Outline

1. NS4960 Spring Term 2018Burnell and Simon Chapter 6 International Dimensionsof U.S. Energy Security

2. Outline • Overview – International Perspective • Framework for Energy Security – Global Trading System • Oil Fueled Conflict • Fossil Fuels and National Security • Global Institutions • Overview Regional Issues • Middle East/Africa • Asia • Europe-Russia • Latin America • North America • Assessment

3. Overview I • Main Argument • World is fraught with a series of never ending dangers • Numerous conflicts going on around the world that pose risks for energy supplies and prices • In Middle East • Iran and the U.S. have signed an agreement on Iran’s nuclear program • ISIS controls large parts of Iraq and Syria • Coalition led by Saudi Arabia is attempting to oust the Iranian –backed Houthis who control the country’s capital

4. Overview II • In Europe • Russia continues to be at the center of crisis in Eastern Europe through support of separatist groups in Ukraine • Russia also holds the threat of disrupting natural gas supplies through its control of key pipelines • In Asia • China has begun constructing an airfield and other infrastructure in the South China Sea in order to bolster its claims of ownership to the uninhabited territories • These and other developments create energy security risks

5. Overview III • If U.S could start with a clean slate and have a chance to choose from a variety of energy sources, unlikely there would be great support for a energy source • That has to be shipped to the domestic market from around the world • That is subject to periodic disruptions resulting from political conflict in the Middle East • That is characterized by great volatility in prices • That requires large investments of money, energy, and water to produce for consumption that pollutes the air and changes the global climate when used as intended • That periodically spills and creates large and small bodies of water to be come polluted and • That will eventually run out or become to expansive to access

6. Overview IV • Best way to approach problem • Identify U.S. energy wants and needs and examine the dilemmas and risks inherent in attempting to meet multifaceted energy security goals • Realize that the effort to achieve greater energy security contains its own contradictions and obstacles • Global dimensions of U.S. energy policy are about trying to find a better way to ensure • Stable, reliable, global markets and supply chains for oil and natural gas while • Diminishing the potential for energy related political and military conflict or • At least insulating the country as much as possible from adverse impacts of such conflict • Goals tied in part to the question of how much oil and gas can be produced domestically

7. Framework for Energy Security I • One of great benefits the U.S. and its allies achieved in the wake of WWII was the restoration and strengthening of an open global trading regime • Set of rules that made it possible for countries to acquire resources by trading rather than being tempted to seize of conquer lands with resources they coveted • This open approach to the acquisition of goods has been a consistent feature of US foreign policy • Meant that US security being tied to a maritime-based global trading system

8. Framework for Energy Security II • The current era began in the 1940s • With the adoption of the General Agreement on Tariffs and Trade (GATT) • Idea to dismantle many of the protectionist policies of the 1930s in an effort to move to freer trade • In era of GATT and is successor the World Trade Organization (WTO) the liberal economic order has been remarkably successful in heling to prevent conflict over natural resources – at least among the world’s big powers • During this period • Trading rules and institutions develop • Along with US power and leadership • Helped to greatly diminish links between nationalism, violence, and resource sufficiency

9. Framework for Energy Security III • Main implications • In the postwar period in order for the US, or Japan or Europe to get oil, they have not needed or wanted to conquer or colonize lands that held the oil • Now, the US and others scan largely rely on markets to meet their energy needs • US policy by this formulation has not been designed to ensure exclusive American access to oil resources or even contracts to go to American companies. • Instead broad objective is assuring that a global energy market can continue to function • The US characterizes its policy as one aimed not only promoting its own interests, but a larger, general interest that benefits others.

10. Framework for Energy Security IV • The liberal global system is currently coming under stress from populist politicians and trade critics • At the same time • Demand for oil and natural gas around world is growing and is expected to do so for some time • It appears nationalism is becoming increasingly tied to the problem of resource sufficiency. • Countries including the United States are increasingly seeing energy acquisition as a zero-sum game. • This is what drove a Russian expedition to the North Pole • It is what drives China’s vast undertakings in Africa and Central Asia to secure energy resources through state-to-state contracts and direct pipelines. • Unfortunately this trend seems likely to increase

11. Oil-Fueled Conflict I • U.S. foreign policymakers identify a number of potential threats to global and US national security resulting from the worldwide dependence and increased use of oil • First, problem of nuclear proliferation. • Best example of this from U.S. perspective has been Iran which benefits greatly from high oil prices and has been able to allocate resources towards its Nuclear program • Iran has enjoyed a level of protection from attack due to its ability to adversely impact oil markets by threatening the Strait of Hormuz • Any US/Israel conflict with Iran could very well harm their own and the world’s economic interests at the same time.

12. Oil-Fueled Conflict II • Another consequence of the heavy reliance on oil usage is seen in level of increased violence and terrorism from non-state actors in the Middle East • Iran has provided longstanding support to organizations such as Hamas and Hezbollah • Petrodollars at least indirectly helped to pay for the attacks of 9/11 • ISIS has been able to finance its operations predominantly from the sale of oil

13. Oil-Fueled Conflict III • Russia is using its oil resources to reestablish its global influence • Uses energy as a tool of its foreign policy • Energy giant Gazprom is 51% owned by the Russian Government • Russia via Gazprom has • Repeatedly cut off gas supplies to Ukraine and other parts of Europe • Sought to gain control over the gas transport infrastructure that used to be part of the Soiet Union’s gas supply system • Provided price discounts to countries loyal to Moscow.

14. Oil-Fueled Conflict IV • Venezuela under President Hugo Chavez and successor Nicolas Maduro created an anti-US bloc in Latin America and the Caribbean • ALBA, organized and funded by Venezuela is an association of eight countries seeking a level of • Regional economic integration, and • Ideological solidarity that stands in direct opposition to US power and influence

15. Fossil Fuels and National Security I • Domestic Production of Fossil Fuels and National Security • Many of challenges the US faces abroad have a link directly or indirectly to the worldwide reliance on oil and natural gas • To the extent the U.S. is able to add to the global supply, can this diminish the national security concerns noted above? • What these newfound energy sources may mean in the long-term for • US troop deployments overseas • The assertiveness of oil-rich dictatorships • The threat of terrorism, and • Other national and global security concerns • Reemains to be seen • However little question the ups and down of the global oil market along with the actions taken by nations around the world in response to this market have been greatly influenced by the American energy boom.

16. Fossil Fuels and National Security II • Impossible to prove, but not unreasonable to think that • Political instability and active hostilities in Iraq in Syria • Upheaval and state failure in Libya and • Concerns over Russia’s use of energy as a political weapon • Would be putting upward pressure on global oil prices in the absence of increased US production of oil and gas • The growth of unconventional oil and gas production in the US has led to a changing understanding about how energy security can potentially be enhanced • Expected to have the effect of enhancing the abundance, reliability and affordability of energy supplies while reducing national security vulnerabilities.

17. Fossil Fuels and National Security III • Changes in the fundamental geopolitical energy supply dynamics for the US have prompted a whole new debate over energy security policy. Does energy security derive more from • Open global markets in keeping with the larger thrust of US trade and foreign policy? or • Keeping energy resources at home? • Background • U.S. law prohibited the export of rude oil for decades although wisdom of this policy came into question in the midst of the shale oil and gas boom. • In 2015 Congress approved legislation to lift the band

18. Fossil Fuels and National Security IV • In spite of the industry’s intent to export oil and more natural gas there is an argument for keeping domestic supplies off the global markets • The country is expected to have a longstanding need for natural gas, makes good sense to reserve a steady supply for domestic use well into the future • U.S. remains a net importer of natural gas and it is unclear if the high expectations of increased production will continue to be meet in the long term • Exporting natural gas by this logic is acting in a short-sighted way • When one considers the fact that making US shale available on the global market will raise the domestic price of natural gas one outcome is to enrich energy companies at the expense of American consumers.

19. Fossil Fuels and National Security V • Another set of considerations to be taken into account with respect to national and global security • In era of the rapid economic development of historically poorer countries demand for energy is growing • Investors and countries are seeking access to new oil and gas supplies • Result has been more state-led activity in seeking access to energy or pursuing a “resource nationalism” course of action • Clearly a potentially volatile situation

20. Fossil Fuels and National Security VI • Examples • In recent years Russia has made claims upon Arctic resources • Japan and China have made rival claims upon uninhabited islands in the South China sea inorder to access energy resources there • China has concluded oil and gas contracts with both Russia and Kazakhstan bypassing typical market mechanisms to buy and sell energy in state-to0state contracts • The conflict between Russia and the Ukraine in which natural gas supplies and prices since 2006 have been used as a tool of Russian foreign policy demonstrating the risks associated with the politicization of energy markets

21. Fossil Fuels and National Security VII • When one considers general American approach to trade and markets throughout its history, decision to withhold supplies for domestic use seems inconsistent. • The United States should want to encourage exports and ultimately promote more unified global market. • The more the market for energy involves an open global system, the more difficult it is for individual countries or OPEC to be successful in controlling supplies and prices.

22. Fossil Fuels and National Security VIII • Currently the world is divided into three major regional natural gas markets. These are in • North America • Europe, and • Asia. • By contrast a world consisting of • Multiple suppliers • Many LNG terminals around the globe • A system in which sellers can ship natural natural gas virtually in the world and • Buyers can choose to purchase from among a large number suppliers • Seems much better suited to diminishing the potential for political conflict over energy resources

23. Fossil Fuels and National Security IX • General consensus of US foreign policy establishment is that: • Hording energy at home • Neglecting bilateral relationships with major global energy players, and • Forfeiting economic opportunities to export energy • would leave the United States less secure.

24. Global Institutions I • Global Institutions • US policy has sought to shape the international context with respect to the operation of energy markets • U.S. has been supportive of several efforts to promote international energy cooperation and coordination • At the same time that • OPEC considers production levels among members • Russia threatens natural gas supplies to Ukraine • ISIS threatens to take control of oil fields in Iraq, • The United states maintains a large military presents in the Middle East and • China enters into agreements worldwide to import oil and natural gas • There are simultaneously a number of important international governing bodies that endeavor to deal with global energy security in a multilateral framework

25. Global Institutions II • The Value of Global Institutions • Global governance involves the establishment of • Institutions • Rules • Procedures, and • Norms • To create venues for channeling disputes and encourage cooperation and agreements. • Even in the absence of formal enforcement mechanisms, multilateral institutions can still be helpful in changing or moderating behavior

26. Global Institutions III • The leading international energy institutions are: • International Energy Agency (IEA) • The Organization for Economic Cooperation and Development (OECD) • The Energy Charter Treaty (ECT) and • The International Energy Forum (IEF) • In all four cases these organizations do not have the same membership, (although there is considerable overlap) and they have different missions and varying goals.

27. Global Institutions IV • International Energy Agency (IEA) • IEA is the global institution that represents the energy concerns of the world’s advanced industrial economies. • Founded in 1974 in response to the oil embargo of 1973-74 • Represented a response to the power of OPEC which had been demonstrated in the embargo • Established within the framework of the OECD as an autonomous agency focused entirely on energy • Agency’s original goal was to work with member countries to develop collective responses to oil supply disruptions

28. Global Institutions V • Early actions • Reducing reliance of foreign energy supplies by reducing reliance on foreign energy supplies through • Reduced energy demand • Conservation, and • Stockpiling of reserves to be used in emergencies. • U.S. emergencies have prompted the release of oil: • 1991 leading up to the Gulf War • 2005 after Hurricane Katrina and • 2011 when the war in Libya disrupted supplies.

29. Global Institutions VI • IEA has expanded its mission since its founding to four main areas of focus • Energy security • Economic development • Environmental awareness, and • Engagement worldwide • Only OECD members can join IEA, but not all OECD members are part of the IEA • IEA states must meet certain qualifications such as • Having a 90 day reserve of oil for net importer nations, • An oil demand reduction program to limit consumption by up to 10% and • Legal authority and administrative capacity to enact specified emergency response measures

30. Global Institutions VII • IEA serves as a key collector of information • Gathers vast amounts of data from member states on energy availability, development production, use, imports and exports • Makes forecasts of oil supply/demand balances • One area IEA has been outspoken is in the need for greater worldwide investment in energy infrastructure • Feels lack of investment will cause a supply shsortage in the future • In 2014 concluded that $48 trillion investment, along with the policy planning to make such investment possible would be reqired between 2014 and 2040 to provide for all the expected energy needs during this period.

31. Global Institutions VIII • Since 1973 the IEA has focused much of its attention of five structural developments of particular importance: • The rise of new powers • Climate change • Peak oil, • The concentration of oil and gas reserves, and • The growing importance of new energy sources. • While peak oil has been discussed for decades, the IEA indicated that petroleum production peaked in 2006 at 70 million barrels per day • With the eventual decline in petroleum availability in mind the IEA focuses significant attention on energy efficiency and reduced reliance of finite fossil energy resources

32. Global Institutions IX • Criticism of IEA • Continued focus on fossil energy and the promotion of energy reserves for su9pply stability • IEA should expand its energy “insurance” efforts beyond reserve management • IEA could potentially have greater impact if it extended to form direct ties to the BRIC nations Brazil, Russia, India and China • When founded the IEA countries accounted for greater than half of all energy consumed • OECD nations will consume les than 40% all energy consumed by 2030 • Brazil and China also repreent countries with major renewable programs

33. Global Institutions X • OECD • Founded in 1961 evolving from the Organization for European Economic Cooperation (OEEC) which was tasked in 1948 with the rebuilding of post-war Western Europe under the Marshall Plan • Today 34 countries that are the richest and most developed • Mission of OECD not centered primarily on energy • Broader – to promote collaborateeive approaoches to development • Seeks to deovelop standards and guidelines in a variety of areas – taxation, agriculture, environmental protection

34. Global Institutions XI • OECD approach to energy security follows approach of utilizing risk analysis, and recommend: • Increased diversification of supply • Increased resilience through spare capacity and emergency stocks • Recognition of interdependence – that thee is only one oil market and that the few regional gas markets may be melding into one • Timely information exchange, so that hoarding does not exacerbate shortages

35. Global Institutions XII • In terms of diversification of energy supplies the OECD • Identifies the use of wind and hydropower to make up for shortfalls in natural gas used in electricity generation • Also the use of nuclear power and coal as elements to be considered in energy security enhancement – in spite of high levels of risk and public opposition • Also recommended cross border sharing of electricity supplies

36. Global Institutions XIII • Energy Charter Treaty (ECT) • A multilateral agreement that seeks to promote governance of global energy security issues • Signed by 49 countries including Russia and the EU though Russia never ratified and withdrew in 2009 • Treaty emerged in aftermath of collapse of the USSR with aim of creating connections among EU countries and the Russian Federation • ECT represents an effort to reduce the politicization and militarization of energy markets through building a legal foundation for global energy security • Wants to eliminate any discriminatory practice in the purchase of sale of energy between ECT countries

37. Global Institutions XIV • Withdrawal of Russian Federation in 2009 brings into question the original goal of the treaty which was to develop stronger institutional relationships among energy sectors in Europe and Russia • Agreeing to the treaty obligations would have been likely to significantly weaken the country’s control over the energy sector • Idea was to unbundle of supply and transit of energy resources and third party access to pipelines and transportation networks. • Under the rules no supply or production company such as Gazprom is permitted to hold a majority share of a transportation system – a pipeline

38. Global Institutions XV • International Energy Forum (IEF) • Established in 1991 • Formally brings together OECD and BRIC countries as well as OPEC member states • IEF serves as a coordinating body between energy-producing and energy-consuming countries • Its role has been to promote dialogue and transparency as opposed to providing a forum for negotiations and deision making • Membership 88 countries and is headquartered in Riyadh, Saudi Arbia

39. Global Institutions XVI • IEF focuses attention on market transparency and the sharing of methodologies governing energy supply and demand forecasts • Key policy component is the Joint Organizations Data Initiative (JODI) • Provides updated global petroleumand natural gas data increasing market transparency

40. Global Institutions XVII • Limitations of Global Institutions • These four global institutions have important limitations on their capabilities. • They have no direct control of energy resources • They can’s compel states to act differently when states’ interests diverge from institutions’ rules, norms and procedures and • They have no enforcement mechanisms • Reflect the fact there are major shortcomings in global energy governance

41. Global Institutions XVIII • Still they do have an important role • Collecetion and dissemination of data allows for greater transparency and accountability of governments • In that sense they are valued for their efforts to facilitate expanded • Energy markets • Transarency • Trade and Investment • Renewable Energy • Energy Efficiency and a • Reduction in greenhouse gas emissions

42. Global Institutions XIX • However within this context it is national interests and national policy on the part of sovereigen states and often times the interests and actions of non-state actors that govern energy disposition and priorities • When inteests diverge and/or when multilateral efforts fail to secure agreements there is little these organizations can do

43. Regional Issues I • Reducing the politicization and militarization of the global trade in energy is an top priority of the US • Looking at US energy security concerns from the late 1960s and early 1970s as well as recent developments • Energy Policy Act of 2005 and • Energy Security and Independence Act of 2007 • Great focus on strengthening domestic protections gained by • Increased supplies • Development of unconventional fossil • Alternative and renewable energy • That would buffer country against the global energy market and its vulnerabilities

44. Regional Issues II • Overall policy changes have worked as intended but with many tradeoffs and costs • After decades of importing the majority of the oil it uses, the US now is producing a majority of the petroleum it uses on a daily basis • Growth in renewable energy supplies has been exponential and • Markets for solar and wind seem able to maintain continued expansion • Hybrid vehicles • Advances in energy efficiency • Regulation of carbon dioxide emissions and • Smart grid technology • Also promise reductions in fossil energy consumption

45. Regional Issues III • U.S. not likely to soon achieve complete energy security • Still has made good progress to a more depoliticized, demilitarized energy paradigm that reduces vulnerability at home and abroad to the disruptions of external forces. • Vulnerabilities come in a variety of forms • Many conflicts in the Middle East – potential threats to production and transportation of oil • Impacting the goals of reliability, affordability and diversification • The growing demand for energy in Asia • Impacting the goals of abundance and affordability • The assertiveness of Russia to politicize energy markets and provoke crisis in Eastern Europe especially Ukraine • Impacting national security concerns

46. Regional Issues IV • Middle East • Issues involving US energy security vis-a-vie the Middle East are numerous and well documented, as are US interests in the region • Alliance with the state of Israel • Alliance as co-member NATO with Turkey • Significant past and present role in Iraq • Stopping the Iranian nuclear program and curbing the country’s regional influence • Military basing agreements with Iraq, Bahrain, Kuwait, Qatar, and the UAE • Friendly relations with oil-producing states • Open sea lanes • Stability and if not peace, then an absence of war, and • Ensuring the continued flow of oil

47. Regional Issues V • Some of these goals are more related to energy security than others, but all have the potential to adversely affect energy security • Clearly if there were no oil in the region, US interests and the US presence in the region would be far smaller. • Currently the two most pressing issues revolve around US interest in combatting ISIS and • Checking the power and influence of Iran

48. Regional Issues VI • China, India and the Pacific Rim • While the Middle East is generally characterized by rapidly moving crisis • Asia continent represents a longer-term slower moving set of issues that can potentially impact US energy security • In terms of oil, Chinese and Indian demand remains high and both countries have recently had high rates of growth in petroleum • While the US annual growth rate in consumption of fussil energy remained on average 0.3% from 1980 to 2013 • China and India averaged between 5-6% during the same period • Combined the two countries are projected to consume more than the average daily production from the Middle East

49. Regional Issues VII • From US energy security perspective the large and growing level of energy demand points toward potential problems are related to one another. • To what extent might rising Asian demand for petroleum have an impact on the availability and price of oil for American consumers • To what extent might competing demands for oil and natural gas prompt political conflict between the United States and China or other Asian nations and • To what extent might Asian nations engage in political conflict among themselves and could the US be drawn into such conflicts

50. Regional Issues VIII • First two – fairly safe to say a little or not much • With regard to the third – appears that in order to meet future energy demands Asian countries such as China, Indonesia, Malaysia and Japan are competing for resources – particularly with regard to upstream investment rather than seeking ways to cooperate • Reasonable to expect that quest for energy security will allow for national self interest to take precedence over regional cooperation • Points to value of international institutions and agreements that can provide for equitable, fair procedures to ensure countries will not benefit at the expense of others.