UN to create new group to focus on energy security

Nov 27, 2003 01:00 AM

In a bid to increase worldwide energy security and keep oil and gas prices at stable levels, the United Nations will create a new standing body out of the Energy Security Forum, currently a loose discussion group.
"Governments, the energy industry and financial institutions (which will join this body) must discuss their views on a regular basis to handle the energy risks of the future," Robert McFarlane, chairman of the Energy Security Forum and head of Energy & Communications Solutions, said during a panel discussion organized by the UN Economic Commission for Europe.
McFarlane is former national security advisor under US President Ronald Reagan. Oil and gas consumption is expected to rise sharply in the years to come, in part due to China's sprawling economy consuming more energy to sustain its growth.

The Secretary General of OPEC, Alvaro Silva, voiced concern about sharp price fluctuations because erratic oil and gas prices increase investment risks. According to OPEC, some $ 100 bn is needed for new infrastructure projects until 2010 to meet the rising demand for oil. He said the current oil price fluctuations, which have pushed the price for crude futures in London above $ 30 a barrel, are related to the current market nervousness and don't reflect economic fundamentals.
"In our assessment, the oil market is well supplied," he said. Silva said the most recent example of OPEC's commitment to security of supply occurred earlier this year, with the hostilities in Iraq. "Many people had predicted that this would lead to a sudden steep rise in oil prices and a period of protracted volatility. But this did not occur. OPEC ensured that the market was kept well-supplied with oil at all times, together with reasonable, stable prices," he said.

The group's preferred price band of $ 22-$ 28 a barrel for its benchmark basket of crudes "is flexible enough to absorb reasonable short-term price fluctuations, as well as define a price range which balances the interests of producers and consumers," he said.
However, not everyone agreed with its upper and lower limits, he added. On security of supply, demand and investment, Silva said gas producers with long-term supply agreements with some European countries had been concerned by the way the EU had introduced new legislation, which affected their investment plans as gas producers. Silva said the need for security of demand should be recognized by consumers as much as the need for security of supply.

McFarlane, meanwhile, said the goal of the new United Nations' body is to reach an improved balance between energy consumption and production and work closely with capital markets as new infrastructure projects need the involvement of all industry players. He was particularly concerned about the expected sharp rise in natural gas consumption in the years to come, saying the jump in demand can't yet be met because of a lack of infrastructure such as pipelines and natural gas terminals. He also said efforts should be made to reduce the dependence on crude oil.

Russia, which controls around 30 % of worldwide natural gas and is the largest oil producer outside OPEC, also said it was interested in reasonable and stable energy price levels.
To spur the infrastructure building, Victor Kaluzhny, Russia's deputy foreign minister, suggested the government could allow private investors to participate in new pipeline projects though the operations would remain in government control.

Source: Dow Jones
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