International Energy: International Forums Contribute to Energy
Cooperation within Constraints (19-DEC-06, GAO-07-170).
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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-170
ACCNO: A64327
TITLE: International Energy: International Forums Contribute to
Energy Cooperation within Constraints
DATE: 12/19/2006
SUBJECT: Conservation
Crude oil
Economic growth
Energy policy
Gas resources
International agreements
International cooperation
International relations
National policies
Natural gas
Natural resource management
Petroleum industry
Prices and pricing
Trade agreements
Supply and demand
******************************************************************
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GAO-07-170
United States Government Accountability Office
GAO
Report to the Chairman, Committee on International Relations,
House of Representatives
December 2006
INTERNATIONAL ENERGY
International Forums Contribute to Energy Cooperation within Constraints
GAO-07-170
INTERNATIONAL ENERGY
International Forums Contribute to Energy Cooperation within Constraints
What GAO Found
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.
Top World Oil Net Importers, 2004 Net oil imports(million barrels per day)
United Japan China Germany South France Italy Spain India
StatesKorea
Source: GAO analysis of EIA data.
Note: This includes all countries that imported more than 1 million
barrels per day net in 2004.
United States Government Accountability Office
Contents
Letter 1
Results in Brief 2
Background 4
The United States Pursues Energy Cooperation through
International Energy Forums Designed to Meet Specific Cooperative Needs 8
Emerging Energy Market Issues Include Tight Markets, Growing
Role of National Oil Companies, and Increased Importance of Reliable
Market Information 14
Important Constraints Affect U.S. Ability to Address Key Energy
Market Issues in Forums 27
Conclusions 37
Recommendations for Executive Action 39
Agency Comments and Our Evaluation 39
Appendix IV Comments from the Department of Energy 52
GAO Comments 64
Appendix I Objectives, Scope, and Methodology
Appendix II July 2006 G-8 Summit and Bilateral Energy Cooperation Forums
Appendix III Role of Natural Gas Is Increasing in Tight Energy Market
Appendix V Comments from the Department of Commerce
Appendix VI Comments from the Department of State
Appendix VII GAO Contact and Staff Acknowledgments
Tables
Table 1: Overview of Major International Energy Cooperation
Forums 8
Table 2: Top World Oil Consumers, with Level of Demand and
Percentage Change, 2000-2004, and Share of Total World
Market in 2004 16
Figures
Figure 1: U.S. Crude Oil Production and Demand, 1980-2030 5
Figure 2: U.S. Natural Gas Production and Demand, 1980-2030 6
Figure 3: Top World Oil Net Importers, 2004 17
Figure 4: Top 10 Companies Based on Oil Production and Reserves
Holdings, 2004 21
Figure 5: Top 10 Companies Based on Gas Production and
Reserves Holdings, 2004 22
Figure 6: Top World Dry Natural Gas Consumers, 2004 48
Figure 7: Top World Dry Natural Gas Net Importers, 2004 49
Figure 8: Top World Dry Natural Gas Producers, 2004 50
Abbreviations
APEC Asia Pacific Economic Cooperation
DOE Department of Energy
EIA Energy Information Administration
EUROSTAT European Communities
G-8 Group of Eight
GDP gross domestic product
IEA International Energy Agency
IEF International Energy Forum
JODI Joint Oil Data Initiative
LNG liquefied natural gas
NAEWG North American Energy Working Group
OECD Organization of Economic Cooperation and Development
OLADE Organization Latinamericana de Energia
OPEC Organization of Petroleum Exporting Countries
UNSD United Nations Statistics Division
This is a work of the U.S. government and is not subject to copyright
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separately.
United States Government Accountability Office Washington, DC 20548
December 19, 2006
The Honorable Henry J. Hyde
Chairman
Committee on International Relations
House of Representatives
Dear Mr. Chairman:
One of the emerging forces affecting the global economy has been the rapid
growth of Asian economies, increased energy consumption in these
economies, and the rising oil prices accompanying this growth. Congress
has raised concerns about the nature of international competition for oil
and natural gas resources and how the United States can secure the energy
resources needed to support U.S. economic growth. In particular, Congress
has expressed interest in how the United States has sought to advance one
of the key principles of energy security--international cooperation
through participation in international energy cooperation forums.
To determine how the U.S. government participates in international energy
cooperation forums, at your request, we reviewed: (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 the
United States is addressing these issues through its participation in
these forums.
To answer these questions, we reviewed documents and interviewed officials
responsible for international energy cooperation at the Departments of
Energy (DOE), State, and Commerce. Our work at DOE also included the
Energy Information Administration (EIA), a DOE statistical agency that
provides independent data, forecasts, and analyses to promote sound policy
making and efficient markets. We focused on the oil and natural gas
sectors and 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. Rather, we
reviewed the forums' mission, structure, 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.)
Results in Brief
The United States pursues energy cooperation through international energy
forums that are designed to meet specific cooperative needs. These forums
range from formal institutions to regional associations to more informal
gatherings designed to facilitate a frank exchange of information. IEA is
the only formal institution with binding obligations for a petroleum
reserve system. It focuses on responding to supply disruptions through
emergency planning for the coordinated release of members' petroleum
reserves, such as in its response to Hurricane Katrina in 2005, as well as
on providing oil and natural gas market information. The APEC Energy
Working Group focuses on the rapidly growing Asia Pacific economies; it is
a voluntary regional effort that seeks to build consensus on energy policy
issues through sharing best practices and technology insights. NAEWG
focuses on developing an open, efficient, and transparent North American
energy market through greater regulatory cooperation and exchanges of
energy data, information, and technology. IEF--formerly known as the
"Producer-Consumer Dialogue-- facilitates dialogue between oil-producing
and -consuming countries in biennial ministerial meetings and sponsors the
Joint Oil Data Initiative (JODI), a recent effort to establish a world oil
database.
We identified three key energy market issues that are important for U.S.
efforts in international energy cooperation in the oil and natural gas
sectors. First, world oil demand has risen more rapidly than expected,
particularly from major developing countries such as China and India. At
the same time, supply has become more constrained and more susceptible to
disruptions, due to such constraints as political or energy sector
frictions in certain producing countries such as Iraq, Nigeria, Venezuela,
and Iran and less spare crude oil production capacity. This has resulted
in a tight energy market characterized by higher prices. Second, the
market participation of national oil and gas companies--which are majority
owned by national governments--from both energy consuming and producing
countries has led to limitations on access to oil and natural gas
resources. Concerns have arisen that some national oil and gas companies
may not be able to efficiently bring energy resources to the market and
that constrained investment climates in some producing countries dominated
by national companies may inhibit the investment needed for continued
production and growth. Third, tightened markets and the need for
substantial investment in the oil and gas sectors have increased the
importance of more reliable oil and natural gas market information. For
example, key industry forecasts failed to anticipate the 2004 surge in
Chinese and global oil demand due in part to unreliable data.
The U.S. government has addressed these key 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. Discussion of energy
issues among sovereign nations for which energy has great domestic
economic and political sensitivity generally means that forums focus on
noncontroversial issues, like energy efficiency and technology. Forum
efforts are also constrained by inherent limitations in restricted
membership, consensus-based decision making, and the voluntary nature of
participation and follow-up. However, within these constraints, the U.S.
has tried to mitigate the imbalances associated with tight markets by
supporting efforts such as emergency preparedness, policy and technical
outreach to developing countries with fast increasing energy needs, energy
technology research and training, and cooperation with producer countries.
The United States has not directly addressed the impact of the growing
participation of national oil companies on the energy market at the
forums, but it has pursued related areas such as investment climates.
Forum initiatives to improve information have included capacity building,
data sharing, and data standardization efforts. The United States has
supported such efforts through its participation in the forums; however,
EIA's involvement in initiatives to improve international data has been
indirect and ad hoc according to a senior EIA official. Despite the
importance of reliable international energy data for market stability,
EIA's expertise has not been consistently leveraged for international
energy cooperation. Furthermore, due to differing reporting schedules,
U.S. data submissions to the IEA have lacked timeliness and contributed to
the 18month lag for which published international data is available.
In this report, we make two recommendations to DOE to emphasize the
priority of improving energy information efforts within the international
forums, particularly by (1) examining how EIA expertise can contribute to
international forum data efforts and (2) examining how U.S. data
submissions to the IEA can be made more timely. 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 about
organizational changes it had made recently that 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 adds to the greater understanding
of these efforts. However, DOE expressed concerns with our
characterization that EIA expertise has not been consistently leveraged to
improve international energy data through the multilateral forums and with
our description of how U.S. data submissions to IEA have not been timely.
DOE provided alternative language that we incorporated where appropriate.
Finally, DOE stated that it was concerned that GAO asserts that providing
more data on a timely basis will resolve energy market and security
issues. While GAO makes no such assertion, we emphasize that 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.
Background
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.
Figure 1: U.S. Crude Oil Production and Demand, 1980-2030
Million barrels per day 20 2006
1816 14 12 10
8
6
4
2
0
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Year
Production
Demand Source: GAO analysis of EIA data. Note: Production is based on U.S.
domestic oil field production data; demand is based on U.S. domestic oil
field production plus net crude oil imports.
Figure 2: U.S. Natural Gas Production and Demand, 1980-2030
Trillion cubic feet
30 2006 25
20
15
10
5
0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Year
Production
Demand Source: GAO analysis of EIA data.
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.^1 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.^2 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:
1For recent GAO evaluations of related energy activities, see GAO, National
Energy Policy: Inventory of Major Federal Energy Programs and Status of
Policy Recommendations, GAO-05-379 (Washington, D.C.: June 10, 2005); GAO,
Energy Security: Issues Related to Potential Reductions in Venezuelan Oil
Production, GAO-06-668 (Washington, D.C.: June 27, 2006); GAO, Natural
Gas: Factors Affecting Prices and Potential Impacts on Consumers,
GAO-06-420T (Washington, D.C.: Feb. 13, 2006); and GAO, Energy Markets:
Factors Contributing to Higher Gasoline Prices, GAO-06-412T (Washington,
D.C.: Feb. 1, 2006).
o 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;^3
o Work with producer and consumer country allies and the IEA to craft a
more comprehensive and timely world oil data reporting system;
o 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;
o Engage in a dialogue through NAEWG to develop closer energy
integration among Canada, Mexico, and the United States; and
o Assist U.S. companies in their dialogue with Russia on investment and
trade and improve the overall investment climate.
2The "National Energy Policy" report contained over 100 recommendations
that it stated, taken together, provide a national energy plan that
addresses the energy challenges facing the nation. In a 2005 report,
GAO-05-379, GAO found it is difficult to fully assess the status of
progress made in implementing the National Energy Policy recommendations
because the information reported by DOE has been limited, some
recommendations are open-ended and lack measurable goals, and the National
Energy Policy recommendations do not reflect all federal energy-related
efforts.
3For this recommendation, the "National Energy Policy" report specifically
encourages the United States to work closely with Asian economies,
especially through APEC.
The United States Pursues Energy Cooperation through International Energy
Forums Designed to Meet Specific Cooperative Needs
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.
Table 1: Overview of Major International Energy Cooperation Forums
Number of
Forum members Forum structure Forum objectives
IEA 26 Formal institution made up Collective response to
of OECD oil supply disruptions
industrialized democracies, Analysis and publication
with binding obligations for of energy market
petroleum reserve system, information Energy policy
and about 150 professional outreach to major
staff developing
countries, as well as
energy producing
countries
APEC Energy 21 Regional energy forum based Promoting development of
on Asia-Pacific energy
Working Group consensus decision making market through sharing
and analysis energy information,
from multiple expert groups expertise, and best
practices
North American 3 Trilateral (United States, Optimal integration of
Canada, and North American energy
Energy Working Mexico) energy forum based market by sharing policy,
on consensus regulatory, and
Group decision making and analysis technical expertise
from multiple
expert groups
International over High-level international Supports JODI
60 energy forum
Energy Forum fostering dialogue among Informal discussion of
both energy producing and energy security issues
consuming countries
Source: GAO.
IEA Focuses on Emergency Planning for Supply Disruptions, Oil Market
Information, and Outreach to Major Developing Nations
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.^4 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 marketbased
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.^5 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.^6 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.
4The members of IEA are: Australia, Austria, Belgium, Canada, Czech
Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Japan, Korea, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United
States.
5IEA was established pursuant to the Agreement on an International Energy
Program. All IEA members must be OECD members. However, not all OECD
members are IEA members. OECD nonmembers of IEA are Iceland, Mexico,
Poland, and the Slovak Republic.
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.
APEC Energy Working Group Seeks to Build Broad Regional Consensus on Key
Energy Issues
The APEC Energy Working Group, comprised of 21 Asian Pacific economies^7
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.
6The Governing Board is supported in policy development by a structure of
Standing Groups and Committees, also composed of member government energy
officials, that each separately meet two to five times a year and focus on
the oil market, emergency preparedness, long-term cooperation, nonmember
countries, and energy research and technology.
7These are: Australia; Brunei Darussalam; Canada; Chile; People's Republic
of China; Hong Kong, China; Indonesia; Japan; Malaysia; Mexico; New
Zealand; Papua New Guinea; Peru; Republic of the Philippines; Republic of
Korea; Russian Federation; Singapore; Chinese Taipei; Thailand; United
States of America; and Vietnam. Members of APEC are called "economies"
rather than "nations" in order to avoid the issue of the status of Taiwan,
which is not recognized by China as a separate nation. The compromise was
to refer to all members as economies and to refer to Taiwan as "Chinese
Taipei," according to a DOE official.
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).^8
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.
LNG is natural gas, primarily methane, which has been cooled to its liquid
state at -260 degrees Fahrenheit. Liquefying natural gas reduces the
volume it occupies by more than 600 times, making it a practical size for
storage and transportation.
NAEWG Focuses on Regional Regulatory Cooperation and Exchange of Energy
Market Data, Information, and Technology
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.^9 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.^10 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.
^9The formation of NAEWG was one of 105 recommendations for action in the
U.S. "National Energy Policy" report, released in May 2001. With support
from the heads of state from each of the three countries regarding
cooperation in the energy sector, Natural Resources Canada Minister
Goodale, Mexican Secretary of Energy Martens, and U.S. Secretary of Energy
Abraham established NAEWG in March 2001.
10These comprise the electricity, energy efficiency, energy picture,
hydrocarbons, natural gas trade and interconnections, nuclear
collaboration, oil sands, regulatory, and science and technology working
groups.
IEF Seeks to Facilitate Dialogue and Information Exchange between Oil
Producing and Oil Consuming Countries
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.^11
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.^12 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.
11The "Producer-Consumer Dialogue" was originally designed to be a dialogue
and informational bridge between OPEC and IEA countries. U.S.
representatives originally had concerns about this dialogue and possible
price collusion resulting from the discussions that have been allayed in
the past several years.
12The other international organizations include the Statistical Office of
the European Communities (EUROSTAT), Organization Latinoamericana de
Energia (OLADE), OPEC, and the United Nations Statistics Division (UNSD).
These organizations began an assessment of the quality of world oil
statistics in April 2001 under an initiative called the "Joint Oil Data
Exercise." This exercise was transformed into JODI after the 8th IEF in
2002.
Emerging Energy Market Issues Include Tight Markets, Growing Role of National
Oil Companies, and Increased Importance of Reliable Market Information
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.
Rising Demand and Supply Constraints Have Resulted in a Tight Energy
Market
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.^13 While prices dropped by around $20 a barrel in the 3 to 4 months
following this peak, ^14 several energy experts believe that the
fundamentals of the tight market still exist and are a cause for
continuing concern.
Rapid Increase in Oil Demand by Developing Countries Has Contributed to a
Tight Energy Market
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,^15 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.^16 From 2000 to 2004,^17 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.
13Prices are based on daily spot prices of West Texas Intermediate crude oil
at Cushing, Oklahoma, as reported by EIA. The spot price of crude oil
never dipped below $30 per barrel again after December 1, 2003, when it
was $29.98 per barrel. It peaked on July 14, 2006, at $77.03.
14The spot price for West Texas Intermediate crude oil dropped to a low of
$56.27 per barrel on November 14, 2006, and as of December 1, 2006, was
back up to $63.44.
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.^18 India's
demand is also growing quickly. It consumed about 2 million barrels per
day, the sixth highest level of demand.
15OECD Europe consists of Austria, Belgium, Czech Republic, Denmark,
Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy,
Luxembourg, the Netherlands, Norway, Poland, Portugal, Slovakia, Spain,
Sweden, Switzerland, Turkey, and the United Kingdom.
16Daniel Yergin, Chairman, Cambridge Energy Research Associates, before the
Government Reform Subcommittee on Energy and Resources and the
Subcommittee on National Security, Emerging Threats, and International
Relations, U.S. House of Representatives, May 16, 2006.
172004 is the latest year for which data is available for all countries. The
term "demand" is used interchangeably with "consumption."
18In 2005, oil demand data for the United States and China were 20.7 and 6.9
million barrels per day, respectively. Total world demand was 83.8 million
barrels per day, and the U.S. and Chinese share of total world demand
remained at 25 and 8 percent, respectively.
Table 2: Top World Oil Consumers, with Level of Demand and Percentage
Change, 2000-2004, and Share of Total World Market in 2004
Million barrels per day
Percentage of Percentage total world
Ranking Country 2000 2004 change demand
United 19.7 20.7 5% 25% States
2 China 4.8 6.4 33 8
3 Japan 5.5 5.3 -3 6
4 Russia 2.6 2.8 7 3
5 Germany 2.8 2.7 -4 3
6 India 2.1 2.5 15 3
7 Canada 2.0 2.3 13 3
8 South 2.1 2.2 1 3 Korea
9 Brazil 2.2 2.1 -1 3
10 France 2.0 2.0 0.5 2
11 Mexico 2.0 2.0 -3 2
Total world 76.6 82.5 8% 100%
Source: GAO analysis of EIA data.
Note: All countries that consumed more than 2 million barrels per day in
2004 are included. This is the most recent year of data available for all
countries.
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,^19 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.
19Oil production is defined here as crude oil (including lease condensate),
natural gas plant liquids, other liquids, and refinery processing gain.
Saudi Arabia was the largest producer, with about 10 million barrels per
day, while Russia was second, with about 9 million barrels per day, in
2004, according to EIA data.
Figure 3: Top World Oil Net Importers, 2004 Net oil imports (million
barrels per day)
12
10
8
6
4
2
0
United Japan China Germany South France Italy Spain India
States Korea
Net oil imports as share of total country consumption (percentage)
150
101%102%
95%93%98%
100
92%
61%
58%
45%
50
0
Source: GAO analysis of EIA data.
Notes: This includes all countries that imported more than 1 million
barrels per day net in 2004 and is the most recent year of data available
for all countries.
Countries importing more than 100 percent of consumption are likely adding
the extra oil to their petroleum stocks or this may be due to anomalies in
the data.
Oil Supply Constraints Have Increased, Putting Further Pressure on an
Already Tight Market
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
longterm 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.
Growing Market Participation of National Oil Companies Has Led to Concerns
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,^20
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.
20Refers to "conventional" crude oil reserves. According to the EIA,
conventional crude oil reserves are reserves produced by a well drilled
into a geologic formation in which the reservoir and fluid characteristics
permit the oil to readily flow.
National Oil Companies' Influence Is Growing Relative to International Oil
Companies
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
statesponsored oil and gas companies, ranked on the basis of oil^21
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.
21"Oil" includes crude oil, as well as natural gas liquids and condensates.
Natural gas liquids are hydrocarbons in natural gas that are separated
from the gas as liquids through the process of absorption, condensation,
adsorption, or other methods in gas processing or cycling plants.
Condensates are a natural gas liquid recovered from gas wells from lease
separators or field facilities.
Figure 4: Top 10 Companies Based on Oil Production and Reserves Holdings,
2004
Percentage
2%
100
Lukoil (Russia) 2%
Exxon Mobil (U.S.) 8%
Royal Dutch Shell (U.K./Netherlands) 7%
90
Saudi Aramco (Saudi Arabia) 32%
BP (U.K.) 7%
National Iranian Oil Co. (Iran) 16%
80
Iraq National Oil Co. (Iraq) 14%Kuwait Petroleum Co. (Kuwait) 11%
70
Petroleos de Venezuela(Venezuela) 10%
60
Abu Dhabi National Oil Co. (U.A.E.) 6%Libya NOC (Libya) 4%Saudi Aramco
(Saudi Arabia) 28%
50
Nigerian National Petroleum
National Iranian Oil Co. (Iran) 12%
Co. (Nigeria) 3%
Petroleos Mexicanos (Mexico) 11%
40
Petroleos de Mexico(Mexico) 2%
Petroleos de Venezuela (Venezuela) 8%
Kuwait Petroleum Co. (Kuwait) 7%
Iraq National Oil Co. (Iraq) 6%
30
Petro China (China) 6%
20
10
0
Top 10 oil and gas companies Top 10 oil and gas companies based
based on oil production, 2004 on oil reserves holdings, 2004
International oil and gas company National oil and gas company
Source: GAO analysis of data from Petroleum Intelligence Weekly, Dec. 12,
2005.
Notes: "Oil" includes crude oil, natural gas liquids, and condensates.
Natural gas liquids are hydrocarbons in natural gas that are separated
from the gas as liquids through the process of absorption, condensation,
adsorption, or other methods in gas processing or cycling plants.
Condensates are a natural gas liquid recovered from gas wells from lease
separators or field facilities.
The Petroleum Intelligence Weekly data relies on company reports where
possible, as well as other information sources provided by companies.
However, estimates are generated for those companies that do not release
regular or complete reports. Estimates were created for most of the
state-owned oil companies in the figure above.
Figure 5: Top 10 Companies Based on Gas Production and Reserves Holdings,
2004
Percentage 100
Exxon Mobil (U.S.) 8%
Gazprom (Russia) 30%BP (U.K.) 7%
Royal Dutch Shell (U.K./Netherlands) 7%
90
National Iranian Oil Co. (Iran) 26%
QP (Qatar) 17%
Saudi Aramco (Saudi Arabia) 6%
Total (France) 4%
80
Petroleos de Venezuela(Venezuela) 4%
70
Sonatrach (Algeria) 4%
60
Gazprom (Russia) 46%
Rosneft (Russia) 4%
National Iranian Oil Co. (Iran) 7%
Iraq National Oil Co. (Iraq) 3%
50
Sonatrach (Algeria) 7%
Nigerian National Petroleum
Saudi Aramco (Saudi Arabia) 5%
Co. (Nigeria) 3%
40
Pertamina (Indonesia) 5%
Abu Dhabi National Oil Co. (U.A.E.) 3%
Petroleos (Malaysia) 4%
30
20
10
0
Top 10 oil and gas companies Top 10 oil and gas companies based
based on gas production, 2004 on gas reserves holdings, 2004
International oil and gas company National oil and gas company
Source: GAO analysis of data from Petroleum Intelligence Weekly, Dec. 12,
2005.
Note: Natural gas is net or marketable output.
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.
National Oil and Gas Companies May Lack Resources to Develop Projects and
May Inhibit Competition
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.
Market Stability and Investment Require Reliable Energy Information]
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.
Unreliable Market Information Contributes to Energy Market Uncertainties
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.^22 For example, concerns about oil demand information
include the following:
o 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. ^23 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.
o 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.
^22The IEA's World Energy Outlook and the EIA's International Energy
Outlook are published annually and, according to energy experts, are
widely considered industry standards for world oil market projections.
Both agencies prepare a "reference" scenario that forms the basis for
their expected projections, as well as various "high-price" scenarios. In
addition to these publications, both agencies are working to expand their
analysis of energy market volatility in the future through other studies
and analytical tools.
23Both the reliability of estimates on Chinese net imports and Chinese
economic growth have also been questioned.
Concerns about oil supply information include:
o 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.^24 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.^25 Both IEA and EIA data for
1999 through 2005 still reflected these gaps.
o Projections: Uncertainty results from projected supply estimates that
rely upon questionable historical data and an unknown level of oil
reserves.
24The EIA defines crude oil as a mixture of liquid hydrocarbons in natural
underground reservoirs that remain liquid after passing through surface
separating facilities. Gas condensate is a mixture of heavier hydrocarbons
recovered as liquids from natural gas.
25See GAO, International Energy Agency: How the Agency Prepares Its World
Oil Market Statistics, GAO/RCED-99-142 (Washington, D.C.: May 7, 1999).
Reliable Energy Market Information Is Needed for Investment and Market
Stability
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. ^26 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,^27 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.
Reliable Energy Market Information Is Needed for Investment and Market
Stability
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.^28 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.
26This debate is in part related to uncertainty over Saudi Arabia's spare
capacity level.
27These terms reflect the degree of certainty to which estimated reserves
exist and the likelihood that such reserves can be profitably extracted.
Other uncertainties have arisen from recent announcements by major oil
companies that they have lowered their reserve estimates.
Important Constraints Affect U.S. Ability to Address Key Energy Market
Issues in Forums
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, consensusbased 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.
Sensitivity of National Energy Policies Is the Overriding Constraint
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,
consensusbased decision making, and the voluntary nature of participation
and follow-up.
28In their long-term strategy, OPEC examined various rates of projected oil
demand to 2020 and estimated that their needed investment could vary from
$230 billion to $470 billion.
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.
The United States Tried to Mitigate Imbalances from Recent Tight Energy
Markets through Energy Forum Efforts
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.
Enhancing Emergency Preparedness
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.
Conducting Outreach to Major Developing Countries
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.^29 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.
29IEA's workshops and seminars with China addressed energy efficiency,
energy modeling and statistics, coal and investment, and electric power
reform. IEA also jointly held a conference on Northeast Asia energy
security and cooperation with the Korean Energy Economics Institute in
Seoul, Korea. IEA also held workshops with India on efficiency standards,
coal and electricity, and energy indicators.
Promoting Best Practices, Training, and Energy Technology Research
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.^30
Greater Cooperation with Producer Countries
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.
30These projects are self-financed through voluntary contributions by the
countries that decide to sponsor the research and, as such, are financed
outside the IEA budget process.
Challenges to Efforts to Mitigate Market Imbalances
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.^31 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.
31The commitment is to hold at least 90 days of net imports of the preceding
calendar year. Apart from the technical difficulties of building and
managing a strategic petroleum reserve, it would be very expensive at
current oil prices, and it could potentially further increase oil prices
by putting greater demand pressure on the market.
U.S. Has Addressed Impact of Growing Participation of National Oil
Companies by Pursuing Related Areas Such as Investment Climate
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.
Encouraging Open Investment Climates Is a Priority in the Energy Forums
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^32 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.
32Adopted by IEA Ministers in 1993.
Efforts Are Constrained by the Goals and Processes of the Forums
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.
U.S. Has Supported International Efforts to Improve Energy Data within
Authority and Capacity Boundaries
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.
Improving Information Is a Key Forum Goal
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.^33 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.
U.S. and Forum Efforts to Improve Information Face Important Challenges
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.
33The JODI world database was opened to the public in 2005 and is a
relatively new data effort.
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.^34 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.^35
34The United States submitted around two-thirds of its data by the end of
January 2006 and the remaining one-third of data by March 17, 2006. The
IEA prepares report cards for each of its members that record data
timeliness, completeness, and overall quality. On its most recent report
card, the United States was rated "poor" for timeliness--the lowest rating
achievable-- due to submissions provided more than 2 months after
requested. The United States received high ratings in other areas.
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.^36
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.
Conclusions
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.
35According to energy experts, the Securities and Exchange Commission system
for reserve disclosure is based on outdated definitions of reserves and
technology such that there is a growing divergence between what is
reported under the Securities and Exchange Commission and how companies,
using more modern technologies and tools, assess their own reserve
position.
36To support continued data improvement, the organizations are preparing a
JODI manual and JODI training sessions.
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.
Recommendations for Executive Action
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:
o examining how EIA expertise can contribute to international forum data
efforts, and
o examining how U.S. data submissions to the IEA can be made more
timely.
Agency Comments and Our Evaluation
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 [email protected]. 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.
Sincerely yours,
Loren Yager
Director, International Affairs and Trade
Appendix I: Objectives, Scope, and Methodology
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.
Appendix II: July 2006 G-8 Summit and
Bilateral Energy Cooperation Forums
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.
July 2006 G-8 Summit, Hosted by Russia, Was Focused on Energy Security
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.
Bilateral Energy Cooperation Forums Allow Focused Attention on
Issues of Interest
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:
o The DOE official responsible for managing U.S. participation in the
U.S.-China Energy Policy Dialogue stated it was established in 2004
for highlevel 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.^1
o 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.
o 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.
1The U.S.-China Energy Policy Dialogue is led by DOE. The U.S.-China Oil
and Gas Industry Forum is led by DOE in conjunction with the Department of
Commerce.
o According to DOE, the U.S.-Mexico Binational Commission^2 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.
o 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.
2The U.S.-Mexico Binational Commission was established in 1981 by
then-Presidents Reagan and Lopez-Portillo to serve as a forum for regular
meetings at the cabinet level on a wide range of issues critical to
U.S.-Mexico relations.
Appendix III: Role of Natural Gas Is
Increasing in Tight Energy Market
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.
Figure 6: Top World Dry Natural Gas Consumers, 2004 Natural gas
consumption (trillion cubic feet)
24 United Russia Germany United Canada Ukraine Iran Japan Italy Saudi
States Kingdom Arabia
23% 16% 4% 3% 3% 3%3%3% 3% 2%
Natural gas consumption as share of total world (percentage)
Source: GAO analysis of EIA data.
Notes: Dry natural gas is also known as consumer-grade natural gas.
Figure 6 includes all countries that consumed more than 2 trillion cubic
feet in 2004. Total world demand was 99.7 trillion cubic feet.
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.
Figure 7: Top World Dry Natural Gas Net Importers, 2004
Dry natural gas net imports (trillion cubic feet)
5
4
United Germany Japan Italy Ukraine France South
States Korea
Net dry natural gas imports as share of that country's dry natural gas
demand (percentage) 150
Source: GAO analysis of EIA data.
Notes: Dry natural gas is also known as consumer-grade natural gas.
Figure 7 includes all countries whose net imports were more than 1
trillion cubic feet in 2004.
South Korea's net imports were more than 100 percent of its natural gas
demand because it was increasing its natural gas inventories.
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.
Appendix III: Role of Natural Gas Is Increasing in Tight Energy Market
Figure 8: Top World Dry Natural Gas Producers, 2004
Natural gas production (trillion cubic feet)
24 22 20 1816 14 12 10
8
6
4
2
0
Russia
United Canada
^United Netherlands Iran y
eria
SIndonesia ^audiArabia[Mala]^ysia stan
stan
tates
dom
Norwa
g
Uzbeki
rkmeniAlg
S
Kin
u
T
23% 19% 7% 3%3% 3%3% 3% 3% 2% 2% 2% 2%
Natural gas production as share of total world (percentage)
Source: GAO analysis of EIA data.
Notes: Dry natural gas is also known as consumer-grade natural gas.
Figure 8 includes all countries that produced more than 2 trillion cubic
feet in 2004. Total production was 98.6 trillion cubic feet in 2004.
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.^1 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.
1The EIA data on LNG imports do not provide a number for total LNG imports
but rather provide it as apparent world exports of LNG, which the data
show totaled 6,828 billion cubic feet in 2005. Japan imported 2,858
billion cubic feet, South Korea imported 1,075 billion cubic feet, Spain
imported 769 billion cubic feet, and the United States imported 631
billion cubic feet.
Appendix IV: Comments from the Department of Energy
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
See comment 1.
See comment 2.
See comment 3.
See comment 2.
See comment 2.
See comment 3. See comment 4.
See comment 2.
See comment 3. See comment 4.
See comment 1.
See comment 1.
The following are GAO's comments on DOE's letter dated December 12, 2006.
GAO Comments
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.
Appendix V: Comments from the Department of Commerce
Appendix VI: Comments from the Department of State
Appendix VII: GAO Contact and Staff Acknowledgments
GAO Contact
Loren Yager, (202) 512-4347, [email protected]
In addition to the individual named above, Virginia Hughes, Assistant
Staff Acknowledgments
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.
(320397)
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