CLAUDE MANDIL

VITA - Claude Mandil

INFO -- INTERNATIONALE ENERGIEBEHÖRDE (INTERNATIONAL ENERGY AGENCY)

Energy mix in Europe

Source:
RAG Magazin - 03/2004
RAG Aktiengesellschaft
Christian Kullmann
Rellinghauser Str. 1-11
45128 Essen
www.rag.de

MAGAZINE  High oil and commodities prices are posing a threat to economic growth worldwide. This year they reached record levels. Is this merely the result of short-term swings or does it signify a permanent shift in the pricing structure due to rising demand, declining oil deposits and political instability?

CLAUDE MANDIL 

There are several reasons for the high price levels. China, with its strong economic growth and burgeoning industrialisation, is one of the driving forces. But China is only one of the countries where energy demand is at a high level. India too has witnessed a massive rise in electricity consumption, as have Europe and the USA. Low levels of reserves in the consumer countries and capacity shortages in the oil producing nations have driven prices upwards. This is all the result of clumsy policy decisions over the years in the producer countries, which have not invested sufficiently in their plant and equipment to increase production so that consumer states could replenish their stocks.

MAGAZINE  Does that mean that energy prices will fall again?

MANDIL Prices have risen to this level because not enough was being produced in early 2004. This problem was overcome and the producers increased their supply sufficiently, but the quantities that were not produced during that period are still missing. These technical problems are aggravated by political uncertainty in a number of oil producing nations – not only in the Middle East, but in Russia, Nigeria and Venezuela too – and this has also triggered price swings. The fear that something could happen, that supply shortages could be imminent, is also driving up prices and keeping them at a high level. The situation remains tense. An assassination attempt, another war or a major technical disruption in the producer countries could easily cut oil supplies. This risk is reflected in the prices.

MAGAZINE  But it is not just oil that is in short supply. Other fuels too are affected by shortfalls. The huge demand from the Chinese economy for fuels like coal and, more especially, coke is threatening supplies to businesses in other states, including German steel processors. Could no-one really have predicted the impact of an economic boom in China?

MANDIL 

We cannot hold China responsible for the consequences of its economic growth, for this has brought many positive results, not just for that country but also for the global economy in general.
The key question, however, is whether the pace of this development can be sustained. Many experts, and indeed the Chinese Government too, believe that this will slow down again and that certain adjustments and consolidation will be required that will again affect the energy markets. Nevertheless, the enormous demand for commodities of all kinds has astonished the experts.

MAGAZIN  How has the current situation affected the policies of the International Energy Agency?

MANDIL Regrettably there is very little that can be done in the short term to relieve the situation. We recommend that our member states focus on the investment that is urgently needed in the energy sector. The days of overcapacity, which used to be the case throughout the energy market, are now over. The need for plant renewal and extension was often overlooked. Admittedly there was little incentive to invest in new facilities because prices were so low that there was no reasonable rate of return. But now this has all changed. Everybody realises that the supply networks, systems and production facilities are in urgent need of renovation if we are to avoid the risk of massive disruptions to energy supply …

MAGAZINE  … as indeed happened in the USA in August 2003, notably in New York and in other areas along the east coast.

MANDIL There and in Europe, in Russia and in China and Japan too. Yet this urgently required investment cannot merely be a state responsibility, but must in most cases be undertaken by private investors. However, governments must be aware of the weaknesses in their energy supply systems and must encourage private investors to become more involved in this area. The authorities have to ensure that the taxation, political and financial environment is created to attract private financiers.

MAGAZIN  Are you thinking of tax concessions, subsidies and interest-subsidised loans?

MANDIL It is more important to have continuity in the political and legal framework. Almost every country has a different set of laws and regulations. This only confuses investors. I do not mean that we should not have strict environmental rules. These are very important – but they should not be so widely interpreted and applied. State governments should instead be working towards global laws and standards.

MAGAZIN  Do you advocate that individual states should exercise a greater influence in the energy sector? The current trend seems to be that the market is being deregulated and opened to even greater competition.

MANDIL I do not like the term “deregulation” – I prefer “liberalisation”. I firmly believe that competition acts for the most part as a stimulant and that it leads to better results, a better level of service, better products and lower costs.

MAGAZIN  But it does not allow for the provision of sufficient funds for investment in a reliable and efficient energy supply system, nor does it support other objectives like environment protection …

MANDIL Exactly. We should not exaggerate the benefits of liberalisation or expect too much from it. It cannot solve all our problems. Neither will it lead to lower prices, because they are also determined by external costs. This includes for example expenses arising from requirements for reducing CO₂ emissions. Neither does liberalisation always bring security of supply. The free market will not necessarily promote investment in capacity for meeting peak load demand, and if it does it will be only at a very high cost. This area therefore has to be regulated by the state authorities, who need to create the regulatory environment for freedom of action and competitiveness. Above all they have to lay down these conditions in environmentally acceptable terms. If competition helps achieve these goals that it is a good thing. But liberalisation must not be used as an excuse for the state to pull out of energy policy making. It is not the state’s primary responsibility to invest in or subsidise the energy supply sector, but the state must ensure that the rules and regulations are in place so that supply targets and environmental objectives can be met.

MAGAZIN  What influence does the International Energy Agency have in terms of inducing member states to implement its recommendations?

MANDIL  None. Everything that we do is based on our powers of persuasion.

MAGAZIN  What kind of energy mix does the IEA recommend? Are you also banking on coal for energy production?

MANDIL Of course. But a lot of improvement is required in this area if emission standards are to be met – and not just current standards but the even stricter targets that will be imposed in the years ahead. Meeting CO₂ targets is vital, for they are at the heart of all considerations. We know that we must wait patiently until all nations are able to meet these criteria, and that even greater effort is needed to design and develop the installations in question.

MAGAZIN  But there are installations that release practically no atmospheric emissions.

MANDIL We need to be able to operate plant capable of meeting zero-emission standards. If such a thing can be achieved in the field of coal-fired power generation then coal will become a winner in the global energy mix. In future we will need all the resources at our disposal for energy generation, more oil, more coal, more gas, more renewables and more nuclear power. We need more of everything, for the world’s hunger for energy will be so enormous that we will need each and every fuel resource that can be made available no matter how. And we must invest in research and development in order to be able to introduce technologies capable of producing plant and facilities that can operate practically emissions-free.

MAGAZIN  How can governments achieve security of supply and how important is reliance on raw-materials imports in these days of global alliances and cooperative ventures?

MANDIL The German Government needs to take a very close look at the costs and consequences of its energy policy. What price it is willing to pay for abandoning nuclear power and what the withdrawal from nuclear energy is worth. How it intends achieving the targets of the Kyoto Protocol, how it will reduce CO₂ emissions and at the same time be capable of supplying households and businesses with electricity in sufficient quantities and at reasonable prices. That can prove very expensive, not just from a financial perspective but also in political terms. And that applies to each and every country: they should be also be considering the cost impact of their energy policies. We need more alternatives in the area of energy supply, we need to start using all fuel sources from every part of the world. We should be looking at whether we can still afford to be heavily dependent on a single fuel from a politically unstable region, as in the case of oil from the Middle East. This is primarily a political question, not a technical one.

MAGAZIN What can still be done to relieve the present situation?

MANDIL There is still great potential for improving efficiency and we need to tap into this. If the efficiency ratings of today’s energy-saving household appliances – of the type that currently exist in a number of countries – could only be prescribed on a worldwide basis we could reduce global energy consumption in this sector by 30%. And that too would be a contribution to security of energy supply.