Dr Andrew Parasiliti, Executive Director, IISS-US; Corresponding Director, IISS-Middle East
Welcome to the Fifth Plenary Session, Towards a Comprehensive Energy Security. This plenary session is central to the theme of this year’s Global Strategic Review, focusing on global security governance and the emerging distribution of power. Global energy security is at the hub of geo‑economics and security, including issues such as the growing demand for energy, especially in China and India; the linkages between security of supply and the potential for conflict, especially in the Middle East, where a conflict with Iran, for example, could have a cost in terms of global energy; actors in the international system, both old and new, the oil‑producing countries, the International Atomic Energy Agency (IEAE) and other key international and financial institutions, as well as the oil companies, and a new set of players, including technology entrepreneurs in the areas of wind and solar and those financial institutions; and the issue of how global energy relates to the overall challenges in the international economy and its relationship to the environment and climate change.
That is a wide set of issues for which we have a distinguished panel. Firstly is Mr James Smith. He is Chairman of Shell UK Ltd. He has been Chairman of Shell since 2004. He has been with Shell since 1983. He has lived [for] four and a half years in Malaysia and Brunei, and served for Shell in Middle Eastern countries and in the US. He is President of the Energy Institute and chairs the Advisory Board of the Cambridge Programme for Sustainability Leadership.
Our second speaker will be Richard Jones. He is Deputy Executive Director of the International Energy Agency (IEA). He comes to the IEA from a distinguished career in the US Foreign Service. He served as Ambassador to Israel, Kuwait, Kazakhstan and Lebanon, and he was also the Secretary of State Senior Adviser and Coordinator for Iraq Policy in 2005.
Our final speaker will be Oksana Antonenko. She is our Senior Fellow at the IISS for Russia and Eurasia. She carries out a wide range of our projects in the area, including security and counterterrorism, the conflicts in the South Caucusus, the Shanghai Cooperation Organisation, and security and cooperation in Central Asia. I look forward to the comments of our panel.
James Smith, Chairman, Shell UK
Good morning, ladies and gentlemen. Andrew, thank you for the introduction and thank you for the opportunity to say a few words today about energy security. What I am going to be saying is drawn from the work that Shell does on long‑term energy scenarios, which look at the energy challenge of energy security and climate change faced by global security and tries to assess the response to those challenges. In some sense, what the scenarios do is to measure the gap in the poor scenarios between what society says it ought to do and what it ends up actually doing. To the extent that the actions support the rhetoric, you tend to have better outcomes; where the actions fall short of the rhetoric, the actions are not so good. Our scenario work attempts to measure the gap and suggests what might be done to avoid it.
From the point of view of energy security, there are three main points I would like to make to you and convince you of to draw out the lessons from the energy scenarios. The first is that the scale of change of the global energy system has to be extremely large indeed. It is a major and difficult engineering and technology project to accomplish, far less the political difficulties of doing so. The second point is that climate change has not gone away and in itself represents a threat to security. The third point is that we live in an energy‑interdependent world. Any sense that energy security can be achieved through energy independence represents a dangerously false trail. I would like to elaborate those three points a little and then, in my concluding remarks, identify a few points on which I think society can focus in order to respond.
The first point is about the scale of the challenge. The economics and the science of climate change are pretty complex, as you probably know, but there is some somewhat simpler arithmetic that I think can demonstrate the scale of the challenge. The world needs more energy and less carbon dioxide. In fact, in the first half of this century, the world will need to generate twice the energy and half the carbon dioxide emissions. That in itself is a huge challenge. Compounded, the two together are a major challenge. If you asked what that represented in terms of the rate of decarbonisation of the global energy system, very soon we have to start an annual decarbonisation of 7% a year, if we are to meet these twin targets. You may ask how well we have done in the past. This would be a tripling of the rate of decarbonisation of the global energy system.
The IEA talks about the project being $1 trillion a year. $1 trillion used to sound like quite a lot of money. It is perhaps rather an abstract concept. It is a measure of economic activity. If you turn that into people working by dividing by an average wage around the world, you need more than 20 million people engaged on this project. Alternative energy and energy efficiency are vital not just for tackling climate change, but also to ensure that the whole energy system can deliver the energy we need and the reduction in carbon emissions. Energy efficiency and alternative energy support energy security as well. That is a crucial point to make.
The second point is about climate change. It has not gone away. I do not know the views of this hall, but the fundamental science is absolutely clear: if you put more carbon dioxide in the atmosphere, it will tend to heat up, so there will be adverse consequences. When you hear the scientific community in dispute or discussion, I would suggest you are hearing a discussion of how bad, how soon. It seems to me that it would be somewhat risky to assume that the feedback loops that might attenuate the impacts would be essentially benign and that we could get away with it based on some optimistic expectations, because the adverse feedback loops could be very significant. It seems to me that climate change is not a risk it would be sensible for us to run.
The next point I wanted to make was about the interdependence of the energy world. To do that, I would like to create some context, firstly about the global energy system and then about oil and gas. On the global energy system, you may be asking whether we can meet this 7% a year decarbonisation of the global energy and the doubling of energy supplies. In order to respond to that question, you have to break it down into its component parts. It seems to me there are some important component parts. Do we have the technology, skills, money, time and global trust through leadership? Those seem to me to be five important component parts to answer whether we can meet this energy challenge. As you go through these questions of technology, skills, money, time and leadership, I suggest the questions become progressively harder in convincing yourself that we have a satisfactory answer.
Actually, the technologies are there to accomplish this, but I would not suggest they are perfect. An energy source that is clean, cheap and always on does not exist. Within our grasp we have a set of somewhat unsatisfactory energy sources, which can deliver the outcomes we need, but we need some of the new technologies out of the lab, off the drawing board and deployed at industrial scale as fast as we can. The availability of technology is not the limiting factor.
Skills and money are problems. We can choose to be daunted by this, or we can choose to be invigorated. When you think about the slump in the global economy, let us be invigorated by the opportunity that investment in the energy infrastructure creates. There is much talk of rebalancing economies away from consumption towards investment – investment in energy infrastructure, creating the skills, finding the investment monies, gaining the advantage of new technologies. Let us see it in that light.
Time is precious and short. We have wasted years. There is no more time to spare. We really need to get on with this, and that is why building trust through leadership is so important. I would like to return to that in my concluding remarks about what society might do.
I said I would say something about oil and gas, because you may have been asking yourself how interdependent the energy system is. It is in oil and gas that the energy system is particularly interdependent. You may say to yourselves, ‘With this trend in the energy system, how significant will oil and gas be in 20 or 30 years’ time?’ There is certainly no problem with resources in the ground. That is a non‑issue. The energy efficiency of economies needs to double or treble. There may be some chance of achieving that. Our scenarios talk about growth in wind and solar by a factor of 40 or 70 by mid‑century. You may ask whether that is enough to wean us off from oil and gas. If you look into the model behind our scenarios, you will see that oil, gas and coal are 80% of global primary energy supply. By the middle of the century, if we do all we possibly can with energy efficiency and the phenomenal growth of these alternative energies, replacing the nuclear fleet as well to grow it a bit, oil, gas and coal will still be about 60% of global energy demand. We need it.
I do not need to spend a lot of time elaborating that where the oil and gas are is not where they are consumed. About two thirds of oil consumption is imported. The US imports something like 12 million barrels of oil a day, which is about 60% of its needs. Europe imports slightly more, about 85% of its needs. India and China take 60‑80% of their needs. Numbers for India and China are not yet as big as for Europe and America, but we all know they will grow very quickly. As Andrew alluded to, the oil is concentrated in a relatively small number of hands; five countries account for about 60% of conventional oil. You may be remembering about oil sands in Canada. If you want to ask about that in the questions, please do.
The picture for gas is similar but not identical. The US is better served with gas. Particularly the shale gas that has been found means the US is now the world’s biggest gas producer, and is and is likely to be self‑sufficient in gas for some while to come. Europe is not. At the moment, Europe needs 50% of its gas to be imported. We think that, by 2030, 30% of the gas consumed will be imported. India and China have significant needs for gas. We already know Japan has significant needs for gas, as does Korea and other growing economies. Of course, liquefied natural gas (LNG) will be a significant part of the global gas trade. The number of LNG vessels increased by 50% in the last five years and is likely to increase by 50% more in the next few years. We will have about 500 LNG vessels plying the oceans and traversing some difficult seas.
Against that background, you may be saying, ‘Oil and gas sound difficult. Can we not do this with coal and domestic biofuels? Those must be solutions. Coal is more plentiful and more closely related to the market.’ When we looked at our scenarios, we considered a solution called ‘Scramble’, in which people were driven more by energy security and ended up using domestic biofuels, which are not necessarily as effective as they need to be, and coal, in order to replace the import dependency on gas and oil. There is plenty of coal, but we think that, although it is there in the ground, the amount of logistics required to get it out, put it on railway lines, on railcars, onto ships, into ports to move it to where it is needed will encounter very serious bottlenecks. There will then be interruptions to supply, significant price volatility and the coal will be spewing CO2 into the atmosphere, which will cause climatic problems. That is what I meant by a dangerously false trail, when I referred to it earlier.
What do we do? Here are our suggestions in four areas. Firstly, domestically, energy efficiency is needed in every nook, corner and cranny of the economy to make the most of our domestic resources, whether they are fossil or alternative, doing it sensibly, with the right technologies and sources.
International diplomacy on energy security is absolutely crucial. If we have an adversarial frame of mind in accessing these scarce resources, the consequences will be to inhibit investment and, therefore, reduce supply. A collaborative frame of mind internationally is much more likely to ensure that the capital, people and technology flow to where the energy can best be produced. This is not a zero‑sum game. The right framework of international relations will ensure that more energy is produced.
The third point is on climate change. We may not have an international treaty in the near term to stabilise and reduce carbon emissions. That does not mean there is not a lot that we can work on. International agreements about energy efficiency, carbon capture and storage, alternative energies, land use and the gases beyond CO2 like methane and others comprise a very significant climate change agenda, on which we must work, even if we do not have that vital agreement on the emissions profile.
Finally, as you might expect from the private sector, we need to keep faith with the market. Markets are the best means to reinforce connections between producer and consumer. As the producer wants security of supply, so the consumer wants security of demand. Security of supply will be rewarded by continuity of off‑take. Where there are market deficiencies we should correct them, but we need to change the terms of trade of energy so the world can have what it needs for the carbon emissions the planet can afford. Ladies and gentlemen, thank you very much.
