Remarks by Charles Chauvel MP, New Zealand Delegation
APPF, Singapore,
Tuesday January 19, 2010

Mr Chairman, distinguished colleagues.
Energy security may best be described as the provision of a reliable and adequate supply of energy at reasonable prices in order to sustain economic growth. Factors that affect fuel supply stability and energy prices include resource constraints, production constraints, political conflicts, natural disasters, terrorist activities, and pollution. In the longer term, the other key aspect of energy security is the need to find new and more sustainable sources of energy as oil-based fuels are depleted or become undesirable to exploit.

In 2007 APPF recognised the complexities of energy policy by calling "upon the countries of the region to continue their efforts in facilitating transborder energy trade and investment in the energy sector, developing new and renewable sources of energy and adequate technologies to provide for more environmentally-friendly usage of fossil fuel, enhancing energy efficiency and energy saving, increasing emergency alertness and reinforcing protection of the key elements of the energy infrastructure”. In 2008 the APPF resolved to “ensure fair access to essential energy resources for all the countries in the region as a priority”. 

The most important source of energy remains oil, which powers the world’s transportation systems. Growth in oil supply and GDP growth have been very highly correlated. Today maintaining energy security essentially means securing access to remaining oil reserves, using that oil more efficiently, and developing alternative energy sources. 

The ability for the world’s supply of oil to increase to match demand is limited. The International Energy Agency forecasts that supply will grow by just 20 million barrels per day (Mb/d) to 105 Mb/d in 2030. This is down from earlier projections that supply would reach 124 Mb/d, and even this lower projection has been widely criticised as too optimistic.  At some point soon, the supply of oil will cease to grow, and then start to fall. Some argue that happened in 2005 (the year of highest annual production to date). Others, like BP, believe it will happen in around a decade. 
The global financial crisis and the plunge in oil prices in the second half of 2008 resulted in US$100 billion worth of new oil projects being cancelled or suspended. New oil production infrastructure takes several years to come online, meaning that cancellation of new projects now will lead to a dearth of new oil production in 4-5 years’ time. With currently producing fields’ production declining and too little investment in new capacity, the IEA warns that a supply crunch may occur in 2012.   

While oil production capacity remains sufficient to meet current demand, temporary disruption to world oil production and supply is a major energy security risk. Regions like the Middle East and Africa, characterised by political instability, are becoming ever more important sources of oil. Most oil exports flow through a small number of shipping chokepoints, including the Straits of Malacca, a small number of major oil pipelines, and refining hubs like those on the Gulf of Mexico. Disruption at any of those centres of production or chokepoints, whether due to political instability, terrorism, accidents, or natural disaster can quickly result in large temporary reductions in supply and accompanying price spikes – as witnessed when Hurricane Katrina struck the Gulf of Mexico. 

Increased price volatility has been witnessed in recent years and is likely to continue. Between 2004 and 2008, increasing demand and decreasing spare production capacity led to record oil prices. The global recession undermined demand for oil and the price fell by over 70% by February this year. Since then, the price of oil has doubled and continues to climb on expectations of renewed demand and a decreasing supply cushion as the world emerges from the global recession, which may lead to another price spike. 

While the APPF comprises several major oil producers (Canada, Russia, the US, Mexico, Indonesia) it also includes the world’s largest oil consumers (China and the US). As a group, the APPF nations are net oil importers producing around 33 Mb/d of oil and consuming approximately 48 Mb/d. Of the 27 APPF nations, 11 are significant oil producers, and 8 of those have already experienced peak production. 

The majority of APPF member states are net importers, which makes us as a group particularly vulnerable to oil price spikes and disruptions in supply. As consumption in oil exporting nations continues to grow faster than production, the availability of oil for export to net importing nations will decrease. For APPF member nations, securing access to oil imports is a strategic priority. Chinese and US foreign policy, in particular, prioritises maintaining access to or control of oil reserves. 

New Zealand is a small-scale oil producer, producing an average of 58,000 barrels per day in 2008. This is insufficient to meet local demand (consumption is around 154,000 barrels per day) and, at present, most oil produced is exported to other countries, while New Zealand imports crude and refined products produced in other countries. Oil production has increased in the last two years, but total oil production will decline over the next few years.  

Over the longer-term, however, it is thought that there may be large reserves of oil in the Southern Basin (up to 6.5 billion barrels, compared to less than 150 million barrels remaining in currently producing fields). That quantity of oil would be sufficient to supply New Zealand’s current demand for around a century, assuming continued current patterns of consumption. 

Constraints on oil supply and the need to reduce greenhouse gas emissions necessitate finding other sources of energy, and using energy more efficiently. A suite of alternative energy sources is being progressed and this must accelerate. Wind, solar, hydro, tidal and geothermal generation all offer exciting possibilities. New Zealand already generates about 70% of its domestic electricity from these sources, and we expect to increase this to 90% by 2025.  We have rejected the nuclear option because of the renewables capability that I have outlined, and because of unresolved issues around dealing with nuclear waste. 

Hybrid, electric, and fuel cell vehicles are starting to enter the market. While these will assist to liberate transport systems from reliance on oil, they will create increased demand for electricity generation, which itself must come from alternative sources if nations are to break their dependency on oil and other fossil fuels. New Zealand particularly welcomes the tenor of the resolutions put forward in this area that recognise the need for this transition, and we hope these will attract wide support.