Ladies and Gentlemen, good evening.
It is a great pleasure to join you this evening and to take part in this event to celebrate the opening of your new office here.
I would like to start with two words of thanks. First to the Government and people of the United Arab Emirates for their hospitality and kindness in welcoming us as investors here. We have been working in the UAE for many years and I hope we will remain here for many more. Secondly, I would like to thank all the partners and staff of Aiken Gump who work for us in Houston and around the world. We depend on the highest quality professional services and that is what we receive from you. Thank you.
Your timing in opening this office is exceptionally good. I can't think of a better moment for a great international firm to demonstrate its confidence in Dubai and its commitment to opening markets in goods, trade and investment.
The events of the last week have demonstrated once again the risks of simple minded protectionism and it is important that those of us who are at the forefront of the process of globalisation continue to argue the case for open markets and to demonstrate by the things we do and the way we do them that open markets bring benefits to everyone.
Now you asked me to talk this evening about energy security, and I think the right place to start is by looking at just why energy security is back on the agenda and why it is attracting such attention among governments, commentators and the public.
To answer that I think you have to go back to the world of the 1990s.
That world was characterised by low energy prices. The oil price averaged between $18 and $20 a barrel, and at one point the Economist which is normally quite a reliable paper forecast on its cover a price of $5.
The first Gulf war in 1990 which many had feared would push prices up very high ended in a matter of weeks without any major impact on oil supply or prices.
Political change around the world, especially in Russia led to a gradual opening of areas which had previously been closed to investment. The resources of the Caspian and then of Russia itself began to be accessible to international companies.
The result was that energy dropped off the agenda of Government. The market was working and could be left to do the job. Energy ministries were closed and downgraded.
Since 2000 however there have been a series of events which have changed the situation and removed that sense of complacency.
The demand for energy and oil which was suppressed in the 1990s because the weakening of the Russia economy has started to grow rapidly. In China alone demand has risen by 4 million barrels per day since the turn of the century.
In the established oil provinces of the non OPEC world such as Alaska and the North Sea output from the mature fields has begun to decline.
The events of 9/11 and the involvement of a number of people from the country which provides the world's largest single source of oil supply - Saudi Arabia was unsettling.
The second war against Iraq was not resolved in a matter of weeks and that continuing conflict has reminded people that energy security cannot be achieved by military means alone.
In Russia, the Yukos affair reminded people that Russia, despite much progress was still a somewhat unpredictable nation in which the unexpected could still happen.
And prices rose. First to the mid 20s as OPEC discipline was restored. Then over the last two years to $ 35 and now to over $ 60 a barrel driven by market sentiment rather than any physical shortage with that sentiment based on the knowledge that the level of spare capacity in the market was less than the production from a number of less than totally reliable producers including Iraq, Iran, Venezuela and Nigeria.
The price rises we have seen have had only a limited effect on the global macro economy but they have begun to affect the major users of energy and also they have begun to hurt those on limited incomes - people who have little economic power but who do have votes.
So energy is back as an issue of concern and as a political question.
That increased visibility has triggered a greater focus some of the prospects in the energy market and related areas.
The first element is the pressure of demand which continues to increase worldwide on the basis of population growth and the spread of prosperity. We calculate that there are some 200 million new customers for commercial energy each year. In the absence of any viable substitutes ( at least for the moment ) the pressure of this increased demand falls on hydrocarbons and in particular on oil and gas. The result is an increase of around 1.5 per cent a year in oil demand and an increase of over 2 per cent a year for natural gas.
The second factor is that there is a growing requirement for trade because each of the four significant importers ( the US, Europe, Japan and China ) are all facing the need for increased imports over the next decade. India too may soon become an importer on a growing scale. Trade now supplies something like 50 per cent of daily demand worldwide. By 2015 on the figures produced by the International Agency that could rise to 70 per cent.
The third factor is on the supply side. There is absolutely no shortage of supply. Oil is not running out. But supplies are concentrated in a small number of areas. By 2015 up to 80 per cent of supply will come from just three areas of the world. West Africa, Russia and overwhelmingly the Middle East and from the five states around the Gulf including Iran and Iraq. Few of those countries are democracies and few are open to international investment.
And the fourth factor is the environment. Almost ten years ago the Kyoto meeting set an objective of reducing emissions by just over 5 per cent from a 1990 baseline. In fact by the end of last year emissions are 25 per cent above the 1990 level across the world and rising by 1.5 to 2 per cent a year. The science of climate change is not absolute or finalised but the evidence of global warming continues to grow. Over the last year that evidence appears to have had a real impact on public opinion. Climate change has become an issue of popular public concern not just a topic debated at academic conferences. Few politicians can now afford to ignore the subject.
Those are the reasons - immediate and long term why energy security is on the agenda, and why so many people are focused on the question of energy policy.
What can be done ?
The first thing to stress perhaps is that energy security cannot be achieved in one country. Notions of self sufficient are illusory and ignore the fact that as trading nations protecting one's own interests at the expense of others is a pointless exercise if the result is simply to damage one's trading partners.
Energy security and energy policy has to be international and inclusive.
The second thing to stress is that there is no cause for despair. There is no shortage of supply and many options for the development of technology in ways which could produce viable alternatives.
To achieve a sustainable outcome we need a combination of public policy and private investment, all of which are focused on the effective operation of markets. Markets have sustained energy security despite much disruption and change over the last century. They can do so again if they are given the chance.
The first step in the restoration of energy security is the development of the maximum diversity of supply and of the infrastructure required to bring that supply to market. Dependence on single sources and single lines is a recipe for insecurity and volatility.
That in turn requires the opening of resources to investment so that the supplies which are available at a reasonable cost in the Middle East and in Russia can be brought to market in a timely manner. Only public policy and diplomacy can open those channels of investment. Only the private sector can take the investment risks. We have to work together combining forces and capabilities in the pursuit of a common objective.
Then thirdly we have to limit volatility and risk by extending the remit and capacity of the International energy agency to match the market of 2006, rather than the market of the mid 70s when the agency was set up. That means including major consumers such as China and India, and engaging those on the supply side including Russia and OPEC member states. Crisis management is not the full solution to the question of energy insecurity but the ability to respond in times of difficulty would reassure those who fear that volatility could turn to panic.
Fourthly and finally Governments need to begin to put a price on carbon emissions and thereby to encourage consumers and the private sector to innovate and to develop technology to reduce those emissions. Much is possible as we are finding in the area of alternative energy. More will be possible if the externality of carbon emissions is properly costed and a trading system developed which can ensure that emissions are reduced in the most efficient and cost effective way.
All those steps combine public policy and private action. The two are inextricably intertwined and interdependent.
And you have a great position in the process given your experience and expertise in the complex and fascinating territory where the public and the private sectors meet.
Thank you very much