Carlos Pascual
Special Envoy and Coordinator for International Energy Affairs
Columbia University's Center on Global Energy Policy
New York, NY
September 25, 2013

What I’d like to take you through are five revolutions that I see in the energy sector. One is the nature of supply transformation that’s happening starting with the United States. The second is what’s happening is changes in emerging market demand. The third focuses on the phenomenon that’s occurring of, in effect, “liquid gas” which is creating a liquid market. And I think those are all revolutions that are in the midst and on the way. The other two revolutions concerning clean power and energy access are at a starting point. And I think one of the challenges is going to be: how do we help accelerate them, advance them, and promote them further?

So let me take you through these. Let’s look at what’s happening in gas. In the United States, we’ve also had an increase of gas production of about 25% over the last five years. A driving factor of that has been what’s happened in shale. And so, if you look at around 2005, shale gas constituted about 1% of U.S. production. It’s about 34% of U.S. production now and you can see what the projections are into the future. And the interesting thing is that -- if you look at the projections and you add up shale gas, coalbed methane, and tight gas -- the so-called unconventional gasses -- the majority of U.S. gas supply is going to come out of these unconventional sources which, a decade ago, were not seen as serious contributors to American energy production. So, it gives you a sense of this radical change in technology. So, the impact that it is starting to have as a result of this with regards to oil and gas is that people are starting to ask the question, “Well, does the United States need to care about peace and stability in the Middle East, ,about the protection of global energy supplies, do we have to invest in maritime transit?” And the issue from my perspective is yes, we absolutely have to care, and yes, we have to maintain those investments.

And there are a whole lot of reasons why we’re interested in the Middle East, and I’m not going to go into all of those questions, but here are a couple of fundamental points. Oil and, increasingly, gas are global commodities. We pay global prices. When we see disruptions in those markets, when we see disruptions in maritime transit, it has a direct impact on the price that we pay in the United States for energy, the price that we pay at the pump, that has a direct impact on our economic productivity.

So, let me take that, another point onto the second transformation on the changing nature of demand. So the blue line represents energy demand in the OECD countries; the red, energy demand in the non-OECD countries. And then you see China and India represented there, along with the United States. The OECD countries are flat, and tomorrow’s energy demand is really going to be driven by China, India, Brazil, South Africa, some of the Middle East countries like Saudi Arabia. And here’s a fundamental, really interesting thing that we don’t often take into account: in the future, China is very likely going to be the price-pull factor in setting global prices in the marketplace. It’s their ability to satisfy their demand for oil, for example, that could potentially be the driver of price. And it puts us into this interesting situation that China’s ability to satisfy its demand becomes in the national security and economic interest of the United States because it affects the stability and global oil markets. It affects global prices for oil. It affects what we pay in the United States, and it affects our economic productivity.

Let me move to the question of LNG and this issue of liquid gas. This map represents on it the prices that we have for LNG across the world, where you see some of the lowest prices in the United States and Canada -- which we don’t have on there -- Europe at about $10 per million BTU, Asia at close to $17 and South America also close to about $17. One thing I can tell you is that, in a decade, this map will not look like that. I don’t know what it’s going to look like, but it’s going to be something different. And there are a couple of factors that are absolutely critical to that.

We’ve shown here what production was in 2008 and projections into 2035. The increases in gas that we’ve had in the United States are being replicated in many other parts of the world.

Mozambique has had the largest gas finds that we’ve had anywhere in the world in the last 30 years. Tanzania has major gas finds. Australia is going to be putting significant supplies of gas in the market in 2014. Norway has had some of the biggest gas finds they’ve had since the 1940s. There’s gas – I’ll come back to that -- we’re starting to see in the Eastern Mediterranean. And so all of this gas coming onto the market, but increasingly the next factor, which is more and more of it is being traded as LNG.

So the red line represents LNG trade. There’s still a very significant trade in pipeline gas, but what that LNG trade is starting to do is to create flexibility in the marketplace that is having a moderating impact on price with great geopolitical implication.

How do you create the market incentives for investments in clean energy, renewable energy, energy efficiency technologies, and how do we stimulate the financing mechanisms to be able to support it? Because then the other reality we have to recognize is that this is going to be fundamentally private because there’s no way that governments are going to be able to mobilize those levels of resources out of their budgets. So, in the end, it’s going to depend on what is the stimulus to private investment to make this kind of change?

The final area I want to talk about is energy access, and let me take Africa as a jumping point in this conversation. One set of issues is their production of oil and gas, but the other was access to energy and access to electricity. So one thing that we’re seeing on the African continent is a tremendous amount of new prospects for oil, especially in the west where we’re seeing similar formations to what is occurring on the coast of Brazil. But then the gas resources that I mentioned earlier in Mozambique and Tanzania.

And a challenge that I think that Africa is going to have to face is: how do they ensure that those resources are translated into the ability of African people to actually have access to energy? Because one, it’s absolutely critical to their economic growth, but two, you’ve got to face the political reality. To what extent are people in these countries going to tolerate the export of natural resources when they themselves do not see a benefit of it either through investments in their economy and their economic growth or in access to electricity?

So it brings us to this stark contrast, which is always interesting back here in New York to show this example that features New York. So you have sub-Saharan Africa where the total generation capacity is about 40 gigawatts -- 40,000 megawatts -- which is equivalent to the amount of generation capacity in the state of New York, just to give you a sense of the scale.

So, the way that we frame this proposition -- working together with a global initiative called Sustainable Energy For All that is jointly supported by the UN Secretary General and the president of the World Bank -- is a prospect of how do we bring those that do not have access to electricity -- 2.7 billion people that don’t have, that’s actually access to clean cooking facilities -- 1.3 billion people that don’t have access to electricity. And the bottom line is 600 million of the 1.3 billion who are in Africa. How do we bring that to zero? And if we ask this for a perspective of how much investment it’s going to take on an annual basis, the IEA has estimated that it would be around $48 billion a year in investment, in both cookstoves and in electricity -- about 43 billion of that is in electricity. The current base is about 9. If we phrase this as, how do we use public resources in a way that changes the risk profile in the capacity to invest in the commercial viability of energy access in developing countries, then what we’re talking about is 3% of what gets invested totally in private energy infrastructure every year on an annual basis.

So how do you create the business relationships where you can bring in the technology? You can have the capacity for local financing of local business ventures. And how do you create the capability to service those businesses to be able to sustain the technology? That’s the equation that we have to be able to put together to create a commercially viable way to achieve that goal of 100% access to electricity by the year 2030.

So, I leave you with these five challenges, but a thought that goes with it. We’re, I think, in a very unique situation in the world right now. We’ve had a tremendous increase in the resources that we have available to us. We have an ability to use those resources in a way that helps facilitate competition in global markets, and where that competition in global markets can actually be beneficial to creating greater transparency in our geopolitical relations. If we use this period of time correctly -- particularly with the opportunities we have in gas -- we have an opportunity to support the switch from coal to gas, and eventually the integration of gas with renewables -- particularly wind and solar -- in a way that also serves our environmental interests over time. And so the challenge that we’re facing right now is how to take this moment of opportunity bringing together the technology, the entrepreneurship, the capabilities that we’ve seen that can be put into play in the marketplace and bring them together with good public policy that can have the kind of positive impact that we need to have on our national security interests by creating a more sustainable planet at the same time.

Thanks for your attention.