Responding to Emerging Threats to Energy Security and Stability - - PowerPoint PPT Presentation

“Responding to Emerging Threats to Energy Security and Stability”

(Luncheon Speech, January 24th)

Dr.A.Konoplianik

Deputy Secretary General The Energy Charter Secretariat Emerging Threats to Energy Security and Stability

NATO Advanced Research Workshop January 23 to January 25, 2004 - St. George’s House, Windsor Castle, UK

ENERGY SECURITY = sustainable, reliable, environmental-friendly supplies at reasonable cost (including cost of externalities). ENERGY SECURITY has many dimensions, but several are very important:

• 1. Security of supply vis à vis particular type of energy (e.g. oil, gas);
• 2. Security of supply in the short run (diversification, system “hardening”, stocks,

management, etc.) of the existing energy system;

• 3. Security of supply in the long run (“running out” of oil – its new alternatives,

global warming, shifts in primary energy by type –and for new types… a whole new world) of the developing new energy system. The greatest risks are in the third area (long-run), since the instruments deployed in the first two are not sufficient to resolve insecurity of the third type… ENERGY SECURITY INSTRUMENTS evolve over time – alongside with energy markets development! As energy interdependence (globalization) grows, international law becomes a more effective instrument (relatively cheap per unit of supplies/final consumption) for providing energy security.

Figure 1

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ENERGY SECURITY

PARTICULAR MECHANISMS OF DIMINISHING VOLUME AND PRICE RISKS UNDER DIFFERENT ENERGY SECURITY INSTRUMENTS

Competition Monopoly (cartel of producer states/state companies) Monopoly (individual consumer states/cartel of private companies) Driving force

• f market

development Paper energy (oil, gas contract) Physical energy (oil, gas) Physical energy (oil, gas) Basis for pricing (traded item) Exchange pricing = futures + options = unstable prices; increased price volatility to be compensated by hedging (derivatives) Spot + forward pricing = unstable prices; increased price volatility to be compensated by producers export quotas (major exporters = swing producers) + consumers stocks regulation policy + escalation formulas Stable & low posted prices + transfer pricing + cost-plus (isolated projects)

• price risk

Diversified energy supply infrastructure (multiple supplies concept) + consumers with switching (competitive supplies) Producer states production & export quotas + strategic reserves + stocks in both producer and consumer states (idle producing capacities, float tanker storage

• vs. SPR, government & company owned

commercial stocks) + LTCs Traditional & modernized concessions, PSAs, risk-service contracts (direct control of supplies via LTC for duration of agreement between host-country & foreign company)

• volume risk

International law Strategic reserves + stocks Concession system Mechanisms

• f

diminishing:

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ЭНИПиПФ ЭНИПиПФ

www.enippf.ru

Figure 2

Stocks go down …. Security is not necessarily impacted, if markets work

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Figure 3

ENERGY CHARTER AND RELATED DOCUMENTS

Political Declaration

EUROPEAN ENERGY CHARTER

Legally Binding Instruments

E n e r g y E f f i c i e n c y P r

• t
• c
• l

E n e r g y T r a n s i t P r

• t
• c
• l

ENERGY CHARTER TREATY TRADE AMMENDMENT INVESTMENT SUPPLEMENTARY TREATY

www.encharter.org

Figure 4

DEVELOPMENT OF ENERGY MARKETS AND MECHANISMS FOR INVESTOR PROTECTION / STIMULATION

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Energy Markets Mechanisms for investors protection / stimulation

World energy market Local Internationalisation Regional Globalisation World markets

• f certain

energy resources

International legal mechanisms Bilateral Multilateral Trade Investments

+

BITs, DTTs

WTO/ GATT

ECT TRIMs

+

Stability zones in unstable environment Increasing of general level of investment attractiveness

+

Domestic legislation PSA, Concessions, FEZ

+

Transit

+

Tax Code, investment and subsoil legislation

Dispute settlement

+

TRIPs GATS ECT Energy Efficiency

+ Figure 5

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ENERGY CHARTER TREATY: GEOGRAPHY

• 1. From trans-Atlantic political declaration to broader Eurasian single energy market

2.ECT expansion is an objective and logical process based on economic and financial reasons ■ Energy Charter Treaty Signatory States (1994) ■ Observer States that have signed the European Energy Charter (1991) ■ Other Observer States ECT current expansion move

Figure 6

VARIUOS FACETS OF ENERGY SECURITY

• Energy security = diversified energy mix, many suppliers, many routes

and shippers, many destinations, etc.

• Energy security means investing, at both consumer and producer end,

and within the whole energy chain

• Energy security means risk minimization as a constant process

(addressing changing risks composition), and minimizing political risks helps energy investment most strongly

• Manageable risks mean greater competitiveness, less cost, more

diversified investment with higher ROR

• In terms of cost-benefits ratio, international law instruments are among

the most efficient

• The Energy Charter Treaty is the only multilateral international law

instrument specific to the energy sector with its specific risks

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Figure 7