Rethinking energy. The future of oil and gas

The Minister based his speech on the following points
Check against delivery.

Slide: Title slide 

1. Introduction

• Congratulate the organisers of Oslo Energy Forum. Important contributions to global discussions on energy and geopolitics over many years.
• The Sanderstølen conference stands out year after year as one of the most valuable international meeting points in Norway. Now changed its name to the “Oslo Energy Forum”. This year’s programme is so topical for our changing world.
• I would like to share with you some perspectives on the changing times we are living in; I don’t intend to challenge the energy expertise here – but rather to present you with some of my observations.
• My main observation is this: I have experienced, since taking up my position in 2005, that energy, geopolitics and foreign policy are so closely related – there is such a strong link – that they can hardly be separated.
• There is hardly any global foreign policy event today that does not have a direct bearing on energy – and hardly any major energy related development that does not directly affect foreign relations today. Look at:
• China’s economic growth – the uprising in North Africa – Iran’s nuclear programme – the pirates in the Bay of Aden – the jigsaw of gas pipelines through Central Asia – the consequences of extracting shale gas – the list could be far longer.
• Now, let me start my tour d’horizon by relating it to my travel programme during the last week – as an illustration of my current focus:
• Last week brought me first to Tromsø, the metropolis of North Norway – the High North – for the kick-off of the Nansen–Amundsen celebrations. In 2011 it is 150 years since Fridtjof Nansen was born and 100 years since Roald Amundsen reached the South Pole. Illustrations of Norway’s polar traditions – and our deeply felt spirit of exploration. At the same time in Tromsø, the Arctic Frontiers conference was held – a scientific gathering as well as an important meeting place for science and policy on developments in the Arctic– to which I will return.
• Then I moved on to Brussels for a day of talks on the Middle East peace process with EU High Representative Cathrine Ashton – reflecting how the Israeli-Palestinian conflict still occupies the central place on the global agenda. Now we have some critical months ahead.
• Then further on to Davos – for the annual World Economic Forum – with its special focus this year on the Nordic Model – the way we organise our societies – the government and the organisations – the welfare state. A key point at this year’s Davos meeting.
• Later today I’ll return to the High North, to Kirkenes, close to the Norwegian–Russian border, to attend the Barents Days and a conference on cross-border cooperation between Norway and Russia. Now, by the way, remember this: In 1990, around 3 000 people crossed that border. In 2010, however the figure was 140 000. It is now a “normal” border.
• Tomorrow at noon I travel from Kirkenes to Paris, for another round of talks on Middle East issues with Lady Ashton, the French Foreign Minister, the Palestinian Prime Minister, and – according to plan – the Egyptian Foreign Minister.
• And finally, in Paris on Friday – together with the Minister of Finance – I will meet the French Minister of Finance to add Norwegian inputs to the policy development of the French G20 Presidency. Main themes will be: energy issues, finance policy, global architecture and global governance.
• Now, this journey, this round of meetings illustrates a set of Norwegian priorities when it comes to our global outlook. Many of them involve energy – directly or indirectly.
• The discussions in Davos. The meetings there in the early 1990s – and today. Positive focus on the dynamic Nordic Model: modern and effective (contrary to the 1990s’ more negative focus: state too big, inefficient, not able to adapt, unemployment). Role of China. General economic mood slightly better. But concerns regarding Egypt, North Africa, Middle East.
• A lot of focus on the emerging powers – the changing world order. Shift of power, from west to east and south. The new major economies – high performance, high hopes – and crisis in the “old country”, the traditional west.
• The mood at the start of 2011: hope (Asia), fear (the West), humility (Africa, Middle East). (Dominique Moïsi’s book: politics and emotions – more a question of “clash of emotions” than “clash of civilizations”). But never before so many people with more hope and optimism than now. The survey in The Economist (China, India 80-90% vs. US, UK 30%).
• All focus now on the wide horizon in the east. 

Slide: The green/blue map. Melting ice. 

• But there is another horizon, much closer to us – to the north, where we live. So, let me then move north (the map you can see here also hangs in my office: everyone who comes to meetings with me has to study it...)
• The developments in the High North – which for us encompasses the northern land areas of Norway, our economic zone and continental shelf stretching into the Arctic – has been defined as my Government’s main foreign policy priority.
• The High North is close to us – to where we live, where we have rights and responsibilities. Key words: activity, presence and knowledge. And now a growing number of states and key players are also looking north.
• In this area – and in our High North policy – there are three obvious drivers of change (that generate both the opportunities and the challenges of this region):
• climate change (we have “front row seats” to the global development: ice melting – opens up new transport routes),
• the management of the region’s resources (oil, gas, fish) – i.e. energy, the main theme of this conference, and
• our broad and close relations with Russia. 
• Now, first a few words related to one of these drivers – and of relevance to our agenda – climate change. 

2. The significance of the High North 

Slide: Climate change in the Arctic. Melting ice. 

• The Arctic – a sea, “the eighth sea”, compared to Antarctica which is a “big rock”. Coastal states’ responsibilities and rights in the Arctic. UNCLOS provides a “road map”. Regulations, search and rescue. The Polar Code (IMO).
• Climate change has added new dimensions to our energy challenges, forcing us to consider how carbon capture and storage (CCS), flaring reduction, coal-to-gas substitution etc. can act as bridges to a really sustainable energy world.
• And it has highlighted the importance of Norway as a major renewable energy nation, ready to respond to Europe’s demand for predictable and clean energy supplies – especially as wind and solar energy are inherently unstable.
• Add to this the key dimension energy provides to the number one priority in Norwegian foreign policy: the challenges and opportunities of developments in the High North. Let me explain:
• The High North is a laboratory of future-oriented, close political cooperation that is correcting the misplaced notion of a “race to the Arctic” and of conflict scenarios that some observers seem to put forward.
• The UN conventions – including the Convention on the Law of the Sea – that govern relations between states in the High North in the same way as they do elsewhere in the world,
• the advanced discourse on how to balance economic and commercial aspirations with sound resource management and environmental concerns, and
• the constant evolution of the Arctic Council, Barents Council, and other regional organisations. 

Slide: Map: Delimitation line, 27 April 2010. 

• The delimitation treaty. More than a hundred years ago, Stepan Makarov, the Russian admiral who had the world’s first icebreaker built, said that “Russia is a building facing north”.
• Russia is the largest Arctic state. A glance at the map suffices to see that half of the Arctic coastline belongs to Russia. Well over half of Russia’s proven natural resources are located in the Arctic. In 1987, a visionary President Gorbachev proposed turning the High North into an area of cooperation. Today this is happening. 

Slide: Signing of agreement. Relations with Russia.

• The agreement between Russia and Norway on maritime delimitation and cooperation, signed in Murmansk on 15 September last year, is based on the well-established legal framework that is the UN Convention on the Law of the Sea. And after 40 years of negotiations, we have now agreed on the boundary between our zones and continental shelves in the Barents Sea and the Arctic Ocean.
• The treaty is now being handled by the Storting in Norway and the Duma in Russia. Upon ratification we will safely be able to say this: Norway and Russia have land borders from 1826, and a sea border from 2010.
• The agreement is a clear reflection of the new dynamic in the Arctic. What was once a frozen region in more than one sense is warming up to the prospects of reaping mutual benefits through cooperation and agreements in many fields.
• The Arctic is an energy resource base of potentially huge proportions. It could significantly allay concerns about energy scarcity that again seem to be driving oil prices through the roof.
• It is full of challenges, though, testing the limits of the state-of-the-art energy technology expertise that we have developed over more than a century.
• However, it is important to recognise that global warming (re: the IPCC reports, now it is happening) will lead to increased activity in the Arctic. 

Slide: New routes for transport.

• Retreating ice is opening up new commercial opportunities for shipping and petroleum activities. Many are now looking to the High North and the Arctic for new business opportunities as the ice retreats.
• The journey from Yokohama in Japan to Rotterdam via the Northeast Passage is about 40% shorter (= 13 days and 20% less fuel) than the route via the Suez Canal. This represents huge potential for cost reductions – and less worries about pirates – although there are major challenges due to the harsh climate. (25% shorter to the ports in South China). Example: the Nordic Barents sea journey last fall.
• Our responsibility as politicians is to make sure that this new economic development does not jeopardise the future of the region. That is why we need to agree on a new, binding Polar Code that regulates shipping in Arctic waters.
• The High North and the Arctic are also a testing ground for finding a good balance between commercial interests and local and global environmental and resource management concerns.
• The tragic Macondo accident has put the burden of evidence on those of us who look north for further offshore extraction of oil and gas at huge depths and in extreme weather conditions. The US Macondo evaluation leaves little doubt about the seriousness of this challenge.
• We have no choice but to face it up front and prove to the world that drilling for oil under extreme Arctic conditions is completely safe in terms of both security and the environment. This would be in line with Norwegian policy during the last decades as an energy producing nation – taking one cautious step at the time based on stringent regulations and best available technology.
• The architecture of regional and international organisations. The Arctic Council’s role. 

Slide: New routes for transport. Maps 2005 vs. 2010, retreating ice.

• The extent of the extremely hard multiyear ice is diminishing. In the winter of 2009, less than 15% of the Arctic sea ice was more than two years old. And in September 2010, the whole of the Northwest Passage off Canada was ice free.
• I am aware that a time span of only five years is too small to give a definitive indication of developments in the Arctic, but we can clearly see a trend. The ice is melting.
• So, the polar areas are key to understanding global climate change. The ecosystems in the Arctic are particularly sensitive to change. The critical levels, or tipping points, for these ecosystems are therefore of great importance. They will have major consequences for livelihoods, not only in the Arctic, but also on a global scale. 

Slide: Text: Geopolitical change, challenges, tensions. 

3. Geopolitical change, challenges, tensions 

• Now, let me move to the geopolitical scene – and let me start with eight key observations that I believe are widely shared, and then offer some comments and perspectives.
• First. The seemingly unstoppable drift of global power towards the East:
• China’s rise to global power status, how India, China and other Asian dragons along with Russia, Brazil, South Africa and Turkey are rapidly changing the rules of the game in global economic affairs as well as in the domains of politics, culture and religion and world views.
• For some time this has been a phenomenon of economic performance and technological advances. What we are now seeing is how these developments are starting to effect political fundamentals. No state in history has refrained from reaping the political gains of economic and technological advances. 

Slide: Financial crisis. Photo: Ireland.

• Second. The deep ramifications of the financial crisis: a mix of hopeful signs of recovery and renewed signals of crisis from Athens, Dublin, Madrid, Lisbon and many other capitals in Europe and the rest of the world.
• In short – a vulnerable “catch-up” period, uneven and fragile.
• Third. The European crisis, spurred by financial turmoil, is putting the very survival of the Euro at risk. Unmanageable deficits and spiralling debts at a time when the EU is striving to assimilate new states and nurture key but still immature institutions.
• We need to ask, from my point of view: Will we see a more introvert EU, more focused on solving its own problems than reaching out to the world?
• Fourth. A critical spotlight is on the US and to the extent to which it manages to weather the storm, recharge its economy, create jobs and learn from the failures that led to the current crisis. Not only a public debt crisis, also a private sector debt crisis – multiple deficits.
• And then there is the wider and deeper question about the loss of US hegemony and power, a recurring issue in all presentations on today’s programme.
• Fifth. The unpredictability of a multi-polar world that is gradually – but rapidly – replacing first the bi-polar world of the Cold War and the subsequent unipolar world of US/Western dominance. Brings new opportunities, but the major immediate footprint as of 2011 is one of complex uncertainty. Example: Who will now take the lead in the crucial fight against climate change?
• Sixth. Perhaps the biggest threat today: Failing states and failing efforts to build trust and sustain dialogue across ideological, cultural and religious divides: Lebanon, the Palestine Territory, Tunisia, Algeria, Egypt, Côte d’Ivoire, Pakistan, Afghanistan and Somalia. Financial turmoil and rising energy and food prices severely strain governments’ ability to meet rising expectations in already deeply troubled nations.  
• Seventh. Still unresolved fight against rogue states and against global terrorism. North Korea, Iran, Yemen, Sudan – North and South – Somalia, Al Qaida. Multi-polarity and related lack of consensus on global rules of the game hampers our fight, and makes it easier for rogue actors to play responsible actors off against each other.
• Eighth. Climate change. Cancun (COP16) brought us back on track, but only just. An effective global deal is a distant hope at the moment. The business sector rightly questions governments’ ability to provide the investment framework they depend on to really become part of the solution to global warming.
• The same can be said about the inability to finally deliver on the Doha Development Round – and the failing efforts to proceed on disarmament.
• Now, let me move on to some perspectives on this geopolitical picture I have described. 

Slide: Hu visits Obama.

• First perspective – the rise of China.
• No one can help being daunted by China’s phenomenal rise (as emphasised by the first speaker this morning). Consider the following facts: In 1820 US output per head was double that of China. In 1980 real income per head in China was only 6% that of the US. But by 2008, Chinese output per head had risen to 22% of the US figure.
• The question is not if, but when, China will overtake the US as the world’s largest economy. And China’s presence is increasing all over the world. In 2011, China is lending more to developing countries than the World Bank. And it has already overtaken the US as the world’s largest producer of wind turbines.
• But this leads me to the second perspective – challenging the widespread assumptions of the emerging East and a focus on the vulnerability of the BRICs’ growth.
• Brazil combines democratic maturity, economic growth, social improvements and societal stability. Impressive!
• The same does not hold for all emerging economies. Thailand is reeling on a knife’s edge. Indonesia has made significant progress, including against corruption, but achievements are vulnerable to counterattack and the balance between secular goals and the expectations of strong religious groups is difficult. The same applies to Turkey.
• China looks strong and robust today, but balancing growing middle-class aspirations with societal stability in an authoritarian state is bound to create strains.
• What we see in Egypt and Tunisia is an illustration of how vulnerable even the strongest of authoritarian rulers might appear when things start to unravel. We tend to be somewhat “fascinated” by authoritarian states’ economic results, however, they are vulnerable – look at what is happening in Tunisia and Egypt.
• How will China and others balance dynamic performance with a strong fear of losing control?
• Vulnerability and the mass media, internet, social media. Human rights, freedom of expression. Nobel Peace Prize 2010. (And: How can a Nobel Peace Prize announced by a committee in Norway threaten China’s stability?)
• A third perspective – the underlying strengths of US and European economic and political organisation.
• It is far too early to give up on US dominance in many key aspects of global power. The US still has the world’s largest economy, the world’s leading universities and many of the world’s leading companies. The US military is unrivalled. The country spends almost as much on its military as the rest of the world put together.
• And its intangible assets – the combination of entrepreneurial flair and technological prowess – have given it a strong lead in the technological revolution.
• And do not underestimate the robustness of the political institutions of the Western world. The ability to renew and refine political life and legitimacy, the ability mobilise alliances around key political and foreign policy goals.   
• And take a closer look at the relatively weak regional institutions in these other parts of the world.
• The role of civil society movements for/in democracies. 

4. What are enlightened responses to geopolitical change? What are the governance options? 

• First, the question of global governance. And the impression that international cooperation has stalled. And that the UN is in a crisis. And as Klaus Schwab and Mark Malloch-Brown pointed out in Foreign Affairs: “We’re trapped in a debilitating paradox. People around the world increasingly perceive their interconnectedness and interdependence. In principle, they recognise that this implies a need for closer international cooperation. Yet governance at all levels – public and private as well as global, national and local – is struggling to adapt”.
• Multi-polarity and complex uncertainty increase the need for effective global governance but at the same time make it more difficult to arrive at good governance solutions. Effective and lasting governance solutions are not achieved in the absence of shared values, goals and political priorities.
• The 1990s started out with strong optimism about global governance reform and what could be achieved through international cooperation. The fall of the Berlin Wall, the absence of major east/west tension and rivalry over global economic models have significantly boosted global cooperation in a range of important areas (UN reform, nuclear disarmament, effective deals on global health, the WTO’s Doha round negotiations, etc.). 

Slide: COP15 Copenhagen, Obama, Merkel, table, etc.

• Look at this picture from Copenhagen, the mood around the table, the breakdown of decision making, at that point, at that level. The G8 countries were not able to reach a conclusion in the “green room”.
• Many of the current problems in making global governance work are due to old frameworks that do not reflect the rise of emerging nations in global politics.
  Experiences with WTO in 2008.
• China, India, South Africa, Brazil and the like deserve at seat at the table and global institutions that respond to the aspirations of their populations. We need to reform global governance structures to meet such legitimate demands.
• As such, the emergence of the G20 and similar newcomers on the global scene is understandable and in many regards welcome. 

Slide: G20 Seoul Summit 2010.

• The G20 is a major improvement on the G7/8; it signals to the emerging powers of the world that there is in fact a place at the table, that they are legitimate parts of the solution and not the problem. The G20 sets the global agenda on behalf of the world’s most important governments, and delegates important problem-solving tasks to existing intergovernmental bodies.
• However, the shortcomings of the G20 are also well known. The group is not fully representative, it is not very effective, it has few teeth, an unclear mandate and questions loom as to how it will fare as expectations arise for it to formalise, at least up to a point.
• Now, some lessons for new and enlightened global governance:
• First. We must not despair. We face daunting challenges but we now have more experience, resources, technology and players to draw on in our quest for effective solutions.
• And if it is correct that the UN has failed to reform the Security Council, it is also fair to say that the UN is making a huge difference to people’s lives all over the world – every day.
• Second. We must acknowledge the need for formally representative global institutions, the UN in particular (and the IMF), to form the overarching global governance framework.
• Third. We must acknowledge the legitimate aspirations of emerging powers for a stronger voice in global affairs. 
• Fourth. We must also acknowledge the need for institutional flexibility for effective problem solving. We need to streamline organisations’ mandates to focus on core functions, decentralise, delegate and charge the most professional doers with actually implementing what is decided in global forums. Private – public.
• Fifth. We must maximise the opportunities for dialogue and related soft-power mechanisms, even in the most difficult of cases. Sudan, Middle East, Afghanistan.
• Sixth. We must maximise the value of informal networks, alliances and cooperation across conventional barriers, with due attention to comparative edge and the roles of NGOs, social networks, private sector players etc.
• Seventh. We should continually strengthen the links between political and economic processes at local/national level, and regional/global problem-solving, for example through the use of new technology and social networks.
• The High North and the many innovative North European regional cooperation, the Barents Cooperation, Arctic Council, Baltic Sea Cooperation, the EU’s Northern Dimension, etc. 

Slide: Energy and security. 

5. Addressing the energy security challenges of 2011

• The picture:
• complex uncertainty also in the energy world, along with many of the features of the geopolitical picture,
• shale gas revolution,
• nuclear revival?
• European energy transformation,
• the potency of climate change policies,
• Nabucco or South Stream,
• Iraqi energy potential,
• Chinese/Asian actions to strengthen energy security,
• Chinese/US/European struggle for renewable energy leadership.
• Let me add a few comments – and questions – on these issues, inspired by the perspectives I have raised:
• The shale gas revolution reflects the best of global/American ingenuity and innovation, but also underlines how uncertain the energy situation is today and will continue to be tomorrow.
• Will we be able to deal with the environmental side-effects of shale gas in an adequate way?
• The US. Will other countries and regions manage to follow the impressive US lead? How will shale gas developments impact on global gas and wider energy markets?
• Europe. The EU is in a whirl of energy strategy processes: focus on infrastructure, climate-induced reforms and energy security. What is the EU’s direction? Hard to say.
• Heads of EU states and governments will meet in Brussels while you are winding up your proceedings on Friday. But will the EU and its member countries live up to expectations?
• How will they square the Russia challenge? Credibility at stake, need to rethink Europe/Russia energy relations? Who is most dependent (on whom)? Reciprocality.
• China. Asia’s major energy importers – China, India, Japan, Korea – are driving up demand, energy prices, and are contributing to Norwegian revenues. To what extent will they, particularly China, rewrite the rules of the game in terms of enhanced politicisation of energy markets in order to secure their energy futures? And how will the US and the EU react?
• Stability. Energy security challenges will always relate closely to energy price levels, particularly oil prices.
• High oil prices (over USD 100 per barrel) present net importers with huge bills and place further strains on governments in the wake of the financial crisis. And they are generally seen as a boon to a range of undemocratic regimes – Iran, Venezuela, many Gulf countries – that are ready to cash in and may care less about their responsibilities to their populations. If high price levels persist, we need to think really hard about responses to both these pressing challenges.
• How will such trends impact on company structures and alliances? 

Slide: The future of gas, LNG, Melkøya.

• Gas. The future of gas is bright, writes John Deutch in Foreign Affairs. He is right in many ways: shale gas, LNG developments, new conventional gas finds, pipeline networks stretching further and further, benevolent policy changes in Europe and beyond (liberalisation, third party access etc.).
• And this adds up to a prospect of low gas prices far into the future (fully delinking gas from oil prices), and extending the use of gas to new frontiers, including substituting for oil and thus potentially also reducing price pressures on oil. 
• From a Norwegian vantage point, a key question is: How will gas fare in the ongoing European transformation to a more sustainable energy future?
• The role of gas has recently been played down in many scenario and policy studies in Germany and the UK, but I believe they are wrong on this point. I very much support their ambitious starting point: moving Europe to a sustainable future in line with climate change commitments. But gas will, in my view, play a key role in that transition, as a valuable, readily available and secure base-load for Europe’s promising but still vulnerable renewable energy revolution. I have talked to my colleagues elsewhere in Europe (Britain, Germany, France) on this.
• Back to the Arctic and similarly demanding energy provinces elsewhere.
• How can we learn from Macondo, and prepare ourselves for the challenges of extracting oil and gas responsibly in such difficult conditions, at thousands of metres deep, in a climate that is new for even the most experienced petroleum companies? The question is how do we access new energy provinces in the Arctic after the Macondo accident. 

Slide: Title slide. 

6. So the key question is: How do we respond to energy and climate challenges?

• There is no single recipe for how we should respond to these daunting challenges, but let me conclude with the following five perspectives:
• First. More transparency, more dialogue and cooperation, and better institutions are needed. I support G20’s request for enhanced transparency throughout energy markets and politics, including intensified cooperation between the IEA, OPEC and IEF on data, monitoring, scenarios etc
• Second. More important than ever to refrain from undue politicisation of the oil and gas sector. This has been Norwegian policy since the very start of our petroleum operations 40 years ago. Recent experience from our relations with Russia reinforces this point.
• Third. The IEA and several UN organisations have recently highlighted the unacceptable fact that more than 1.5 billion people still lack access to basic, modern energy.
• Fourth. The climate change agenda should provide important parameters for a responsible energy future. Consider the following: The energy industry has been and remains an important magnet for talent worldwide. It has also facilitated global exchange and trade in technology and expertise, within and between companies. What we need to do today is to reflect and act upon the urgent need for renewable energy solutions that are as successful as oil and gas have been.
• Fifth. A key task in this respect is developing and maturing CCS to provide a bridge between fossil fuels and sustainable energy futures. There are considerable technological challenges. And financial constraints are a serious concern in many countries, such as the UK. This is a matter of political will (which is a renewable resource). We cannot take it for granted that it will be we who deliver CCS. Not long ago it would have seemed highly unlikely that we would have to lean on China to help us solve such a complex global problem. But today this is a reality. China already leads on renewable energy, and I would not be surprised if, in a few years time, we were looking to China for the most ambitious and comprehensive CCS projects globally.
• Finally: Talented industries have – at all times – found solutions in so many areas, so I am quite sure that industries and businesses will find ways to solve the climate/energy dilemma, which is not only Norway’s issue but the whole world’s dilemma.