Top officials from International Energy Agency member governments met in Paris on May 3 against a backdrop of crude oil prices that had been above $50/bbl for several weeks. The communiqué that came out of that meeting did not have any surprises. It did make some basic, important points.
The officials agreed, for example, that energy security remains IEA’s main purpose. “Persistent high energy prices are a significant concern for us as they are a drag on economic activity and growth and penalize the poor,” they said.
They expressed concern over oil market speculation but added that it was not the underlying cause of volatility and high prices. “Energy markets require both timely investment and stocks to absorb unpredicted yet inevitable surprises,” they said. “Price subsidies distort markets, and barriers to investment impose capacity restraints. Today’s prices demand actions to stimulate and diversify energy supply and curb demand.”
Flow of capital
The communiqué discussed the need for energy-consuming countries to reduce consumption growth and to maintain open dialogues with producing nations. But its most important focus may have been on investment.
“A challenge confronting producers and consumers alike is the need to strengthen the flow of capital to the energy sector,” it said. “IEA estimates that $16 trillion in investment will be needed in the energy sector by 2030. However, we are witnessing underinvestment in power generation and transmission, and up and downstream along the oil and gas value chains.
“We reaffirm our conviction that market forces must guide the shaping of these competitive markets as governments remove impediments to investment.”
Officials committed to “establishing a more stable and transparent framework to ensure adequate and timely investment” and called on other governments to do the same. “We recognize that private sector investors face different risks in reforming markets and that they will require new mechanisms to manage risk and induce the needed flow of capital,” they added.
Investment climate
The communiqué cited as a priority “encouraging an improved investment climate to meet the challenges of future energy demand, much of which will occur in the developing world.” But there were five others: improving energy market transparency and analysis, more engagement with key non-IEA member countries, the pursuit of energy efficiency “particularly in the transport and building sectors,” more research and development of cleaner combustion technologies and carbon dioxide capture and storage, and further work on economic growth and CO2 reduction.
The document was necessarily broad because it aimed to reflect a consensus that was difficult to achieve. Implementation of its general recommendations rests with IEA member governments. Each will need to develop specific answers-particularly to the energy investment question. ✦
