Energy security: looking towards uncertainty

Executive Director, International Energy Agency

M. van der Hoeven ©OECD

Energy markets in 2012, like the broader economic picture, are marked by significant uncertainty. From a policy perspective, global macroeconomic concerns in 2011 diverted attention away from energy policy and could do the same this year. That could have worrying impacts on policy progress, especially as recent months have ushered in record carbon dioxide emissions, worsening energy efficiency and sustained high oil prices. 

In times of economic uncertainty, one aspect of energy policy remains a priority: energy security. That is the case both for economies trying to stave off recession and for those whose rapid growth demands increasing energy inputs. Recent events such as the civil unrest in North Africa and the Middle East as well as the incident at the Fukushima Daiichi nuclear power plant have further heightened concerns, as was apparent at the October 2011 ministerial meeting of the International Energy Agency (IEA) in Paris. Energy ministers from the 28 IEA member countries, 7 partner countries (Brazil, China, India, Indonesia, Mexico, Russia and South Africa) and 2 accession countries (Chile and Estonia) gathered at that meeting to address today’s most pressing energy policy issues. Energy security topped their agenda.

With most economic and energy demand growth taking place in emerging markets where energy poverty remains a key concern, improving energy access has become a major priority for some of the biggest and increasingly important energy players. The high-level turnout in Oslo at a major conference on the topic, also in October 2011, was testament to the growing concern around energy access, and a special excerpt of the 2011 World Energy Outlook (WEO) released there highlights the challenge. Investments of US$40 billion per year, about five times that of 2009, will be required to extend modern energy access to all by 2030.

In the oil market, demand—driven by non-OECD economies— continues to grow, leading to declining oil stocks that could underpin stubbornly high prices in 2012. Demand estimates for 2012 are shrouded in economic uncertainty, and some outstanding supply risks remain, such as the timing of the restoration of full Libyan oil production. Tight oil markets do not respond well to even small shocks, so 2012 may turn out to be bumpy.

But the biggest worry is that such uncertainties, together with altered government spending priorities, will discourage or delay near-term investments which are so crucial to meeting rising energy demand over the medium and longer term. The 2011 WEO includes a deferred investment case in the Middle East and North Africa which looks at the implications of one third less investment in 2012 with a gradual return to normal over several years. The projected result is an oil price spike to $150 per barrel or higher five years down the line.

Looking at gas, transit issues on Europe’s periphery continue to loom large. And in the wider global market, liquefied natural gas supply growth is likely to fall off in 2012, leading to a significant tightening in that market. In the US, however, the ongoing shale-gas revolution is likely to continue as a game-changer in the short term. There is no doubt that gas will play an important role in the energy mix in the coming decades, and there is good reason to believe that we are entering a “Golden Age of Gas”. Still, environmental or other concerns could derail the shale gas revolution in the US and other countries. Golden rules and high industry standards will help ensure that the Golden Age endures.

Uncertainties around “game-changers” in the power market go beyond gas; the share of coal-fired power in China, and also the growth of renewable energy, will depend on both strong policy commitment and technological developments over the coming years. Power markets in Europe on the other hand will have to handle the impacts of the German nuclear moratorium imposed after Fukushima. In normal circumstances the electricity capacity balance should be able to cope, but a cold windless winter could push the limits. And consumers will most likely pay higher prices for their power. We also expect that fossil fuel consumption and CO2 emissions will increase.

These short-term uncertainties do not bode well for climate change mitigation, underscoring the need for bold policy action. The year 2012 is the last year of the Kyoto Protocol’s first commitment period. Countries and industry in Kyoto countries will have to finalise their plans to comply with their emission goals, and carbon markets are one option to ensure compliance. Budding exchanges, for example in Australia and by mid-decade possibly in China, are a good sign that Europe will be joined by significant economies—and emitters. But carbon markets are also subject to the wider economic turmoil, and the carbon price must be sufficient to affect major investment decisions.

Nevertheless, carbon pricing, in various forms, will be key to promoting energy efficiency as well as new technologies. These and other incentives, such as flexible feed-in tariffs, will require significant political will in an environment of such uncertainty.

The door is closing to achieving climate change goals which limit temperature increases to 2°C, and on our current path by 2017 we will have “locked in” the energy sector’s carbon allowance. To stay on the 2°C path, all subsequent energy investment would have to be carbon neutral. The 2011 WEO also shows that delaying action is a false economy: for every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions. The sooner we get going, the easier and cheaper our task will be; 2012 will therefore be a crucial year.

www.iea.org

©OECD Yearbook 2012




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Is technological progress slowing down. Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • An employee prepares breakfast in front of the Eiffel tower at the Parisian luxury hotel Le Plaza Athenee, France July 30, 2015. Nowhere in the world has more accommodation available on Airbnb than Paris. Now the home-sharing website that has transformed budget travel to the French capital is giving its super-deluxe hotels a fright too (©REUTERS/Stephane Mahe).
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • On 19-20 September, come and visit the OECD to learn more about our home and our work.
  • Low interest rates here to stay for half a century, says OECD director Adrian Blundell-Wignall.
  • OECD speak on support it will offer to Greek
  • Bill Gates visited the OECD on 26 June. He met with the Secretary-General Angel Gurría to discuss areas of collaboration with his foundation and participated at a briefing session on official development assistance modernisation with OECD experts.
  • The People’s Republic of China decided to enhance longstanding collaboration with the OECD and to join the OECD Development Centre, in a historic visit by Chinese Premier Li Keqiang on 1 July to the OECD in Paris.
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • One dollar in aid for trade generates eight dollars in extra trade for all developing countries and 20 dollars for low-income countries. Read OECD Secretary General's post on the newly released Aid for Trade at a glance 2015.
  • Catherine Mann, OECD Chief Economist, explains on Bloomberg why "too much bank lending can slow economic growth".
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Come va la vita in Italia? How's life in Italy? The OECD Better Life Index is an interactive online platform in seven languages that goes beyond GDP by offering important insights into measuring well-being and quality of life. Try it for yourself!
  • The IMF calls for a decisive energy subsidy reform in order to use the freed resources to meet critical public spending needs and to reduce pollution ahead of the Paris climate change summit.
  • Have a look at these posters representing a world without fundamental rights at work – including child labour, forced labour and inequality. Read more about this ILO image competition here.
  • Africa vs profit shifting African countries heavily rely on the income generated by multinationals’ taxation, which can represent as much as 88% of a country’s tax base. Little wonder Africa is involved in the OECD’s initiative to address tax base erosion caused by profit shifting, known as BEPS. The need to strengthen inter-governmental co-operation to curb cross-border tax losses was reaffirmed at the Africa Tax Administration Forum (ATAF) in Sandton on 21 April 2015.
  • Africa v. profit shifting
  • After three decades of extraordinary economic development, China is shifting to a slower and more sustainable growth path, according to the OECD's latest Economic Survey of China.
  • In pursuit of the American Dream.

Most Popular Articles

Poll

What issue are you most concerned about in 2015?

Euro crisis
Unemployment
Global warming
International conflict
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2015