Oil prices have once again reached record levels and volatility is more than ever destructive. While the public complains, governments remain powerless. Growing demand from non-OECD countries, stagnating production and unrest in the Middle East are the main causes for this new paradigm.
In every crisis, understanding the overall situation is a first step for fixing the problem, or, at least, mitigating its impact. For that, you need reliable data and analysis, none of which our governments currently have. Indeed, until now OECD countries, including the US and the UK, have relied on the Paris-based International Energy Agency (IEA). Regrettably, the IEA is heavily politicized and best known for its record of inconsistent scenarios.
While in December 2009, IEA’s Chief-Economist, Dr. Fatih Birol, told The Economist(1) that conventional oil production would not peak before 2020. Within a year, the IEA was forced to admit that the peak had actually happened, in 2006(2). How did the IEA explain this stunning turnaround? It didn’t. In fact, for the past decade, the Agency was forced to continually readjust its overoptimistic scenarios.
Was the IEA incompetent or dishonest? In November 2009, two senior IEA whistle-blowers told the Guardian(3) that the IEA was deliberately minimising the imminence of ‘Peak Oil’, the moment when global oil production starts to decline, in order to avoid panicking the markets. They suggested that IEA’s most powerful member, the US, was behind this. At the same time, a peer-reviewed study funded by the Swedish Energy Agency(4) and a detailed report from the transparency NGO, Global Witness(5), confirmed their claims: IEA’s flagship report, the World Energy Outlook, was misleading.
Oddly, IEA’s Deputy Executive Director, Richard Jones, a former US special coordinator for Iraq, was once accused by Representative Henry Waxman of having intervened “on behalf of an obscure Kuwaiti company that was overcharging US taxpayers and the Iraqi people to import gasoline into Iraq”(6). While Ambassador Jones did not face a criminal investigation, he is now the number two of the self-declared “global energy watchdog”.
The main flaw of the IEA is that its member states have fundamentally different priorities, and views on energy policies. The US, a major oil producer where climate change is still not widely accepted, has few things in common with EU countries. Until now, the IEA has been serving the interests of its main funder, and delaying the transition towards renewable energy(7).
For example, it was not until Hurricane Katrina, that the US allowed the IEA to mention “energy efficiency” in its reports, or so I was told by a former IEA Governing Board representative. Besides, while the European Commission only has one observer at the Governing Board, the US has two representatives, from both the State Department and the Department of Energy. This situation should no longer be tolerated.
In this context, EU countries, which have broadly similar interests, need to unite and establish their own, independent, energy agency. The Energy Directorate-General of the European Commission has both the budget and technical expertise to be the skeleton of this newly created European Energy Agency.
Like the already existing European Environment Agency(8), the new energy agency would “provide sound, independent information”. The agency would serve the interests of its member states, and only them. The cost/benefit ratio would be excellent. In an era of growing Euro-skepticism, the EU should focus on what matters for the public and energy security is one of them.
Of course, the independence of this new agency should be carefully secured, and the creation of a “scientific committee” that would supervise the methodology used is a precondition. Previous tensions with Russian gas imports, and growing unrest in the Middle East highlight the vital importance of energy for the future and prosperity of the EU.
Meanwhile, the international community should reinforce the International Energy Forum, and improve dialogue between consumers, including China and India, and OPEC countries.
EU policymakers and member states can no longer be complacent on energy security. We have entered a period of consequences.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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