International Energy: International Forums Contribute to Energy Cooperation within Constraints
Published: 2006-12-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Rising oil prices, resulting from growth in energy consumption by rapidly developing Asian nations and by most industrialized nations, have increased concern about competition over oil and natural gas resources. In particular, Congress expressed interest in how the United States participates in energy cooperation through international forums. GAO was asked to review: (1) what are the key international energy forums in which the United States pursues energy cooperation, (2) what are some of the key emerging energy market issues that are important for international energy cooperation, and (3) how is the United States addressing these issues through its participation in these forums. GAO's work is based on contacts with agency officials and energy experts and review of documents.
section_title: What GAO Found
paragraphs: The United States pursues energy cooperation through several international energy forums designed to meet specific cooperative needs. They include a formal institution with binding petroleum reserve obligations, regional associations, and informal gatherings designed to facilitate information exchange. Major forums include the International Energy Agency (IEA), the Asia Pacific Economic Cooperation Energy Working Group, the North American Energy Working Group, and the International Energy Forum. GAO identified three energy market issues that are important for U.S. efforts in international energy cooperation. First, a tighter energy market with higher, more volatile, prices has developed. This is due to (1) an unanticipated rise in energy demand and (2) constrained supply due to less spare crude oil production capacity and increased political frictions in certain supplier countries. Second, market participation of national oil and gas companies, which are majority owned by governments, has led to limitations on access to resources. Third, more reliable energy market information is needed to facilitate market stability and plan investment. The U.S. government has addressed these issues through its participation in international energy cooperation forums; however, the nature of the forums can limit their impact. Forums have restricted membership, consensus-based agendas and decisions, and voluntary participation. They generally focus on noncontroversial issues such as energy efficiency and technology. Within these constraints, the United States has tried to mitigate effects of tight markets by supporting emergency preparedness. It has not directly addressed the impact of national oil companies, but it has pursued related areas. It has sought to improve energy information, but Energy Information Administration (EIA) statistical expertise has not been consistently leveraged for purposes beyond data exchange, and U.S. data submissions to the IEA have not been timely.

section_title: Letter
paragraphs: One of the emerging forces affecting the global economy has been the  One of the emerging forces affecting the global economy has been the  rapid growth of Asian economies, increased energy consumption in these  rapid growth of Asian economies, increased energy consumption in these  economies, and the rising oil prices accompanying this growth. Congress  economies, and the rising oil prices accompanying this growth. Congress  has raised concerns about the nature of international competition for oil  has raised concerns about the nature of international competition for oil  and natural gas resources and how the United States can secure the energy  and natural gas resources and how the United States can secure the energy  resources needed to support U.S. economic growth. In particular,  resources needed to support U.S. economic growth. In particular,  Congress has expressed interest in how the United States has sought to  Congress has expressed interest in how the United States has sought to  advance one of the key principles of energy security—international  advance one of the key principles of energy security—international  cooperation through participation in international energy cooperation  cooperation through participation in international energy cooperation  forums.  forums.
To determine how the U.S. government participates in international energy  To determine how the U.S. government participates in international energy  cooperation forums, at your request, we reviewed: (1) what are the key  cooperation forums, at your request, we reviewed: (1) what are the key  international energy forums in which the United States pursues energy  international energy forums in which the United States pursues energy  cooperation, (2) what are some of the key emerging energy market issues  cooperation, (2) what are some of the key emerging energy market issues  that are important for international energy cooperation, and (3) how the  that are important for international energy cooperation, and (3) how the  United States is addressing these issues through its participation in these  United States is addressing these issues through its participation in these  forums.  forums.
To answer these questions, we reviewed documents and interviewed  To answer these questions, we reviewed documents and interviewed  officials responsible for international energy cooperation at the  officials responsible for international energy cooperation at the  Departments of Energy (DOE), State, and Commerce. Our work at DOE  Departments of Energy (DOE), State, and Commerce. Our work at DOE  also included the Energy Information Administration (EIA), a DOE  also included the Energy Information Administration (EIA), a DOE  statistical agency that provides independent data, forecasts, and analyses  statistical agency that provides independent data, forecasts, and analyses  to promote sound policy making and efficient markets. We focused on the  to promote sound policy making and efficient markets. We focused on the  oil and natural gas sectors and on the following key international energy  oil and natural gas sectors and on the following key international energy  cooperation forums: the International Energy Agency (IEA), the Asia  cooperation forums: the International Energy Agency (IEA), the Asia  Pacific Economic Cooperation (APEC) Energy Working Group, the North  Pacific Economic Cooperation (APEC) Energy Working Group, the North  American Energy Working Group (NAEWG), and the International Energy  American Energy Working Group (NAEWG), and the International Energy  Forum (IEF). We neither evaluated these forums and their impacts on  Forum (IEF). We neither evaluated these forums and their impacts on  energy policy and the global energy market nor did we evaluate U.S.  energy policy and the global energy market nor did we evaluate U.S.  energy policy goals. Rather, we reviewed the forums’ mission, structure,  energy policy goals. Rather, we reviewed the forums’ mission, structure,  and activities. We conducted fieldwork at IEA and the U.S. Mission to the  and activities. We conducted fieldwork at IEA and the U.S. Mission to the  Organization of Economic Cooperation and Development (OECD) in Paris,  France, and interviewed U.S. members of the IEA and APEC Energy  Working Group business advisory groups, as well as private sector energy  experts. To determine some of the key emerging energy market issues that  are important for international energy cooperation, we reviewed  documents and data and interviewed officials at the DOE and the  Departments of State and Commerce, as well as reviewing relevant reports  and studies and discussing them with energy experts. We conducted our  work from January 2006 to November 2006 in accordance with generally  accepted government auditing standards. (See app. I for details about our  objectives, scope, and methodology.)
subsections: section_title: Background
paragraphs: The growth rate of crude oil and natural gas demand in the United States  has outpaced the growth rate of the country’s crude oil and natural gas  production over the last 20 years. This widening gap is projected to  accelerate in the future. As shown in figure 1, EIA forecasts that this trend  for crude oil will continue through 2030. Natural gas demand, as shown in  figure 2, has similarly outpaced natural gas production, and EIA forecasts  that this trend will also continue. This widening gap between U.S.  domestic energy production and consumption of oil and natural gas has  focused attention on the importance of these commodities to the U.S.  economy.
The United States’ most recent “National Energy Policy” report, issued in  May 2001, outlines several U.S. energy security objectives that are relevant  for international energy cooperation. The report states that the United  States should work cooperatively with key countries and institutions to  expand sources and types of supply, enhance the transparency and  efficiency of markets, strengthen U.S. capacity to respond to disruptions,  promote international trade and investment in the energy sector, and  enhance emergency preparedness, among other goals. Several  recommendations outlined in the “National Energy Policy” report provide  guidance for the United States as it engages in multilateral and bilateral  forums and discussions designed to enhance U.S. energy security, such as  the following:    Work with the IEA to ensure that member states fulfill their stock-holding  commitments and encourage major oil-consuming countries that are not  IEA members to consider strategic stocks as an option for addressing  potential supply disruptions;    Work with producer and consumer country allies and the IEA to craft a  more comprehensive and timely world oil data reporting system;   Use membership in multilateral organizations, such as APEC, and bilateral  relationships to implement clear, open, and transparent rules and  procedures governing foreign investment and reduce barriers to trade and  investment;   Engage in a dialogue through NAEWG to develop closer energy integration  among Canada, Mexico, and the United States; and   Assist U.S. companies in their dialogue with Russia on investment and  trade and improve the overall investment climate.
section_title: The United States Pursues Energy Cooperation through International Energy Forums Designed to Meet Specific Cooperative Needs
paragraphs: The United States pursues energy cooperation through international  energy forums that meet specific cooperative purposes. These forums  range from formal institutions with binding obligations to regional  associations to more informal gatherings designed to facilitate a frank  exchange of information. Information related to these forums is  summarized below in table 1.
subsections: section_title: IEA Focuses on Emergency Planning for Supply Disruptions, Oil Market Information, and Outreach to Major Developing Nations
paragraphs: IEA was established in November 1974 by most of the members of OECD,  the major industrialized democracies that were generally also the largest  consumers of oil, and today has 26 members. It was a collective response  to energy security concerns arising from the oil embargo imposed by the  Organization of the Petroleum Exporting Countries (OPEC) the previous  year to reduce the vulnerability of IEA members to a major disruption in  oil supplies. IEA’s primary mission was to respond to any future oil crisis  through a binding emergency preparedness system that established  emergency oil reserves equivalent to 90 days of members’ net imports,  countering any future threat of an oil embargo. In addition, it collects and  analyzes oil market data in order to increase oil market information and  transparency; assesses member countries’ domestic energy policies and  programs; makes projections based on differing scenarios; and prepares  studies and recommendations on specialized energy topics.
IEA’s goals have evolved over the years as the energy market has changed;  today it focuses its emergency planning less on the threat of embargoes  and more on supply disruptions that might arise from natural disasters,  wars, or terrorist acts. More importantly, as the structure of the oil market  has changed over the years, IEA’s emergency response measures have also  evolved from a government emergency allocation program to market- based measures, according to a DOE official. IEA’s release of oil reserves  in response to Hurricane Katrina in September 2005 is an example of its  current focus. In addition to emergency preparedness measures, IEA also  emphasizes outreach to nonmember countries, reducing dependence on  oil through alternative energy and advanced technology, and integrating  environmental and energy policies. Recently, IEA has also recognized that  it needs to enhance its expertise related to the growing global natural gas  market.
IEA is an autonomous international organization based in Paris, France,  created within the framework of the OECD in order to implement the  treaty establishing it. IEA’s main decision-making body is the Governing  Board, composed of senior energy officials from each member country  and meeting about four times per year. Day-to-day operations are  conducted by the IEA Secretariat, headed by an Executive Director and  comprising a professional staff of about 150 energy experts drawn from  member countries. IEA also receives the input of the IEA Industry  Advisory Board, which has private sector representatives from member  countries and meets three to four times a year.
The United States is significantly involved in IEA activities, according to  U.S. and IEA officials. The Deputy Executive Director is traditionally an  American. The DOE Assistant Secretary for Policy and International  Affairs and the Department of State Deputy Assistant Secretary for  Energy, Sanctions, and Commodities both serve on the Governing Board  and play an active role. U.S. energy officials participate on almost every  standing group and committee as either a Chair or Vice-chair. In addition,  the United States has historically provided about 25 percent of IEA’s  annual budget, which amounted to $5.5 million in 2006, according to a  Department of State official.
section_title: APEC Energy Working Group Seeks to Build Broad Regional Consensus on Key Energy Issues
paragraphs: The APEC Energy Working Group, comprised of 21 Asian Pacific  economies accounting for 60 percent of world energy demand, is a  voluntary regional effort that seeks to build consensus on energy policy  issues, primarily through sharing best practices and technology insights.  This working group includes both net energy consuming countries, such as  the United States, Japan, and China, and net energy producing countries,  such as Russia and Indonesia. It was launched in 1990 to develop a  program for energy cooperation. It seeks to maximize the energy sector’s  contribution to the region’s economic and social well-being, while  mitigating the environmental effects of energy supply and use. Its  objectives include strengthening the security and reliability of affordable  energy to all members, and promoting clean and efficient technologies and  the efficient use of energy to achieve both economic gains and  environmental enhancement.
APEC Energy Ministers’ meetings, generally held every 2 years, provide  the Energy Working Group with political guidance regarding its activities.  The APEC Energy Working Group has its own Secretariat in Australia,  which has been financially underwritten and staffed by the Australian  government. The Energy Working Group, generally comprised of member  government energy officials, meets twice a year. It receives an update on  the activities of the five expert groups, which focus on clean fossil energy,  efficiency and conservation, energy data and analysis, new and renewable  energy technologies, and minerals and energy exploration and  development. It also guides the work of the Asia Pacific Energy Research  Centre, an international organization based in Tokyo that receives the bulk  of its financial support from the Japanese government. Finally, it is  advised by the Energy Working Group Business Network, which provides  private sector perspective on key energy issues affecting the region.
The APEC Energy Working Group fosters discussion of members’ energy  policies and planning priorities, sharing basic energy demand and supply  outlook data, considering regional energy policy implications, and  responding to wide-reaching energy-related issues. Recent efforts include  its Energy Security Initiative, which comprises both short-term measures  designed to respond to temporary energy supply disruptions and longer  term policy responses designed to address the broader challenges facing  the region’s energy supply. It has also focused on development of the Asia- Pacific natural gas market, particularly for liquefied natural gas (LNG).
The United States generally sends two delegates from DOE’s Office of  Policy and International Affairs and an observer from the Department of  State to the Energy Working Group meetings. DOE staff also participate on  the various expert groups.
section_title: NAEWG Focuses on Regional Regulatory Cooperation and Exchange of Energy Market Data, Information, and Technology
paragraphs: NAEWG is a trilateral regional forum—including the United States,  Canada, and Mexico—focused on developing an open, efficient, and  transparent North American energy market. The forum pursues this focus  by emphasizing efforts such as greater regulatory cooperation,  encouraging energy data and information exchange, collaborating on  energy science and technology, and examining natural gas trade and  interconnections.
NAEWG was established and initially led by the three Energy Ministers of  Canada, Mexico, and the United States in its inaugural meeting in June  2001. Natural Resources Canada, the Mexican Secretariat of Energy, and  the U.S. DOE jointly chair NAEWG, with day-to-day U.S. leadership now  provided at the Assistant Secretary level. DOE’s Assistant Secretary of  Energy for Policy and International Affairs is the U.S. lead, while both the  Department of Commerce and the Department of State support the effort  at the Deputy Assistant Secretary level.
The agenda of work identified at the ministerial level is carried out by nine  expert working groups. Members of these expert working groups share  their policy, regulatory, and technical expertise and energy statistics from  the three countries. According to DOE officials, the products of this work  are enhanced regulatory cooperation, such as on project siting issues;  workshops on various energy issues; and joint public written documents  produced by the expert working groups. For example, in 2005, NAEWG  published the “North America Natural Gas Vision,” a report addressing the  region’s natural gas regulations and policies, production and consumption,  trade, transportation, and supply and demand projections. Each expert  working group also consults informally with energy industry  representatives to enable numerous subject area workshops and to obtain  private sector input on an issue area.
section_title: IEF Seeks to Facilitate Dialogue and Information Exchange between Oil Producing and Oil Consuming Countries
paragraphs: IEF—formerly known as the “Producer-Consumer Dialogue”— is a unique  forum established to facilitate dialogue on energy security issues between  producing and consuming countries. IEF provides the largest recurring  global gathering of Energy Ministers, with over 60 countries participating.  The IEF Ministerial is held every 2 years, rotating in location, and is a  venue for Energy Ministers to discuss energy security issues. IEF does not  serve as a decision-making organization or a forum for negotiating formal  agreements. However, according to Department of State and DOE  officials, U.S. participation at the senior staff level has increased since  2000 in recognition of IEF’s value in allowing for informal, frank, and wide  exchange of information.
IEF activities in addition to the Ministerial dialogue include the JODI and  the International Energy Business Forum. JODI is a recent initiative to  establish a world oil database, originally combining the efforts of six  international organizations including APEC and IEA. The International  Energy Business Forum serves as a venue for Ministers to meet with  industry representatives prior to the IEF Ministerial and had over 30  companies participating in 2006. The Ministerial dialogue, JODI, and the  International Energy Business Forum are now facilitated by the IEF  Secretariat, which was established in December 2003 and is headquartered  in Riyadh, Saudi Arabia.
In addition to participation with IEA, APEC Energy Working Group,  NAEWG, and IEF, the United States also participated in the July 2006  Group of Eight (G-8) Summit hosted by Russia, which served as an ad hoc  forum addressing the need for international energy cooperation. The  United States also pursues international cooperation through bilateral  energy cooperation efforts. We reviewed U.S. bilateral energy cooperation  efforts with Canada, China, India, Mexico, and Russia. Information related  to these forums can be found in appendix II.
section_title: Emerging Energy Market Issues Include Tight Markets, Growing Role of National Oil Companies, and Increased Importance of Reliable Market Information
paragraphs: Three key energy market issues that are important for U.S. efforts in  international energy cooperation in the oil and natural gas sectors are: a  tight energy market, growing market participation of national oil  companies, and increased importance of reliable energy market  information.
subsections: section_title: Rising Demand and Supply Constraints Have Resulted in a Tight Energy Market
paragraphs: World energy demand has risen in recent years, particularly from major  developing countries, at the same time supply has become more  constrained and more susceptible to disruptions—resulting in a tight  energy market characterized by higher prices. During most of the 1990s,  real crude oil prices (in 2003 dollars) fluctuated around $20 a barrel. While  crude oil prices started edging up with the economic recovery and  production cuts at the end of the 1990s, upward price pressures became  pronounced during 2003-2004. These market conditions contributed to  world crude oil prices increasing by more than two-and-a-half times from  about $30 a barrel in early December 2003 to a peak of about $77 a barrel  around mid-July 2006. While prices dropped by around $20 a barrel in the  3 to 4 months following this peak, several energy experts believe that the  fundamentals of the tight market still exist and are a cause for continuing  concern.
subsections: section_title: Rapid Increase in Oil Demand by Developing Countries Has Contributed to a Tight Energy Market
paragraphs: In recent years, rapid growth in energy demand by major developing  countries, such as China and India, and continued steady growth of  demand by many industrialized nations has contributed to tighter oil  markets. The main consumers of oil continue to be the advanced  economies. The United States, OECD Europe, and Japan together  account for about half of annual global oil consumption. However,  consumption in the major developing countries has generally been  increasing at a faster pace. China, in particular, has gained prominence  because its demand has grown so fast. One expert noted that China’s  demand in 2004 rose by an extraordinary 16 percent compared with 2003  and served as a “demand shock,” or unexpected surge in demand. From  2000 to 2004, total world demand for oil grew by about 8 percent,  increasing from nearly 77 million barrels per day to about 82 million  barrels per day. China’s demand for oil rose by 33 percent over this period,  followed by India’s growth in demand of 15 percent, while U.S. demand  increased by about 5 percent, and OECD Europe by about 2 percent.
The data used to measure both oil demand and supply are subject to  limitations described later in this report, including lack of timeliness and  transparency, definitional inconsistencies, and national sensitivities. The  estimates provided represent the broad trends from the most current  market information used in forecasting and determining cost. Table 2  shows the top world consumers of oil—countries that consumed more  than 2 million barrels per day—with their level of demand and the  percentage change from 2000 to 2004, as well as their share of the world  oil market in 2004. The United States far exceeds the rest of the world in  its volume of consumption, accounting for a quarter of world demand,  with about 21 million barrels per day in 2004. Most of U.S. oil demand  arises from usage in the transportation sector. China’s demand surpassed  Japan’s in 2003, and it became the second largest consumer of oil, with  about 6 million barrels per day, or about 8 percent of world demand.  India’s demand is also growing quickly. It consumed about 2 million  barrels per day, the sixth highest level of demand.
As demand has risen, so have oil import needs. For instance, while the  United States produced almost 9 million barrels per day of oil in 2004,  making it the third largest world producer, its production met only 42  percent of its demand, with net oil imports of about 12 million barrels per  day meeting the remaining 58 percent of demand. China’s import  dependence has also grown, and it imported about 45 percent of its oil in  2004. Figure 3 shows the top world net oil importers in 2004, countries  importing more than 1 million barrels per day net. Of these 9 countries, 6  were totally or almost totally import dependent for their oil consumption.  For instance, Japan and South Korea were totally dependent on imports,  predominantly from the Persian Gulf, while many European countries also  imported from Algeria, Libya, and Nigeria. The largest net oil exporter to  the United States was Canada, followed by Mexico, Saudi Arabia, and  Venezuela.
While the world supply of oil and refined products has risen to meet  increased demand, supply constraints have also increased, eroding certain  market cushions and contributing further to market tightness. Increased  political or energy sector frictions in countries such as Iran, Iraq, Nigeria,  and Venezuela and decreased spare crude oil production capacity have  exerted pressure on crude oil markets. Given the tight market situation,  marked by less spare production capacity and other cushions, any oil  supply disruption can cause the price of oil to rise dramatically.
One factor contributing to constrained oil supplies is that the political, or  energy sector, friction in key oil producing nations led to supply  disruptions and diminished production capacity, in some cases.  Participation by international oil companies in the oil sector has been  affected by political tensions in Iraq, Venezuela, and Nigeria, and  economic sanctions on Iran and Libya. For example, in April 2006,  Venezuela seized two oil fields operated by two foreign oil companies  because the companies did not comply with new rules imposed by the  Venezuelan government. In Nigeria, recent disruptions due to militant  actions have shut-in about 650 thousand barrels per day of production.
A second contributing factor is that world production of oil is 84 to 85  million barrels of oil per day, and the rate of production increase has not  kept pace with the rate of increased demand. Furthermore, there is very  little spare production capacity given existing infrastructure. Spare oil  production capacity— the ability to produce extra barrels of production in  the short-term—is a key market cushion for responding to market  disruptions. Since the mid-1980s, growth in world oil production capacity  has lagged relative to growth in global oil demand, with the result that  spare capacity has declined from a high in recent times of 5.6 million  barrels per day in 2002 to between 1 and 1.3 million barrels per day today.  Most of this spare capacity is held within Saudi Arabia. While in previous  oil supply disruptions, the U.S. government has been able to negotiate with  senior officials in Saudi Arabia and other oil-producing countries to  increase their supply of crude oil, many oil industry officials, experts, and  U.S. government officials said that today such efforts would be less  effective given the limited levels of spare oil production capacity in world  markets.
Downstream investment in pipelines and tankers has also lagged behind  the growth in global oil demand in recent years, contributing to potential  bottlenecks. Additionally, private inventories of oil have been in a long- term declining trend, in part because of a trend toward just-in-time  inventory, according to energy experts.
Oil production is capital-intensive and heavily dependent on continuous  investment to maintain existing wells, drill new wells for crude oil  production, and develop and maintain the infrastructure supporting the  production network. Extensive investment in the oil sector will be  required to meet future oil demand and maintain spare capacity, according  to energy experts.
Looking ahead, there are additional uncertainties related to future supplies  of oil. Expected new supplies of crude oil may be in places that are  difficult to access and could involve high extraction and processing costs,  as with offshore reserves and unconventional crude oils. There is also an  ongoing peak oil debate—disagreement among oil market experts as to  when the world will reach its level of peak production of conventional oil  and then begin to decline.
For a discussion of the growing role of natural gas in world energy  markets, see appendix III.
section_title: Growing Market Participation of National Oil Companies Has Led to Concerns
paragraphs: In an energy market characterized by relatively high oil prices and  increasing energy demand, the growing participation and market influence  of national oil and gas companies—which are majority owned by national  governments—from both energy consuming and producing countries has  contributed to limited access to oil and natural gas resources in some  producing countries. National oil companies from producing countries  already control about 90 percent of the world’s crude oil reserves,  according to DOE. In contrast, the ability of the international oil and gas  companies—the large, privately owned and publicly traded oil and gas  industry entities—to maintain current production levels by replacing their  energy assets with new reserves is affected by increasingly limited access  to energy resources around the world. Additionally, access to capital and  technical expertise by the national oil and gas companies of consuming  countries has enabled them to compete with the international oil  companies in the global energy markets. The impact of this industry shift  is unclear, but some concerns have arisen over (1) the ability of some  national oil and gas companies from consuming nations to efficiently bring  energy resources to the market and (2) the constrained investment  climates in some producing countries dominated by national oil and gas  companies that may inhibit the investment necessary to ensure continued  production and growth.
subsections: section_title: National Oil Companies’ Influence Is Growing Relative to International Oil Companies
paragraphs: The influence of the national oil and gas companies is perceived to be  growing, as the ability of international oil and gas companies to replace  their energy resource holdings becomes increasingly limited. According to  DOE Secretary Samuel W. Bodman, in a speech to the National Petroleum  Council in June 2006, 90 percent of the world’s untapped conventional oil  reserves are controlled by governments and their national oil and gas  companies, many of which are in politically unstable regions of the world.  Figure 4 indicates that 7 of the top 10 companies are national or state- sponsored oil and gas companies, ranked on the basis of oil production.  The three international oil companies that are among the top 10 are Exxon  Mobil, BP, and Royal Dutch Shell. Ranked on the basis of oil reserve  holdings, 9 of the top 10 companies are national or state-sponsored oil and  gas companies. These top 10 oil and gas companies accounted for an  estimated 42 percent of world daily oil production and an estimated 64  percent of world oil reserves holdings in 2004, based on EIA data for world  estimates. Figure 5 shows a similarly strong position for the national or  state-sponsored oil and gas companies, with respect to natural gas  production and reserves holdings. These top 10 oil and gas companies  accounted for an estimated 44 percent of world daily natural gas  production in 2004 and an estimated 62 percent of world natural gas  reserves holdings, based on EIA data for world estimates. Some agency  officials and energy experts believe that, should some countries with  national oil and gas companies continue to limit competition and  investment opportunities in their energy sectors, the ability of  international oil and gas companies to replace their energy resource  holdings will become increasingly limited to locations marked by high  geological, political, and financial risks.
Competition among consuming countries to procure oil and gas assets has  also been affected by the growing participation of national oil and gas  companies. Some energy experts stated that increased access to capital,  combined with increased access to technical expertise available for hire  from third-party service companies, has allowed these consuming  countries’ national oil and gas companies to compete with the  international oil companies in the global marketplace for energy  resources. Additionally, with political leverage and potential financial  support provided from their governments, some national oil and gas  companies may be willing to operate at a lower discount rate and a  potentially lower profit margin. For example, there has been an increasing  trend by some national oil and gas companies from energy consuming  countries such as Brazil, China, India, and Malaysia to become active,  competitive bidders for acquiring exploration rights to energy resources in  other producing countries. Some experts say these national oil and gas  companies may benefit from increased financial support and political  leverage in negotiations with the host supplier countries.
section_title: National Oil and Gas Companies May Lack Resources to Develop Projects and May Inhibit Competition
paragraphs: According to some agency officials and energy experts, there are two main  concerns about participation of national oil and gas companies in the  energy market. One concern is that some national oil and gas companies  from consuming countries may not have the combination of capital,  technical expertise, and managerial expertise necessary to efficiently and  effectively develop certain oil and gas projects, preventing some of the  production from getting to the global energy market in a timely manner.  Some energy experts stated that a Chinese national oil and gas company,  for example, may have the capital to compete for the rights to explore for  energy resources but may not have the technology and managerial  expertise to develop some projects. Additionally, agency officials and  energy experts expressed concern over the impact of national oil and gas  companies procuring energy assets based on national policy goals rather  than on commercial market business strategy. Whereas, international oil  and gas companies typically seek to maximize returns, some national oil  and gas companies’ operations may be driven primarily by their  government’s energy policy interests and revenue requirements. This may  result in (1) a national oil and gas company potentially preventing some or  all of the production from the resource base under their control from  getting to the global energy market in a timely way or (2) a national  company entering into bilateral exploration based on foreign policy  purposes. Some energy experts added that, although there may also be a  net gain in the resulting energy supply on the market due to increased  activity by national oil and gas companies from consuming countries, the  ability of some of these companies to bring those energy assets to market  is varied and remains a concern.
A second concern is that constrained investment climates in some  producing countries’ energy markets will inhibit the investment necessary  to ensure continued production and growth is maintained by the country’s  national oil and gas company. For some energy producing countries, the  national oil and gas companies serve as a source of general government  revenues and funding for social programs, and as a result can be marked  under-investment in the company that is required to maintain the country’s  energy output. In addition, some energy producing countries dominated by  national oil and gas companies have failed to open their investment  climates or reinvest sufficiently. Experts cited national oil companies in  Russia, Mexico, Venezuela, and Indonesia as examples of oil sectors with  constrained investment climates and insufficient government reinvestment  in the energy sector.
section_title: Market Stability and Investment Require Reliable Energy Information
paragraphs: Energy officials and experts state that more reliable energy market  information is an increasingly important element for market stability. The  reliability of oil and natural gas market information is questionable due to  systemic factors such as reporting delays, definitional differences, and  lack of transparency. In a tight energy market, the negative impacts of  uncertainty in market information on planning and current and future  needed investment are amplified.
subsections: section_title: Unreliable Market Information Contributes to Energy Market Uncertainties
paragraphs: Energy experts and officials question the reliability of oil and natural gas  market information in large part due to (1) concerns about historical  demand and supply data based on a lack of timeliness in reporting,  definitional differences, and national or industry sensitivities and (2)  concerns about future demand and supply estimates based on unreliable  historical data and insufficient transparency about projection assumptions  and methodologies. For example, concerns about oil demand information  include the following:    Historical demand data: Uncertainty results from successive revisions of  data, a lack of timeliness in reporting, and questionable reliability of data,  particularly from rapidly growing non-OECD countries such as China and  India. Final demand data are generally available about 16-20 months after  the reference year. By the time final data are reported, initial estimates  may have been revised repeatedly. EIA officials also question the basic  reliability of demand data for non-OECD countries like China and India.  For example, Chinese demand estimates are derived from “apparent  demand”—as a sum of estimated production and estimated net imports— or on inference from Chinese gross domestic product (GDP) growth  estimates. As an example of the uncertainty that results from such  methods, the EIA indicated that Chinese oil demand had grown at roughly  500,000 barrels per day in 2005, while a widely quoted Morgan-Stanley  report indicated that Chinese demand had declined.
Projections: Uncertainty results from projected demand estimates that  rely upon questionable historical data and that may not fully incorporate  data revisions. For example, both the EIA and IEA use historical demand  and estimated economic growth as a basis for their demand projections.  However, both the EIA and IEA forecasts failed to anticipate the surge in  Chinese and global demand growth in 2004 due to the poor quality of  Chinese data. According to economic experts, uncertainty in future  demand is further compounded by insufficient transparency in EIA and  IEA methodologies for projecting impacts of a high-price future.
Concerns about oil supply information include:    Historical supply data: Uncertainty in production and stock (inventories)  data results from the proprietary nature of the data, differences in  definitions and conversion rates, and political sensitivities. According to  the EIA, for example, OPEC countries often do not accurately report their  current production levels. An EIA official reported that estimates of  OPEC’s June 2006 crude oil production varied by over 700,000 barrels per  day, from a low of 29.3 million barrels per day by the Petroleum  Intelligence Weekly, to 30 million barrels per day by the IEA. Reliability of  OPEC production data is further complicated by OPEC quotas that are  based on estimated reserves, which are suspected to have been inflated in  order to generate higher quotas. For Russia, swings of up to 100,000  barrels per day have occurred in its production data since Russian data do  not break out gas condensate from oil production, and conversion rates  for a combined stream are uncertain. Production data for some countries  may be inferred from combining oil exports, oil demand, and changes in  oil stocks. However, in addition to problems with demand data, oil stock  data is incomplete and does not generally include stocks held in non- OECD countries (such as in China or India where stock data is considered  a state secret) or in independent storage within OECD countries. In a  previous GAO study, we found that missing stock data in IEA statistics,  referred to as “missing barrels,” were present in 24 of 26 years between  1973 and 1998. Both IEA and EIA data for 1999 through 2005 still  reflected these gaps.
Projections: Uncertainty results from projected supply estimates that rely  upon questionable historical data and an unknown level of oil reserves.
For example, both the EIA and IEA use historical data as a basis of  projecting future world demand and future non-OPEC supply. Then, both  agencies assume that OPEC production will “fill the gap.” IEA and EIA  projections call for around a 50 percent increase in current OPEC  production, but there is growing debate over OPEC’s ability to meet this  requirement.  Supply projections are also based on widely debated  estimates of oil reserves due to differences within and between industry  and governments about the definitions and measurement of “known,”  “proven,” “probable,” or “undiscovered” reserves, the impact of  technology on those reserves, and the rate of decline in certain oil fields.  According to energy experts, uncertainty in projected supply is further  compounded by insufficient transparency in EIA and IEA assumptions  about the impacts of high prices on future production.
Many of the concerns about oil demand and supply data also apply to  natural gas data. Both the EIA and IEA have indicated the need to improve  the timeliness and accuracy of natural gas demand, production, and stock  information. Data reliability issues occur due to the increasing number of  participants in natural gas markets, unspecified exports due to a multitude  of small players, large increases in inter-regional trade and the loss of  trade origin, longer supply chains, and industry sensitivities in response to  increasing market competition.
section_title: Reliable Energy Market Information Is Needed for Investment and Market Stability
paragraphs: Reliable energy market information is important for reducing price  volatility and facilitating planning and needed investment. For example,  the EIA reported that unanticipated world oil demand growth in 2004  contributed to depletion in oil stocks and resulted in the recent high oil  prices. Uncertainty about demand growth also negatively impacts needed  investment for future expansion of world oil and natural gas supplies  (including an estimated $3 trillion in each sector from 2005 to 2030 by the  IEA), particularly given the long lead times and payback periods required  for such investments. Oil and natural gas producer nations have stated the  need to better understand future demand in order to undertake costly  investment—according to the OPEC Secretariat, uncertainty about future  oil demand, future non-OPEC production, and needed OPEC investment is  the largest challenge facing the organization. Similarly, Russia’s Gazprom  has indicated the need for future demand certainty, indicating possible  supply curtailments if its European consumers seek to diversify their  supplies away from Russia. Oil and natural gas consuming nations have  also indicated the need for more certainty in future supply. This is  particularly important given needed infrastructure investment in non- OECD countries to use natural gas—EIA projects that 73 percent of future  natural gas demand will occur in countries outside the OECD—and  needed worldwide investment to expand the use of LNG.
section_title: Important Constraints Affect U.S. Ability to Address Key Energy Market Issues in Forums
paragraphs: The U.S. government has pursued emerging energy market issues through  its participation in international energy cooperation forums; however,  these forums, by their nature, can be constrained in the degree to which  they can have an impact on these issues. The greatest constraint on the  forums’ ability to impact energy issues comes from the sensitivity of  sovereign nations to discussing their domestic energy policies. Forum  efforts are also constrained by limitations in membership, consensus- based decision making, and voluntary participation. However, within these  constraints, the United States has tried to mitigate energy market  imbalances through efforts such as promoting emergency preparedness  and outreach to developing countries. While the United States has not  directly addressed the impact of the growing participation of national oil  companies on the energy market at the forums, it has pursued related  areas such as improving the investment climate. Finally, the United States  has supported international efforts to improve energy information through  various data sharing agreements, standardization, and capacity building— though EIA involvement has for the most part been indirect and ad hoc,  and U.S. data submissions to the IEA have lacked timeliness.
subsections: section_title: Sensitivity of National Energy Policies Is the Overriding Constraint
paragraphs: International energy cooperation forums, by their nature, can be  constrained in the degree to which they can have an impact on energy  market issues. The greatest constraint comes from the sensitivity that  sovereign nations bring to discussing their domestic energy policies.  Supplier countries may resist international efforts to increase  opportunities for foreign investment in their energy sectors, and  consuming countries, like the United States, may resist international  efforts to influence their energy demand levels. For this reason, discussion  of energy issues at international energy cooperation forums is almost  always addressed through an agenda decided by consensus. This generally  means that forums focus on noncontroversial issues, like energy efficiency  and technology, according to U.S. officials. Forum efforts are also  constrained by inherent limitations in restricted membership, consensus- based decision making, and the voluntary nature of participation and  follow-up.
For the United States, however, the consensus-based agenda does have the  advantage of “de-Americanizing” some issues, according to U.S. officials.  In some cases, an issue or action may be more likely to be addressed on its  own merits than if the United States is seen to be the primary force behind  it. Peer pressure can also be an important factor when a group of  countries is endorsing an issue or approach.
section_title: The United States Tried to Mitigate Imbalances from Recent Tight Energy Markets through Energy Forum Efforts
paragraphs: The United States has tried to mitigate the imbalances resulting from the  recent tightening of the energy market through its participation in  international energy cooperation forums. U.S. efforts have primarily  focused on support for emergency preparedness, including development  of strategic petroleum reserves and contingency plans. The challenges to  these efforts lie in factors such as key developing countries not being  members of the forum, such as China and India not having IEA  membership, or in the voluntary nature of participation and follow-up.
subsections: section_title: Enhancing Emergency Preparedness
paragraphs: The United States has sought to address tight energy markets and  associated market imbalances primarily by supporting emergency  preparedness in both IEA and the APEC Energy Working Group. IEA is the  premier forum at which the United States addresses emergency  preparedness. It has an emergency response plan—called “Coordinated  Emergency Response Measures”—ready for use, supplemented by  periodic emergency scenario planning exercises that allow member  countries to practice how they would implement the plan in case of a real  emergency. This IEA emergency response plan was used in response to  Hurricane Katrina in September 2005, although such a situation had never  been anticipated in IEA scenario planning. A senior IEA official told us  that IEA’s response to Hurricane Katrina showed the market that IEA  would act to mitigate supply shortfalls by releasing oil stocks. He said that  IEA does not act to affect price but showed that it would act to affect  supply, and this had helped restore confidence in the market.
The United States has strongly supported the APEC Energy Working  Group’s Energy Security Initiative, which is also designed to respond to  the volatility resulting from the recent tightening of the market. Short-term  measures include improving the transparency of the global oil market  through improvement of APEC energy data and participation in JODI,  monitoring efforts to strengthen sea-lane security, implementing the Real- Time Emergency Information Sharing System, and encouraging members  to have emergency mechanisms and contingency plans in place. DOE’s  policy and international affairs office and strategic reserve office both also  worked with APEC Energy Working Group partners to identify best  practices for strategic oil stocks. DOE then hosted a follow-up workshop  in July 2005.
section_title: Conducting Outreach to Major Developing Countries
paragraphs: Another way in which the United States has tried to address market  imbalances has been through outreach to major developing nations in both  IEA and the APEC Energy Working Group. For example, IEA conducts a  major outreach effort to developing countries and has established a  separate office, the Office of Non-Member Countries, for this purpose. It  has concluded “memoranda of policy understanding” to strengthen  cooperation with China and India and has conducted numerous  workshops, seminars, and training exercises. IEA held its first oil security  workshop with China in 2001, at which it provided training in emergency  response measures and strategic reserve management. China’s 5-Year Plan  for 2000-2005 had raised the possibility of building a national strategic  petroleum reserve, and it subsequently is building petroleum reserve tanks  and has begun filling them, according to DOE. IEA also invited China to  attend its emergency response training and disruption simulation exercise  in October 2004 and hosted a follow-up workshop with China on oil  security in October 2006. IEA held a similar oil security workshop with  India in 2004. It has also conducted numerous workshops and training  efforts with Brazil, members of the Association of Southeast Asian  Nations, and others.
In contrast to IEA, U.S. outreach efforts to major developing countries at  the APEC Energy Working Group are more direct since many of the major  developing nations, such as China and Singapore, are members, providing  a continuing opportunity to conduct outreach. The focus in the APEC  Energy Working Group is on developing and sharing best practices and  technology insights.
section_title: Promoting Best Practices, Training, and Energy Technology Research
paragraphs: The United States has also promoted best practices, training, and research  across a broad range of energy issues. IEA and the APEC Energy Working  Group both sponsor numerous conferences, workshops, and seminars  designed to share information and technology and to encourage members  to adopt practices and policies that are considered most beneficial. An  example of this approach is the APEC Energy Working Group’s focus on  best practices in developing an Asian LNG market. The United States  hosted an APEC Energy Working Group workshop in San Francisco in  March 2004 to identify best practices for LNG trade, which were later  endorsed by members’ Energy Ministers. A follow-up workshop was held  in Taipei in March 2005 to encourage acceptance of these best practices.  That workshop resulted in the launch of an LNG Public Education and  Communication Information Sharing Initiative to improve public  understanding of the benefits of LNG, as well as to address safety  concerns.
These forums also conduct economic analyses and research projects. IEA  annually publishes its flagship World Energy Outlook, which provides  global long-term energy market analysis. It also conducts extensive energy  policy analyses to promote conservation and the efficient use of energy, as  well as increased use of alternatives to oil (energy diversification). The  Asia Pacific Energy Research Centre also publishes studies of global,  regional, and domestic energy demand and supply trends and related  policy issues. In the area of research, IEA’s Energy Technology  Collaboration Program currently sponsors more than 40 international  collaborative energy research, development, and demonstration projects,  known as “Implementing Agreements.” Their purpose is to help coordinate  national technology efforts so there are no redundancies of effort across  participating countries, which can include nonmember countries.
section_title: Greater Cooperation with Producer Countries
paragraphs: A final element of U.S. efforts to address market imbalances has been  support for greater cooperation with producer countries. IEA’s Office of  Non-Member Countries has conducted outreach activities with producer  countries, as well as developing countries. It studies oil developments in  major emerging non-OPEC regions such as Russia, the Caspian, and West  Africa. For example, IEA has a memorandum of understanding with  Russia and has conducted workshops and training with Russia. It  completed an energy survey of Russia in 2002 that incorporated a review  of its energy situation, policies, electricity regulatory reviews, and  resulting recommendations. In addition, the United States participates in  IEF, which is a producer-consumer dialogue that promotes the exchange  of information among all parties with an interest in the energy market.
section_title: Challenges to Efforts to Mitigate Market Imbalances
paragraphs: The challenges to these efforts to mitigate market imbalances lie in the  inherent constraints of each forum. Since IEA was established within the  framework of OECD, a prerequisite for IEA membership is OECD  membership, which means that the applicant country must be a  democracy and have a market-based economy. This is one factor that  complicates the issue of extending IEA membership to fast-growing,  energy consuming countries like China. Another complicating factor is the  requirement that IEA members hold at least 90 days of oil reserves, which  would be difficult for most developing countries to achieve. For IEA,  deepening relations with nonmember countries is a delicate balancing act.  A senior IEA official said that IEA wants to improve its relationship with  developing countries like China and India—and, in fact, is considering  how to offer them observer status—but it also does not want to give away  the equivalent of membership without these countries having to meet the  basic requirements of membership.
Another inherent limitation to what can be achieved in these forums is  that participation and follow-up are voluntary. Apart from IEA’s treaty  obligations related to emergency preparedness (i.e., holding 90 days of oil  reserves), IEA and APEC Energy Working Group activities are voluntary,  and decisions are made by consensus. These forums can take steps to  strongly encourage actions by members but cannot compel them. For  instance, IEA country reviews, conducted every 4 years for each member,  examine their energy policies and make recommendations. Two years  later, brief standard reviews update the main energy developments and  report on progress in implementing the recommendations. But, it is up to  each country whether, and to what degree, it will take the recommended  steps.
section_title: U.S. Has Addressed Impact of Growing Participation of National Oil Companies by Pursuing Related Areas Such as Investment Climate
paragraphs: The international energy forums do not directly address the impact of the  growing participation of national oil companies on the energy market. The  forums, however, do focus on the development of open, competitive  energy markets within countries. Opening the investment climates in  energy producing countries can provide increased access and competition  for the international energy companies. However, forum efforts are  constrained by inherent limitations in consensus-based decision making,  membership, and voluntary participation.
subsections: section_title: Encouraging Open Investment Climates Is a Priority in the Energy Forums
paragraphs: Both DOE officials and the Executive Director of the IEA stated that  contributing to opening up energy investment climates is a high priority at  the IEA and is an issue that has significant overlap with the emerging  influence of national oil companies. The IEA Offices of Long-Term  Cooperation and Non-Member Countries conduct in-depth reviews of the  energy policies of both IEA member countries and nonmember countries  to focus on their investment climate status and related regulatory reforms.  The IEA Shared Goals of participating member countries are in part  based on the establishment of free and open markets as a fundamental  starting point. For reviews of nonmember countries’ energy policies, the  IEA provides observations on the status of a country’s investment climate  and the regulatory reforms needed to enhance competitive access to its  domestic energy markets. For example, the IEA conducted a 2002 Russia  Energy Survey that identified the need for regulatory and legislative  reform within Russia and focused on increasing competition and on  opening its energy markets. Similarly, the IEA has also performed reviews  of some of China’s energy sectors that have focused on market  liberalization and the transparency of the country’s oil market and related  transactions, among other issues.
Other international energy forums also contribute to encouraging the  development of open investment climates and competitive access  opportunities within member countries. For example, NAEWG focuses on  improving the integration of the energy economies of Canada, Mexico, and  the United States through data and information sharing across  government-owned and privatized energy sectors. In addition, one DOE  official stated that NAEWG efforts to demonstrate the benefits of open  markets and expose the tight nature of gas supplies in North America,  limiting the amount and affecting the price of pipeline supplied gas that  would be available to Mexico, supported the development of the LNG  market as a significant private investment opportunity for companies in  what is primarily a government-owned energy sector in Mexico. The APEC  Energy Working Group also encourages APEC member economies to  create conditions to facilitate energy infrastructure investment through its  Energy Security Initiative. For example, the APEC Energy Working Group  developed a list of best practices for member countries to follow in  financing energy infrastructure projects so as to develop a competitive  energy investment climate.
section_title: Efforts Are Constrained by the Goals and Processes of the Forums
paragraphs: The goals and processes of the international forums do not lend  themselves to directly addressing the impact of the growing participation  of national oil companies on the energy market. U.S. agency officials and  energy experts stated that the consensus approach and limitations of  membership in the international energy forums covered in this review  create challenges to addressing this emerging energy market issue. Related  efforts for more open investment climates, such as through the IEA  country reviews, or APEC Energy Working Group’s development of  investment best practices, have also been hindered by the voluntary nature  of members’ responses to forum recommendations.
The contentious nature of the topic of growing participation of national oil  companies on the energy market conflicts with the general approach of  the international energy forums in achieving consensus on the energy  issues covered. DOE and Department of State officials stated that an  international energy forum is not an appropriate venue for addressing  potentially contentious issues because a forum’s studies and action items  are agreed to by consensus. Some energy experts interviewed also  questioned what, if any, role the international energy forums can play on  this issue. These experts emphasized that the international energy forums  are essentially organizations that allow for gathering and exchanging of  important energy data and information, but they do not have either the  negotiating leverage or the focus needed to address this particular issue.  One expert added that the increasing influence of national oil companies  in the international oil markets may create a competition issue among the  private sector players in the market, but it is not a problem for energy  security or an issue that the international energy forums should or can  address directly.
Limited membership in the international energy forums also inhibits  addressing the impact of the growing participation of national oil  companies on the energy market directly. Some of the major players  influencing the topic, such as China and India, are not active participants  in the discussion. For example, national oil companies from China and  India have been increasingly active in oil and gas exploration by pursuing  a policy of procuring access to energy resources in various countries  around the world. However, both have not been active members in the  international energy forums. Similarly, Russia is one of the most influential  energy producing countries in the world, with its domestic energy market  dominated by national oil companies; but, it has not been an active  participant in any of the major international energy forums.
Related efforts for more open investment climates are hindered by the  voluntary nature of members’ responses to forum recommendations.  International energy forums like the IEA make recommendations for  member countries and observations for nonmember countries to follow in  order to move to market pricing and open up their investment climates.  However, the forums lack the authority or mandate to require that these  recommendations actually be implemented. For example, despite  consistent recommendations to open up its energy markets from both  multilateral and bilateral forums, Russia has actually reversed the  liberalization of its energy sector and investment climate over the last 2  years. According to DOE and IEA officials, its energy sector is now less  efficient, and the investment climate has worsened. Similarly, despite the  IEA’s efforts to engage Mexico in participating in a review of its energy  policies, Mexico has shown no interest in the review or implementation of  the recommendations that typically result.
section_title: U.S. Has Supported International Efforts to Improve Energy Data within Authority and Capacity Boundaries
paragraphs: Improved energy market transparency is an important theme for each of  the major international energy forums. Through its participation in the  forums, the United States has supported improving energy information  with measures such as data sharing, data standardization, and capacity  building (i.e., improving a country’s ability to collect and analyze energy  data). However, forum efforts often remain challenged in improving data  quality and timeliness, for example, due to authority limitations and  continued capacity needs in developing countries. Additionally, U.S.  support for forum efforts has not benefited from consistent use of EIA  expertise, and the United States has not provided timely data submissions  to the IEA.
subsections: section_title: Improving Information Is a Key Forum Goal
paragraphs: International energy cooperation forums aim to facilitate the sharing and  collection of information across multiple governments. JODI is one key  data sharing effort and includes monthly oil data for over 90 countries,  representing around 95 percent of global demand and supply. IEA  officials report that, through JODI, the international community is able to  view timelier world oil data and assess the current quality of that data.  Forum officials also reported that JODI was receiving high-level political  support and contributing to increased transparency in some cases—China  has begun collecting and releasing some data on changes in levels of oil  stocks to IEA, and the IEA “Oil Market Report” is now incorporating  timelier OPEC production data. Additionally, through JODI, IEA and APEC  are working to standardize data collection by agreeing to use the same oil  market questionnaire. Both organizations are also considering developing  a similar natural gas data initiative in the future.
In addition to data sharing and standardization, the forums have several  efforts to improve energy information through capacity building. Such  efforts include IEA memorandums of understanding with China and India  to improve data sharing, the IEA Energy Statistics Manual, and the 2005  and 2006 G-8’s political endorsements of the Extractive Industries  Transparency Initiative through which data is collected on developing  country revenues from extractive industries.
section_title: U.S. and Forum Efforts to Improve Information Face Important Challenges
paragraphs: While the United States has supported forum efforts to improve  international energy information, EIA expertise has not been leveraged in  a consistent manner beyond the data exchange activities, as discussed  above. For example, the United States supports forum initiatives such as  JODI or NAEWG statistical sharing, and EIA is a member of the IEA  Energy Statistics Workgroup that develops reporting standards for IEA  data submissions. The United States also supports the Extractive  Industries Transparency Initiative through U.S. Agency for International  Development funding and through participation in an International  Advisory Group. However, when asked about consistent leveraging of EIA  expertise for forum efforts to improve the quality and reliability of  international data, a senior EIA official described the administration’s  involvement as indirect and ad hoc. For example, while EIA has provided  briefings and analysis to DOE’s policy office for its cooperation efforts,  EIA has not been directly and consistently involved with international  forum initiatives to improve data collection efforts in other countries or in  training workshops. The EIA official also described EIA’s participation as  increasing and decreasing with staff availability. International cooperation  has been a small part of EIA’s overall mission; however, given the  importance of reliable international energy data for market stability and  the emphasis on comprehensive and timely energy data reporting in the  National Energy Policy, we believe that EIA’s expertise can contribute to  enhanced international energy data improvement efforts.
Another challenge for international cooperative efforts to improve energy  market data is the fact that the forums must depend on independent  member countries to be responsive. According to IEA officials, the IEA is  criticized for providing annual statistical publications that are 18 months  old. These officials believe that the IEA could publish annual data with  only a 9-month lag if member countries submitted their data within  requested time frames. However, according to the IEA officials we met  with, several countries do not meet the requested time frames—including  the United States. For 2004 annual data, for example, the United States  had not provided its complete data submission to the IEA until March 17,  2006, although the data was requested by September 30, 2005. According  to a senior EIA official, the United States is unable to meet IEA’s requested  time frames, however, due to a national schedule for data collection that  does not correspond with the IEA’s data collection schedule and the fact  that the United States may have to wait for data from industry entities  such as the American Petroleum Institute. The United States anticipates  submitting 2005 annual data to the IEA by February 2007 (around 4  months after the requested date but earlier than the previous year’s  submission).
Authority limitations also challenge international cooperative efforts to  collect detailed and consistent information on oil reserves and production  levels. Energy experts have emphasized the need for international field-by- field production data and a better understanding of future oil resources, as  well as the true cost of developing them. Currently, however, reserve  estimates are unaudited figures, and there are no common informational  disclosure requirements for reserves under international accounting  standards.
Capacity limitations, particularly in emerging market economies, are  another challenge for international cooperative efforts to improve energy  market information. While establishment of JODI has generally been  considered a success by forum participants, periodic quality reviews of the  database reveal a mixed record of improvement, for example. When asked  about JODI data reliability, U.S. and IEA officials report that data from  developing countries may lack reliability due to capacity limitations and  that, despite organizational efforts to support JODI, the forums must  ultimately rely on the political will of countries to improve and share their  data.
Exacerbating capacity limitations, the IEA has also emphasized challenges  resulting from rapidly expanding data demands. According to IEA officials,  interest has grown in information on natural gas, renewable energies, and  energy efficiency. Additional statistical resources may be needed to  acquire such information from new markets—many of them smaller and  more dispersed, such as with renewable energies like biofuels—and to  provide data at a more detailed level, such as within the household on  energy use by vehicle or appliance. IEA reports that statistical resources to  fill these additional needs are insufficient.
section_title: Conclusions
paragraphs: Both oil importing and oil exporting countries seek stable, predictable  energy markets to support continued economic growth. Oil importing  countries, such as the United States and China, are concerned about  security of oil supply. Over the past few years, the unanticipated growth in  demand for oil has outpaced the growth in oil supplies. Oil exporting  countries have not been able to increase supply levels accordingly, and  spare capacity has declined to the point where political, economic, and  weather-related events can have disruptive effects on the market.  Increasing future supplies of crude oil and refined oil will require high  levels of investment and technical expertise because new discoveries are  expected to take place in remote, offshore, and often politically risky  locations. In some of these locations, the producing country lacks the  capital and expertise to develop the resources and also lacks a predictable  investment climate, open to foreign investment—thus raising questions  about when potential supplies might come to the market. Energy market  experts expect the tight supply situation to continue in the medium and  long term.
At the same time, oil exporting countries are concerned about the security,  or predictability, of oil demand. In the 1990s, demand for oil was affected  by a global economic slowdown, including the Asian financial crisis of  1997-1998, and oil exporters experienced generally low oil prices. With  exploration costs so high now, some exporting countries are concerned  about committing to long-term investment projects without clear  indications of demand predictability.
International cooperation among importers and exporters can be founded  on the recognition that each group has a shared interest in market  stability. If the market does not provide this stability and questions about  demand and supply growth persist, “cooperation” may move more in the  direction of bilateral agreements covering oil and gas exploration and  pipeline routes. Such agreements may be perceived as excluding other  countries.
International forums can serve an important overall purpose in providing  the opportunity for oil importers and oil exporters to discuss common  interests and concerns. The forums have not directly addressed matters  that involve sovereign, sensitive decisions—such as Mexico’s foreign  investment prohibitions or the competitive practices of some national oil  companies—but they do serve to keep channels of communication open  and improve understanding of various members’ concerns. By working on  matters of interest to forum members—such as technical advice on  emergency preparedness and management of strategic petroleum reserves  and on ways to achieve cleaner, more efficient energy production—they  can build on shared interests and contribute to the longer-term  remediation of the demand-supply imbalance that has caused volatile  prices.
International forums can serve another critical role by improving energy  demand and supply statistics to facilitate investment planning. In  examining concerns about current energy market issues, a common thread  is that more reliable energy market information is increasingly important  for market stability, as well as to facilitate investment planning. As  recognized by the National Energy Policy report, comprehensive and  timely world energy data are needed. While the United States has provided  important leadership in international emergency preparedness and the  establishment of energy information systems, with the increased  importance of reliable energy market information in a tight market, a  greater effort may be needed to improve energy statistics.
section_title: Recommendations for Executive Action
paragraphs: To enhance the impact of international cooperation for improving energy  statistics needed for market stability and investment, we recommend that  the Secretary of Energy emphasize the priority of improving energy  information efforts within the international forums, particularly by taking  the following two actions:    examining how EIA expertise can contribute to international forum data    examining how U.S. data submissions to the IEA can be made more timely.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOE and the Departments of  Commerce and State. All three agencies provided written comments,  which are reproduced in appendixes IV, V, and VI, respectively. The  Department of Commerce agreed with our recommendations. The  Department of State provided information in its letter about steps it has  recently taken, through organizational changes, in order to highlight the  importance of global energy challenges.
DOE stated that the U.S. government has been actively engaged in  international energy forums to advance U.S. energy security objectives and  that our report makes many valuable points regarding the nature and the  potentials of various international forums in which it participates. DOE  also stated that our report adds to the greater understanding of the U.S.  commitment to international energy cooperation.
DOE disagreed with our characterization that EIA expertise has not been  leveraged in a consistent manner to improve international energy data  through the multilateral forums. DOE emphasized that EIA has been an  active member in each of the four international forums that are the focus  of this report. However, DOE also acknowledged that funding issues have  constrained EIA efforts to assist other countries to improve their energy  data and that this is an area where additional funding would be useful. We  have modified our report language to emphasize that EIA has been more  active in data exchange activities rather than efforts to assist other  countries in data collection and modeling, such as through training  workshops.
DOE expressed concern with our description of how U.S. data  submissions to IEA have not been timely, and it provided additional details  about several timeliness issues. We have modified our report language to  incorporate these clarifications. Additionally, while we recognize the  challenge for improving U.S. data submissions due to an EIA survey  schedule that does not correspond with IEA’s scheduled due dates, we  maintain our recommendation that DOE examine ways to improve the  timeliness of U.S. data submissions. One consideration could include the  suggestion provided in DOE’s comments to this report that the IEA use  EIA miniquestionnaires and monthly submissions to generate preliminary  U.S. data.
Finally, DOE stated that it was concerned that GAO asserts that more data  and more timely data will resolve energy market and security issues. GAO  makes no such assertion. Our findings highlight the increased importance  of reliable energy market information in a tight market and, therefore, we  recommend that DOE give greater priority to improving energy  information efforts within the international forums. We specifically  recommend that DOE address two relevant areas in which we saw  opportunities for improvement, by examining how EIA expertise can be  better leveraged and by examining how U.S. data submissions to IEA can  be made more timely. Improving energy statistics is one important way in  which the international forums can enhance the impact of international  cooperation, especially as regards global energy market transparency.
DOE and the Departments of Commerce and State also provided technical  comments, which we have incorporated where appropriate.
We are sending copies of this report to interested Congressional  Committees and to the Departments of Commerce, Energy, and State. We  also will make copies available to others upon request. In addition, this  report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  at (202) 512-4128 or yagerl@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To determine how the U.S. government participates in international energy  cooperation forums, we reviewed: (1) the key international energy forums  in which the U.S. pursues energy cooperation, (2) the key emerging energy  market issues that are important for international energy cooperation, and  (3) how the United States is addressing these issues through its  participation in these forums.
Our review focused mainly on the following key international energy  cooperation forums: the International Energy Agency (IEA), the Asia  Pacific Economic Cooperation (APEC) Energy Working Group, the North  American Energy Working Group (NAEWG), and the International Energy  Forum (IEF). We neither evaluated these forums and their impacts on  energy policy and the global energy market nor did we evaluate U.S.  energy policy goals, which are based on private sector approaches. Rather,  we reviewed the forums’ mission, structure, and activities. In addition, our  review focused on the oil and natural gas sectors of the energy market.  These sectors provide the bulk of current energy traded in the market. For  this reason, the nuclear, coal, renewable, and alternative energy sectors  were outside the scope of our review.
To determine how the United States pursues energy cooperation in key  international energy forums, we reviewed documents and interviewed  officials responsible for international energy cooperation at the  Departments of Energy (DOE), State, and Commerce. We conducted  fieldwork at the IEA and the U.S. Mission to the Organization of Economic  Cooperation and Development (OECD) in Paris, France, where we  reviewed documents and interviewed officials. We also exchanged  correspondence with the Secretariat of the APEC Energy Working Group  and conducted telephone interviews with U.S. members of the IEA and  APEC Energy Working Group business advisory groups. In addition, we  interviewed several private sector energy experts and industry  representatives. While we had planned to conduct fieldwork in Mexico  City, Mexico, and Ottawa, Canada, with Mexican and Canadian  government officials responsible for NAEWG, we did not conduct this  fieldwork because the Department of State declined to facilitate our  access to these officials.
To identify the key emerging issues in the international oil and natural gas  markets in the past 5 years that are important for international energy  cooperation, we reviewed documents and data and interviewed officials at  DOE and the Departments of State and Commerce. We also reviewed  relevant reports and studies, including past GAO reports, and discussed  them with energy experts. We developed a list of three key emerging  issues and verified them with agency, forum, and energy industry officials.  We did not seek to independently verify the nature and extent of these  energy market changes but rather relied on analysis by energy experts,  officials, and key market studies, as well as prior GAO work. Our report  discusses various reliability concerns with international oil and gas data.  While data improvement is required, we believe key international data,  such as that from the DOE’s Energy Information Agency is sufficiently  reliable to indicate broad trends in world demand and supply.
To determine how the United States is addressing these emerging energy  market issues through its participation in these forums, we reviewed  documents and interviewed officials at DOE and the Departments of State  and Commerce, as well as at IEA, the APEC Energy Working Group, and  their business advisory groups, and private sector energy experts.
We conducted our work from January 2006 to November 2006 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: July 2006 G-8 Summit and Bilateral Energy Cooperation Forums
paragraphs: In addition to the international energy cooperation forums discussed  previously, we also reviewed the July 2006 Group of Eight (G-8) Summit  held in St. Petersburg, Russia, which functioned as an ad hoc forum  focused on energy security, and U.S. participation in several selected  bilateral energy cooperation forums, which comprise an important part of  U.S. energy security and cooperation efforts. We focused on bilateral  energy cooperation with five key nations: Canada, China, India, Mexico,  and Russia.
subsections: section_title: July 2006 G-8 Summit, Hosted by Russia, Was Focused on Energy Security
paragraphs: The G-8 is an unofficial forum of the heads of the leading industrialized  democracies—Britain, Canada, France, Germany, Italy, Japan, Russia, and  the United States, where the European Commission is also represented  and fully participates. One of the priority themes of the July 2006 G-8  Summit, hosted by Russia, was to formulate political commitments of the  member states toward enhancing global energy security.
The G-8 is not an international organization based on an international  agreement and does not have formal admission criteria, a charter, or a  permanent secretariat. G-8 summit meetings are held regularly in the  partner states, and the host country acts as the Chair of G-8 for a calendar  year. Russia has chaired the G-8 during 2006. The Chair organizes the  summit and ministerial meetings and the expert and working meetings,  manages the agenda, and coordinates the routine work of the group. At the  summit meetings, discussions of the heads of state and government are  held behind closed doors with decisions adopted by consensus.
In preparation for the July 2006 G-8 Summit, the G-8 Energy Ministers met  in March 2006 to discuss issues such as global energy security, energy  efficiency, and energy saving. This meeting also included Energy Ministers  from Brazil, India, China, Mexico, and South Africa, as well as  representatives of the World Bank, the Organization of Petroleum  Exporting Countries, the International Atomic Energy Agency, IEA, and  the International Energy Forum. The July 2006 G-8 Summit resulted in the  St. Petersburg Plan of Action, which is a high-level commitment on behalf  of the G-8 members to enhance global energy security through efforts  across several related issue areas, such as increasing the transparency and  stability of global energy markets, improving the investment climate in the  energy sector, and ensuring physical security of critical energy  infrastructure.
section_title: Bilateral Energy Cooperation Forums Allow Focused Attention on Issues of Interest
paragraphs: The United States participates in many bilateral energy cooperation  forums; we reviewed five selected bilateral forums—those with Canada,  China, India, Mexico, and Russia. According to a DOE official, bilateral  energy cooperation forums tend to address focused issues that may be of  specific interest to the two parties. DOE and the Departments of  Commerce and State play a role in the bilateral energy cooperation  forums, with DOE personnel often co-chairing many of the working groups  involved in the efforts. In some bilateral energy cooperation forums  private industry is included in the discussion of certain issues, whereas  other bilateral energy cooperation forums mainly focus on high-level  dialogue between government representatives on energy policies and  initiatives. The following are examples of some of the main bilateral  energy cooperation forums:    The DOE official responsible for managing U.S. participation in the U.S.- China Energy Policy Dialogue stated it was established in 2004 for high- level dialogue between the two countries on energy issues such as energy  policy, energy efficiency measures and related technologies, renewable  energy, and energy sector reforms. Other areas of focus have included  shared concern over supply security and energy transport issues. The U.S.- China Oil and Gas Industry Forum, established in 1998, is a public-private  bilateral relationship involving government and industry representatives  from both countries. The forum is driven by consensus-based dialogue on  commercial policy and on common goals such as development of secure,  reliable, and economic sources of oil and natural gas while facilitating  investment in the energy industry.
The DOE official responsible for managing U.S. participation in the U.S.- India Energy Dialogue stated it was established in 2005 with the primary  goal of promoting energy security, increasing trade and investment in the  energy sector, and deploying clean energy technologies. This forum  consists of a steering committee and five working groups focused on oil  and gas, power and energy efficiency, coal, new technology and renewable  energy, and a civil nuclear initiative. Negotiations on a memorandum of  understanding on energy information exchange began in 1996 and it was  signed in February 2006.
According to DOE, the U.S.-Canada Energy Consultative Mechanism was  established in 1979 as a means for discussing key energy issues of interest  or concern to the United States and Canada. The two federal governments  meet annually to share policy positions, identify areas of potential dispute,  and clarify understanding on energy issues without requiring  commitments regarding future actions. Subject areas usually covered  include world oil market developments; domestic policy developments;  and bilateral oil, natural gas, electricity, and nuclear issues.
According to DOE, the U.S.-Mexico Binational Commission Energy  Working Group was established in 1996 as one of 16 working groups under  the commission and includes issues of bilateral interest such as energy  policy and legislative developments in each country, cross-border natural  gas and electricity issues, science and technology cooperation, and world  oil market developments. The Energy Working Group meets as requested  by either country, but, in recent years, bilateral energy issues have been  taken up under the auspices of the North American Energy Working  Group.
The DOE official responsible for managing U.S. participation in the U.S.- Russian Energy Dialogue stated it was established in 2002 and brought  under its umbrella the U.S.-Russian Energy Working Group that had been  established in 2001. The goal of this forum is to promote energy efficiency,  alternative energy, data exchange, energy technology initiatives, and  energy trade between the two countries while reducing barriers to  investment in the energy sector. The bilateral energy forum originally met  two times each year but, in 2005, reduced this to one meeting each year.
section_title: Appendix III: Role of Natural Gas Is Increasing in Tight Energy Market
paragraphs: While the tightening of the world energy market in recent years has mostly  been the story of the world petroleum market, there have also been  important developments in the natural gas market. Many countries have  increasingly relied on natural gas. For instance, while the European  Union’s dominant fuel in 2003 was oil, accounting for 40 percent of energy  demand, natural gas has been the fastest growing fuel over the past decade  and accounted for 24 percent of energy demand in 2003, according to the  Energy Information Administration (EIA). Historically, natural gas has not  been a major fuel in China, but its share in the country’s energy market is  rapidly increasing, almost doubling from 1997 to 2004, according to EIA.  While natural gas only accounted for about 3 percent of total energy  consumption in China in 2004, this share is expected to increase.
The natural gas market has long been dominated by pipelines that deliver  the natural gas from producers to consumers. For instance, 85 percent of  U.S. natural gas imports were provided through natural gas pipelines from  Canada in 2005. Much of Europe is served by pipelines from Russia, which  provides around two-thirds of its imports. However, a gas supply pricing  conflict between Russia and Ukraine in late December 2005 resulted in  Russia’s Gazprom shutting off gas supplies to Ukraine on January 1, 2006,  resulting in an energy crisis for all of Europe. Although Russia had  threatened a cutoff to demand higher natural gas prices in recent years,  this was the first time that a supply disruption had affected flows to  Europe. While the immediate crisis was soon resolved, the incident deeply  undercut Europe’s sense of energy security.
The United States was the largest consumer of natural gas in 2004, with  about 23 percent of world demand. Russia had the second largest demand.  Germany, in third place, had about a quarter of Russia’s level of demand.  Figure 6 shows the top world natural gas consumers in 2004.
However, as figure 7 shows, Germany’s net imports accounted for 80  percent of its natural gas demand in 2004, while this share was only 15  percent for the United States. Of the seven top natural gas importers, six  depended on imports for more than 75 percent of their demand—including  Ukraine, which met about 78 percent of its natural gas demand through  imports.
In terms of natural gas production, Russia was the largest producer, with  about 23 percent of total world production, as shown in figure 8. The  United States accounted for 19 percent of total production. Canada, in a  distant third place, produced about 7 percent of total production.
Until recently, as long as most natural gas was delivered by pipelines that  required geographic proximity, there was not the possibility of developing  a global market in which gas could be shipped to customers not connected  with a pipeline. This has changed recently with the growing development  of a liquefied natural gas (LNG) market, which is made possible because  LNG can be shipped via LNG tankers that can go anywhere in the world  where there is an LNG regasification terminal. LNG technology is not  new—it had declined by the 1980s in the United States, for example, in  part because it could not compete with lower priced domestic natural gas  provided through pipelines. However, interest in LNG imports has been  renewed due to higher U.S. natural gas prices in recent years, along with  increased competition, and advances in LNG technology that have lowered  its costs, according to EIA. LNG is expected to be particularly valuable for  so-called “stranded” natural gas reserves, which are located in areas too  remote from major demand centers to affordably be developed using  pipelines.
In 2005, Japan was by far the largest importer of LNG, with about 42  percent of total world LNG imports. Its major suppliers included  Indonesia, Malaysia, Australia, Qatar, Brunei, and the United Arab  Emirates. South Korea, in second place, accounted for about 16 percent of  total world LNG imports, from some of the same suppliers and Oman,  while Spain, ranked third, imported about 11 percent of the total, mainly  from Algeria, Nigeria, Qatar, and Egypt. The United States ranked fourth,  with about 9 percent of the total, mostly imported from Trinidad and  Tobago. While China is not yet an important consumer in the LNG market,  it is taking steps to significantly increase its LNG profile. With its natural  gas use increasing rapidly, and uncertainties surrounding the potential of  piped Russian natural gas, China is increasingly considering LNG. Its first  LNG import terminal received its first shipment in May 2006, and over a  dozen new terminal projects are either under way or being considered,  according to EIA.
section_title: Appendix IV: Comments from the Department of Energy
paragraphs: The following are GAO’s comments on DOE’s letter dated December 12,  2006.
subsections: section_title: GAO Comments
paragraphs: DOE’s cover letter and comments 2, 4 to 6, 40, 41, 47, and 64 generally  addressed our key findings and recommendations. We considered the  technical comments provided in comments 1, 3, 7 to 39, 42 to 46, and 48 to  63 and incorporated them where appropriate.  1.  GAO does not assert that more data and more timely data will resolve  energy market and security issues. Rather, our findings highlight the  increased importance of reliable energy market information for  mitigating market instability and facilitating investment and, therefore,  we recommend that DOE give greater priority to improving energy  information efforts within the international forums. We agree that  achieving improved international energy statistics is not something the  United States can do alone. However, we specifically recommend that  DOE address two relevant areas in which we saw opportunities for  U.S. improvement, by examining how EIA expertise can be better  leveraged and by examining how U.S. data submissions to IEA can be  made more timely. Improving energy statistics is one important way in  which the international forums can enhance the impact of  international cooperation.  2.  We have clarified and modified language in the report to reflect EIA’s  support for international data exchange, particularly through efforts  such as the Joint Oil Data Initiative (JODI) and the APEC Expert  Group on Energy Data and Analysis. However, EIA expertise has not  been consistently leveraged for efforts to improve the quality of  international data through, for example, assisting other countries in  data collection and modeling or training workshops. Consistent with  DOE’s comment emphasizing the role of funding constraints in EIA’s  ability to assist with such efforts, we acknowledged that EIA’s  participation has been dependent on staff availability. Further, while  we acknowledge in our report that international cooperation is a small  part of EIA’s overall mission, we maintain that DOE should examine  how EIA expertise can contribute to international forum data efforts.  3.  GAO’s recommendation states that DOE should examine how U.S. data  submissions to the IEA can be made more timely. In our report, we  acknowledge that the current EIA survey schedule does not  correspond with IEA’s current scheduled due dates. Nonetheless, we  maintain that DOE should examine whether there are options for  addressing the timeliness of U.S. data submissions to the IEA. One  consideration could include the suggestion provided in DOE’s  comments to this report that the IEA use EIA miniquestionnaires and  monthly submissions to generate preliminary U.S. data.  4.  In our report, we recognize that other IEA member countries also do  not submit their data within the requested IEA time frames. We have  modified language regarding U.S. data submissions to reflect  additional information DOE has provided.
section_title: Appendix V: Comments from the Department of Commerce
section_title: Appendix VI: Comments from the Department of State
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Virginia Hughes, Assistant  Director; Leyla Kazaz; Kendall Schaefer; Hugh Paquette; and Michelle Munn  made key contributions to this report. Other contributors include Godwin  Agbara, Karen Deans, Mark Dowling, Amanda Miller, and Anne Stevens.