The author of "The Prize" and "The Quest" reflects on the evolution of energy security and the different challenges in this century
15 November 2012
This commentary appears in the latest issue of IEA Energy: The Journal of the International Energy Agency.
By Daniel Yergin
Since the beginning of the 21st century, a periodically tight and volatile oil market, combined with sharply rising consumption in emerging-market countries, has renewed concerns about energy security. The tension over Iran’s nuclear programme and Tehran’s threat to disrupt Strait of Hormuz tanker traffic have put these concerns front and centre. Fortunately, there is an energy security system in place, underpinned by key operating principles.
This was not the case when the energy crises and disruptions of the 1970s initiated the modern era of energy security. In writing The Quest, I was struck both by how much the energy security agenda has evolved in the years and by the new challenges ahead.
The energy security focus has expanded to include the global natural gas trade, the reliability of electricity supply systems and the scale and concentration of energy infrastructure itself. This includes protecting infrastructure against terrorism and conflict. It also applies to natural disasters, as was demonstrated by the devastating impact of hurricanes Katrina and Rita on oil and gas supplies in the Gulf of Mexico in 2005 and by the Fukushima disaster in 2011. In fact, the 2005 hurricanes triggered what was only the second use ever of the IEA emergency release system. One can be sure that the founders of the IEA never contemplated that the system would be used to offset a disruption in the United States.
One of the most significant changes is the dialogue and coordination between the IEA member countries and major producers, led by Saudi Arabia. That would have seemed highly unlikely at a time when “North” and “South” were thought to be in permanent confrontation. But this change reflects a recognition of common interests in stability and a well-functioning world economy, buttressed by geopolitical interests.
The energy security system faces two big new challenges today. The first is to bring China, India and other major emerging markets into alignment with it. This simply reflects reality. At the beginning of the 1970s, the industrial countries accounted for 80% of world oil consumption. Today, they’re down to little more than 50%; and their share will continue to decline, as virtually all the growth in oil demand will be in the developing world. Already, China uses more total energy than the United States.
The other challenge is to prepare for what the CEO of one major corporation called the “bad new world” of cyber-vulnerability. The infrastructure that produces and delivers our energy is at the top of the list of “critical infrastructures”, and the risks only grow as the world continues to digitise and the Internet becomes ever more pervasive.
In The Quest, I identify key operating principles that have become clear over the years and that will help underpin the energy security system of the future. The first is diversification of supply. A second is to build resilience into the energy system by ensuring a “security margin” – additional capacities and capabilities – that provides a buffer against shocks and facilitates recovery. The IEA strategic oil stocks program is the best-known example. The third is the recognition of the integration of global energy markets. Fourth, experience has demonstrated the importance of high-quality information and data both for decision-making and public confidence. To this need, the IEA makes a major contribution. The fifth principle is that flexible and well-functioning energy markets contribute significantly to security, including the ability to adjust and rebalance quickly. Sometimes, during a time of turmoil, governments have to resist the popular call to “do something” when the “something” would aggravate rather than mitigate the situation.
The dependence on energy systems, and their growing complexity and reach, all underline the need to understand the risks and requirements of energy security in the 21st century. Increasingly in a growing world economy, energy trade traverses national borders and ties nations together. That is why energy security is not just about countering the wide variety of risks and threats. It is also about relations among nations, how they interact with each other, how energy impacts their overall national security – and about cooperation and collaboration in the international community.
Daniel Yergin is vice chairman of IHS and founder of IHS Cambridge Energy Research Associates. He chaired the US Department of Energy’s Task Force on Strategic Energy Research and Development and currently serves as a member of the US Secretary of Energy Advisory Board and a trustee of the Brookings Institution. His new book, The Quest, follows on The Prize, his Pulitzer Prize-winning examination of world oil.
The International Energy Agency (IEA) produces IEA Energy, but all analysis and views contained in the journal are those of individual authors and not necessarily those of the IEA Secretariat or IEA member countries, and are not to be construed as advice on any specific issue or situation.
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