The cost of expensive oil

'The timing of this conference could not be better,' noted David Gow, the UK Guardian newspaper's European business editor. 'The G8 meet tomorrow, and the price of oil has just reached a new record of USD 76 a barrel.' Mr Gow was introducing the Power through Energy conference...

'The timing of this conference could not be better,' noted David Gow, the UK Guardian newspaper's European business editor. 'The G8 meet tomorrow, and the price of oil has just reached a new record of USD 76 a barrel.' Mr Gow was introducing the Power through Energy conference in Brussels, Belgium, on Friday 14 July.

Mr Gow introduced the 'Power through Energy' conference, examining the international relations of energy. Over the weekend of 15-16 July, the price of oil increased to USD 78, thanks to the current crisis between Lebanon and Israel. The future of energy supply presents new challenges for all. Europe's case seems particularly precarious, as European supplies of both oil and gas are limited, and running out.

Mr Gow said: 'the EU is to spend €1 trillion in modernising plants, distribution and grids to make a working internal market.' Such massive investment will bring with it ever-increasing opportunities for research, as efficiencies and new technologies will be increasingly important.'

He noted that if the EU's energy market remains fragmented, it will be more vulnerable, susceptible to being squeezed out by larger, unified, markets. Fabrizio Barbaso, the Commission's DG Energy and Transport Deputy Director-General, agrees. 'Energy is one of the highest on the political agenda. Global challenges of energy have been known for some time, due to rising consumption, and dependence on geopolitically unstable areas,' he said.

He pointed out that since the Hampton Court Summit in 2005, all EU summits have addressed energy policy. The current energy Green Paper proposes a three-pronged approach to tackling falling energy supply in the future: sustainability, competitiveness -creating a working energy market - and security of supply.

'To achieve the right climate for investment and supply, the Commission has brought forward a strategy to bring forward the three per cent of GDP in research - the Lisbon strategy. Security of supply is part of this,' he said.

To achieve security of supply, the EU is doing two things - strengthening its internal energy policy, and creating a visible external energy policy. 'It is a necessity and priority of the Green Paper - speaking with one voice,' he said.

Next, the Council's Director-General for external economic relations and politico-military affairs, Robert Cooper, spoke of three areas to improve access to energy: diversification of supply; development of energy markets, and buying energy produced by well-governed states. 'Diversity of kinds of fuel - fossil, nuclear, renewables. Better diversification of supply makes risks from terrorism weaker.'

For energy markets, Mr Cooper explained that huge decisions on infrastructure must be made: 'Oil and gas men talk about billions, horizons of 10-20 years operating. If you accept that markets are the best way to manage energy, oil can be shipped in tankers, making 'spot' buying easier. Gas is shipped through pipelines. We need to develop the liquefied natural gas infrastructure to make more of a market for gas,' he said.

But while Mr Cooper talked of securing fuel to ensure supply, Oliver Schaefer, policy director from the European Renewable Energy Council, proposed a different paradigm - fuel-less energy from the sun or wind power. 'The problem for the EU is fuel. We propose sources of energy that do not rely on fuel. We need this to meet Kyoto targets. But the longer we wait, the more drastic CO2 reduction will have to take place.'

Two countries with complete internal markets are Japan and the US. However, their situations could not be more different. The US is rich in natural resources, while Japan has always relied on energy imports to feed its economic growth.

Hidehiro Muramatsu is Counsellor of Japan's permanent mission to the EU. Mr Muramatsu revealed that Japan is facing similar challenges to the EU, and is looking at ways to reduce its 90 per cent dependence on Middle Eastern oil. Japan has a three-pronged approach: supporting supply capacity; developing energy saving technology; developing a transparent energy market.

The approach has a great deal of crossover with the European approach, and Mr Muramatsu said that he had met EU ministers last week to discuss energy saving, which could build on ongoing European research. In the meantime, Japan is examining ways to diversify its supply, and looking to import large quantities of biomass ethanol from Brazil.

Finally, Michael McKinley, the US deputy-head of mission from the US permanent mission to the EU, explained that further cooperation with Europe was high on the agenda.

'12-18 months ago, there was no energy focus, but several developments have helped concentrate minds on energy. There is a burgeoning awareness of the need to confront energy issues, both domestically and externally. Everything we do internationally will be done domestically,' he said.

The US's policy is to push a 'revolution' in domestic energy, to secure energy sources and reduce environmental impact. Specifically, the US is looking to develop clean coal, clean nuclear, solar and wind technologies. The US has significant coal reserves, sufficient for the next 200 years, and coal still supplies half of US electricity.

In renewables, they are investigating solar and semiconductor technologies, to halve costs in low wind environments. They also plan to develop a bio-based fuel transport infrastructure, to displace 30 per cent of fuel by 2012. Mr McKinley said that the US approach would be pragmatic, and that the US has increased dialogues with suppliers in Latin America, 'with mixed results.'

There will be opportunities for new research projects with US researchers, building on the recent joint declaration, signed in the closing weeks of the Austrian Presidency in June. Mr McKinley said that the US was looking for partnerships with Europe.

Perhaps another problem for the west is that far too many fuel supplying countries are 'unstable'. Robert Cooper summed-up an essential diplomatic problem, before leaving for an emergency meeting to discuss the latest crisis in the Middle East. 'If the price of oil is high, the balance of power changes [...]. High oil and commodities prices give people reign to voice their hatred for their colonial or natural oppressors, which is us,' he said. Problems shared by other western powers should drive more research for the sake of the environment and continued economic growth.

Countries

Japan, United States