On seeking energy 'security'

I have to admit that I have problems with the concept of "security of demand." If you build a large, efficient production plant, you'll probably be justified in calling for the market to be able freely to choose your products. Yet, it seems sensible that, at times, governments will incentivize other choices if the net long-term result would threaten the general good. We learned that lesson from lead in gasoline, didn't we?

These days, some wise suppliers make it their practice to take into account the full range of stakeholders, include them where possible and even run an open book with customers. Not so the OPEC oil-producing nations. They simultaneously keep the world in the dark over the actual extent of their oil and gas reserves and raise a hue and cry over attempts by consumer nations to diversify their supplies.

Market sites. I know it's controversial for some, but I think sometimes you just have to give the free market a little tweak here or there. Supermarkets are, in fact, a super example of this. In the UK for a couple of decades, they've been building supermarkets on the outskirts of towns so that people can conveniently fill the trunk of their car without all the time-consuming social interactions necessary on the traditional high street.

This trend has market economics on its side. Out of town, groceries are cheap. However, for towns, there are hidden costs—and the result is well charted. The New Economic Forum calls it Ghost Town Britain: small shops close, the high street is successively hollowed out. It strips the character, diversity and social function from communities that have survived sometimes for a thousand years.

People are waking up to the downside of out-of-town stores and the private car use in small-town England. Planners are resisting pressure from developers and demanding that out-of-town stores move into town instead. Local communities are increasingly championing their high street fishmonger and small hardware stores.

Calls for security. So if Tesco, Sainsbury or Wal-Mart-owned Asda now started publicly kicking up a fuss about this backlash—demanding "security of demand" for their hypermarket developments—I think they'd be told to go to hell. In the global energy market, few people have the balls,

or the oil independence, to tell OPEC or Russia to go to hell. Nevertheless, I suspect it's a grudging, unspoken fantasy for European policymakers. I can only imagine that the rhetoric from Moscow or Vienna over recent months causes teeth to grind.

Policy bias. For example, the General Secretary of the OPEC cartel, Abdalla El-Badri, has warned that a combination of misplaced and unsustainable policies favoring biofuels and a corollary reduction in fossil fuel production could send oil prices "through the roof." He told the Financial Times in June that OPEC will invest $130 billion by 2012, but that these and further plans through 2020 for $500 billion of new projects could be revisited in light of current energy diversification strategies in consumer nations.

So, what's to be done? Well for one thing, OPEC could do us all a favor and publish data on its oil and gas reserves. That would make me feel more secure. Vienna could be as transparent about how much oil and gas it has, as it is in calling for consumer nations to be about their fuels policy.

It's said that it would take about a fortnight to replace speculation (and fear) with more or less hard fact were OPEC nations to publicly declare their oil reserves.

Perhaps then consuming countries would stop "discriminating against oil." Perhaps that would afford OPEC the security of demand it craves. Perhaps then, consumer countries could pursue policies like carbon sequestration, as OPEC suggests they should. Policies that "do not cause a huge dislocation of the current energy system."

But all of that assumes that OPEC's giant oil fields are not past their peak. And to get to the bottom of that, I guess one day soon I'm going to have to pitch Daniel Yergin's jovial assurances against Matt Simmons' alarm bells and do my best to see clearly into the opaque world of fossil fuel reserves.