Questions and Answers
(Provisional transcript as delivered)
Dr John Chipman
Thank you very much for that compelling presentation. It has at least partly comforted me in so far that one of the arguments of our article is indeed that a production crunch is on its way. Where you might think that oil production might peak between 2010 and 2020, it would then decline between 2-6% a year, we might see whether those are defendable statistics or not. The floor is open for debate. I can happily accommodate more questions than I have recently been able to.
Admiral Blair
I would like to make three optimistic points in this sea of gloom that we have heard. Firstly, the US did pass an energy conservation bill last autumn. We have now imposed fuel conservation standards on cars and trucks for the first time in 20 years. There is something that can be done about the demand side. Secondly, although it has not happened yet, the trends are clearly moving towards licensing nuclear plants in the US. This has not been done for 30 years, but it certainly will be done. That provides a considerable amount of energy. Finally, on the maritime safety of oil supplies and other things that are carried by sea, it is a problem but I think that the problem is under control. We have the capacity to and we do make them safe. The occasional pirate hits or the terrorist plans that you hear about simply have not been successful. It is a difficult job to take down a big oil tanker. There are plenty of ways to keep it from happening and to keep it from causing damage if it has happened. That is in hand.
Participant
I pose this question to Mr Suresh Prabhu. It has something to do with energy and something also to do with politics. You pointed out that demand is going to grow very rapidly. By 2030, we will probably need five times the amount of energy. I am sure that you also foresee a much higher proportion of nuclear energy. In India we are going to have coalition politics for a long time. I was just wondering whether, as a former insider, you would have some insights as to foreign policy decisions in an era of coalition politics. It seems we will be required to take important foreign policy decisions and you might even have parties leading which might not have much experience of international politics. How will they deal with important foreign policy issues which have a bearing on energy?
Mr Verghese, Visiting Professor, Centre for Policy Research
I would like to get the perspective of all of our three speakers, on something that has perhaps been hinted at marginally, but which I think may be something that should be much more central, and that is ‘lifestyles’. Can we continue with the trajectory of growth and improved lifestyles to a point where the energy security of the world and the globe is threatened, and the balance between the ‘haves’ and the ‘have nots’ keeps on increasing? This is a question that is also linked to things like moving through various processes, including taxation incentives and regulations, from personal to social consumption in many areas. Therefore, there is a new trajectory of development, a new trajectory of consumption, which you need to be thinking about if we are to balance the demand and supply side. President Bush very recently was reported as saying that the energy intensity in the US is likely to continue going up until 2030, and then would come down. That is a projection that raises many questions in many minds. Where do we stand?
Participant
I have many comments, but I will only stick to three questions, one to Mr Fox and one to the other two speakers. Mr Fox, you spoke of energy security as being risk management, but you did not include demand side management as part of your risk management. I would have thought that would be the easiest to control, in terms of risks. I would suggest that you revisit that one.
For Mr Prabhu, is not the issue of benefit sharing and compensation one of the key reasons as to why we do not have more hydroelectric projects, whether in India or internationally, with our neighbouring countries? What are we doing about benefit sharing and compensation?
To Mr West, you spoke of solar energy and technologies, I cannot understand why, at $115 a barrel, solar energy cannot become economical. We are now into tar sands. Tar sands at $40 a barrel is economical, but why can solar energy not become economical? There must be something here which needs to be investigated as much as anything else.
Professor Yoon Young-kwan
If my memory is correct, the Deputy Secretary Robert Zoellick once made a critical comment on the Chinese behaviour, in terms of their air force to acquire energy in the global market. People say that their behaviour is somewhat mercantile. My question was to Mr Prabhu: what do you think about the possibility of cooperation between India and China in terms of competition to acquire energy resources in the global market?
I would also like to ask the same question to Mr West. What about the possibility of the cooperation between the US and China? Whether they can cooperate with each other or not will affect the shape of the international political economy in the future.
Vice Admiral (Retired) SCS Bangara
All the figures and facts that we have today indicate the aging population in most parts of the world. In Europe, particularly, the replacement rate of 2.1 is down to 1.5. Is this nature’s way of sorting out our population? We all know that we are going to have a reduced population almost everywhere except in India and China. Therefore, is this something to look forward to?
Participant
My question is to Mr Robinson West. If what we are looking at is not a shortage of oil but a problem with production capacity, and you link that to the growing share that national oil companies have in production would a solution then be for new arrangements globally that can allow private companies to go back to upstream in a big way? Is that something you think the United States should involve itself in in terms of promoting that?
Suresh P Prabhu
We cannot have a coalition government by choice; it just happens. The last time a single party got a majority in the Indian parliament was in 1984. The last prime minister who enjoyed that majority was Rajiv Gandhi. After that there have been coalition governments, and it looks like it will be the same in 2009. Therefore, you really do not have a choice. At least one of the two national parties was anchoring the coalition, but one should not be surprised if you find a coalition which will be party one taking over one of the others and it will perhaps become marginalised. If that happens, the major portfolios like finance and foreign affairs will be held by these parties. If you have someone coming in from the coalition partners, you really cannot do it.
We really need to move to a system where we could have a coalition agreement, as it happens in Europe. It is not unusual that we have coalition governments only in India. There are a lot of countries, particularly in Europe, who always have a coalition government. They actually sign a pre-coalition government-forming agreement, and sometimes it goes on for months. Even the Netherlands and Belgium have done this. We need to arrive at a proper understanding of how the foreign policy should be handled.
At the same time, it is the responsibility of the government to make sure that foreign policy does not become a divisive cause. In India, for almost all times foreign policy was a unanimous policy. Congress was ruling for a long time, but even the opposition on both left and right supported the foreign policy. I think this should be a responsibility of the government to make sure that foreign policy is made in a manner through which there is a lot of consultation so what finally emerges as the final product is something which is acceptable to most of the people.
As for benefit sharing, this is an extremely important concept. We need benefit sharing within the country as well because we have some states in India which have the resources, unlike the consumer states. We need to have benefit sharing with the country, as well as beyond. That is something I was talking about between Nepal, Bhutan and India. We could actually extend this benefit sharing concept, however, to intercontinental issues; I gave the example before of food and fuel. Do we need to import commodities into the mainland? Should we not think about locating some of these manufacturing facilities where we do not need to use so much energy? Something like this will emerge, and we should look at this. Benefit sharing will also happen in that manner.
I am quite intrigued by the fact that we think solar is not viable. Imagine just India and China, with almost 40% of the global population: if they start using solar in a significant way with the type of technology that is available globally, if we scale it to a certain level, the cost of it will come down drastically. What we need is a different type of solution. What is happening today is that we on one hand are concerned about climate change and want to act fast, but on the other hand we are not allowing the development of technology and dissemination of it at the scale at which it can help with the problem. That is something cooperation between India and China can achieve. Rather than competing with one another to go and acquire the same technology, we could arrive at a very good understanding of it. This is a challenge to the foreign policy of India over the next few years.
Dr Liam Fox
It does seem superficially attractive that politicians could manage down the demand side, but it is not quite that simple because we are exhibiting genuinely addictive behaviour. In the UK under various governments, we have introduced the concept of taxation to try to dampen down demand. In 2000, we had disputes widely across the country because of the rise of fuel prices, yet petrol prices have now dramatically outstripped the level at which everyone said this would not be acceptable. Has it reduced congestion in London? Not at all. We are still using our cars as much as ever before because we are genuinely addicted to this question of the lifestyle that it involves, and it is very hard to break that in a free society. Clearly, there are fashions that are now developing and people are becoming more aware of their personal responsibility in this area, and we are seeing an attempt by people to try to reduce their own energy demand. That has a certain usefulness, but it is limited because you can only reduce so much per capita when you have countries with very large populations. Even relatively small energy use has a cumulative effect.
We need to look to technology. I think the amount we have spent on research to produce to little is truly a scandal. We have made some very bad choices – biofuels, for example, have taken us from one strategic problem straight to another, because we did not understand unintended consequences on that. I think that we need to recognise how close we are to the crunch. Politicians may now be willing to sign up to new nuclear stations being built, but in Britain’s case that will make absolutely difference because in the next 10 years the amount that nuclear will contribute to our electricity generation will fall whatever we now do because we have made bad decisions in the past. We failed to exhibit political courage in recent decades, and we are going to pay the price for it whether we like it or not. We are going to get the pain for the avoidance of previous difficult decisions, and there is no way we can get out of that.
One thing we do have to try to understand is this question of interdependence. We have no right to oil and gas as importers, and those who produce it have every right to profit. All that we can hope is by using the political and diplomatic levers that we have is to get them to understand that upsetting the equilibrium in an interdependent global economy is a very risky game to play for everyone concerned.
J Robinson West
With all due respect to the Admiral, there were two elements in the energy bill: one was to increase ethanol production to 35 billion gallons per year. We do not have the technology, the land, or the water to produce that right now, so Congress was like King Canute commanding the tides. In terms of mileage, it was quite modest; again, the auto industry got exemptions built in for E85, which is for ethanol. I do not think that bill produces much.
Nuclear is critical to the future, but one of the problems everyone should recognise is that for nuclear to be material worldwide and to really contribute to the question of carbon, we would have to build something on the order of 100 nuclear plants. I believe that with worldwide capacity flat out, we could build three to four worldwide. I am told there is a real problem of capacity to build a lot. Perhaps you can build five or six.
Pierre Lellouche
When we had the first oil shock in France in 1973, we went from 0-80% electricity in 10-15 years; we built two to three nuclear plants per year. This was at a time when other countries, including Britain and others, decided not to do that – if not to close reactors. Sweden, for example, has the reverse policy: they said they were going to close, and now they are going to be the largest constructor of nuclear plants in Europe. We have a production capacity in France with Mitsubishi and Westinghouse and can build at least 10 per year. The problem with nuclear is legislation. You need safety regulations and non-proliferation agreements. In the case of large countries like India and China, this legislation exists and they have a safety record. The difficulty is in the Gulf. We are going to build a plant in Abu Dhabi, but they will take time to get regulations. The second problem is the lead times: you need to build the plant and need five to seven years.
Please: do not say that nuclear is not a solution. Your dates are correct, and I think we will have a crunch between 2015 and 2020, but that also means that if we make the proper decisions in America, Europe and a number of emerging states, we will not be able to fix everything, but we will plug some of the holes. In China, the nuclear programme is far too small. In India, I would be interested if someone could tell us how many plants they have in mind. In Turkey, the Prime Minister told me last week that they have in mind two times 5,000 megawatts in the next seven years. These are considerable numbers. It means six large nuclear power plants will be built in just one country. It can be done.
J Robinson West
I hope you are right because I was at a conference with an engineer who said that there were certain blockages. I think nuclear is critical, but we have limited capacity, and if we need 100 plants to solve the problem, it is a long way to get there.
Why can solar not be economical? I would argue that solar will become economical, but the research has not been all that it could be. I think that it will be important for distributed power in certain parts of the world with certain climates. Solar is important, but it is not there yet.
One interesting question was the mercantile approach of China and the question of competition with the United States. I think one of the mistakes the Chinese make is that they believe that the large international oil companies, such as Total and Exxon, work for the French or US governments. They have to realise that those companies will sell oil to the highest bidder; they are not there to flow oil back. I think it would be a mistake if China took a mercantilist approach because the big companies do not. I think cooperation is absolutely critical between everyone. I agree with Liam’s point that we do not have a right to force anyone. One of the things I tell my clients is that it is their oil; it is not our oil under their sand. The fact is: they have the power and they control the resources right now.
