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 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 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.
Conclusion
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.
ENDS