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New global energy security paradigm needed

17 May 2006 - Geneva, Switzerland

The world’s energy producers, consumers and policy-makers must urgently consider how the traditional oil and OPEC based energy security paradigm of the 1970s can be enhanced to meet new realities and long-term needs, according to The New Energy Security Paradigm. This report and agenda-setting outline for forthcoming meetings of the World Economic Forum’s Energy Industry Partnership is a collaboration between the World Economic Forum and Cambridge Energy Research Associates (CERA).

“Energy is the hinge of the world economy and its security cannot be taken for granted,” the report argues, laying out four critical sets of questions for the institutions, companies and decision-makers whose actions will shape the future of energy. Energy security must evolve to reflect a far more complex integration of economies, infrastructures and political alliances, and be able to respond to unexpected disruptions such as natural disasters and geopolitical unrest.

The New Energy Security Paradigm tracks changes in the original elements of energy security:

• Global oil supply and demand – Oil production capacity is concentrated in 15 countries – nine of them OPEC members – which will control 58% of world liquid production capacity by 2015. National oil companies have joined in the competition for resources and will require new infrastructure to bring product to market. Oil demand is rising quickly in Asia and Brazil, half of global oil demand growth over the next ten years being forecast to occur in the Asia Pacific. The OECD countries, which accounted for 70% of demand in 1974, today represent just 60% of global demand.
• Dash to natural gas – Demand for natural gas, the fuel of choice for new power generation, has more than doubled in the past 30 years, driven largely by new technology. Liquefied natural gas (LNG), with more supply flexibility than point-to-point pipelines, will claim 17% of the global market by 2020, up from 7% in 2003.
• Power demand growth – With economic growth driving global power demand, markets are shifting between state ownership and deregulated commercial structures. However, if markets are perceived to be unreliable, a swing back towards greater state control of power markets as well as oil and gas operations is possible. Local communities are more vocal about the impact of new development, affecting the timely construction of new infrastructure.

• Interconnections of world economies – The interconnectedness of the energy infrastructure was highlighted by the disruptions caused by Hurricanes Katrina and Rita, which were felt throughout the world. Geopolitical alliances continue to shift along with supply sources and demand centres transforming traditional geopolitical dichotomies.
• Climate change and technological innovation – Climate change concerns influence companies’ choices of new energy sources and emerging policies of governments on growth, environment, competition and new technologies. Many more fuel options – wind, photovoltaic, nuclear – exist today than in the 1970s, and diversified options such as hybrid vehicles and biofuels are increasingly available for transportation. Carbon capture and storage technology is being pursued as a potential avenue for keeping coal in the fuel mix for energy security without releasing greenhouse gas emissions.
• Broader array of stakeholders and pressures – Although price signals may assist in achieving energy efficiency, successful efforts will be short-lived unless consumers either believe that higher price levels will be sustained or support conservation as a result of an improved market/policy matrix. Consumer and user organizations, for the first time in decades, will have the opportunity to negotiate alternative deals with a number of non-OPEC players, and to exploit upstream and downstream investment opportunities presented by non-OPEC producers.

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