The Geopolitics of Energy. A Norwegian Perspective

Chceck against delivery

Excellencies, Ladies and Gentlemen,

Mapping the global energy landscape is vital for understanding the world we live in.

In order to grasp modern geopolitics, we need to examine the ways in which we produce and consume energy.

This is why we are here today.

I am grateful to CSIS and my good friend John Hamre for giving me this opportunity to discuss with you how energy markets influence world politics – and vice versa.  

Events in Ukraine have reminded us of the importance of transatlantic unity and the values we share.  

Allow me to say some words about this dramatic situation, which is far from irrelevant to the geopolitics of energy.

Today, in the heart of Europe, we are confronted with serious violations of the most basic principles of international law.

Russia’s actions and calculations belong to a century far removed from ours.   

The message from the international community is clear – as it should be.

The use of force to redraw borders is unacceptable and must have consequences.

In the current situation, Ukraine deserves our full political and economic support.

These dramatic events have also reinforced existing concerns about energy security in Europe, which is something I will address in a moment.

In a situation where global energy demand is expected to increase by 35 percent over the next twenty years, the interplay between energy, power and politics will continue to affect foreign policy-making.

Economic factors play a decisive role in shaping our world.

This was a fact even Adam Smith and Karl Marx could agree on.

Energy supply and demand are extremely important in this context.

A journey through the geopolitics of energy takes us west, east and south –and not least up to the High North.

Let me begin in the east.

The global map of economic and political power is shifting, and the energy landscape is changing along with it.   

China is about to become the world’s biggest importer of oil. India is forecast to be the biggest importer of coal by 2020.

This development comes as no surprise.

What is surprising, however, is the second feature of the new landscape:

The American Revolution – this time an energy revolution.

It is astonishing to see how US crude oil production has increased by 65% and gas production by 34% - in just ten years.

After decades of dependency on the Middle East, who would have predicted that the US will soon be second only to Saudi Arabia in terms of oil production and second only to Russia in terms of gas production?

I look forward to the launch of the CSIS study tomorrow. I am sure your discussion will provide interesting insights into the geopolitical consequences of unconventional oil and gas –and prove valuable for US foreign policy decision-makers.

Even though the shale boom is bound to have geopolitical consequences, I still believe that the Middle East will remain a region of geopolitical significance. Not just due to its abundance of cheap oil, but also due to the extremely complex political situation there.

Dear friends,

Given the stakes involved, discussions on the geopolitics of energy easily end up focusing on the potential for conflict. 

Without ignoring such concerns, I would like to propose a somewhat different perspective.

The Norwegian approach to energy security is quite simple.

We are a reliable and predictable provider of energy – and we will remain so.  

We believe the role of politicians should be to provide the predictable regulatory framework necessary to allow companies to operate on a sound commercial basis.

Making politics out of the energy markets will profit neither consumers – nor producers.

Companies need predictability and functioning markets in order to finance the huge investments necessary for future energy production.

Norway is the third-largest exporter of gas globally. We are also in the major league when it comes to oil exports (7th).

We are the 6th largest producer of hydropower – on a par with India.

Norway is the second largest exporter of gas to Europe after Russia.

When Norway became a major producer of oil and gas, we made sure that the main beneficiary of the revenues would be the people.

We have developed a system where the marginal tax rate on petroleum production is 78 percent, something which does not prevent high international interest in exploiting our resources.

Based on our petroleum income, we have established the largest sovereign wealth fund in the world – the Norwegian Government Pension Fund.

In a given situation, Norway could increase its short term gas production by up to 10 percent. It would, however, be difficult to maintain such an increase over a long period.

More than 70 percent of Norwegian gas resources remain to be produced. We are maintaining a high level of exploration activities.

We will continue to see secure, predictable deliveries as the best contribution we can make to energy security.

In addition, we strongly emphasise energy saving and efficiency, and are working to develop technological solutions for combatting climate change.

We are making our experience and technology in the fields of fossil fuels and renewables available to developing countries, helping to combat energy poverty and assisting in their integration into world markets.

Exporters and importers depend on each other – and we fully understand that consumers want to diversify their sources. 

When the First Lord of the Admiralty made the historic decision to convert British battleships from being coal-fired to oil-fired in 1911, he also stated that the Royal Navy could not rely on the deliveries from one oil field - or one country.

“Safety and certainty in oil lie in variety - and variety alone”, he said.

This was not the only time Winston Churchill recognised a fundamental truth before most people.

The European Union has started an ambitious project to find ways of improving the continent’s energy security.

There can be no quick fixes to the issue of energy security. It takes a long time to change energy systems and corresponding energy flows.  

We believe that gas should continue to be a key component in Europe’s energy mix.

Gas emits 50 percent less CO2 than coal when burned.

***

Trade strengthens interdependence between nations. Trade in energy is no exception.  

We live in an increasingly globalised world. In most cases, win-win solutions trump zero-sum thinking.

Since 1970, the value of world trade has increased eight times.

We are all in the same boat – and the boat is 8 times bigger now than it was in 1970.

We all have a shared interest in not rocking this boat.

We still live in a world of competition – but national interests are better served by cooperation than confrontation.

We enter into trade agreements and bind ourselves to common sets of rules because we benefit from doing so.

Even in authoritarian states, there is a growing realisation that old-fashioned zero-sum thinking runs contrary to national interests.

Russia’s actions towards Ukraine and other aspects of its approach to its neighbours indicate, however, that some are still clinging to zero-sum perspectives.

What the Russian people need, in the long run, is a modern, diversified economy in which the current dependency on oil and gas is reduced.

The road to prosperity is through innovation - and inviting other countries to engage in voluntary trade. In order for trade to flourish, stable and friendly relations between neighbours are needed.

The rise of Asia shows that a strong economy is what increases political power – not attempts to change borders by military means.    

Even if power is currently moving east and south – the world has not been turned upside down.

We are entering a world where the US and China are more influential than others, but we are not heading for a repetition of the bipolar world of the Cold War.

The US and China are too interdependent for such a comparison to be helpful.

During the financial crisis, China played a fundamental role in securing the world economy. At the same time, China’s export engine cannot thrive if there is stagnation in the US or elsewhere.

The US, China and the rest of us are intertwined in a win-win-relationship. 

We are not heading towards a new world order.

The key question is not whether the relative power of different states is constant, but whether new and old actors alike follow the rules of the game and enter into established frameworks of cooperation.

We have to make sure that emerging powers find their place in the existing world order, rather than creating a new one.

The world economy survived the crisis in 2008 because leaders resisted the temptation to resort to protectionism and nationalism.

They stuck to the rules and kept trading.

The prosperity of nations is best served by agreed rules, trade agreements and predictable investment climates.

Energy markets are no exception.  

That is why the Norwegian Government wants our oil and gas companies to operate within predictable legal frameworks, and to base their investments on commercial calculations.

There are several examples of how energy production can be impeded by unstable conditions, undue state interference, poor governance and conflict.

The massive increase in energy demand, especially in East Asia, India and the Middle East, will compel nations to find new ways of cooperating.

China’s energy requirements will affect its future foreign policy decisions.

Beijing needs a stable international system to protect its energy imports, just as it needs stability in in the East China and South China Seas to protect its trade interests.

The core interests of all states in East Asia should mean that territorial disputes are resolved through dialogue and in accordance with international law, including the law of the sea.

Some speculate that the current crisis in Europe may accelerate Russia’s plans to build pipelines eastwards.

Such projects will still take a long time to complete, and will not necessarily lead to a fundamental reduction of Russia’s interest in the European markets.

***

As power is shifting towards the east and south, geopolitical eyes are also looking north.

It is estimated that around 20 % of the world’s undiscovered global petroleum resources are to be found in the Arctic. New transportation routes like the North Eastern Passage are gradually being opened.

The High North is characterised by low tension, and we must ensure that it remains a region of peaceful cooperation and respect for international law, with actors using a win-win-perspective when formulating strategies. All future production and transport of energy in the region must be carried out according to the strictest safety and environmental standards.

When they became observers in the Arctic Council, China, India, Japan, South Korea and Singapore agreed to the rules of the game in the High North – including the law of the sea and the rights of Arctic coastal states.  

You may have read press reports about a “Race to the North” or a “Scramble for Resources”. 

Many of you will know that this is misleading.

There is international consensus that the United Nations Convention on the Law of the Sea (UNCLOS) applies to the Arctic Ocean.

The coastal States bordering the Arctic Ocean – Denmark, the US, Russia, Canada and Norway – all agree on this. They remain committed to this legal framework and to the orderly settlement of any possible overlapping claims.

Most of the natural resources in the High North are uncontested.

On the Norwegian continental shelf, international companies can compete for licences on equal terms, as they can in the North Sea.

Of course there is competition among companies. That is the way the market economy works.

The Arctic Council provides the political framework needed for dealing with challenges in the north.

Nowhere on the planet are the effects of climate change more visible than in the Arctic.

More attention should be given to the geopolitical consequences of climate change.

A four degree scenario will lead to population movement, more droughts and less growth.  

Even given a two degree scenario there will be consequences. As Secretary Kerry recently commented: «The solution to climate change is energy policy.»

There is no contradiction between being a major energy producer and at the same time fighting climate change.

Norway has a proven track record of developing the necessary technological solutions.

No other factor than climate change demonstrates more clearly the interests that energy producers and consumers share.

We will all benefit from a new, ambitious climate agreement that applies to all countries, and from progress on developing renewable and clean forms of energy.

Let me conclude.

Changes to the global energy landscape will not change our basic approach.

Making politics out of the energy markets will profit neither consumers – nor producers.

My Government will continue to be a stable supplier of energy, and to provide a predictable framework that offers companies incentives to increase their production.

I wish you all fruitful discussions on the geopolitics of energy.

Thank you.