AN ELECTRONIC JOURNAL OF THE U.S. DEPARTMENT OF STATE MAY 2004
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ECONOMIC PERSPECTIVES

Challenges to Energy Security

U.S. DEPARTMENT OF STATE ELECTRONIC JOURNAL MAY 2004

World resources are sufficient to satisfy global demand for energy for

the foreseeable future, but challenges remain in the form of

environmental problems, political concerns, distribution of resources,

and myriad other issues. The United States believes that open markets

and new technologies working in concert will help us and other

countries meet those challenges together.

The United States has developed and pursued an energy policy — the

first comprehensive long-term plan in years — aimed at making the

U.S. energy future more secure. The United States needs energy to fuel

its economic growth and to continue to work as a global economic

engine, so we have proposed to explore domestic resources and expand

and diversify our energy supplies in ways that support global

development, democracy, and stability.

Making this strategy work requires that we, working with other countries, seek new methods of using

traditional fuels such as coal in environmentally sustainable ways and develop new technologies such as

hydrogen fuel cells to improve energy efficiency as well as the environment. It also calls for engaging our key

trading partners, major energy producers, and international institutions in a dialogue on the role of energy

security in our shared global prosperity as well as for promoting international trade and investment

throughout the energy supply chain.

Our great nation, in the true spirit of democracy, has been engaged in a free and open debate of our energy

objectives, priorities, and policies, both domestically and with our partners around the world. This journal

reflects international aspects of U.S. energy strategy derived from that debate.

In it you will find views and insights from key government officials, industry representatives, experts, and

leading scholars on how best to use the world’s energy resources to meet growing demand and fuel sustainable

development. As President Bush has said, an efficient, clean, convenient, and affordable energy future “is

achievable, if we make the right choices now.”

Colin L. Powell

U.S. Secretary of State
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ECONOMIC PERSPECTIVES

An Electronic Journal of the U.S. Department of State

http://usinfo.state.gov/journals/journals.htm

CONTENTS

CHALLENGES TO ENERGY SECURITY

U.S. NATIONAL ENERGY POLICY AND GLOBAL ENERGY SECURITY 6

By Spencer Abraham, U.S. Secretary of Energy

In its quest for energy security, the United States must increase domestic energy production while seeking out new

resources, from Africa to the Caspian region, and collaborating with other countries on new and more efficient energy

technologies.

GEOPOLITICS OF OIL AND NATURAL GAS 10

By Alan Larson, Under Secretary for Economic, Business, and Agricultural Affairs, U.S. Department of State

U.S. policy aims to ensure the reliability of oil and natural gas supplies around the world by encouraging diversification

of suppliers and promoting reforms in energy-producing countries necessary to attract investment.

THE GROWING DEVELOPING COUNTRY APPETITE FOR OIL AND NATURAL GAS 13

By Amy Jaffe, Wallace Wilson Fellow for Energy Studies, James A. Baker III Institute for Public Policy, Rice University

The quest by emerging Asian markets to meet their rapidly growing demand for energy may lead to a shift in political

and economic ties among those markets, oil-exporting countries, and the United States.

ENERGY COMPETITION OR COOPERATION: SHIFTING THE PARADIGM 17

By Joseph A. Stanislaw, President, Cambridge Energy Research Associates

Balancing the forces of competition and cooperation will require strengthening economic linkages among major actors

on the energy scene and building a level playing field where they can interact fairly and effectively.

ENERGY DIVERSIFICATION: FINDING THE RIGHT BALANCE 21

By Pete V. Domenici, Chairman, Senate Energy and Natural Resources Committee

Major energy legislation, which seeks to reconcile a multitude of often-contradictory interests, would diversify and

expand the nation's energy portfolio.

RENEWABLE ENERGY AND NEW TECHNOLOGIES 23

By David K. Garman, Assistant Secretary, Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy

Meeting rising global demand for clean energy will require the United States and other countries to adopt nextgeneration technologies while continuing to invest in energy efficiency and renewable alternatives to fossil fuels.

GLOBAL ENERGY SUPPLIES AND THE U.S. MARKET 27

By Guy F. Caruso, Administrator, and Linda E. Doman, Energy Analyst, Energy Information Administration, 

U.S. Department of Energy

U.S. dependence on foreign oil and gas will rise in the next two decades, and so will energy imports from non-OPEC

producers, ensuring diversity in supply.
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LINKING NATURAL GAS SUPPLIES TO CRITICAL MARKETS 31

By Sara Banaszak, Senior Analyst, PFC Energy

Natural gas could play a key role in the energy security of the United States and other countries, but development of the

natural gas industry has been hampered by large investment costs and issues involved in getting gas to consuming

markets.

ENERGY AND THE DEVELOPING WORLD: THE NEED FOR NEW KINDS OF PARTNERSHIPS 35

By David J. O’Reilly, Chairman and Chief Executive Officer, ChevronTexaco Corporation

Corporations operating in poor countries have compelling business reasons to engage in poverty reduction efforts, and

their efforts work best when they involve multiple and varied partners.

ADDITIONAL READINGS 37

KEY INTERNET SITES 38

Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004.
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U.S. Department of State

Bureau of International Information Programs

May 2004

The Bureau of International Information Programs of the U.S. Department of State publishes five electronic journals that examine major issues

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Editor, Economic Perspectives

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E-mail: ejecon@state.gov

ECONOMIC PERSPECTIVES

An Electronic Journal of the U.S. Department of State Volume 9, Number 2, May 2004

Editor ................................................. Jonathan Schaffer

Managing Editors .................................... Andrzej Zwaniecki

........................... Berta Gomez

Contributing Editors .............................. Linda Johnson

.............................. Kathryn McConnell

.............................. Rick Taylor

.............................. Bruce Odessey

Publisher ............................................. Judith S. Siegel

Executive Editor ..................................... Guy E. Olson

Production Manager ...............................Christian Larson

Assistant Production Manager ...................... Sylvia Scott

Cover Design .......................................................Thaddeus Miksinski

Editorial Board: George Clack, Kathleen R. Davis, and Francis B. Ward
Meeting the world’s energy challenges will require a

determined, sustained global effort over decades, says

Abraham. The United States must balance increased energy

production with clean and efficient energy use by developing

international partnerships, expanding and diversifying its

supplies, and promoting competitive markets and sound

public policies. At the center of these efforts are new

technologies that promise to change the way we produce and

consume energy.

Meeting the world’s energy challenges will require a

sustained global effort over many decades. As the largest

single market in an increasingly integrated world energy

system, the United States affects and is affected by

developments around the world. As a result, U.S. energy

policy plays an influential role in maintaining global

energy security.

Recognizing the growing strains on energy systems as he

took office, President Bush sought to develop a

comprehensive and balanced energy policy that could

help the private sector and state and local governments

“promote dependable, affordable, and environmentally

sound production and distribution of energy for the

future.” The result was the National Energy Policy

(NEP) report, which since its publication in May 2001

has guided U.S. energy policy.

ENERGY OUTLOOK

The Energy Information Administration’s (EIA) most

recent projections paint a clear picture of future energy

challenges in the United States. Despite continued

advances in technology, total U.S. energy consumption is

projected to increase from 98 quadrillion British thermal

units (Btus) in 2002 to 136 quadrillion Btus in 2025.

Because of slow growth in domestic energy production,

net energy imports are projected to grow from about onequarter to just over one-third of U.S. demand in 2025.

Oil imports account for a large portion of imported

energy, and the Organization of Petroleum Exporting

Countries (OPEC) is expected to be the principal source

of marginal supply to meet increased oil demand. By

2025, OPEC production is expected to nearly double,

and projected growth in demand points to a world price

of about $27 per barrel in real 2002 dollars.

Assuming an increase in gross domestic product of about

3 percent per year over the same period, total U.S.

petroleum demand could grow from about 20 million to

28 million barrels per day. As a result, net petroleum

imports to the United States could jump from 53 percent

to 70 percent, with much of the oil coming from the

Persian Gulf. And with refinery capacity growth

constrained by regulations and economics, refined

products are projected to represent a growing share of

these imports, reaching an estimated 20 percent of total

net oil imports by 2025.

Although most of the United States’ natural gas can be

supplied currently by North American production, the

trend here is also toward a greater share for gas imported

from outside the Western Hemisphere. Even with an

accelerated increase in energy efficiency, the United States

will still be highly dependent on energy imports to meet

future consumption needs.

PRESIDENT BUSH’S NATIONAL ENERGY

POLICY

These trends make clear the need for a long-term plan for

energy security. The NEP is a revolutionary roadmap

that taps into a diverse array of energy sources to enhance

U.S. energy security, economic competitiveness, and

environmental performance. From the U.S. perspective,

energy security is more than a matter of assuring shortterm supplies; reliable access to affordable, clean, and

efficient energy services also is critical to economic

growth and development.

Our approach to our energy security is informed by the

following principles. First, we must balance increased

production with a renewed focus on the clean and

efficient use of energy. Second, we must expand

international engagement with consuming and producing

nations. Third, we must expand and diversify our

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❏ U.S. NATIONAL ENERGY POLICY AND GLOBAL

ENERGY SECURITY

By Spencer Abraham, U.S. Secretary of Energy
sources of supply. And finally, we must encourage energy

decisions guided by competitive markets and public

policies that stimulate efficient outcomes.

Achieving the vision of a secure and sustainable energy

supply will require transition to advanced energy systems.

Therefore, a central aspect of U.S. energy policy is a

portfolio of breakthrough technologies that promise to

alter fundamentally the way we produce and consume

energy. Our efforts also take advantage of public-private

partnerships, market-enhancing policy tools, and

international cooperation.

CLOSING THE GAP BETWEEN SUPPLY AND

DEMAND

A balanced, comprehensive energy policy is imperative to

the long-term strength of U.S. economic and national

security. Increasing domestic production of traditional

energy sources such as oil and gas is obviously an

important aspect of the U.S. approach to curbing

imports. But the United States also recognizes that it

must take greater advantage of a diverse array of other

domestic energy sources.

The president’s FreedomCAR and Hydrogen Fuel

Initiative promise just that. Hydrogen can be produced

from a broad range of domestic sources — from

renewables to fossil fuels to nuclear — and has the

potential to free us from reliance on foreign energy

imports. The president’s Hydrogen Initiative represents a

commitment to the future hydrogen economy, and it has

already generated tremendous enthusiasm among the

energy and auto industries. Over the next five years, the

United States plans to commit $1.7 billion to overcoming

several significant technical and economic barriers to the

development and expanded use of hydrogen, fuel-cell,

and advanced automotive technologies. The first $350

million in grants to achieve this objective were

announced in late April.

If we are successful, commercialization of fuel-cell

vehicles, hydrogen production, and refueling

infrastructure could take place by 2015, with hydrogenpowered vehicles appearing in automobile showrooms by

2020. By 2040, hydrogen could replace over 11 million

barrels of oil per day — nearly equivalent to current U.S.

oil imports.

Like many other nations, the United States has abundant

resources of coal, but its use poses environmental

challenges. The administration’s FutureGen project is an

initiative to design, build, and operate the world’s first

coal-fired emissions-free power plant. Working with the

private sector, this $1 billion project will employ the

latest technologies to generate electricity, produce

hydrogen, and sequester carbon emissions from coal.

FutureGen simultaneously supports several of the

administration’s environmental and energy goals, and

through this research coal can continue to be part of a

diverse energy portfolio well into the future.

INCREASING DIVERSITY OF SUPPLY

To maintain energy security, the United States is also

expanding and diversifying the types and sources of

energy it imports. Helping to drive this effort are new

opportunities for increased investment, trade, exploration,

and development that go well beyond the bounds of

traditional energy markets. U.S. goals are to diversify

energy supplies and promote new resources in the

Western Hemisphere, Russia, the Caspian region, and

Africa, and to improve the dialogue with key producing

and consuming countries to head off energy disruptions

before they become crises.

The United States, Canada, and Mexico are working

together to further integrate and strengthen the North

American energy market by overcoming policy and

technical obstacles to increased energy production and

delivery. The United States also has been engaging with

other countries in the Western Hemisphere. The Western

Hemisphere now supplies half of all U.S. petroleum

imports, and Trinidad and Tobago is the largest supplier

of liquefied natural gas (LNG) to the United States.

Outside the Western Hemisphere, the United States

continues to strengthen its energy relationship with

Russia, now the world’s second largest crude oil producer

and exporter. In 2002, the Bush administration initiated

a cooperative effort to help improve the regulatory and

investment conditions required to increase energy and

infrastructure development in Russia.

The United States also has been a strong supporter of oil

and gas development in the Caspian region and has urged

governments to establish the necessary legal, fiscal, and

regulatory environments to safeguard the large

investments required to develop these new resources.

Reserves estimates suggest the Caspian Basin could

produce 3.5 - 4 million barrels per day by 2010, and the 

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administration has advocated new pipeline capacity to

link these resources to world markets.

Energy from Africa plays an increasingly important role

in U.S. energy security, accounting for more than 10

percent of U.S. oil imports, and it is a key economic

engine for the continent. Good governance and stable

regulatory structures are critical prerequisites for private

investment in the energy sector. Key energy producing

African countries and the United States continue to work

together to promote sustainable energy and economic

development.

In addition to these efforts, the United States has been

strengthening its dialogue with major producing and

consuming countries to monitor market developments

and respond to supply disruptions. The United States

continues to participate in the International Energy

Forum, a multilateral forum of oil-producing and 

-consuming nations, the key focus of which is an effort to

improve the timeliness and accuracy of the data that

guide oil markets.

The United States is also working closely with major

consuming countries to address our common energy

challenges. In 2002, energy ministers from the Group of

Eight (G-8) countries met in Detroit and reaffirmed the

importance of maintaining emergency oil reserves and

coordinating their use and agreed to work together to

encourage greater energy investment. In 2003, leaders of

the Asia Pacific Economic Cooperation (APEC) forum

endorsed a plan proposed by the United States to identify

best practices for LNG trade and strategic oil reserves,

finance clean energy, develop a framework for a hydrogen

economy, and cooperate on methane hydrates.

The United States also has stepped up collaborative

efforts on natural gas issues. Last December, it hosted the

Liquefied Natural Gas Ministerial Summit, which

brought together representatives from 24 countries to

take a fresh look at the world LNG marketplace. The

summit served as a forum to explore all aspects of the

global natural gas production and distribution system.

STRENGTHENING INTERNATIONAL

TECHNOLOGY COOPERATION

International collaboration is an essential aspect of U.S

technology strategy as well. The U.S. experience has been

that well-designed international partnerships can add

significantly to the store of human knowledge and propel

the development and commercialization of new

technologies. The United States is working with many

other countries to develop new technologies and energy

sources to improve energy security. These international

partnerships help leverage resources, increase the

knowledge base, and expand markets for advanced energy

technology.

For example, the U.S. led efforts to form the

International Partnership for the Hydrogen Economy

(IPHE) to coordinate and leverage multinational

hydrogen research programs. IPHE will address the

technological, financial, and institutional barriers to

hydrogen and develop internationally recognized

technology standards to speed market penetration of new

technologies.

The multilateral Carbon Sequestration Leadership

Forum, a presidential initiative launched in June 2003,

will set a framework for international cooperation on

sequestration technologies. The Forum's 16 partners also

are eligible to participate in the FutureGen project.

The United States is also pursuing nuclear energy as a

secure and clean energy choice. The Energy

Department’s Generation IV International Forum

program, which has 10 international partners, is working

on new fission reactor designs that are safe, economical,

secure, and able to produce new products, such as

hydrogen. And in 2003, President Bush announced that

the United States would rejoin the International

Thermonuclear Experimental Reactor, a project to

develop nuclear fusion as a future energy source.

Although the technical hurdles of fusion energy are

immense, the promise of this technology is simply too

great to ignore.

EMERGENCY STRATEGIES: RESPONSE TO

SUPPLY DISRUPTIONS

All of these activities are directed at ensuring a reliable

and affordable supply of energy, but the United States

also appreciates the importance of protecting against the

possibility of a severe supply disruption. The

administration early on reaffirmed the importance of

maintaining a strong Strategic Petroleum Reserve (SPR).

In November 2001 the president directed that we begin

to fill the SPR to its 700 million barrel capacity. Today it

contains a record 640 million barrels of oil.

The United States also plays an active role in the

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Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004 9

International Energy Agency (IEA), whose 26 member

countries are committed to holding emergency oil

reserves and taking common effective measures to meet

oil supply emergencies. Together, IEA members’ oil

stocks total nearly 4 billion barrels, 1.4 billion barrels of

which are under direct control of member governments,

with the remainder in commercial stocks.

CONCLUSION

Today’s energy challenges have been long in the making,

and the solutions will require a determined, sustained

global effort over decades. The United States remains

committed to advancing energy security at home and

abroad, and we have developed a long-term strategy to

make science and technology central to an integrated

energy, environmental, and economic policy.

The Bush administration believes that the approach we

have charted will put us on a path to ensuring secure,

reliable, affordable, and clean energy to power economic

growth across the globe. While the challenges we face are

significant, the United States remains committed to

leading the way to a bright energy future. ❏
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❏ GEOPOLITICS OF OIL AND NATURAL GAS

By Alan Larson, Under Secretary for Economic, Business and Agricultural Affairs, U.S. Department of State

Ensuring the reliability of global energy supplies will call for

policies that both encourage the use of newer, cleaner energy

technologies and address the political challenges posed by the

world's growing demand for oil and natural gas, Larson says.

U.S. policy seeks to encourage expansion and diversification

of world energy supplies and to promote the transparency and

democratic institutions that help energy-producing countries

make the most productive use of their resources.

Energy is the vital ingredient in the world economy.

While we are working hard on energy efficiency and

investing to develop new energy technologies, oil and

natural gas will remain critical for many years to come.

Economic development around the world means global

demand for oil and gas will continue growing in the near

term. Most significantly, China’s rapid growth and

increase in overall energy demand continue to affect

energy markets. Some analysts estimate that China could

account for as much as one-third of the world's marginal

increase in oil demand in the coming years.

As a result, the world must find and develop more

reliable supplies of oil and gas at prices that permit

sustained economic growth. Unfortunately, it is almost

an axiom in the petroleum business that oil and gas are

most often found in countries with challenging political

regimes or difficult physical geography.

Several realities shape our thinking about energy security

and how we should build reliability into our energy

supplies:

• Two-thirds of the world’s known oil reserves are in the

Middle East.

• Imports supply roughly half of the oil and 15 percent

of natural gas consumed by the United States, and an

even greater share of the needs of some of the United

States’ most important allies and economic partners.

• Oil-supply shocks in any region of the world will have

an impact on the U.S. economy through the

instantaneous operation of international oil markets.

RELIABILITY THROUGH DIVERSIFICATION

Energy investments are costly and risky, requiring longterm commitments. Recognizing this reality, U.S. energy

policy seeks to encourage expansion and diversification of

energy supplies. A number of regions are attracting

increasing interest from energy companies in the United

States and elsewhere. We see interesting prospects for

expanded oil and gas production in the Caspian region,

Russia, West Africa, and North and South America, as

well as the promise of increased oil and gas production in

the Middle East. In each of these regions, our policy

aims to support private sector-led development of energy

resources by reducing the political uncertainty that

otherwise might hinder needed investment.

Russia and the Caspian Basin

Russia already is an energy superpower. To achieve its full

potential, Russia needs to strengthen corporate

governance and the legal/regulatory framework for

business, improve its foreign investment climate, allow

competition in the transportation system, open the gas

and oil companies Gazprom and Transneft up to reform

and competition, improve its technological capabilities,

and move domestic energy prices to world levels.

The Caspian Basin has tremendous potential, offering the

possibility of production increases from 1.6 million

barrels/day (b/d) in 2001 to 5.0 million b/d in 2010.

The key issues in Caspian energy development at the

moment are to: 1) complete the second pillar of the EastWest Energy Corridor by developing the South Caucasus

natural gas pipeline; 2) improve the investment climate

throughout the region; and 3) bring Kazakhstani oil into

the East-West corridor.

Multiple pipelines that economically bring Caspian

resources to the world market strengthen the sovereignty

and economic viability of the new nation states in the

region. U.S. efforts in the Caspian are intended to

complement — not detract from — U.S. support for

Russia’s efforts to develop its energy export potential.
Africa

Africa is playing an increasingly important role as an

energy supplier to U.S. and global markets. In 2003,

both Nigeria and Angola were among the top 10

suppliers of oil to the United States. Oil production

generates substantial revenue in countries such as Nigeria,

Angola, Gabon, Equatorial Guinea, Republic of Congo,

Chad, and Cameroon. Sao Tome and Mauritania also

may become oil suppliers in the coming years. Foreign

direct investment is needed to develop African energy

resources as most new fields are in deepwater offshore

environments that require advanced capital-intensive

facilities for development. Growing oil and gas

production could be a powerful engine for national

economic development in these countries. However, the

Niger Delta experience of 2002, in which protesters

stormed oil facilities and caused their temporary

shutdown, shows that oil can also be a disruptive force if

a country’s oil revenues are not managed in a fair and

transparent manner. Nigeria has learned from its

experience in the Niger Delta and is setting an example

on transparency and economic reform enabled by oil

revenues that the United States hopes other countries in

Africa will follow.

North America

The most important and reliable sources of energy for the

United States are its neighbors and we are strengthening

our energy cooperation with Canada and Mexico. Senior

energy experts from Canada, Mexico, and the United

States recently released a North American Energy Picture

report that, for the first time, jointly measures energy

stocks, trading balances, and energy flows. What often

goes unrecognized is that North American energy trade is

a two-way street. Mexico is becoming an important

source of U.S. oil imports. At the same time, the United

States is a net natural gas exporter to Mexico, and U.S.

refineries supply over 15 percent of Mexico’s refined

petroleum products.

The reliability of North American energy trade is

enhanced by geographic proximity. More important than

geography, however, are the rule of law and predictable

investment conditions created by the North American

Free Trade Agreement, integrated pipeline networks, and

long-term reliable supply relationships. We are

continually working to enhance this framework of rule of

law and predictable investment conditions in North 

America even as we seek to build similar frameworks in

other regions.

Venezuela

Venezuela and the United States have enjoyed strong

historical energy ties. Venezuelan oil policy, until

recently, has been built upon a reputation of reliability.

Unfortunately, actions and statements by parties from all

sides over the last 18 months have called into question

the priority Venezuelans place on their reputation as a

reliable supplier. The United States will continue to work

to help Venezuelans resolve their political differences.

But until a constitutional, democratic, peaceful, and

electoral solution is achieved, and the level of rhetoric

lowered, world energy markets simply cannot view

Venezuela with the same certainty that they once did.

When the Venezuelan parties show a commitment to

reconciliation, they will find a willing and ready partner

in the United States.

Saudi Arabia and the Gulf Producers

The Middle East holds some two-thirds of proven world

oil reserves. The size of its reserves, combined with its

low production cost, guarantees that the Middle East will

continue to play a pivotal role in the world energy

market. Saudi Arabia plays a key role in global oil

markets as the world’s largest oil exporter. Moreover,

Saudi Arabia supports international energy security by

maintaining considerable excess production capacity that

can be brought on line quickly in the event of a serious

supply disruption anywhere in the world.

Diversifying global oil supplies should not be interpreted

as diversifying “away” from Saudi Arabia or other Gulf

producers. Gulf producers will continue to have an

indispensable role in the world market, and the United

States encourages them to increase foreign investment

and steadily expand supplies. What we seek is better

balance and a more flexible, resilient oil market that

responds to price signals.

In this regard, Gulf producers could reap greater benefits

by opening their economies to more private investment

so that oil and gas capacity could grow and energy

supplies could respond more fully to shifts in demand.

Investment in natural gas is one sector where this process

is beginning. Once only for local or regional use or

wasted through harmful flaring, natural gas in the form

of liquefied natural gas (LNG) has become an

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Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004 12

increasingly globally traded energy source for key

markets. Qatar is working with major international

energy companies to become a leading LNG exporter.

In the United Arab Emirates, the successful Taweelah

power and water privatization project is another example

of the dynamic role foreign investment can play in the

energy sector. The United States supports these positive

private investment initiatives because they expand and

diversify its energy sources, provide opportunities for U.S.

companies, and foster economic growth in energyproducing nations.

PROMOTING TRANSPARENCY AND A GOOD

INVESTMENT CLIMATE

Promoting transparency and good governance is a key

part of the U.S. strategy of encouraging diversification.

Oil and gas projects are controversial in many developing

countries because revenue flows are hidden, or diverted,

and average citizens feel they receive no benefit from their

country’s natural wealth. The United States wants oilproducing countries to invest energy revenue in solid and

sustainable economic development for their populations,

not only because it is the right thing to do, but also

because it builds political support for the further

development of energy projects. Democratic processes

and the development of responsive governing institutions

promote political and economic stability, the use of

mineral wealth for poverty reduction and economic

development, and the reduction of oil-related conflicts in

energy-producing countries around the world.

A comprehensive approach to transparency is particularly

important. At the June 2003 Group of Eight (G-8)

Summit, President Bush and the other leaders endorsed a

comprehensive action plan on Fighting Corruption and

Improving Transparency. The core of this approach is

forging a partnership to give willing host countries

technical and political support to strengthen domestic

institutions and enhance transparency and accountability.

We want to focus specifically on budget, procurement,

and concession-letting transparency, including G-8

support for technical needs identified by experts.

In addition to support for developing country action

plans in these areas, the G-8 leaders committed to:

• denying safe haven to corrupt leaders and their assets

by, among other things, denying visas to corrupt officials

• pushing for accelerated implementation of the

Organization for Economic Cooperation and

Development’s Anti-Bribery Convention

• encouraging the World Bank and other international

financial institutions to insist on greater transparency in

the use of funds by borrowing countries

G-8 countries are supporting voluntary compacts among

governments, the companies operating in those countries,

and civil society to improve transparency in public

financial management and accountability. These

compacts outline both the political commitment of the

G-8 and host governments to achieve specific mutually

agreed transparency objectives, with assistance from the

G-8 and international financial institutions, and a specific

concrete action plan to achieve those goals.

CONCLUSION

In the long run we need new technologies such as

hydrogen and carbon sequestration that can fuel our

economy while increasing energy security and minimizing

the environmental impact of energy use. In the interim,

our international energy policy must address the familiar

challenges posed by a hydrocarbon-based economy where

oil reserves are concentrated in various challenging

regions of the world. Transparency and good governance

are increasingly important to sustaining international

investments in energy development in regions of

opportunity for energy production. The United States

will continue to engage intensively with energy partners

all over the world to diversify supplies, improve

investment opportunities, and assure that market forces

work as transparently and efficiently as possible. ❏
Projected sharp increases in energy use by the developing

world, particularly developing Asia, combined with rising

U.S. oil and gas demand could strain global energy systems

and environmental conditions, says Jaffe. As a result, she

says, the diplomatic, strategic, and trading focus of certain

Asian states may shift, leading to a strengthening of economic

and political ties among individual Asian states, major

Middle Eastern oil-exporting countries, and African oil

states. She argues that to deal with the challenges such links

could pose, the United States must enhance cooperation with

its global partners to develop new energy sources, energyefficient technologies, and cleaner, alternative fuels — both

to reduce international tensions and to promote its own

energy security. These efforts also would be critical to

ensuring a brighter future for poor countries lacking access to

affordable energy, she says.

For the past two decades, growth in the developing world

has led to a sharp increase in world energy use. That

growth, combined with rising U.S. oil and gas demand,

could strain global energy systems and environmental

conditions as the 21st century progresses.

The quest for energy will create new economic and

strategic challenges as well as alter geopolitical relations.

The outcome of these developments will depend on

policy choices made by the key players in the developing

world and by the United States. Territorial concerns and

nationalism remain defining issues in international

relations. This means that energy security for all must be

managed carefully lest other pathologies spread into

deliberations in the energy area.

DEVELOPING WORLD ENERGY USE

Populations will continue to grow much faster in

developing countries than in the rest of the world. By

2030, the share of the world’s population living in

developing regions could reach 81 percent, according to

United Nations projections. Coupled with fast economic

expansion projected for emerging markets, rapid

population growth will lead to dramatic increases in 

energy demand in the developing world.

According to projections of the International Energy

Agency’s (IEA) World Energy Outlook 2002, by the year

2030 global primary energy demand will be nearly twothirds above the levels of 2000, reaching 15.3 billion tons

of oil equivalent per year by the end of the forecast

period, with developing countries accounting for 62

percent of the rise. Similarly, the U.S. Energy

Information Administration (EIA) forcasts that by 2025,

energy use in the developing world will have almost

doubled. 

Because the emerging economies are projected to rely

increasingly on coal and other fossil fuels, they will

contribute much more to worldwide carbon dioxide

emissions as their demand for energy quickly grows.

Developing countries are forecast to account for twothirds of the projected increase in carbon dioxide

emissions, which according to many scientists contribute

to global warming. Four major countries alone —

Indonesia, China, India, and Brazil — will emit 2 billion

tons of carbon annually by 2010, creating special

challenges for international cooperation on climate issues.

The United States and other industrialized nations need

to engage these countries in multilateral climate initiatives

such as research and development of cleaner energy

technologies.

Growth in Latin America, where primary energy demand

is expected to nearly double by 2015 from 1999 levels,

will also contribute significantly to future geopolitics of

energy. Rather than serving as a major supply region for

the United States, Latin America could also find itself as a 

major consuming region, needing to be included in

international emergency stockpiling systems and

alternative energy initiatives.

Explosive growth in Asia is expected to contribute

significantly to the rise in use of energy by the developing

world and have the greatest impact on world oil use, thus

playing the largest role in shifting oil geopolitical trends.

In developing Asian countries, where an average annual

growth rate of 3 percent is projected for energy use as

compared with a 1.7 percent for the entire global

economy, energy demand is expected to more than

❏ THE GROWING DEVELOPING COUNTRY APPETITE

FOR OIL AND NATURAL GAS

By Amy Jaffe, Wallace Wilson Fellow for Energy Studies, James A. Baker III Institute for Public Policy, Rice University

13
double in the next two decades. According to IEA

projections, demand in the region will account for 69

percent of the total projected increase in developing

world consumption and almost 40 percent of the increase

for total world energy consumption.

Asia’s rapid economic growth, explosive urbanization,

dramatic expansion in the transportation sector, and

politically important electrification programs will have a

dramatic effect on the region’s dependence on imported

energy. Absent significant growth in renewable energy

supplies and/or new energy technologies, consumption of

crude oil and natural gas in Asia will rise substantially

and with it significant environmental challenges. Given

the inadequate resource endowment of the region and the

region’s already high dependence on imported oil

supplies, it is anticipated that Asia will exert an increasing

pull on the Middle East and Russia in coming years.

According to Oil Market Intelliegence 2001, published by

the Energy Intelligence Group, an independent research

service, Asia’s oil use, which exceeds 20 million barrels per

day (b/d), is already larger than that in the United States.

By 2010, total Asian oil consumption could reach 25-30

million b/d, most of which will have to be imported from

outside the region. China alone can be expected to see its

oil imports rise from around 1.4 million b/d in 1999 to

3-5 million b/d by 2010. This has awakened fears in

Tokyo, Seoul, and New Delhi about competition or even

confrontation over energy supplies and lines of transport.

GEOPOLITICAL REPERCUSSIONS

The diplomatic, strategic, and trading focus of certain

Asian states can be expected to shift in light of growing

energy import requirements, leading to a strengthening of

economic and political ties among individual Asian states,

major Middle Eastern oil-exporting countries, and

African oil states. Such links could pose new challenges

to the West both in terms of arbitrating emerging

regional conflicts and in rivalry for secure energy supplies,

especially in times of supply disruption, war, or other

kinds of emergencies. China's proactive oil diplomacy

and foreign oil and gas investment campaign, for

example, has raised concerns in some quarters that the

emerging international power, because of its growing

need for oil, could become susceptible to pressures from

oil-producing states seeking sophisticated weapons

systems or weapons of mass destruction.

Environmental concerns could exacerbate energy security

fears, creating other kinds of strains on the international

political system. Thus, the benefits of multilateral

cooperation between the West and the developing world

in forging joint solutions to energy supply and

environmental challenges are compelling. It should be

considered a high priority for international 

diplomatic efforts.

The potentially steep costs of confrontation over energy

supplies and environmental degradation are pushing some

Asian nations to develop more energy-efficient

technologies and alternative forms of energy. More likely

for the near term, however, will be a move to diversify

both the forms of energy used and the sources from

which supplies come.

There is huge potential for increased engagement by the

United States in enhancing cooperation to develop new

energy-efficient technologies and cleaner, alternative fuels

both to ensure peace and stability on the world stage and

to promote its own national efforts to secure a brighter

energy future.

For all the focus on economic growth in Asia, the

consistent growth in U.S. oil imports is an overwhelming

factor in global oil markets. U.S. net imports rose from

6.79 million b/d in 1991 to 10.2 million b/d in 2000.

Global oil trade, that is the amount of oil exported from

one country to another, rose from 33.3 million b/d to

42.6 million b/d over that same period. This means that

America’s oil imports alone represented over one-third of

the increase in oil traded worldwide over the past 10

years. As for oil trade with the Organization of

Petroleum Exporting Countries (OPEC), the U.S. import

market was even more significant — over 50 percent of

OPEC's output gains between the years 1991 and 2000

wound up in the United States. Current U.S. oil demand

is about 20 million b/d, of which only 40 percent is

produced domestically.

MEETING THE NEEDS OF THE POOR

Cooperation in finding new energy sources and cleaner,

more efficient technologies, besides being a valuable

means to reduce the risks of international tensions and

conflict, is critical to ensuring a brighter future for the

developing world and reducing poverty and disease in

many parts of the globe. Currently, more than a quarter

of the world’s population has no access to electricity and

two-fifths are forced to rely mainly on traditional biomass

14
— firewood and animal waste — to meet basic cooking

and heating needs. About 80 percent of these

populations are located in India and sub-Saharan Africa.

Four out of five people lacking modern energy services

live in rural areas. Indoor air pollution from traditional

biomass energy is responsible for the premature death of

over two million women and children a year worldwide

from respiratory infections, according to the World

Health Organization (WHO).

Continued reliance on oil under the growth scenarios

outlined above would leave the international community

more dependent on oil from OPEC countries, with

harmful consequences for the world’s poor. While it has

often been argued that the U.S. economy can absorb the

rising oil prices that might result from OPEC's gaining a

higher market share of world demand, a gradual increase

in energy costs would likely contribute to a widening

economic gap between industrial societies and the

developing world. Without a major technological

breakthrough, over 1.4 billion people will still be without

modern electricity in 2030 under a business-as-usual oil

demand scenario — only 200 million fewer than today,

according to a 2002 study by the IEA. Moreover, for the

past 30 years, developing countries have been borrowing

billions of dollars from international institutions such as

the International Monetary Fund and World Bank to

help them pay for oil they cannot afford. This trend

would likely worsen if reliance on OPEC were to increase

over time.

Ironically, OPEC countries’ policies of promoting

increasingly higher oil prices that contribute to massive

indebtedness in the developing world have not helped

raise the living standards of their own populations. In

certain countries, oil revenues have been squandered in

official corruption or used to fund military adventurism,

international terrorism, or major weapons acquisition

programs. Lower energy costs, brought about by new

discoveries or breakthroughs in energy efficiency or

alternative energy sources, might force such regimes to

pursue economic diversification more rigorously, and in

the few cases where it might apply, limit capital for

programs contrary to U.S. interests.

A CALL TO ACTION

The United States has many means at its disposal to

influence the world energy outlook. With the rise in

U.S. oil imports such a significant factor in international

energy markets, any change in U.S. policy that can

significantly lower the pace of import growth could have

a telling impact on OPEC's plans to increase market

share as well as limit the environmental consequences of

unfettered energy use.

No one doubts that a combination of fiscal instruments

and regulations can slow the rate of U.S. increase in

demand for oil as a transportation fuel. Needless to say,

the United States and Canada, with a much lower

consumption base, stand apart from the other

Organization for Economic Cooperation and

Development (OECD) countries. Japan and European

Union (EU) countries have managed, through high

consumer taxes, to fundamentally end growth in oil

demand. In both cases, total growth for the current

decade is expected to fall to the range of 0.1-0.2 percent a

year. When it comes to gasoline demand, European

consumption is actually falling as consumers opt for more

fuel-efficient diesel powered vehicles.

U.S. energy strategies could include modest increases in

fuel taxes combined with incentives to use low-sulfur

diesel rather than gasoline, thus creating greater

efficiencies. Additionally, there could be more regulation

of sport utility vehicles, which have been largely exempt

from other U.S. efficiency standards. Strategies could

include mandates for government fleets to be fueled by

natural gas or electric power. A sliding-scale luxury tax

on new vehicles based on their mileage performance

would be another way to propel more efficient

technologies into the marketplace without taxing gasoline

per se.

Research and development must also be a major vehicle

in promoting effective energy policy. U.S. research and

development priorities include the National

Nanotechnology Initiative (NNI), the FreedomCar, the

Hydrogen Fuel Initiative, and the International

Thermonuclear Experimental Reactor project (ITER).

President Bush has pledged $1.7 billion over the next five

years for these programs, making it a significant push

towards hydrogen as a fuel for the future.

However, critics say a commitment of billions of dollars

would be needed to promote the fundamental science

needed to solve the energy and environmental problems

facing the world community in the coming decades. This

research effort can be done in collaboration with other

major consuming countries, yielding benefits for all and

aimed at revolutionizing advances in solar power, wind,

clean coal, hydrogen, fusion, new generation fission

15
16

reactors, fuel cells, batteries, and a new electrical energy

grid, which can tie all these power sources together.

Beyond U.S. initiatives, there should be little doubt that

there is considerable room for enhanced energy

efficiencies in other major energy-consuming societies in

the developing world. As major energy-using countries

such as Russia, China, India, and Brazil radically alter the 

economic signals associated with energy costs to inject

market-based pricing principles as a replacement for

subsidized energy supplies, oil demand savings can be

dramatic, especially in the power generation and

household sectors. The continued drive toward energy

market liberalization around the world, especially in areas

other than the transportation sector, could have

significant impact on the rise in primary energy

requirements in the developing world.

The U.S. government should also take a much more

proactive stance vis-à-vis Russia and China with respect

to the international energy sector. It could help the

United States and other IEA countries break OPEC's

hold on the energy market and help these two critical

emerging energy powers define their own goals in

manners compatible with U.S. objectives. China needs

to be encouraged to enhance its plans for strategic

stockpiling, and there are ways the United States can

assist it in doing so, whether by sponsoring China's

membership in the IEA or assisting the development of

new regional energy security arrangements.

Finally, the U.S. and other industrial countries can do a

great deal more to enhance the institutional mechanisms

that favor markets over political intervention by oil

producers. The U.S. needs to show leadership by looking

seriously at ways to bring the rules of global oil trade and

investment in harmony with the rules governing trade in

manufactures and services. This would mean building on

open trade and investment within the IEA and

discriminating actively against those countries that do not

permit foreign investment in their energy resources and

that limit their exports to manipulate prices.

Liberalization and open access for investment in all

international energy resources would mean their timely

development rather than today’s worrisome delays.

Without global norms across the oil sector, the world

experiences supply limitations related to capital and

political motivations that cripple the global economy and 

perpetuate poverty in the energy-poor countries of Africa

and Asia. The example of Russia over the past five years,

with its rapid growth in oil production following

economic liberalization, should serve as a an example to

other still-closed countries of the benefits in enhanced

revenues and production. ❏

Note: The opinions expressed in this article do not necessarily reflect the

views or policies of the U.S. Department of State.

Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004.
17

All international energy market participants can achieve their

individual goals by working toward the common objective of

a new playing field that allows the market to work: a

network of operating rules and guidelines that lets countries,

industries, and technologies compete, writes Stanislaw. He

leaves no doubt that it is not going to be easy and may

require a radical change in the way we view the forces of

competition and cooperation. Stanislaw argues that the

solution is to establish the economic linkages that connect

producing countries to consumers, nationalistic economies to

free markets, and energy needs to environmental

considerations. This will increase cooperation and create a

more stable, sustainable international environment, he says.

National and regional energy markets around the world

are more open now to trade, competition, and foreign

investment than at any time in history. Even countries

such as Saudi Arabia and Mexico, whose petroleum

industries remain nationalized, recently have opened up to

technological and economic cooperation with foreign

companies in natural gas developments. Although

Mexico’s engagement with international operating

companies is under a service contract arrangement, Saudi

Arabia’s involves foreign investment in the natural gas

sector for the first time since the country’s petroleum

industry was nationalized in 1975. The companies

involved span the globe from Russia and China to Italy,

Spain, the United Kingdom, and France.

At the same time, 10 years after the signing of the North

America Free Trade Agreement, questions regarding an

integrated North American energy market remain.

Market liberalization around the world is slowing and, for

many investors, markets have not opened enough to

provide for adequate transparency and true competition.

Meanwhile, North American energy supply is again

becoming a security issue.

So which is the dominant trend — forward movement

toward increasing market liberalization or retreat into

further market regulation? When considering the issue of

international energy competition versus cooperation, the

question to ask is not who is winning the battle, but

rather how the market can accommodate the divergent

needs of the individual players and encourage the

cooperation that has become more prevalent in recent

years.

The International Energy Agency (IEA) estimates that the

global energy industry will require an unprecedented $16

trillion in investment over the coming 30 years.

Industries require energy to produce goods and services,

while individuals need it to maintain quality of life.

Producing countries want a fair price for finding,

developing, and producing supplies, but consuming

nations need affordable energy on which to build their

economies. These forces may seem diametrically opposed,

but they can be balanced by encouraging economic

linkages between nations that support interdependence.

How is this achieved? By recognizing the simple reality

that producers need security of demand while consumers

need security of supply — and that the role of the market

is critical in aligning these needs.

A paradigm shift is required — the issue isn’t cooperation

or competition, but rather cooperation and competition.

All of the participants in international energy markets can

achieve their individual goals by working toward the

common objective of a new playing field that allows the

market to work: a network of operating rules and

guidelines that lets countries, industries, and technologies

compete.

First and foremost, the playing field must be characterized

by transparency in information and decision-making, and

especially by good corporate governance. It also must

allow recognition of the challenges of sustainable

development and encourage rules that ensure players’

physical and environmental security, all of which will

allow relationships and interdependencies to develop fully.

In this way, we can create a win/win situation for

producers and consumers, governments and individuals,

developed and developing economies: a more stable world

where cooperation and competition result in more

efficient use of resources and services.

❏ ENERGY COMPETITION OR COOPERATION: 

SHIFTING THE PARADIGM

By Joseph A. Stanislaw, President, Cambridge Energy Research Associates
HISTORICAL ENERGY COOPERATION

International cooperation and economic engagement have

been characteristic of the energy industry since Ludwig

and Robert Nobel began exporting Russian oil to Europe

in the late 19th century. A more recent example is the

Energy Charter Treaty and Protocol, implemented by the

European Council (now known as the Council of the

European Union) in the early 1990s. The charter is

designed to promote industrial cooperation between the

countries of Western Europe and those of Eastern Europe

and the former Soviet Union by providing legal

safeguards in areas such as investment, transit, and trade.

In 2002 and 2003, two U.S.-Russia Commercial Energy

Summits were held under the joint sponsorship of

Russia’s ministries of Energy and Economic Development

& Trade, and the U.S. departments of Commerce and

Energy. The summits brought together major oil and gas

companies from Russia and the United States to identify

opportunities for investment in Russia and improvement

of its energy infrastructure.

Growing political cooperation in the energy arena has

brought about promising, business-backed projects in

recent years. The Baku-Ceyhan oil pipeline —

undertaken by BP of the United Kingdom, the State Oil

Company of the Azerbaijan Republic, Unocal of the

United States, and Norway’s Statoil — now connects oil

production in the Caspian Sea with demand in Europe

and beyond through export facilities at Ceyhan, Turkey.

And future plans for natural gas production from Russia’s

vast Sakhalin Island deposits include exports to Japan,

possibly China, and perhaps even the West Coast of the

United States. For both projects, the forces driving

cooperation are governmental involvement and the reality

that a supply source without a market has no value.

COMPETITIVE CONSIDERATIONS

The international energy industry is characterized by

three pairs of strong competitive forces:

1. Producing vs. consuming nations

In the past, the Organization of Petroleum Exporting

Countries (OPEC) often found itself at political odds

with consuming nations. The clearest example of this

was the famous Arab oil embargo of the 1970s.

However, the 1990s and the new century have brought

change to this historical relationship. The ProducerConsumer Dialogue, a forum that facilitates discussions

between oil-producing and -consuming nations, as well as

IEA and OPEC, has been underway for almost a decade

— now renamed the International Energy Forum. The

dialogue focuses on exchange of data, increased

transparency of demand and supply information,

cooperation between governments and industry, and a

better understanding between the two sides of the

market. In addition to the growing dialogue, 

economic cooperation between producers and consumers

continues to rise, as can be seen in Mexico’s and Saudi

Arabia’s natural gas projects, as well as a host of others.

2. Competition vs. regulation

A long-standing struggle between market liberalization

and market regulation continues today. This occurs both

between countries, as seen in U.S. opposition to OPEC

market “regulation” via production quotas, and within

countries, as evinced by the continuing debate over

privatization vs. nationalization.

Russia’s energy industry, for example, long state-owned

under the Soviet system, has experienced a remarkable

shift toward a private investment environment in recent

years. As a result, the country has seen an unprecedented

10 percent annual growth in oil production.

3. Economic development vs. sustainability

The increasing focus on environmental responsibility and

sustainable development around the globe presents an

ongoing challenge for industry and government: how to

achieve economic growth profitably while meeting the

demands of sustainable development. To be successful,

development projects must clear environmental hurdles,

win community approval, abide by local laws, and satisfy

national governments, all while remaining economically

justifiable.

The difficulty of meeting the demands of these

sometimes competing forces is obvious. The

unwillingness of local citizens to allow construction of

power plants in California was a major factor in that

state’s power crisis in the summer of 2000. On a larger

scale, economic considerations prevented key countries

from ratifying the Kyoto Treaty, in essence forcing the

collapse of years of negotiation.

18
19

Finding the right equilibrium between economic and

sustainable development considerations will not be easy.

To meet growing natural gas demand in the supply-short

North American market, for example, the biggest

challenge is securing the willingness of local citizens to

grant permission for construction of needed liquefied

natural gas (LNG) receiving and regasification terminals.

WHO IS WINNING THE BATTLE? THE

WRONG QUESTION

The questions that traditionally have been posed

regarding the forces of competition and cooperation are:

Who is winning the battle — producing or consuming

countries? Producing or consuming industries?

Developed or developing economies? Traditional or

emerging energy industries?

If the parties are to achieve a true paradigm shift, this is

the wrong way to approach the “conflict.” The question

we should be asking is how best to balance the forces of

competition and cooperation.

The solution is to build a bridge. This means

establishing or strengthening the economic linkages that

connect producing countries to consumers, nationalistic

economies to free markets, and energy needs to

environmental considerations, and in doing so, increasing

cooperation and creating a more stable, sustainable

international environment.

THE PLAYING FIELD

Construction of this economic bridge must begin with

the creation of a playing field on which all parties can

compete to increase market efficiencies and cooperate to

satisfy mutual needs. The role of the players —

government, industry, consumers, and nongovernmental

organizations (NGOs) — is to establish the politics of the

playing field by providing better information and greater

transparency so that the economic participants can play

out the game in an efficient manner. All parties must

have access to reliable data regarding demand, demand

patterns, and the future direction of demand, as well as

alternative supplies and supply development plans.

Such a playing field would enable the participants to

compete to provide reliable, affordable energy to meet

demand in consuming countries while providing

producers — countries as well as companies — with an

accessible market for their goods and services. But

beyond just meeting demand, the criteria would enable

developing countries to realize their “latent” demand —

the unrealized energy demand that arises from people's

desire to improve their living standards and contribute to

sustainable economic development.

The rules governing international cooperation also must

be balanced by the new demand for sustainable

development. Individuals' needs for a better standard of

living must be balanced with the need, and the desire, for

a clean, secure environment.

Probably the single most important stepping stone to this

end point is the development of new energy technologies.

Cooperation among companies and industries allows

technology to be developed in a market setting, and a

level playing field creates the rules by which it will flow

from one place to another. This is key because

technology is not simply transferred — it moves only if

the owner derives profit from its movement and the

buyer derives benefit.

An important example of technology cooperation is the

Fuel Cell Annex to the United States-European Union

(EU) Non-Nuclear Energy Cooperation Agreement. The

annex, which enables the U.S. Department of Energy to

conduct research jointly with EU institutions, is “a key

step to moving our joint agenda forward to expand the

use of hydrogen as an alternative fuel source,” said Energy

Secretary Spencer Abraham when he announced the

agreement. Similar cooperation is occurring on the

business side. The California Fuel Cell Partnership — a

collaboration of 20 auto companies, oil producers, 

fuel-cell technology companies, and government agencies

— aims to place fuel-cell electric vehicles on the road in

California. If this disparate group succeeds, the

technology will undoubtedly spread rapidly to other states

and countries and begin to shift energy demand patterns.

COOPERATION — A PROVEN COMMODITY

In order for emerging countries to have the energy

needed to meet their “latent” demand, governments and

companies must focus on developing all forms of energy.

This will be facilitated by cooperation in the areas of

resource development, export schemes, and new energy

technologies, all of which ultimately benefit both

producers and consumers.
Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004 20

Domestically focused policies can play a positive role in

stabilizing the international market. Energy-consuming

countries seeking affordable, secure energy supplies

typically create policies that encourage diversity of supply,

increased use of domestic resources, and development of

environmentally friendly and sustainable energy forms.

The degree to which a country reduces its need to import

energy takes pressure off international markets and

increases supply reliability for emerging countries.

Cooperation among nations and companies already has

proven successful in achieving remarkable strides in

energy development. In addition to the examples cited

previously, there are numerous other success stories:

• EU-driven liberalization of the European natural gas

market has made great progress in international

competition and trade.

• A 1,054-kilometer oil pipeline was built in sub-Saharan

Africa by ExxonMobil, Malaysia’s state firm Petronas,

and ChevronTexaco, linking supplies in Chad with

world markets via an Atlantic port in Cameroon.

• The 2,350 kilometer Kazakhstan-to-China oil pipeline,

already under construction, will link producing fields in

northwest Kazakhstan to refineries in western China,

representing significant cooperation between CNPC,

Kazakhstan’s third largest oil producer owned by China

National Petroleum, and KazMunaiGas, Kazakhstan’s

state oil company.

• The proposed West-East natural gas pipeline from

Western China to the Shanghai area will connect a major

supply center with one of the most promising new

demand markets. The project will be carried out by an

alliance of Russian, Chinese, and western energy

companies.

• The Nahodka project, under discussion between Russia

and Japan, would connect crude oil in East Siberia’s Lake

Baikal region to an export point on Russia’s Pacific Coast

(a twin natural gas line could follow).

Also on the horizon are a host of LNG import-export

schemes that will link remote natural gas supplies in such

diverse places as the Far East, Middle East, and South

America to gas-hungry markets in North America, Asia,

and Europe.

In order for the players on the world energy scene to

improve international stability and security through

increased cooperation, there must first be transparency of

information regarding supply, demand, and prices among

the participants. Once established, the marketplace —

governed by necessary levels of market oversight and

environmental protection — will drive progress forward.

Open global markets allow private capital to flow and

facilitate development of resources and technologies —

technologies that both producers and consumers can use

to change cost structures, fulfill needs, improve standards

of living, and promote sustainable development. But

reaching this goal will require unprecedented levels of

cooperation and an effective, fair playing field where

economic players can interact in the international energy

arena. Matching international cooperation and

competition is the only way to find the estimated $16

trillion in energy investment the world will need over the

next 30 years. ❏

Note: The opinions expressed in this article do not necessarily reflect the

views or policies of the U.S. Department of State.
Crafting energy policy for a country as productive and

diverse as the United States is complicated and involves a

multitude of competing interests, says Domenici. Landmark

legislation drafted by the senator and now working its way

through Congress seeks to reconcile the often-contradictory

needs of the U.S. energy market by diversifying and

expanding the country’s energy portfolio. Doing so, says

Domenici, is the “critical next step” if the United States is to

succeed in moving away from existing technologies in favor of

cleaner and more affordable and abundant energy supplies.

For the bill to become law, both the Senate and House of

Representatives need to pass it and the president must sign it.

When I began work on the energy bill last year, I decided I

could write one of two kinds of bills. I could write a bill

that limits production of certain kinds of energies, such as

coal and oil, and mandates the production of more

politically desirable energies, such as wind. Or I could

write a broader bill that seeks to diversify America’s

energy portfolio by encouraging increased production of

most energies, from nuclear energy to wind and solar

energy.

I chose to write a broader bill that diversifies our energy

portfolio and increases the production of more than a

dozen different energies, from wind to clean coal.

I wrote this kind of bill for several reasons. First, I

believe diversifying our energy portfolio is the critical

next step we must take to move us away from existing

technologies toward cleaner, affordable technologies.

Right now, half of the electricity in this country comes

from coal. If Congress passed legislation that discouraged

the consumption of coal, the cost of heating a home or

lighting a business would skyrocket all around the

country. Why? Because we do not have a renewable

energy waiting in the wings to replace coal.

Until we diversify our energy supply — produce more

wind, solar, geothermal, and natural gas energies — we

have no business passing legislation that discourages the

production of the very energies that drive this economy.

Second, I chose to craft a sound energy bill that

encouraged diversified production because I took a hard

look at the political realities. That’s the only kind of bill I

could get through the Senate. I did not believe and still

do not believe that this U.S. Senate will pass an energy

bill that discourages the production of some energies

while mandating increased production and use of others.

Let’s assume Congress decides to discourage the

production of coal, an energy source fiercely hated by

many environmental groups. If Congress decided to

close the nation’s oldest coal-fired power plants, located

largely in the Ohio River Valley and the Southeast,

electricity prices would soar and local economies would

slump into a regional recession. In the mid-term, those

plants would be promptly replaced with plants fired by

natural gas, which is the only other near-term option for

large-scale electricity production.

But this nation, as Federal Reserve Board Chairman Alan

Greenspan has warned, is facing a natural gas crisis.

Demand is high and supplies are tight, making natural

gas prices more volatile. By closing the coal plants, we

exacerbate the pending natural gas crisis, drive up

electricity prices in the southeast, and put thousands of

people out of work.

This wouldn’t happen because that kind of bill wouldn’t

stand a prayer of passing. No senator worth his salt

stands by and lets Congress put his constituents out of

work and drive their electricity prices out of sight.

Energy policy is further complicated by regional

differences in energy production and consumption; the

hydropower dependent Northwest has very different

challenges than does the Southeast with its local, statecontrolled monopolies, or the Northeast with its

increasing dependence on energy produced outside its

region. These differences have made the Federal Energy

Regulatory Commission’s effort to impose a single,

standard market design on the nation’s power grid one of

the most hotly contested issues in Washington. I worked

tirelessly to craft a compromise on this and so many other 

❏ ENERGY DIVERSIFICATION: 

FINDING THE RIGHT BALANCE

By Pete V. Domenici, Chairman, Senate Energy and Natural Resources Committee

21
Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004

issues in order to ensure a fair and reasonable policy that

would work nationwide. That meant compromises.

So yes, I took a pragmatic approach to this energy bill. I

decided what the ideal bill would be like, then I measured

that against what was politically possible. The result is a

sound piece of legislation that diversifies our fuel

portfolio, so that this nation is pretty prepared to absorb

the changes in the price of any particular fuel, implement

future environmental restrictions, and meet increased

demand.

It’s a mid-term step that takes all of us closer to the

energy future we all agree on: a future where abundant,

reliable, and affordable energy is produced with little

impact on the environment and no dependence on the

goodwill of hostile nations.

There are some goals this bill doesn’t try for because they

aren’t achievable right now. Some have advocated higher

automobile fuel efficiency standards. But efforts to

increase automobile fuel efficiency standards have

repeatedly failed. I recognized that and took a different

approach. My bill provides tax credits of up to $2,000 to

consumers who purchase hybrid vehicles. If I can’t

mandate that relatively fuel-inefficient, sport-utility

vehicles (SUVs) be more environmentally sensitive, I can

give consumers incentives to buy vehicles that are.

This bill takes us closer to other goals than we’ve ever

been before. One-third of the tax incentives in this bill

would provide a tax credit for the production of

electricity from solar, wind, biomass, and geothermal

energies. This incentive means that wind farms will

spring up around the country like the 204-megawatt New

Mexico Wind Energy Center that just came on line.

That’s the third largest wind farm in the country. Half a

dozen more wind farms like it are in the planning stages,

pending the enactment of the tax provisions in the energy

bill.

The bill will also provide incentives so that future coalfired power plants will use the most advanced clean-coal

technologies and so that a new generation of nuclear

power plants that emit no greenhouse gasses will also be

available to meet our future requirements.

This bill is a jobs bill. It mandates construction of the

Alaska Natural Gas pipeline and in the process creates

more than 400,000 jobs. Moreover, it would stabilize the 

skyrocketing natural gas prices that have driven thousands

of American jobs overseas. Besides creating new jobs, we

will help staunch the hemorrhage of jobs we have now to

foreign countries.

We create more than 214,000 new jobs with the ethanol

provision, which mandates increased use of ethanol in

gasoline. That provision alone will expand household

incomes in rural America by an estimated $51.7 billion in 

the next decade. At a cost of only $14 billion over 10

years, this bill will be the cheapest jobs bill to come out

of Congress this year.

Compromise is necessary. The House of Representatives

insisted on a provision to provide faulty product

indemnification for producers of methyl tertiary butyl

ether (MTBE), a gasoline additive largely mandated by

federal law that some claim can result in contamination

of water supplies. The Senate rejected that bill last fall.

Earlier this year, I filed a leaner version of the bill with

the Senate. That bill costs less and removes the safe

harbor for both MTBE and ethanol.

I will seek the middle ground — and what I hope is the

higher ground — on this issue as I have on others in this

bill. Contrary to what some critics have claimed, there

has been considerable compromise in this bill. I have

dropped the very controversial provisions that would have

opened Alaska’s Arctic Natural Wildlife Refuge (ANWR)

to oil and gas production. The electricity provisions don’t

go as far as I would like in some areas because I have

crafted compromises among the differing regions of the

country.

But on the core, underlying principle, I refuse to

compromise. I have insisted on making this a real energy

bill that takes tangible steps to expand and diversify our

energy portfolio. I refused to write a bill that is just a

collection of efficiency and renewable provisions that —

while they make for good rhetoric — would not

fundamentally add to our nation’s supply of affordable

and reliable energy.

This is not a perfect energy bill, but this bill does do

what I set out do more than a year ago: it increases and

diversifies our production of cleaner energy. By

diversifying production, the United States can begin to

move toward an energy security that is based on reducing

the share of consumption that relies on foreign sourced

supplies. In the end, I think that underlying strength will

carry the day. ❏

22
Energy research has made huge strides over the past three

decades, both in improving the efficient use of traditional

fuels and in developing and deploying next-generation

technologies that could eventually transform the energy sector,

says Garman. Meeting long-term needs for clean energy in

the United States and the world will require leapfrogging to

new technologies while concurrently continuing investments

in energy efficiency, renewable alternatives to fossil fuels, and

cleaner non-renewable alternatives, he says.

ENERGY CHALLENGES

Energy is the lifeblood of modern nations and is a

mainstay of high standards of living, sophisticated

economies, and national security. While greater efficiency

of existing energy sources is essential in the short term, the

United States, like other nations, must look toward “next

generation” technologies, such as hydrogen and

nanotechnology, to meet the increasing challenges of

providing clean, abundant, reliable, and affordable energy

to all people.

The United States’ strategic approach to the energy sector

is contained in President Bush’s National Energy Policy

(NEP), published in May 2001. The NEP draws

attention to the fact that a serious imbalance between U.S.

domestic energy supply and domestic energy demand

underlies our nation’s energy challenge. It shows that the

United States consumes much more energy than it

produces and that our dependence on imported energy

grows worse each year. The NEP also provides guidance

on what we can do about it.

Several features of our current energy economy:

• We enjoy a diversity of primary energy inputs such as

fossil energy (oil, coal, and natural gas), nuclear energy,

and renewable energy.

• But, we are heavily dependent on oil, coal, and natural

gas. 

• The transportation sector is almost entirely dependent

(97 percent) on oil, a majority of which is imported. 

• In all sectors of energy use, a large amount of energy is 

rejected or wasted, with transportation being the least

efficient of the three main sectors (residential/commercial,

industry, and transportation) of our economy.

Promoting efficiency in the use of oil and finding new

domestic sources of oil are both important short-term

undertakings. But over the long term, a petroleum-free

option is eventually required.

The U.S. energy challenge is further complicated by

another important factor — the pollutants and carbon

dioxide emissions resulting from our use of energy.

Although we have made good progress in reducing

pollutant emissions from our cars and trucks as well as

from factories, homes, and other stationary sources,

ultimately new approaches to energy will be required to

achieve further emission reductions.

The United States Department of Energy’s (DOE) Office

of Energy Efficiency and Renewable Energy (EERE) leads

the federal government’s research, development, and

deployment (RD&D) efforts in biomass, geothermal,

solar, wind, and other renewable and energy-efficiency

technologies to provide reliable, affordable, and

environmentally sound energy supplies for America’s

future. As a result of investing billions of dollars in

research, demonstration, tax incentives, and other policy

measures over the past three decades, tremendous progress

has been made in increasing the efficiency of energy use in

our economy and in bringing renewable energy

technologies to the marketplace. While our investments

— and those of our industry partners — are beginning to

pay off, with dramatic and ongoing improvements in the

cost and efficiency of these technologies, much more

remains to be accomplished to meet our current energy

challenges.

THE PROMISE OF HYDROGEN

The development of next-generation energy technology

such as hydrogen could greatly reduce the United States’

reliance on energy imports, particularly in the

transportation sector. Since hydrogen is not an energy

source but rather an energy carrier, it can be produced

from all primary energy sources including natural gas,

coal, nuclear energy, and renewable energy. Hydrogen can

❏ RENEWABLE ENERGY AND NEW TECHNOLOGIES

By David K. Garman, Assistant Secretary, Office of Energy Efficiency and Renewable Energy, 

U.S. Department of Energy

23
24

fuel ultra-clean internal combustion engines, which would

reduce auto emissions by more than 99 percent. And

when hydrogen is used to power fuel-cell vehicles, it will

do so with more than twice the efficiency of today’s

gasoline engines and with none of the harmful air

emissions. In fact, fuel cells’ only byproducts are pure

water and some waste (excess) heat. Hydrogen fuel cells

could also be used in stationary applications, providing

electricity for homes, offices, shopping centers, and other

buildings.

Since the release of the NEP, President Bush and Energy

Secretary Spencer Abraham have unveiled several

initiatives related to hydrogen. Most notable are the

FreedomCAR partnership announced in January 2002;

President Bush’s Hydrogen Fuel Initiative, announced

during the State of the Union address in January 2003;

and “FutureGEN,” a zero-emission coal-fired electricity

and hydrogen power plant project that includes

sequestration — capture and storage — of greenhouse gas

emissions, announced in February 2003. In his 2003

State of the Union speech, President Bush announced that

“With a new national commitment, our scientists and

engineers will overcome obstacles by taking these cars

from laboratory to showroom, so that the first car driven

by a child born today could be powered by hydrogen and

pollution-free.” All of these initiatives are contributing to

a national approach for moving toward a hydrogen

economy through development of the necessary advanced

technologies for hydrogen production, delivery, storage,

conversion, and applications.

The federal government’s role is to accelerate hydrogen

and fuel cell development to enable industry to make a

commercialization decision by 2015. But the

manufacturing and marketing of fuel-cell or other

advanced vehicles will be industry’s responsibility.

Achieving this vision will require a combination of

technological breakthroughs, market acceptance, and large 

investments in a national hydrogen energy infrastructure.

Success will not happen overnight, or even in years, but

rather over decades, and it will require a steady process

that phases in hydrogen as the technologies and markets

are becoming ready.

OTHER NEXT-GENERATION TECHNOLOGIES

In addition to resolving critical energy needs for

transportation, there is a need to increase energy efficiency

in other sectors, such as buildings. With an expanding

population and increased amenities that require more

electricity, building-related energy consumption in the

United States is growing. New technologies will be

needed for a new generation of buildings that will be

efficient, comfortable, and simpler to operate and

maintain. For example, solid-state lighting that uses

semiconductor light-emitting diodes (LEDs) is a

revolutionary technological innovation that promises to

change the way we light our homes and businesses. In the

United States, lighting consumes nearly 30 percent of all

electricity produced for buildings. While modern

fluorescent bulbs with electronic ballasts are much more

efficient than incandescent bulbs, they remain glass

nodules filled with gas, not unlike the vacuum tubes of

the last generation of electronics. The LED is to

fluorescent lamps what transistors were to vacuum tubes,

or what the automobile was to horse-powered

transportation.

In the long term, U.S. research is focused on “zero-energy

buildings” that on average actually could produce more

energy than they consume by combining highly efficient

design with fuel-cell, solar, geothermal, and other

distributed energy and cogeneration technologies.

Already, solar cells which convert sunlight directly to

electricity, known as photovoltaics (PV), are helping to

supplement buildings’ energy needs through thin film PV

panels located on roofs, as well as providing electrical

power to distributed power applications not served by the

electric grid. Distributed energy resources (DE) are a

variety of small, modular power-generating technologies

that can be combined with energy management and

storage systems and used to improve the operation of the

electricity delivery system, whether or not those

technologies are connected to an electricity grid.

DOE is also active in nanotechnology research and

development. Nanomaterials — typically on the scale of a

billionth of a meter or 1,000 times thinner than a human

hair — offer different chemical and physical properties

than the same materials in bulk form and have the

potential to foster new technologies. According to

Secretary Abraham, “This new science of very small things

can revolutionize the way we produce, use, and deliver

energy.” Certain nanomaterials show promise for use in

making more efficient solar cells and the next-generation

catalysts and membranes that will be used in hydrogenpowered fuel cells. Because of their nanoscale size and

excellent conductivity, carbon nanotubes, essentially sheets

of graphite rolled into extremely narrow tubes a few

nanometers in diameter, are being studied as the possible

building blocks of future electronic devices. Woven into a
25

cable, carbon nanotubes could provide electricity

transmission lines with substantially improved

performance over today's power lines.

These are just a few examples of how new technologies

offer the promise of a radically different energy future.

CONTINUING EFFORTS IN ENERGY EFFICIENCY

AND RENEWABLE ENERGY

As important as hydrogen and other “leapfrog”

innovations may be in the long run, EERE is continuing

to make investments in “workhorse” energy efficiency and

renewable energy improvements that will have an impact

in the more immediate future. Under the FreedomCAR

and Vehicle Technologies Program, we are funding hybrid

(gasoline-electric and diesel-electric) technology and

lightweight material technologies, in addition to hydrogen

fuel-cell technologies. We believe that many of these

technologies will deliver fuel savings both prior to and

after the introduction of fuel-cell vehicles, since

lightweight materials and hybrid technologies are expected

to be incorporated into fuel-cell vehicle designs. In

addition, we are funding research and development to

continue progress in improving energy efficiency in

manufacturing and other industries, in appliances, in

buildings, and in electricity power transmission and

distribution.

EERE is also actively supporting research and

development to improve the performance and

competitiveness of a variety of renewable energy supply

technologies such as wind, solar, geothermal, and biomass.

For example, wind energy is one of the most widely used

and fastest-growing renewable energies in the world.

Since 2000, installed wind turbine electric generation

capacity in the United States has more than doubled.

With support from DOE-sponsored research, the cost of

electricity generation from wind has been reduced by a

factor of 20 since 1982, to four cents or less per kilowatthour in areas with excellent wind resources. While these

resources are being exploited by industry, the department’s

research and development (R&D) programs have turned

to focus on new technology that will make even more

widely available lower-speed wind resources viable for

development. "Low wind speed" technology will expand

available land (and potentially, off-shore) areas for wind

development by a factor of 20.

MECHANISMS TO ASSIST TECHNOLOGY RD&D

The Department of Energy uses a variety of investment,

policy, and other mechanisms to assist technology RD&D

including direct R&D investments, partnerships with the

private sector, basic scientific research, investment and

production tax credits, loan guarantees, the “market 

pull” of the government’s purchasing power, and

consumer education and assistance programs. The

administration continues to support comprehensive

legislation that would promote energy efficiency and

renewable energy, including production tax credits for

renewable energy, a renewable fuels standard to support

biomass-derived ethanol and biodiesel, and a variety of

other energy efficiency provisions. In addition to the

federal government, state governments have a number of

policies that promote the use of renewable and other

technologies, such as net metering, which allows

customers to generate their own renewable power and sell

any excess back to utilities. Increasingly the U.S. public

has the ability to choose to receive electricity through

"green power" programs that utilize a variety of renewable

energy sources including wind, solar, biomass, and

geothermal. There are already 1000 megawatts of green

power that have been installed (or planned) nationwide

because of customer demand in green power markets.

U.S. WORKING WITH OTHER NATIONS

Because much of the world faces the same kinds of energy

challenges as the United States, technology developments

by U.S. companies will benefit other nations as well.

Furthermore, helping developing nations to use energy

more efficiently and develop alternative energy sources

may enable them to leapfrog directly to advanced energy

technologies. The Department of Energy has numerous

bilateral and multilateral agreements to promote energy

technologies with other countries, including a recently

formed International Partnership for the Hydrogen

Economy (IPHE) to promote the research, development,

and demonstration of hydrogen technologies and

accelerate the conversion of the world economy to one

that employs environmentally clean hydrogen

technologies. The Terms of Reference document, formally

creating the IPHE, was signed by Secretary Abraham and

ministers representing 14 other nations and the European

Union in November 2003. The IPHE will provide a

mechanism to organize, evaluate, and coordinate

multinational research, development, and deployment

programs that advance the transition to a global hydrogen

economy.
Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004 26

DOE is also part of an international climate change

initiative known as the Carbon Sequestration Leadership

Forum (CSLF) whose purpose is to facilitate the

development of improved cost-effective technologies that

capture and store carbon emissions. The charter for the

CSLF was signed in June 2003 and currently has 16 coalproducing and -consuming members. Carbon

sequestration is a priority for the United States because

fossil fuels (consumption of which produces carbon

dioxide) will continue to be the world’s most reliable and

lowest-cost energy resources for the immediate future.

Other initiatives include the Generation IV International

Forum, where the department is working with a group of

international government entities to facilitate bilateral and

multilateral cooperation on development of new nuclear

energy systems. The United States has also rejoined the

International Thermonuclear Experimental Reactor

(ITER), a project to develop nuclear fusion as a future

energy source. Although the technical hurdles for nuclear

fusion are complex, its promise is considered too great to

ignore.

CONCLUSION

The United States and other nations face a number of

challenges to providing clean, abundant, reliable, and

affordable sources of energy to their citizens. U.S. policy

is focusing on leapfrogging to next-generation

technologies, such as hydrogen, while concurrently

working on increases in efficiency, on alternatives to fossil

fuels, and on cleaner non-renewable alternatives, all of

which are likely to be an important part of the future

energy landscape. ❏
The U.S. energy market will continue to rely heavily on fossil

fuels for the foreseeable future, and net imports of oil and gas

will continue to rise, with most of the increased foreign

supplies coming from OPEC, Caruso and Doman say.

Overall, the world's energy resources are sufficient to meet

projected global demand for the next two decades, but supplies

will remain unevenly distributed among regions and

countries. This article provides an overview of oil and gas

resources worldwide; takes a look at U.S. energy demand,

supply, and production potential; and reviews possible changes

in the future U.S. energy mix.

The United States is projected to become increasingly

dependent on foreign sources of oil and natural gas to

meet growing domestic demand, with most of the

increased imports coming from the Organization of

Petroleum Exporting Countries (OPEC). In 2002, the

United States imported 53 percent of its oil and 16

percent of its natural gas. In 2025, net petroleum imports

are projected to reach 70 percent of total petroleum

demand and natural gas imports 23 percent of total

natural gas demand. In the Energy Information

Administration’s (EIA) Annual Energy Outlook 2004,

OPEC accounts for nearly 60 percent of the projected

growth in U.S. petroleum imports between 2002 and

2025. Although the United States is expected to produce

around three-quarters of the gas it is projected to consume

in 2025, net imports do grow over the projection period,

mostly in the form of liquefied natural gas (LNG).

Petroleum products accounted for 40 percent of the total

energy consumed in the United States in 2002 and natural

gas for another 24 percent, with coal, nuclear power

generation, and renewable and other energy sources

(including methanol, liquid hydrogen, and net electricity

imports) making up the remainder. While the United

States must import oil and natural gas to meet domestic

supply, it is self-sufficient in terms of coal, nuclear power,

and renewable energy sources.

GLOBAL OIL RESOURCES

The world’s oil resource base is defined by three categories:

proved reserves (that is, those quantities that have been

discovered already and that can be recovered under present

technologies and prices); reserve growth (increases in

reserves resulting mainly from technological factors that

enhance a field’s recovery rate); and undiscovered reserves

(oil that remains to be found through exploration). Data

on proved reserves are updated and published annually in

the Oil & Gas Journal, a weekly publication that covers

developments affecting the world petroleum industry.

Undiscovered oil resources estimates were derived by the

U.S. Geological Survey (USGS) as part of its World

Petroleum Assessment 2000 and regional reserve growth was

estimated by EIA. Accordingly, the world’s total oil

resources are estimated to be 2,935 billion barrels between

1995 and 2025, which includes estimates for natural gas

liquids and reflects the removal of cumulative production

(oil that has already been produced from the beginning of

time).

According to EIA’s International Energy Outlook 2004,

world oil consumption is expected to grow from 28 billion

barrels per year in 2001 to 44 billion barrels per year by

2025. Under these growth assumptions, less than half of

the world’s total oil resources would be exhausted by

2025. The estimate of the world’s total oil resources

involves only conventional sources of oil.

Nonconventional oil resources are defined as resources

that cannot be produced economically with today’s

technology and include oil sands, ultra-heavy oils, gas-toliquids technologies, coal-to-liquids technologies, biofuel

technologies, and shale oil. In the case of heavy oil and

tar sands, for instance, more than 3,300 billion barrels are

estimated worldwide, with Canada and Venezuela having

the most significant deposits. If world oil prices were to

rise to $35 per barrel (in constant 2002 dollars) by 2025,

nonconventional oil could be expected to provide as much

as 8 million barrels per day.

There are sufficient resources to meet the world’s growing

demand for oil through 2025. However, the distribution

of these oil resources is not uniform around the world.

The member countries of OPEC, a cartel of eleven oilproducing countries (Algeria, Indonesia, Iran, Iraq,

Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United

❏ GLOBAL ENERGY SUPPLIES AND THE U.S. MARKET

By Guy F. Caruso, Administrator, and Linda E. Doman, Energy Analyst, Energy Information Administration, 

U.S. Department of Energy

27
Arab Emirates, and Venezuela) hold most of the world’s

proved oil reserves. According to Oil & Gas Journal, in

January 2004, OPEC accounted for 69 percent of the

world’s proved oil reserves, 870 billion barrels of 1,265

billion barrels. Six of the seven countries with the largest

proved reserves are all OPEC members, and alone

account for 61 percent of the world’s oil reserves.

Moreover, oil reserves among the OPEC nations are

dominated by the Gulf states — Saudi Arabia, Iran, Iraq,

Kuwait, and the United Arab Emirates — which account

for about 80 percent of OPEC’s proved oil reserves.

Although OPEC member countries account for much of

the world’s proved reserves, there are substantial reserves

outside the cartel. The regions of Central and South

America, Africa, and Eastern Europe and the former

Soviet Union (FSU) each hold between 6 and 8 percent

of the world’s proved oil reserves. There are substantial

opportunities in all of these regions to increase reserves

over the next two decades. Estimates for undiscovered

reserves and increases in reserves have the potential to be

twice as large as current proved reserves and, in the case

of the FSU, quadruple that level.

North America (United States, Canada, and Mexico)

accounts for 17 percent of the world’s proved reserves.

One of the more dramatic changes to the published

proved reserves reported by the Oil & Gas Journal was the

addition of Alberta’s oil sands to Canada’s total reserves in

2003. Until this point, oil sands were largely considered

to be an unconventional form of oil, one that could not

be produced economically relative to conventional forms

of petroleum. Large reductions in development and

production costs are making oil sands economically

viable. The 2003 revision to Canadian proved reserve

estimates added 174 billion barrels of reserves (bitumen

contained in oil sands) to the Canadian conventional

crude oil and condensate reserves as reported by the

Canadian Association of Petroleum Producers. Canadian

conventional crude oil and condensate are estimated to be

4.5 billion barrels.

NATURAL GAS RESOURCES

Similarly to petroleum reserves, natural gas resources have

in general increased every year since the 1970s. As of

January 1, 2004, proved natural gas reserves were

estimated by the Oil & Gas Journal at 6,076 trillion cubic

feet. Most of the increases in natural gas reserves in

recent years have been in the developing world, and

about three-quarters of the world’s natural gas reserves are

found in the Middle East and in the former Soviet Union

— with Russia, Iran, and Qatar together accounting for

about 58 percent of those reserves. The remaining

reserves are spread fairly evenly among other regions of

the world.

Reserves-to-production (r/p) ratios provide a rough

measure of the number of years one could expect a

region’s supply of natural gas might last, assuming current

production levels. R/p ratios are computed by dividing

the proved reserves in a given region by current annual

production in that region. Despite the high rates of

increase in the use of natural gas worldwide, most

regional r/p ratios have remained high. Worldwide, the

reserves-to-production ratio is estimated at 61 years, but

the FSU has an r/p ratio estimated at 76 years, Africa

nearly 90 years, and the Middle East more than 100

years.

According to the USGS’s most recent assessment of world

natural gas resources, there is a significant amount of

natural gas that remains to be discovered. The USGS

publishes three versions of assessments of natural gas

resources over the 1995 to 2025 period. The lowest

estimate is an estimate based on a 95 percent chance or

better that the undiscovered resources will be found and

the highest estimate is that there is a 5 percent chance or

better that the resources will be discovered. If we

consider the expected value or mean assessment, the

estimate for worldwide undiscovered natural gas is 4,258

trillion cubic feet. Of the natural gas resources that are

expected to be added over the next twenty-five years,

reserve growth accounts for 2,347 trillion cubic feet. As

is true for oil, natural gas resources can and do increase

over time, owing to technological advancements and

economic circumstances.

It is estimated that one-fourth of the undiscovered natural

gas is located in undiscovered oil reserves. As a result,

more than one-half of the mean undiscovered natural gas

is expected to come from the Middle East, former Soviet

Union, and North Africa. Although the United States

has produced more than 40 percent of its total estimated

natural gas resources and holds only 10 percent of its

remaining proved reserves, in the rest of the world

reserves have been largely unexploited. Outside the

United States, the world has so far produced less than 10

percent of its total estimated natural gas endowment and

carries more than 30 percent as remaining reserves.

28
U.S. OIL AND NATURAL GAS SUPPLIERS

Since the early 1960s, the United States has been steadily

increasing its reliance on imported supplies of both

petroleum and natural gas. Whereas in 1960 the country

imported about 17 percent of its oil, by 2002 imports

accounted for nearly 53 percent of total oil use. The

largest suppliers of U.S. imports have changed somewhat

over this period, along with their relative importance. In

1960, Venezuela, Canada, Saudi Arabia, Colombia, and

Iraq were the largest suppliers of foreign oil to the United

States. In 2002, Canada provided the largest share of

U.S. imports, followed by Saudi Arabia, Mexico,

Venezuela, and Nigeria. In addition, the number of oil

exporters to the United States has increased, with supplies

coming from Angola, Argentina, Ecuador, Norway, and

the United Kingdom, among others.

In the future, U.S. dependence on OPEC for oil supplies

is expected to grow, from about 40 percent in 2002 to

around 50 percent in 2025, according to the reference

case projection from the EIA’s Annual Energy Outlook

2004. Gross imports are projected to increase from

nearly 12 million barrels per day in 2002 to 21 million

barrels per day in 2025 (with the United States expected

to consume a total of 28 million barrels per day in 2025).

U.S. petroleum production is projected to decline

somewhat over the next two decades, falling from 9.16

million barrels per day in 2002 to 8.60 million barrels per

day in 2025. Crude oil imports from the North Sea are

expected to decline gradually as North Sea production

declines. Oil imports from Canada and Mexico decline

over the forecast period, with much of the Canadian

contribution coming from the development of its

enormous oil sands resource base.

In contrast to oil, the United States still produces most of

the natural gas the country needs. In 2002, net imports

of natural gas accounted for 16 percent of total gas

consumption in the United States. Canada remains the

country’s most important natural gas supplier, as it has

been since the 1960s. There is, however, some modest

diversification in U.S. natural gas imports, as the number

of LNG suppliers have increased over the past several

years. Trinidad and Tobago, Qatar, Algeria, Nigeria,

Oman, Brunei, and Malaysia all exported LNG to the

United States in 2002.

While U.S. natural gas production is expected to grow in

the future, demand for natural gas is expected to grow

faster than domestic supply. The United States consumed

22.8 trillion cubic feet of natural gas in 2002 and this is

expected to increase to 31.2 trillion cubic feet in 2025.

By 2025, dependence on gas imports is projected to

increase to 23 percent. U.S. gas production is forecast to

expand to 24.1 trillion cubic feet, much of which will

come from unconventional sources — tight sands, shale,

and coalbed methane — as a result of technological

improvements and rising natural gas prices. Canada’s

importance as a gas supplier to the United States is

expected to decline in the future. Canadian gas exports

will begin to decline after 2010, a result of the depletion

of conventional resources in the Western Sedimentary

Basin. LNG imports are projected to become

increasingly more important to U.S. gas supplies, rising

from 0.2 trillion cubic feet in 2002 to 4.8 trillion cubic

feet in 2025.

ALTERNATIVE ENERGY SOURCES

There are opportunities for fuel-switching to allow

alternative fuels to displace oil and natural gas, in the

same way other fuels have been replaced in the past.

Fuelwood was the dominant form of energy from the

time of the founding of the first American colonies in the

1600s until late in the 19th century. The 20th century

saw a number of new energy sources penetrate the U.S.

energy market, expand quickly, and replace fuelwood

almost entirely. Coal surpassed fuelwood in the United

States by about 1895, but was itself surpassed in 1951 by

petroleum and then by natural gas a few years later. In

addition, hydroelectric power appeared in about 1890

and nuclear generation in 1957, diversifying the electric

power sector. Other alternative energy sources, such as

solar photovoltaic, advanced solar thermal, and

geothermal technologies represent the most recent

developments in energy sources. There is also the

possibility that new technologies, such as hydrogen fuel

cells, might affect the fuel mix in the future.

At present, and notwithstanding new technological

advancements, oil and natural gas are not expected to be

substantially displaced in the U.S. fuel mix over the next

two decades. Oil, in particular, is expected to remain

dominant in the transportation sector where there are

presently no economically competitive alternative fuels.

In contrast, oil has been displaced to a large extent in the

U.S. electric power sector. Oil use for electricity

generation has fallen since the late 1970s. In 2002, oilfueled generation provided about 2 percent of total U.S.

electricity generation, and it is expected to have a

relatively small role in the future.

29
Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004 30

There has been strong growth in natural gas use for

electric power generation, especially over the past 10

years. Natural gas consumption for generation increased

by 4.8 percent per year between 1992 and 2002,

compared to increases of about 2 percent per year for coal

and nuclear power and 0.4 percent per year for

hydroelectricity and other renewable energy sources.

Economics play a large role in fuel-switching, given that

sustained high energy prices can result in weakening

demand when there is an opportunity to use alternative

fuels. In the case of natural gas, demand in the power

sector is likely to slow in the future, particularly after

2020 when natural gas prices are expected to rise and

adding new coal-fired electric power capacity would

become economically competitive.

In addition to economic forces influencing the U.S.

energy mix, government policies can affect diversification

of the fuel mix away from oil and natural gas. Many

state governments have enacted renewable portfolio

standards, for example, to increase the proportion of

electric power from renewable energy sources. Upgrades

and improved efficiencies at existing plants can also

influence the energy supply mix. The average capacity

factor of nuclear power plants in the United States has

increased from 71 percent in 1992 to 91 percent in 2002,

allowing nuclear power generation to increase by 26

percent, despite a 300-megawatt contraction in installed

capacity over this period.

CONCLUSION

The United States will likely continue to rely upon fossil

fuels to meet much of its energy needs over the

foreseeable future. With demand for oil and natural gas

expected to rise steadily over the next two decades and

limited new domestic resources available for development,

dependence on foreign suppliers will also rise. U.S.

reliance on OPEC is poised to increase, but supplies from

non-OPEC producers will also grow, ensuring some

diversity in supply. The United States will continue to

produce much of its natural gas domestically in the

future, but LNG from a diverse set of suppliers is

expected to become increasingly important to meeting

demand. Resources do not pose a key constraint to world

demand through 2025. Instead, political, economic, and

environmental circumstances are likely to influence the

world energy markets of the future. ❏
31

Natural gas could play a key role in the energy security of the

United States and other countries in coming decades, says

Banaszak. But, she says, development of the natural gas

industry has been hampered by the investment costs and

market issues involved in converting the gas to liquefied form

and transporting it long distances to consuming markets.

Banaszak argues that policies promoting stable and

transparent regulatory regimes, standardization of energy

content and shipping infrastructure for the gas, and

understanding of safety and security issues will be critical for

the industry’s future expansion. She says that it will be

particularly important to promote good governance in

exporting countries that need to attract huge investments to

develop a gas-supply infrastructure.

Natural gas has a key role to play in energy security, at

least over the next 20 years, as the United States and

other countries work toward developing next-generation

and renewable technologies. Because it is clean burning

and produces significantly fewer harmful emissions than

gasoline, natural gas has become the preferred fuel for

many end-users, from homeowners to large electric power

plants around the world. In the United States, where the

gas is the second largest source of energy and accounts for

24 percent of all energy consumed, demand for natural

gas is projected to rise by more than one-third by 2025.

To satisfy growing demand, the U.S. economy is expected

to rely increasingly on imports, mostly in the form of

liquefied natural gas (LNG). However, the price of

natural gas is rising and becoming more volatile as

domestic production is leveling off and Canadian exports

appear increasingly limited. Until exporting and

importing countries cooperate on reducing investment

barriers and agree on common technical, safety, and

security issues, the full potential of natural gas will not be

realized.

Historically, natural gas has been traded across

international borders less than oil. Only one quarter of

the gas used globally in 2002 was imported compared to

more than half of the oil consumed. On the other hand,

trade of natural gas is growing twice as fast as that of oil.

Consumption of gas worldwide is growing faster than oil,

as natural gas becomes a transition fuel in moving away

from heavier, more polluting hydrocarbons (coal and oil)

and toward new energy sources such as hydrogen cells. In

addition, proven reserves of natural gas are more

abundant than oil reserves and are being depleted at a

much slower rate.

Why, then, is natural gas underutilized? Discovered gas

resources are located far from end-using markets, with

much of the gas located in technically challenging areas

such as deep offshore formations or in areas that are

environmentally sensitive. Offshore gas often must go

through thousands of miles of pipeline to reach a market

or be piped onshore for liquefaction before transportation

by ship. Overall, transporting gas to consumers requires

greater upfront investment and infrastructure than

moving liquid oil or solid coal.

GETTING NATURAL GAS TO MARKET

Commercial technology that transforms natural gas to a

liquid has enabled economic transportation of gas in the

form of LNG in ocean-going tankers. This has led to

creation of an industry with unique characteristics and

issues. To make LNG, natural gas is processed to be

mostly methane with some ethane and then super-cooled

to minus 260 degrees Fahrenheit so that it settles into

liquid state, shrinking the volume to 1/600th of the

gaseous state. LNG tankers and storage tanks are heavily

insulated to maintain the very cold liquid state, but only

very slight pressure is involved in LNG handling. As

LNG, natural gas is a special, very cold liquid that has

very different properties contributing to its safe handling

— LNG, for example, will not ignite until regasified back

into natural gas and mixed with air at specific

concentrations (between 5 and 15 percent volume

concentration).

Achieving economically competitive LNG trade involves

building large-scale facilities that require $5-7 billion of

capital for exploration, development, liquefaction,

shipping, and regasification. To raise such large amounts

of capital to get the gas to market, the LNG industry has

relied on long-term (20-year) contracts between the gas

❏ LINKING NATURAL GAS SUPPLIES 

TO CRITICAL MARKETS

By Sara Banaszak, Senior Analyst, PFC Energy
32

supplier and the gas buyer as a way to reduce market risk

for lenders. This is an important difference compared to

the oil industry, where producers develop resources

without contracted buyers and then sell the product into

the high-volume and heavily traded global oil market. In

the case of LNG, neither consumer nor producer can rely

on buying or selling significant volumes without securing

a long-term contract, because only about 8 percent of

global LNG is traded under short-term and spot market

terms.

There has been some evolution away from this reliance

on long-term contracts in the LNG industry. LNG

producers have sought to build spare capacity in their

facilities, and LNG tankers are being built that are not

tied to specific long-term trades and could be available to

transport spot LNG cargoes. In Asia, where long-term

contracts from the 1980s are now expiring and requiring

renewal, more flexible and shorter terms are being

negotiated. However, the LNG industry will not escape

its structure based on long-term contracts quickly because

the capital requirements are still a significant barrier.

Further evolution toward more flexible and shorter-term

trading arrangements is expected but will occur slowly.

For countries using LNG as part of their natural gas

future, the structure of LNG trade helps define the

available options for policies and actions that can

reinforce national, regional, or global interests.

SECURING FUTURE NATURAL GAS SUPPLIES

For the United States, LNG is expected to play an

important role in future natural gas supplies, as reflected

in forecasts made by the U.S. Energy Information

Administration (EIA), the National Petroleum Council,

and industry consultants. According to projections of the

EIA, the share of LNG in U.S. total natural gas supply

will increase from less than 1 percent in 2002 to more

than 15 percent in 2025. China, India, and Mexico are

among new LNG importers while Europe, Japan, Korea,

and Taiwan already rely on LNG for a key portion of

their natural gas supplies. Other countries in Asia and

Latin America have considered LNG imports to meet

their natural gas demand — from the Philippines and

Thailand to Brazil, Honduras, and Jamaica (the

Dominican Republic and Puerto Rico already import

LNG).

The LNG market will continue to grow but may not

meet its full potential to supply natural gas to the United

States and elsewhere unless both exporting and importing

countries cooperate to overcome barriers. Collaboration

will be especially critical in three key areas:

• Promotion of stable and transparent investment

environments

• Standardization within the LNG industry

• Research, development, and dialogue addressing safety,

security, and environmental issues

PROMOTING STABLE AND TRANSPARENT

INVESTMENT ENVIRONMENTS

Energy companies are already seeking to develop

abundant natural gas resources that are located far from

major markets and have announced or proposed more

than 20 LNG schemes to double global capacity by 2010.

Investment environments characterized by high political

risk and other risks, however, can stop or delay

development of new LNG supplies. LNG-trading

countries can collaborate to improve the investment

environment for LNG by promoting stability, good

governance, and transparent regulatory regimes, using the

same principles that support trade and cross-border

investment in general.

As for regulatory regimes, identifying and implementing

the best system for natural gas and LNG markets is a

complex issue. In the United States, for example,

regulatory changes to create competitive markets in

natural gas supply and transportation have led to an

emphasis on shorter-term contracts between gas buyers

and sellers, a trend that is directly counter to the longterm contracts that LNG suppliers require. Creating

competition in domestic gas transportation has altered

the way the industry invests in transportation

infrastructure, which is needed to transport all forms of

gas supply, including LNG, around the country. In the

near term, it has meant under-investment and delayed

investment in needed infrastructure. For example, delays

in the construction of pipelines or “just-in-time”

construction occurs because local distribution companies

are under pressure from the public utility commissions

that provide oversight and sometimes from market

competition created by deregulation not to sign longterm contracts that provide assurance to pipeline

investors. Gas production companies that might invest in

capacity expansion don’t want to tie up capital in gas

transportation so they prefer to build only to the nearest

liquid-market point. Investments have also been

hampered by delays in getting required permits.
In the long term, if market forces do not lead to timely

and adequate investment in infrastructure, regulators will

need to reexamine how to facilitate both competition and

profitability in domestic gas transportation.

EXPANDING STANDARDIZATION WITHIN THE

LNG INDUSTRY

Because the LNG industry has evolved under long-term

contracts, there has been less incentive to develop

standardization compared to other traded commodities,

including oil.

The standardization of LNG is an important but very

difficult issue. The energy content of LNG varies because

producing facilities leave different amounts of ethane in

the gas, and the energy content needs of LNG consumers

also vary. In the United States, the typical limit in a

market area for the energy content of gas is about 1100

British thermal units per cubic foot (one British thermal

unit is approximately equal to 1055 joules, a metric

measure for energy). These “limits” arise because the

energy content of gas can affect, for example, flame

characteristics, smoke, soot, and emissions. For this

reason, LNG supplies from certain facilities cannot be

delivered into certain U.S. ports because the energy

content is above the level of 1100 British thermal units

per standard cubic foot and it is not possible for the

importing regasification facility to dilute the energy

content of the gas before it reaches consumers. For

example, the U.S. terminal located in Boston would have

difficulty accepting LNG from sources other than

Trinidad or Algeria. The United States and other

importing countries can work to increase flexibility

within their own systems. They also can collaborate to

increase the number of compatible LNG supply sources.

With LNG shipping, both importing and exporting

countries would benefit from efforts to maintain

standardization, which could be affected by the

appearance of several new technologies (such as the

introduction of special LNG hoses and offshore tanker

unloading). Countries can work to facilitate standard

LNG loading and off-loading systems so that LNG

tankers can service as many ports as possible. Developing

port compatibility within the LNG tanker fleet increases

flexibility, contributes to security for LNG trading

countries, and helps to facilitate spot market trade.

A third area that could benefit from greater

standardization involves LNG sales contracts. Again,

because of the legacy of long-term transactions, the

contracts involved have been non-standard, long, and

complex. Developing standard contracts and

standardized clauses would facilitate trade, benefiting

both importers and exporters. Although this issue has

been identified by some industry players, it may be

lacking a natural advocate because buyers, sellers, and the

lawyers in between could each be suspicious if one side

stepped forward with a plan to address legal

standardization. There may also be no natural forum

under which this activity should take place. Because the

U.S. government has no commercial interest in the LNG

industry, it might be possible for the U.S. to initiate or

promote legal standardization for LNG under the

umbrella of a trade organization or under a new or

existing consortium (for example, the Groupe

International dez Importateurs de Gaz Naturel Liquéfié).

RESEARCH, DEVELOPMENT, AND

REGULATORY DIALOGUE

The LNG industry has an exemplary safety record, but

maintaining it requires ongoing research and

development. In the post-September 11 world, security

risks to LNG facilities are perceived as greater and are

garnering more public attention in the United States and

elsewhere. Responding to public concerns and designing

expanded safety and security measures would benefit

from increased understanding of LNG containment

infrastructure (tankers and storage tanks). Research and

development also should focus on exploring questions

such as how to prevent a breach of facilities and what

might be the environmental and health implications of a

large-scale release of LNG. These are areas for

government leadership and collaboration, but countries

should coordinate any efforts with existing groups that

work in this area, such as shipping and standards societies

or gas and technical associations.

In the United States, building energy infrastructure has

become complicated by laws that enable local

communities to review and influence projects based on

their local environmental impact. The existing process

for project review does not emphasize community

discussion of the potential impact of a project on energy

supply, energy prices at the regional level, or the broader

regional/national impact. Government can play an

important role in this arena and can promote, via

international collaboration, more informed discussion of 

33
34

energy choices and the options available for having safe

and secure future energy supplies.

CONCLUSION

With LNG expected to play a larger role in supplying

natural gas to the United States and elsewhere, there is

much that countries can do to assure future supplies.

Stable and transparent investment environments are

critical to expanding LNG infrastructure, which requires

large-scale capital investments. Standardization within

the industry and further research — particularly to

bolster safety and security — are key to developing a

robust international market. Robust markets provide the

greatest form of security to energy importers by

contributing to price transparency, providing access to

multiple supply sources, and promoting supplier

competition and market-driven efficiencies. The U.S.-

sponsored LNG Summit held at the end of 2003 featured

collaboration among energy ministers and high-level

representatives from 24 countries and could be built upon

to further cooperation in these areas.

As the United States increases LNG imports along with

China, India, and Mexico, supply security is derived from

the availability of abundant gas resources and the

diversity of countries seeking to join the field of LNG

exporters. In the Atlantic Basin, Norway, Angola,

Venezuela, and Equatorial Guinea have plans to join the

existing LNG exporters — Nigeria and Trinidad and

Tobago.

LNG is used as a way of transporting natural gas to

distant markets and across borders, sometimes competing

with pipeline transportation. In the future, alternative

ways of transporting gas could arise to compete with

LNG. Pipeline technologies, for example, could become

more advanced and cheaper, extending their reach. Gasto-liquids (“GTL”) technology is under development but

is still too expensive to compete with LNG as an outright

form of natural gas transportation. The hydrocarbon

liquids produced from the first GTL projects will more

likely be used to compete with high-end oil products, at

least until this complicated chemical process becomes

cheaper. For the immediate future, LNG is set to grow,

and for countries involved in LNG trade, it is in their

interest to facilitate development of this maturing 

market. ❏

Note: The opinions expressed in this article do not necessarily reflect the

views or policies of the U.S. Department of State.

Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004.
35

Corporations have compelling reasons to work toward

stability and higher standards of living in developing

countries in which they operate, says O’Reilly, a recipient of

the 2003 State Department award for corporate excellence.

He argues that businesses can achieve best results by entering

into broad partnerships that can help break down barriers

between developing countries and the rest of the world as

well as between those countries’ governments and their

people. O’Reilly describes a partnership in which

ChevronTexaco joined forces with multiple partners to spur

sustainable investment in Angola.

By necessity, the petroleum industry operates in some of

the most challenging parts of the world — challenging in

terms of the technology required to find and develop new

sources of energy and challenging in terms of social and

economic disparity.

Indeed, much of the world’s energy resources are located

in developing countries where life is a daily struggle

against disease, malnutrition, unstable social systems, and

conflict. Poverty is at the root of these intractable

problems.

When it comes to global poverty, the statistics are

alarming. It is estimated that one-half of the world’s

population exists on the equivalent of $2 a day, and more

than 1 1/2 billion people do not have access to electricity.

In Africa alone, upward of 300 million people, half of the

continent’s population, live on less than $1 a day. In

fact, the average yearly income for African citizens comes

to less than the annual agricultural subsidy for a cow in

Europe or Japan.

Despite the statistics, I am often asked why business

should care about lifting the burden of poverty. In

today’s highly connected yet fragile world, the reasons are

compelling — as compelling, in fact, as for any part of

society. Who more than business needs:

• an operating environment of peace and political

stability

• a healthy, educated work force

• the highest-quality local suppliers

• a thriving demand for our products

There exists, of course, yet another, even more

compelling, reason why business must join the fight

against poverty. It is the right thing to do.

Recently, U.S. Secretary of State Colin Powell presented

my company with the State Department’s highest award

for corporate excellence. The honor was based on the

sustained efforts over many years of the employees in our

Nigerian affiliate to improve the quality of life in the

communities in the Niger Delta where they work.

Certainly, the award was a proud occasion for our

company. But more important, it underscored the

profound philosophical change that has occurred in how

many companies are increasingly viewing their role in

society, especially in developing nations. No longer is it

enough that we fund “bricks and mortar” programs.

Instead of giving our neighbors a helping hand, we must,

in the words of the late Reverend Leon Sullivan, give

people a “hand up.”

Of course, no company can do it alone.

In addressing the causes of poverty, I believe progress

needs to be made in several areas: trade reform, human

capacity building, debt relief, and the improved delivery

of development aid. Action on these fronts must be

accompanied by government reform in the areas of good

governance and transparency. In developing countries

where these issues have been addressed, we have seen the

benefits of economic growth being more broadly

distributed across the population.

I am also convinced there is a need for new, innovative

global partnerships and collaborative approaches —

approaches that will help create sustainable economic

growth while making sure benefits are widely shared. To

bring about substantial and lasting change requires that

all stakeholders — governments, nongovernmental

organizations (NGOs), communities, and business —

work together in partnership. Each player has an

important role.

❏ ENERGY AND THE DEVELOPING WORLD: 

THE NEED FOR NEW KINDS OF PARTNERSHIPS

By David J. O’Reilly, Chairman and Chief Executive Officer, ChevronTexaco Corporation
Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004. 36

• Governments must do the things that only they can do:

advocate and practice good governance, provide

education and health care, and create a stable and

transparent investment climate.

• Multilateral organizations such as the World Bank, the

International Monetary Fund, and the World Trade

Organization should work with governments and help

them establish good policies.

• NGOs must help local populations make sustainable

improvements in their economies and be open to

working with all stakeholders, including industry.

• Business, for its part, should be focused on making wise

investments, creating jobs, and running sound, profitable

operations. But it must also work collaboratively with

both government and NGOs to improve the quality of

life where it operates.

What could these new partnerships look like? To offer

one example: Late last year, ChevronTexaco joined with

the United States Agency for International Development

(USAID) and the United Nations Development

Programme to form a $50 million partnership to spur

sustainable investments in Angola.

The largest private alliance ever entered into by USAID,

the partnership has opened the way for government to tap

new sources of financing and technical expertise that the

private sector brings to the table. Major relief groups and

nonprofit agencies have joined in the partnership as well.

We turned to NGOs with expertise in agriculture, finance,

and education — even seed multiplication and goat

raising. We worked with international banks and

development agencies, the government of Angola and,

most importantly, with communities and rural villagers

themselves.

One initiative alone, aimed at reviving the nation’s small

farms, will have helped nearly 900,000 Angolans,

approximately 8 percent of the entire population, by the

end of this year.

This example shows that success will come, but it will

only come through new partnerships and coalitions that

combine our separate strengths.

Clearly, business objectives for many companies —

including ChevronTexaco — are tied to economic growth

around the globe. However, until basic human needs can

be met, it will be a difficult world in which to do

business, much less to create new markets and growth

opportunities.

Effective partnerships can break down barriers that often

isolate developing countries from the community of

nations and a world of ideas. Partnerships can also break

down barriers that are caused when government,

businesses, and communities simply do not speak each

other’s language or, at worst, distrust one other.

One can only wonder how long our shrinking world can

tolerate economic disparities so vast that human beings in

one place are valued less than livestock in another. By

working together, I’m convinced we can begin to span

such chasms. ❏

Note: The opinions expressed in this article do not necessarily reflect the

views or policies of the U.S. Department of State.
Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004

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ADDITIONAL READINGS ON ENERGY

37
Department of Energy

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Information Bridge

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KEY INTERNET SITES

Internet resources were active as of May 2004.

The U.S. Department of State does not take responsibility for those websites whose addresses have changed

and/or websites now displaying inappropriate material.

UNITED STATES GOVERNMENT 

International Association for Energy Economics

http://www.iaee.org/

International Energy Agency

http://www.iea.org/

International Solar Energy Society

http://www.ises.org/

Organization of Petroleum Exporting Countries

http://www.opec.org/

World Bank Group – Oil, Gas, Mining & Chemicals

http://www.worldbank.org/ogmc/

World Energy Council

http://www.worldenergy.org/

World Petroleum Congress

http://www.world-petroleum.org/

World Renewable Energy Network

http://www.wrenuk.co.uk/

World Wind Energy Association

http://www.wwindea.org/

INTERNATIONAL ORGANIZATIONS

ACADEMIC AND RESEARCH INSTITUTIONS

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Cambridge Energy Research Associates

http://www.cera.com/

Energy and Resources Institute

http://www.teriin.org/

Energy Intelligence Group

http://www.energyintel.com/

Petroleum Industry Research Foundation

http://www.pirinc.org/

PIRA Energy Group

http://www.pira.com/

Rice University

Baker Institute Energy Forum

http://www.rice.edu/energy/
Economic Perspectives • An Electronic Journal of the U.S. Department of State • Vol. 9, No. 2, May 2004. 39

SELECTED INDUSTRY-SPONSORED GROUPS

American Coal Ash Association

http://www.acaa-usa.org/

American Coal Foundation

http://www.acf-coal.org/

American Council for an Energy-Efficient Economy

http://aceee.org/

American Gas Association

http://www.aga.org/

American Petroleum Institute

http://www.api.org/

American Public Power Association

http://www.appanet.org/

American Wind Energy Association

http://www.awea.org/

Association of Oil Pipe Lines

http://www.aopl.org/

Independent Petroleum Association of America

http://www.ipaa.org/

International Gas Union

http://www.igu.org/

International Hydropower Association

http://www.hydropower.org/

Nuclear Energy Institute

http://www.nei.org/

National Hydropower Association

http://www.hydro.org/

Solar Energy Industry Association

http://www.seia.org/

University of California Energy Institute

http://www.ucei.berkeley.edu/

University of Houston

Institute for Energy, Law & Enterprise

http://www.energy.uh.edu/

Washington State University Energy Program

http://www.energy.wsu.edu/
AN ELECTRONIC JOURNAL OF THE U.S. DEPARTMENT OF STATE MAY 2004