted in many countries. Manufacturers in some 25 countries are producing Energy Star compliant equipment. The EU has similar labeling programs underway.

In order for Americans to better take advantage of the efficiency benefits of electric-hybrid and clean diesel technologies, the President has called on Congress to make all such vehicles sold this year eligible for federal tax credits. A similar program is the innovative Methane to markets International Partnership, which takes wasted methane from gas and oil systems, coal mines, landfills, and agricultural wastes and uses it productively. The important climate change and energy efficiency initiative now has 17 countries participating.

Integrating the New Consumers

To facilitate the transition to open, transparent, and efficient energy markets, we should encourage key non-member drivers of global demand, such as India, China, and ASEAN to collaborate with --- and move toward --- association with the International Energy Agency. Through its non-member country outreach program, the Agency maintains several avenues to disseminate the latest energy policy analysis and recommendations on best practices. The IEA can assist non-member countries in designing policies to accelerate market-based domestic policy reforms, build strategic petroleum reserves, employ clean energy technologies, and enhance energy efficiency.

In order to obtain the active collaboration of China and India in strategies for improving energy security, reducing pollution, and addressing the long-term challenge of climate change, the United States, along with Japan, Australia and South Korea, recently launched the Asia Pacific Partnership on Clean Development and Climate. The partnership will focus on voluntary practical measures taken by the six countries in the Asia Pacific region to create new investment opportunities, build local capacity, and remove barriers to the introduction of clean, more efficient technologies. Bilateral dialogues and cooperation with key consumers is also a valuable tool in our broader effort.

Of course, we also recognize that as we strive to help countries develop, we must help them reduce energy poverty and that as developing countries pay more for their energy that means they have less available to use in meeting other development goals. We need to design our assistance and our cooperation to address these challenges. Fortunately, much good work has already begun in bilateral development programs and by the international financial institutions. This is a potentially fruitful area for U.S.-European cooperation.

Supporting New Technology

We must continue to develop new technology to help meet energy security challenges. Since President Bush launched his National Energy Policy in 2001, the U.S. government has spent nearly $10 billion to develop cleaner, cheaper, and more reliable alternative energy sources. The President's "Advanced Energy Initiative" provide for a 22 percent increase in research by the U.S. Department of Energy to find clean alternatives to oil imported form unstable parts of the world. In order to change the way Americans power our homes and offices, the U.S. will invest more in clean coal technology, solar and wind technologies, and nuclear energy. The Department of Energy will increase research into better batteries for hybrid and electric cars, and in pollution free cars that run on hydrogen.

Our efforts have helped lower the cost of renewables in the U.S. significantly (e.g. wind power: $.80 per kwh in 1980; $0.04 per kwh today) and we expect further gains. The U.S. hydrogen program is on track with the President's vision of commercially available vehicles in a roughly 2020 timeframe. Additional funding will be directed to cutting-edge methods of producing ethanol. The United States has initiated a host of multilateral energy technology R&D coalitions and looks forward to expanding its international collaboration on cutting-edge energy technology research with its friends and allies in order to better utilize our supplies of raw materials and to reduce our dependence on imported energy from volatile regions of the world. The U.S. and the EU can do much good together to develop new energy relevant technology.

Protecting the Global Energy Infrastructure

The U.S. has also elevated the importance of the security and safety of its energy infrastructure. We have assisted other countries (e.g. Colombia and Iraq) to develop the capability to expand their capabilities to ensure the safe production and transport of energy. With the potential expanded use of nuclear power, the U.S. is exploring ways to expand its assistance to like minded nations on safeguards and facility security. Similarly, it is vital to maintain the security of sea lanes like the Straits of Malacca and the Bosporus Straits, through which major shares of the world's oil and refined petroleum products pass. Here again, we have shared interest in working together.

U.S.-EU Summit Preparations

As I am sure you are aware, the U.S.-EU Summit will take place June 21. My colleagues and I have been in close communication with our counterparts in the European Commission, European Council, Austrian Presidency of the EU, and member states in order to determine how we can better collaborate to implement many of these strategies. I believe we have an excellent opportunity to move forward on energy security cooperation in concrete ways. Reaching agreement on specific actions in key areas can send a powerful political signal to our partners, publics, the media and others.

While here in Brussels, we will discuss a potential U.S.-EU energy security plan of action. Key areas of discussion are energy diversification; security of energy infrastructure; promoting energy security policies in third countries; accelerating the development of new technologies; and promoting energy efficiency. In addition, we think it is important for the U.S. and Europe to reaffirm the energy security principles established by the IEA. As we work together, we believe the U.S. and the EU can play an important role in reinforcing the open and mutually beneficial operation of the world energy market by producing countries, consuming countries, and transiting countries.


Energy security is, and will continue to be, a leading USG priority. It is one of the major challenges facing the world in the coming generation. In these few minutes here today, I hope I have been able to provide you with an adequate understanding of the U.S. approach to dealing with the very complex issue that is energy security. As I mentioned, attempts to address this problem solely at the national level will fall short. This is the reason why my government has sent me here today: to help build on the strong U.S.-EU relationship to meet this most pressing challenge of the 21st Century.

Thank you.


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