Energised Foreign Policy: security of energy supply as a new key objective

March 8, 2006 - nr.46
Summary

Summary and recommendations

 

In recent years, global energy markets have been characterised by shortages, in particular the oil and gas markets. Due to a strong rise in demand and insufficient supply, which is largely the result of a lack of investment in the oil and gas sectors, it is likely that energy-importing countries and regions (in particular North America, Europe, China, India and Japan/Korea/Taiwan) will have to compete more fiercely to acquire energy. This development is expected to dominate the period covered by this advisory report (until 2025-2030). The competition for energy forms the backdrop against which the security of energy supply, which has hitherto been taken for granted in the Netherlands because of the Groningen gas field, is eroding. In fact, the remaining Dutch natural gas reserves are so limited that the Netherlands will become dependent on imports even before the end of the period covered by this report.

 

At the same time, disruptions to the energy supply (in particular the electricity supply) have demonstrated in recent decades how vulnerable modern society has become. Depending on its size and duration, an energy shortage can seriously disrupt society. It is thus not without reason that many countries designate the security of their energy supply as a key policy priority and often even regard it as a matter of national security.

 

The advisory councils have opted for a broad approach. The analysis of the global energy situation and the relevant geopolitical trends in chapter 2 and the assessment of the energy interests of the Netherlands in chapter 3 reveal that security of energy supply is no longer guaranteed, even in the Netherlands.

 

The interests and risks associated with a good energy supply transcend the field of energy policy. The issues at stake here, which concern the medium and long-term security of energy supply as well as acute disruptions of that supply (energy crises), require government involvement and a broader range of policies. This need is even greater due to the substantial increase in global energy consumption and the environmental problems (especially climate change) that this has caused. Dutch foreign policy priorities in particular will have to be adjusted so that efforts to guarantee a secure energy supply are afforded sufficient importance in the overall policy package.

 

To gain a better understanding of potential geopolitical developments relating to the global energy situation, the advisory councils asked the Clingendael International Energy Programme to study the issue. Partly on the basis of this study, the advisory councils believe that, in principle, two future scenarios need to be taken into account. Under the first scenario, the world economy will become increasingly globalised and integrated – also in relation to energy – and the watchword will be free trade (the economically driven world). This implies that energy will flow to the consumer via market mechanisms and that the role of governments will be relatively limited and more facilitative in nature.

 

Under the second scenario, countries will operate in a more politically strategic manner, based on their national interests, at least in so far as energy is concerned. Energy flows will be politicised, and the energy trade will be conducted mainly by means of government action. Under this scenario, the ultimate source of decision-making on important issues related to energy flows is the government (the politically driven world).

 

The advisory councils advocate that the Netherlands formulate a policy on securing energy supplies that is effective and robust under both scenarios, as it is still unclear which of them will turn out to be dominant during the period covered by this report. Dutch interests are located primarily in the field of promoting global free trade. This implies that the Netherlands should pursue a multilateral approach. In parallel, however, the Netherlands will also have to focus on bilateral relations in order to secure energy supplies. At this stage, the Netherlands should keep its various options open as much as possible and opt for a both/and approach.

 

The advisory councils have issued the following recommendations:

 

Recommendation 1: Securing energy supplies should be a separate, new, key foreign policy objective, alongside existing key objectives.

 

The fact that different objectives can sometimes conflict with one another and that certain interests must prevail over others is nothing new. What is new is that in future the security of energy supply will be placed on the agenda more clearly and that it will be given full weight.

 

Energy requires more attention at policymaking level. It is clear from the analysis contained in this advisory report, as well as from other authoritative publications which served as sources, that the security of energy supply can no longer be taken for granted. Moreover, the security of energy supply, including that of the Netherlands, is increasingly determined by foreign and geopolitical developments.

 

Due to the increased foreign policy component of securing energy supplies, energy policy, which falls under the responsibility of the Ministry of Economic Affairs, should be complemented by incorporating the options and instruments used by the Ministry of Foreign Affairs.

 

Recommendation 2: Policy coordination between the Ministries of Foreign Affairs and Economic Affairs, and where relevant with the Ministry of Housing, Spatial Planning and the Environment and the Ministry of Defence, should always take place at the highest official and political level.

 

The security of energy supply should feature as a policy theme in regular interministerial consultations at the highest official (director-general) level and should be placed on the agenda more often at ministerial level, for example in the Cabinet Committee on European and International Affairs (REIA).

 

Recommendation 3: Make the entire range of instruments in the field of foreign policy, including development cooperation policy, available for the purpose of securing energy supplies.

 

The advisory councils are of the opinion that the existing range of foreign policy instruments can also be used to promote the security of energy supply. The key issue at present is to do so in the near future. Until now, energy interests have played only a limited role in foreign policy.

 

Recommendation 4: Focus primarily on establishing an external (common) European energy policy, but without neglecting bilateral policy: a both/and approach.

 

The development and implementation of Community measures is a precondition in this regard. In addition, the member states must be willing to transfer competences to the European Union. This means that the various EU member states will have to adopt the same line and formulate common interests in areas such as demand management, crisis policy, strategic stocks and exploration and production rights. The advisory councils point out that this should not take responsibility for oil crisis policy away from the IEA, in order to maintain its effectiveness. This is because oil plays a role on the global market and is not limited to a regional market such as the European Union. This is different in the case of natural gas, for which the European Union does constitute a regional market. In connection with the above, the advisory councils consider it important, in the context of the both/and approach, for the Netherlands not to focus exclusively on Brussels. When appropriate, it should be able to select other fora or partners. This definitely applies in the intervening period until a common external policy for the EU has become a reality.

 

Recommendation 5: Promote Dutch energy interests more robustly in multilateral fora.

 

Where it is still unfeasible to act within an EU framework, the Netherlands can exert influence independently or better yet through alliances in fora such as the IEA-OECD, the WTO and the United Nations. In future crisis situations, it appears that the Netherlands stands to gain the most from action in the framework of the IEA and, if necessary, NATO. In addition, it is possible to consult with countries that are not OECD members through the IEA, including important players such as China and India. The IEA’s power will be even greater once these future major consuming countries are involved in the IEA in a more formal manner, as this will increase the effectiveness of demand management and crisis policy (establishing and managing strategic stocks). The stability of the oil market, which is a global market, is a common interest.

 

With respect to the United States, energy should feature regularly as an issue of common interest. This could be achieved in the framework of the bilateral consultations and the regular EU-US consultations, as well as in the framework of the IEA consultations, of course. The European Union and the United States both have an interest in greater energy efficiency, stock management and a favourable investment climate and could undertake joint actions in these areas. At the same time, it is important not to overlook the fact that the United States basically approaches the issue of supply security from a strictly national perspective and that there may now be less sympathy for European interests and views, compared to the situation at the time of the 1973 oil crisis, for example.

 

Recommendation 6: If necessary, be prepared to contribute to the military protection of international transport routes.

 

The advisory report points out that the security of energy supply can be threatened by the increased vulnerability of supply routes (sea lanes and pipelines). At a certain point, military resources may have to be deployed to protect these routes in order to ensure that supply is not interrupted. The Netherlands should declare now that it is willing to contribute to such operations, provided that they are legitimised by a clear international mandate (preferably from the UN Security Council). In order to prepare for such action, NATO should also devote more explicit attention to this issue.

 

Recommendation 7: Reformulate the relationship with Russia on the basis of ‘equality’, ‘mutual understanding’ and ‘reciprocity’ and try to achieve the same at EU level.

 

Europe’s relationship with Russia is more troubled than necessary or expedient. Given the significant geopolitical and energy interests involved, the Netherlands should focus on improving the relationship between the European Union and Russia. In view of the relatively good relationship that exists between the Netherlands and Russia, it should be possible to find support for this in Brussels. It should be examined whether significantly more advanced forms of cooperation between the European Union and Russia are possible. Given the parties’ mutual energy interests, they have a common interest in incorporating more long-term security into their energy relationship. Under such a scenario, the European Union will have to be more attentive to Russian objections, especially in the energy field.

 

Recommendation 8: Maintain good relations and enter into consultations with energy-producing countries. Where possible, expand the area of interest to include issues relating to broader economic and social development and promote reciprocal investment.

 

In its relations with other countries, the Netherlands should attach more weight to the importance of securing energy supplies. This means that the Netherlands has a special interest in energy-producing countries, in particular Russia and countries in the Middle East, North Africa and south of the Sahara. In order to safeguard the common energy interests that it shares with other countries, the Netherlands can make use of alliances, partnerships and other forms of cooperation. It should take independent initiatives in this area.

 

In addition, the ‘give and take’ of the trade relationship will become more genuine once the Netherlands is in a position to devote more attention to the broader economic and social development of the countries concerned. This includes respect for fundamental human rights and international labour standards. The oil and gas-exporting countries are overly dependent on the proceeds of their oil and gas exports, and this creates imbalances that hinder the proper development of their labour markets, for example.

 

Recommendation 9: Focus on increasing national and local support for the responsible exploration and exploitation of oil and gas reserves; help to create the conditions for increased access to energy (electricity) where relevant and promote the use of sustainable energy.

 

The Netherlands could play an independent role in this field, for example through its development cooperation policy. One of the aims of this policy is to increase the access of poor population groups in countries with which the Netherlands maintains a bilateral aid relationship to modern methods of energy generation. One option is to examine whether more development cooperation resources can de deployed in countries where there are Dutch or European exploration interests. This would obviously be done in accordance with current policy, that is to say, in a way that clearly benefits the local population and contributes to political, economic and social stability.

 

In addition, the Netherlands could promote sustainable energy models more actively and utilise its development cooperation policy to reinforce energy generation and the related infrastructure in developing countries, with a view to making them less dependent on dwindling gas and oil reserves. Finally, in the framework of development cooperation policy, the Netherlands could devote much more attention to large-scale biomass production for sustainable energy purposes. It speaks for itself that all these policy initiatives should be accompanied by the reinforcement of the necessary knowledge infrastructure at local level.

 

The Netherlands could use its existing knowledge and technology in the field of cleaner energy generation (gas technology, clean coal technology, wind energy, solar energy, biomass production and CO2 storage) and energy efficiency/conservation for export purposes. It thus has something extra to offer, which could be useful in negotiations with oil and gas-producing countries. Every efficiency gain achieved reduces the pressure on the market and therefore has a beneficial impact on prices, the environment and relative availability.

 

In order to implement the above-mentioned activities, the government could conduct closer consultations with the companies operating in the countries concerned.

 

Recommendation 10: Assist Dutch energy-related companies and help them to act in a socially responsible manner at local level. Establish a Foreign energy consultation platform (BEOP) in which the Ministries of Foreign Affairs and Economic Affairs, and where relevant the Ministry of Housing, Spatial Planning and the Environment, can meet with representatives from the business sector to see whether there are problems or opportunities that require a policy initiative.

 

The Netherlands is a significant player in international energy markets. It possesses a large amount of specialised energy knowledge and is home to a number of powerful companies. In terms of the security of energy supply, it is important to support these companies in their activities. It is also important that the Netherlands maintains its competitive position at international level and that a level playing field is established. In the context of the more general promotion of economic and social development in energy exporting countries, however, there should also be opportunities for Dutch companies from other sectors to become or remain involved in the development of trade relations.

 

It is also very important, especially for ensuring good long-term relations, that the government assists – and where necessary urges – companies to act in a socially responsible manner at local level. Key issues in this regard include good governance, transparency, a refusal to give in to corruption and responsible environmental behaviour.

 

Recommendation 11: Promote investment in infrastructure so that the Netherlands remains an energy hub, which benefits the security of energy supply, and promote an extensive infrastructure to facilitate supply flexibility and competition.

 

If the Netherlands wishes to remain an important transit country and a provider of flexibility, it is important to invest in the necessary infrastructure. The Netherlands is a leader in the field of gas storage and as a provider of flexibility services. In order to ensure that energy continues to flow to third countries via the Netherlands, the Netherlands has an interest in constructing one or more LNG terminals and, in particular, underground gas storage systems (see the AER’s advisory report ‘Gas for tomorrow’). This will also increase the Netherlands’ own ability to switch between different gas providers and thus enable it to avoid becoming overly dependent on just one supplier or a small number of suppliers.

 

Recommendation 12: When formulating foreign policy and energy policy, especially at European level, keep a close eye on the Dutch negotiating position towards energy-producing countries and parties with a view to optimising the energy supply.

Advice request

Ministry of                                                                                                                      Ministry of

Foreign Affairs                                                                                                     Economic Affairs

Postbus 20061                                                                                                           Postbus 20101

2500 EB Den Haag                                                                                               2500 EC Den Haag

Telephone 070 348 6486                                                                                Telephone 070 379 8911

 

To:

The Chairman of the Advisory Council on International Affairs (AIV)

The Chairman of the General Energy Council (AER)

Postbus 20061

2500 Den Haag

 

 

The Hague, 14 May 2005

 

 

Re: request for advice from AIV/AER regarding energy and foreign policy

 

 

In the coming years, the EU member states will be more and more dependent on imported oil and gas for their energy supply. Indigenous European energy sources are gradually being depleted, and despite energy conservation programmes and the development of sustainable energy, our energy will increasingly come from a small group of countries and regions: the Middle East, Russia, the countries bordering on the Caspian Sea and West Africa. Rapidly growing economic powers like China and India will also be competing more heavily for oil and gas.

 

Although there are no serious problems with oil and gas deliveries from producer countries today, political and security risks caused by instability, war, organised crime and the possibility of terrorist attacks are a cause for concern.

 

Although securing energy supplies does not qualify as an objective of Dutch and EU foreign policy at present, the Government considers that this must change because of the above-mentioned developments and the findings of analyses by the International Energy Agency, the Clingendael International Energy Programme and the AER advisory report on gas. Against this backdrop, we would appreciate advice from your Councils about whether, and how, Dutch and EU foreign policy can help to secure energy supplies for Europe and, more specifically, for the Netherlands.

 

General questions:

 

§         Can Dutch foreign policy, including security and development cooperation policies, complement existing energy policy pursued by the Ministry of Economic Affairs and Ministry of Housing, Spatial Planning and the Environment through a rational, structural contribution to securing energy supplies for the Netherlands and the EU?

 

§         Should securing energy supplies be a separate foreign policy objective?

 

§         How can foreign policy, in the broadest sense of the term, help to ensure:

-          that the political, economic and social conditions in the oil and natural gas producing countries are such that development there remains stable and medium and long-term oil and gas production and export levels meet Dutch and EU energy requirements;

-          that the investment climate in producing countries is promoted in a way which ensures a sufficient level of investment in oil and gas extraction and production;

-          that delivery of oil and gas in particular is not interrupted by disruption of the supply routes, particularly sea lanes and pipelines;

-          that the rapidly increasing worldwide demand for energy is met in the most secure and sustainable way which takes account of climate issues (e.g. through clean coal technologies, energy efficiency and renewables) along with security concerns (nuclear proliferation, transport security);

-          that the necessary investments are made in developing countries with a view to guaranteeing poor people’s access to energy and promoting the most sustainable supply of energy possible?

 

Further questions:

 

§         Dialogue and coalitions

In order to improve the way the world energy market operates, what instruments of foreign policy in the broad sense can be used to help develop a constructive, worldwide energy dialogue and effective international coalitions? In this connection, the role of producer, consumer and transit countries and international business must be considered.

 

§         Role of business

In guaranteeing a secure energy supply, what instruments of foreign policy in the broad sense can help to promote the interests of Dutch and European business?

 

What can be done to support Dutch and European business so that it can be effective in helping to guarantee a secure energy supply for the Netherlands and the EU?

 

How can the worldwide market position of Dutch and European companies which deliver energy-related products, services and technologies be strengthened while contributing to sustainable energy policy in third countries, including rapidly growing developing countries and economies?

 

§         Choice of channels and partners

In which areas would it be possible for the Netherlands to act alone and in which areas would action by the Netherlands be more effective in a multilateral/European framework?

 

By presenting an overview of how other countries incorporate energy into their foreign polices, for example, could AIV/AER indicate the producer, consumer and transit countries with which closer bilateral or multilateral cooperation is called for in order to achieve energy security?

 

§         International fora

Within the framework of which worldwide international and European fora and organisations can the Netherlands achieve its energy-related foreign policy objectives most effectively? The fora and organisations which play a role here include IEA, WTO, IEF, Energy Charter, OSCE and NATO as well as international companies like Extractive Industries Transparency Initiative and MIGA.

 

How well is the EU equipped to ensure that the security of its energy supply (in view of inter alia the Union’s competences, including the competences provided for in the Constitutional Treaty, and the objectives of the CFSP) is promoted and in which contexts (the Commission or the High Representative for the CFSP, for example) can this be done?

 

How can the Netherlands maximise its contribution to establishing a European external energy policy in order to ensure a secure supply of energy (through the EU-RF Energy Dialogue and EU-OPEC dialogue, for example)?

 

In the light of developments in and between relevant departments regarding energy and foreign policy, a prompt advisory report from the AIV/AER is desirable. It would be appreciated if the advisory report were received in November and published in December 2005 so that it can provide maximum support for the various policy developments in the ministries concerned.

 

The request to your Councils is also being made on behalf of the Minister for European Affairs.

 

 

 

 

(Signed)                                                          (Signed)

 

Bernard Bot                                                     Laurens Jan Brinkhorst

Minister of Foreign Affairs                                 Minister of Economic Affairs

                                                                      

Government reactions

                 Ministry of                                                                                                    Ministry of

Foreign Affairs                                                                                             Economic Affairs

Postbus 20061                                                                                               Postbus 20101

2500 EB Den Haag                                                                                         2500 EC Den Haag

Telephone +31 (0)70 348 6486                                                                         +31 (0)70 379 8911

 

 

 

To The President of the

House of Representatives

Binnenhof 4

The Hague

 

   

 

Date: May 2006

 

Subject: Memorandum on Security of Energy Supply and Foreign Policy

 Governments response no.46 AIV-AER.pdf

                                                            

We have pleasure in enclosing our memorandum “Security of Energy Supply and Foreign Policy”, which is also presented on behalf of the Minister for European Affairs.

 

On 14 May 2005 the government asked the Advisory Council for International Affairs (AIV) and the General Energy Council (AER) to prepare without delay a joint advisory report on ‘energy and foreign policy’. The advisory councils presented their report entitled “Energised foreign policy: security of energy supply as a new key objective” on 13 January 2006 to the government and to the House.

 

The memorandum “Security of Energy Supply and Foreign Policy” describes government policy in this area and also contains a response to the recommendations of the advisory councils. It also redeems the pledge made by the Minister of Foreign Affairs during the budget debate (November 2005) to produce a memorandum on energy and foreign policy.

 

We should like to express our appreciation for the report of the AIV and the AER and for the speed with which it was produced.

 

 

Bernard Bot                                                    Laurens Jan Brinkhorst

Minister of Foreign Affairs                                Minister of Economic Affairs

 

Press releases

The press release related to this report has not been translated.