The changing global energy map

Introduction

The geopolitics of energy is fast changing. Energy has become part of foreign policy. And energy security is also about security policy.   

Norway is an energy nation. The third largest gas exporter, a major oil exporter and has a large share of renewables in the energy mix. We are also one of the world’s larger energy consumers per capita - well ahead of OECD average but after the US.

Energy is of perhaps our main footprint abroad. Energy and economic interest are not only on top of our embassies’ agenda abroad. Energy and economic ties with Norway also seems to be the main driver behind many countries’ interest in closer relations with Norway. We will therefore step up our economic diplomacy abroad to facilitate Norwegian trade and investments abroad, also in new emerging markets in Asia, Africa and Latin-America.     

As an energy nation, we must pay close attention to the global energy landscape. We must work closely with industry to make sure we are innovative and prepared to face challenges and seize opportunities.

We are the 6th largest hydropower producer in the world. Renewables have a large share of our energy consumption, but there is still a lot of work to do if we are to reach the target of 67,5 per cent by 2020 .

There is a well-functioning power market in the Nordic region, and we are increasing our transmission capacity to Europe by two new cables to the European continent. Germany by 2018 and the UK by 2020.

There is potential for Norwegian hydropower to complement intermittent renewable power (solar and wind) in Europe (“Green battery”). There is increasing energy interdependence between our countries.

There is also a growing potential and competence when it comes to offshore wind.

The Big Picture/Global trends 

Global primary energy demand rises by up to 40 per cent over the next two decades, underpinned by rising living standards in emerging economies, particularly in Asia and the Middle East.

Fossil fuels account for the lion’s share of the overall increase in demand, remaining the principle sources of energy worldwide.

Oil demand will fall in most OECD countries, but this is more than made up for by strong demand in non-OECD countries

Since the start of 21st century, despite strong growth in renewables (from a low base), coal has dominated the global energy demand picture, alone accounting for almost 50 per cent of energy demand growth in the last decade (2001-11).

Renewables will need to significantly increase market share in global energy mix to mitigate the effects of climate change – the above illustrates how big a task this is in a world that needs (lots of) energy.

Is natural gas the “missing link” between inexorably rising energy demand and climate change – hence, a golden age of gas? (IEA)

An energy revolution in the making…

The US “shale” revolution is the biggest shake-up of energy markets in decades. The US is likely to become the world’s largest producer, while North America eventually may become a net exporter of oil.

Huge upward revision of resource estimates has taken place and looks set to continue. The constraining factors for production in North America are increasingly technology and price rather than the resource base. The single most important factor for growth and jobs creation in the US going forward.  Over 3 million new energy-related jobs according to some estimates.

As is self-evident by now, the rapid surge in unconventional oil and gas production has implications well beyond the US – economic, strategic and environmental.

Where - and how fast - the shale revolution spreads globally will further impact energy markets and geopolitics.

The only other country with a potential production increase (3-5 years) with a global impact is Iraq.

… And a changing landscape

A new global energy landscape is taking shape with an oversupply in North America, an undersupply in Asia Pacific, and a near balance of supply and demand in Europe.

Dependence on imported oil & gas remains high or increases in all key economic regions of the world, except the US. The US swims against the tide.

The IEA projects “A new silk road”. By 2035 almost 90 per cent of Middle Eastern oil exports go to Asia. North America’s emergence as a net exporter accelerates the eastward shift in trade.

New energy regions, be they unconventional or in deep water offshore, are being explored and developed. Offshore Brazil, Artic, Africa, Australia to name a few. Huge new seismic acreage globally. Diversifying the global energy trade patterns.  

Rising supplies of unconventional gas & LNG help to diversify trade flows, putting pressure on conventional gas suppliers (like Norway, Russia) and oil-linked pricing mechanisms.

The effects are felt beyond the gas market and are sometimes counter-intuitive; between 2006-2011, the United States CO2 emissions went down by 7 percent and are approaching the 1990-Kyoto baseline, largely due to coal-to-gas fuel switching (and the financial crisis).

Due to low coal and carbon prices, Europe is going in the opposite direction by importing cheap coal from the US to replace natural gas in power generation.

Geopolitical considerations of a new energy landscape

There will be winners and losers - in geopolitical terms – of a fast-changing energy landscape. This means that some countries will have more policy space and while other countries will have less policy space.

It is not yet clear exactly how. But the US stands to benefit. Energy currently accounts for roughly half the US trade deficit. Hence, a more energy self-sufficient US is a US with more policy space. Cheap energy inputs may revitalize any country with an industrial base, and cause some manufacturing to relocate to the US.

The energy dependence in Asia will increase. In 2010, to much fanfare, China’s total energy consumption surpassed America’s for the first time, making China the biggest energy consumer in the world.

An even more symbolic once-in-a-generation moment occurred this January, when monthly data suggested China became the world’s largest oil importer. Monthly variations notwithstanding, a clear harbinger of things to come for emerging Asia.

The emerging powers in Asia, and in particular China and India, are on course for a steep increase to an already significant oil imports dependency.

Urgent policy actions in the transportation sector by Beijing and New Delhi may modify this theme, but will hardly change the overall direction in the medium-term.

This is bound to accentuate the focus on strategic reserves and energy security in Asia. Western nations, historically, resolved its increased oil dependency in a cooperative manner, i.a. establishment of IEA in the 1970s. How Asia will “resolve” oil import dependencies that are soon destined to surpass even the historical high water mark of oil import dependency in the US is of vital geopolitical importance.

A changing OPEC/Middle East: Its focus will increasingly shift to Asia. In the long-term, will the US continue to provide the “security guarantee and protect shipping lanes” while East and South Asia will be by far the dominant “customers”? This might not be “sustainable” from either an American, Middle Eastern or Asian perspective.

At the same time new energy regions provide more diversification away from OPEC.

Oil dependence may well shape Chinese and Indian policy towards oil-producing nations just as it has in the United States. Concerns among some in the West that a scramble for resources is looming may seem exaggerated and there has not been a noticeable impact on the functioning of the global oil market so far. But expect the “oil consumers” in Asia to assert themselves in new producing regions.

Implications for Norway…in Europe 

To start with the obvious. Most if not all serious analysts project significant global oil demand growth, driven by non-OECD countries, providing some support for oil exporters for the foreseeable future.

More than 95 % of our gas exports will remain destined for Europe. In the short term, gas demand in Europe is negatively impacted by the economic crisis and low coal and carbon prices.

The changing energy map and the shale revolution may well have long-term implications for our traditional gas exports to Europe.

Yet the European gas market will largely remain regional, and, aside from economic activity, energy policies and carbon policy choices in Europe will be keys to determine the outlook for natural gas in the European energy mix.

Increasing gas diversification in Europe (away from Russia and new Caspian Gas going forward) will have implications for Russia.

EU/European conventional gas production is irreversibly declining, providing some relief for gas exporters in the face of weak overall demand growth.

We have a job to do in order to make sure there is a prominent role for natural gas in Europe’s future energy mix. And policies and incentives should be designed so that natural gas will be gaining at the expense of coal and not the other way around. Good for us, for Europe, and the climate.

…and the Artic

Activities in the Artic are set to continue. Bear in mind that conditions in the Artic varies greatly. Like the North Sea and Norwegian Sea the Barents Sea south is ice-free year-round, and the conditions and challenges are thus different from elsewhere in the Artic.

For other offshore areas in the artic like Kara Sea, off of Greenland, and Alaska conditions are more challenging and development will increasingly depend on technology and price going forward. In other words, there are different Arctics.

Shale revolution may reduce the potential for quick development of the Artic where there is no activity or infrastructure today.

Norway’s energy presence - A truly global footprint

A more global energy map has resulted in a significantly increased “Norwegian“ energy presence and commercial interests outside the Norwegian Continental Shelf.

Statoil’s oil production and resources outside the Norwegian Continental Shelf is projected to grow significantly going forward. Moreover, the international turnover from the Norwegian oil service sector keeps setting new records. The oil and gas industry is by far the most important industry in terms of international turnover.

Norwegian companies are present in most, if not all, major unconventional and offshore regions globally

However, many new energy regions have contested or unclear boundaries or are located in areas of conflict.

A more global industry will face more challenges going forward with respect to political and physical risk. The In Amenas terrorist attack is the latest and most brutal illustration of this risk. A risk that we have to try to reduce but that we can never reduce be zero.

To navigate the changing global energy map safely will require close cooperation between industry and government.

To sum up: The global energy map is fast changing. So is the geopolitics of energy and its ramifications for international politics. Hence, energy is high on my agenda as Foreign Minister. The Foreign Service will strive to understand the implications of the changing energy landscape in order to pursue Norwegian interests. That job we can best do together with you – the industry. 

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