Saturday, April 01, 2006

Daniel Yergin - Conflict Avoidance and "Hinge War"

He has an excellent analysis of this in the "Times UK" today. [hat tip Austin Bay] His point? "The institutions and policies set up after the 1973 Arab oil embargo can no longer meet the needs of energy consumers or producers" Large excerpt:

"Concerns over energy security are not limited to oil. Power blackouts in the United States, Europe and Russia, as well as chronic shortages of electric power in China, India and other developing countries, have raised worries about the reliability of electricity supply systems. When it comes to natural gas, rising demand and constrained supplies mean that North America can no longer be self-reliant, and so the US is joining the new global market in natural gas that will link countries, continents and prices in an unprecedented way.

At the same time, a new range of vulnerabilities has become evident. Al-Qaeda has threatened to attack what Osama bin Laden calls the "hinges" of the world economy, that is, its critical infrastructure — of which energy is among the most crucial elements. The world will increasingly depend on new sources of supply from places where security systems are still being developed, such as oil and natural gasfields off West Africa and in the Caspian Sea. And the vulnerabilities are not limited to threats of terrorism, political turmoil, armed conflict and piracy. Last year hurricanes Katrina and Rita delivered the world's first integrated energy shock, simultaneously disrupting flows of oil, natural gas and electric power.

Events this year underline the significance of the issue. The Russian-Ukrainian natural gas dispute temporarily cut supplies to Europe. Tensions over Tehran's nuclear programme brought threats from Iran, the second-largest Opec producer, to "unleash an oil crisis". Attacks on oil facilities reduced exports from Nigeria, a major supplier to the US.

Since Churchill's day, the key to energy security has been diversification. This remains true, but a wider approach is now required that takes into account the rapid evolution of the global energy trade, supply-chain vulnerabilities, terrorism and integration of new economies into the world market.

Although in the developed world the usual definition of energy security is simply the availability of sufficient supplies at affordable prices, countries interpret what the concept means for them differently.

Energy-exporting nations focus on maintaining "security of demand" for their exports, which generate the overwhelming share of their government revenues. For Russia the aim is to reassert state control over "strategic resources" and gain primacy over main pipelines and market channels through which it ships its hydrocarbons to international markets.

The concern for developing countries is how changes in energy prices affect their balance of payments. For China and India, energy security lies in their ability to adjust rapidly to their new dependence on global markets. For Japan, it means offsetting its scarcity of domestic resources through diversification, trade and investment. In Europe, the major debate centres on how to manage dependence on imported natural gas — and in most countries, apart from France and Finland, whether to build new nuclear power plants and perhaps to return to (clean) coal. And the US must face the uncomfortable fact that its goal of "energy independence" — a phrase that has become a mantra since first articulated by Richard Nixon after the 1973 embargo — is increasingly at odds with reality.

Shock to supply and demand

After the Gulf War, concern over energy security seemed to recede. Saddam Hussein's bid to dominate the Gulf had been foiled and it appeared that the world oil market would remain a market (rather than becoming Saddam's instrument of political manipulation) and that supplies would be abundant at prices that would not impede the global economy.

But 15 years later prices are high and fears of shortages dominate energy markets. What happened? The answer is to be found in both markets and politics." Read it all


Post a Comment

Links to this post:

Create a Link

<< Home

Powered by Blogger