Monthly Mind August 2016: "Strengthening, Not Politicizing Global Energy Markets"
"In a complex global security environment, we must avoid politicizing the energy markets. This is not only vital for the security of energy supply. It is also fundamental for maintaining and strengthening the world order that has served us so well over the last decades," writes the Norwegian Foreign Minister Børge Brende in our Monthly Mind column.
The role of energy in geopolitics was the topic when the Munich Security Conference (MSC) together with the Offshore Northern Seas (ONS) earlier this week convened some of the world’s top energy experts, security analysts, representatives of major energy companies and political leaders in Stavanger, Norway.
The point of departure was that governments as well as the actors in the energy market stand to benefit from enhanced sharing of insights and analyses of the role of energy in current geopolitical developments. On the one hand, we simply cannot grasp the world we live in unless we understand the global energy landscape. On the other hand, understanding global security challenges is crucial for formulating sound and forward-looking energy policies.
The contemporary examples that illustrate the interaction between foreign policy and energy are plenty. Low oil prices have plunged countries like Nigeria and Venezuela into deep financial crisis; in Iraq, oil is at the heart of every aspect of the country’s ability to survive as a state; and Russia’s violations of international law in the Ukraine have made energy security a pressing issue in most European capitals - to mention only a few.
Today, as the world is facing an unprecedented cocktail of security challenges – ranging from terrorism and violent extremism to failing states and mass migration – understanding the role of energy in geopolitics is more important than ever.
A volatile geopolitical situation
The backdrop is that we are facing a more challenging and unpredictable global political situation than we have for many decades.
We can look back at twenty-five years of unprecedented growth. Global value creation has doubled and world trade has multiplied four times since 1990. The number of people living in extreme poverty has been halved, while at the same time the global population has increased by two billion people.
However, in the last few years, anaemic global growth, failing states and growing protectionism have threatened to undermine some of the progress that has been achieved. It is a great paradox of our time that the globalisation of the world economy is being met with an increasing nationalisation of politics. As a result, we are experiencing greater vulnerability – and a feeling that the international order we have built in Europe, and globally, is fragile.
Vast changes in the energy landscape
At the same time, the global energy industry is going through vast and fast-paced changes.
The shale revolution in the US can serve as a reminder of how unpredictable the future can be. This year, the first shipments of LNG reached Europe from the US. For the first time, US gas exports are in direct competition with Russian gas – and Norwegian gas – in the European market.
Over the next 20 years, 85% of the world’s growth in energy consumption is expected to take place in Asia. When major energy suppliers in the Middle East, Russia and North America shift their attention to the east, this has implications also for Europe’s relative geopolitical importance.
Furthermore, technological developments suggest that we in the future will see much more diversified and decentralised energy systems. This trend is powerfully reinforced by global policy decisions to curb CO2 emissions and provide access to modern energy for all.
We should not forget that combating climate change also is a question of security. Climate change is a threat multiplier that aggravates other security risks, such as conflicts and mass migration, particularly in fragile countries.
This, in order to accommodate a population growth of 3 billion by 2050, we will have to transform our energy systems, and we will have to decouple economic growth from carbon emissions. In many economies, this is already happening. Investments are shifting from fossil to renewable energy production-a clear sign that the market is working.
However, the day when renewable supplies will be able to meet global energy demands is still far away. In the meantime, the world will increasingly rely on natural gas to help bridge the gap between fossil fuels and renewable energy.
Energy and foreign policy
Such profound changes in the global energy landscape have important repercussions for foreign policy interests on at least two levels.
First, we must understand the nexus between global security and energy concerns in order to formulate robust policies that ensure long-term energy security.
For an energy-exporting country like Norway, this is about ensuring fundamental commercial and economic interests. We need forward-looking policies that enable our companies to invest in the right technology and enter new markets at the right time.
The key question is not so much whether the relative power of states is constant. It is whether old and new actors alike follow the rules of the game. In short, we have to make sure that emerging powers strengthen global energy markets rather than politicizing them.
Second, if we do not understand how foreign affairs and energy markets intersect, we will have great difficulty in achieving other foreign policy goals.
Given the stakes involved, discussions on the geopolitics of energy tend to focus on the risk of conflict. Without ignoring such concerns, I would like to propose an alternative perspective. The perspective that energy security is essential when addressing pressing foreign policy challenges – such as combating terror, fighting climate change and preventing humanitarian disasters.
Indeed, eradicating poverty, and achieving the SDGs, is only possible if we connect the 1.1 billion currently lacking access to electricity; the answer to climate change is better energy policy and the fight against ISIL can only be won if we cut off their income from selling oil and gas.
In fragile and conflict-ridden countries, improved access to modern energy is necessary to boost economic growth, secure employment opportunities and ensure long-term stability. This is the motivation for Norway’s support to the energy sectors in countries like Myanmar, Liberia and Haiti.
Norway is the third largest exporter of gas globally, we are number eight when it comes to oil exports and we are the sixth largest producer of hydro energy. Thanks to our petroleum revenue, we have established the largest sovereign wealth fund in the world. Now, we are making our experience and technology available to petroleum-producing developing countries, and assisting their integration into world energy markets.
Security of supply in Europe
For Norway, the EU will remain our most important partner and energy market. With zero political risk attached, Norwegian energy has a natural role to play in Europe’s energy mix. Already during the oil crisis in the 1970s, Europe experienced that security of energy supply is crucial also for its broader security interests. Still, it was not until the Ukrainian gas crisis became part of a broader political conflict that the EU took serious measures to diversify its gas supply options.
Fortunately, the situation is now changing. We have already seen the first LNG deliveries from the US to Europe and there are ambitious plans to deliver more gas through the Southern Corridor. Considerable gas reserves have been found on the doorstep of Europe, for example Egypt’s Zorn field and the Leviathan off the coast of Israel. Iran is also emerging as a potential player. New LNG plants have been put into operation, and Norwegian companies have for example built the first floating LNG terminal operating in Lithuania.
In sum, this has significantly reduced the potential of using natural gas supplies as a political tool in Europe. However, Russia will remain a major supplier of gas to Europe for the foreseeable future, and this will continue to have implications both for our foreign policy towards Russia and for Europe’s choice of energy solutions.
The Norwegian approach to energy security is simple. Norway is a reliable and predictable provider of energy – and we will remain so.
We believe the role of leaders should be to provide the predictable regulatory framework needed to allow companies to operate on a sound commercial basis. Well-functioning energy markets are essential for sustained global growth and for development. And they are indispensable for ensuring stability, for combating climate change and for eradicating poverty.
In a complex global security environment, we must avoid politicizing the energy markets. This is not only vital for the security of energy supply. It is also fundamental for maintaining and strengthening the world order that has served us so well over the last decades.
Børge Brende is Foreign Minister of Norway. This piece was published on the occasion of the "ONS Summit" in Stavanger (28/29 August), an event from the Munich Security Conference Energy Security Series.