Analysis: Long-range energy question marks

By HIL ANDERSON, UPI Energy Correspondent   |   May 3, 2002 at 2:44 PM   |   0 comments

DETROIT, May 3 (UPI) -- Jubilant optimism about a new era of plentiful and clean energy was the theme that ran through this week's summit meeting of energy ministers from the G8 countries, but also heard was a clarion call to expect the unexpected down the road.

It's easy to look to technological advances and standardized market rules as the keys to a robust 21st Century energy market unless you happen to be the head of one of the major international oil companies that will be putting up a lot of the money to make it happen.

"Finding the best way to structure more-liberalized markets is not an easy thing to do," said Ged Davis, vice president of Global Business Environment for Shell International.

Davis' job is to draw up scenarios of how the world will look 10, 20 and even 50 years in the future and what the effects on the energy industry might be.

In a presentation at the Detroit summit, Davis and other analysts discussed the question marks and wild cards that could upset the G8's vision of a world in which energy moves freely across borders and is expanded into areas of the Third World that do not presently have electricity or gas for cooking and heating.

"What are the assumptions that are behind policy decisions?" Davis asked. "That's not a minor point."

In the last decade, the push was on to increase globalization of the energy sector and the liberalization of markets with the aim of encouraging competition for the benefit of both energy sellers and consumers.

But events such as Sept. 11 and the increase in tensions in the Middle East were not anticipated and have had a direct impact on oil prices; Asia's economic downturn in the late 1990s was spawned by currency problems in Thailand, and California's electricity crunch put the brakes, at least temporarily, on the deregulation of the U.S. power markets.

Russia is moving to increase its capacity and, according to Mikhail Khodokovsky, the chairman of Yukos Oil Co., can sell crude at a discount to the price OPEC nations need to keep their economies afloat.

But Robert Ebel of the Center for Strategic and International Studies in Washington warned that while Russia was rich in oil reserves, there were a number of infrastructure problems that would have to be tackled.

"The country has been very careful in recent years to maintain its image as a reliable supplier," Ebel noted. "Investing in Russia, however, is not for the faint of heart or for those looking for a quick payoff."

The anti-globalization movement, which has made it an on-going practice to protest at meetings of international groups such as the G8, World Bank and World Trade Organization, is also being watched by analysts for the impact it could have on local politics and environmental and nuclear power policy in the future. "How this plays out is in itself an issue," opined Davis. "One of the concerns going forward is that we may see a world in which there are restraints on technology." Add to the mix the likelihood that other future crises such as war, rebellion and the collapse of a national economy will likely occur down the road, the companies that positioned themselves in what looked like a promising regional market could find themselves in trouble.

"This is a critical time for the new, much more interconnected world economy," said Daniel Yergin, author of "The Prize," a venerable book that is an authoritative look at the international oil industry. "There is now an urgent quest to develop the 'new rules of the game' in everything from trade and investment to anti-trust and environmental protection. The global energy industry, with its worldwide markets ... is a very important part of the process."

The point of the presentation was not to make predictions because, as BP Chief Economist Peter Davies quipped to the audience, such projections have as much chance of being wrong as being right.

But, Davies added, "Energy security has crept up the policy agenda of virtually every energy-consuming country," so the effort to figure out everything that can go wrong is an exercise that must be made."

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