From the event

London, UK

23 Oct. 2008

Keynote speech

by NATO Secretary General Jaap de Hoop Scheffer, at the Economist Energy Security dinner
“Energy security in the 21st century”

Thank you Chairman.

Let me start by saying how pleased I am to be here this evening, and in particular to share this platform with Lord Levene.  I’ll explain, when NATO first began to discuss its role in energy security, I asked Lord Levene to brief NATO Ambassadors on the risks and challenges of ensuring reliable energy supplies.  To me this is a good example of the new partnerships between the private sector, government and international organisations such as NATO, that we need to establish if we are to be successful in ensuring energy security in its widest sense. Tonight’s dinner, here at Lloyd’s – the very home of shipping insurance – is another good example.  We must not only connect pipelines, grids and supply networks, but also connect the critical actors as part of a truly comprehensive approach.

For many of you in the audience this evening, energy security is not only your business, but also the source of your livelihood.  But why, you may wonder, is it also important to me, as the Secretary General of a political-military Alliance?

In the first place because no-one concerned with security can ignore the fact that modern economies need ever increasing amounts of oil, gas and other fuels to run their economies.  A few years ago, as many of you in the audience know better than I, the OECD countries consumed 74 per cent of the world’s oil production; today it is just 45 per cent.  As globalisation lifts millions out of poverty, the demand for energy worldwide will continue to grow, and we risk ending up with a volatile, beggar thy neighbour process of competition between countries to control sources of supply, especially in the developing countries. To avoid such a dangerous situation, we need a system of international cooperation that encourages us to share energy and energy saving technology and allows markets to function optimally. The key question is this:  how are we going to convince all the emerging new economic giants, to see energy as a collective and to cooperate with us in managing this scarce resource.

A second concern is that our western countries are producing less and less  of their own energy, and are therefore having to import more and more.  This is having a massive impact on the transfer of wealth.  The oil expert, Daniel Yergin, has estimated that at early 2008 prices the United States is currently transferring about 1.3 billion dollars to the oil producing countries every day – or if you prefer, 475 billion dollars a year.  If we include China, the European Union, India and Japan in this calculation, every year the major oil consumers are transferring over 2.2 trillion dollars to the oil producers.  What we know is that these massively increased energy revenues not only mean more economic power for the oil producers, but also of course increasing political power and influence in shaping the new global security order. 

Now I know at this point some of you may well be thinking:  but, Secretary General, surely the oil prices have fallen dramatically over the last few weeks from the heights of 140 dollars a barrel that we witnessed just a few months ago.  Doesn’t this mean that the problem of energy security is no longer so urgent?  To my mind such a view would be short sighted.  It is not after all the entire world economy which is in recession.  China is still growing at nine per cent a year.  Even if we do have some difficult economic times ahead, economic activity sooner or later will pick up again.  The price of a barrel of oil will undoubtedly rise even more quickly.  So before long, we will have the same debate about scarcity, and our dependence on the oil producers that we were having only just recently.  Just consider one fact.  The United States of America consumes 25 barrels of oil per capita annually and Europe ten barrels.  Each Chinese however consumes only two barrels a year.  So even a small increase in Chinese consumption could have a massive impact on the market.  Therefore, I would argue strongly tonight that this is not the time to slacken our efforts to find ways to use oil and gas more efficiently.  We must push ahead with our conversion to alternative fuels, and seriously look at ways of diversifying our energy supplies to reduce our vulnerabilities. 

And this brings me to my third concern.  As the world’s need for energy grows, the ability of the traditional suppliers to continue to meet the demand is far from certain.  Europe, for example, is increasingly dependent on Russian oil and gas.  But Russia’s currently exploited energy reserves are depleting fast.  Russians now consume more and more of their own gas at home, and the country’s energy output is shrinking due to a lack of investment in new technology and in developing new fields.  So if Russia is to be able to meet Europe’s still growing demand, it will have to reduce its own energy inefficiency and be more open to proper business partnerships with Western companies who can provide the necessary investment and know-how. How can we persuade Russia to implement the EU’s Energy Charter? I am convinced that this is in our mutual interest, not least because it would boost political and economic confidence between us.

Another concern which I know many of us in the room tonight share is the protection of critical infrastructure.  As our domestic sources of energy start to dry up, we have and Lord Levene already said this to go farther afield in search of new energy supplies.  Oil companies are drilling in much more isolated and hostile environments as technology makes extraction more commercially viable.  More oil and gas is extracted from under the sea rather than under the land.  Tankers criss-cross the oceans delivering these products from one continent to another.  Pipelines are getting longer and often pass through unstable areas.  And over the past few months we have seen several examples of how easily these sophisticated supply networks can be threatened – in the Nigerian Delta, off the coast of Somalia, and in the Southern Caucasus. And in that regard the crisis in early August was also partly about energy security.

Let me make one more observation.  As climate change impacts on energy exploration and transit routes, it will also increasingly impact on our security. One of our NATO Allies, Norway, has recently put the issue of  what we call the “high north” on to the NATO agenda.  As the polar icepack melts and the Northwest Passage to Asia opens up, an increasing amount of shipping will pass through one of the most remote and inhospitable parts of the world.  Intervening in the event of an environmental disaster or even a terrorist attack would be very difficult indeed.

So Ladies and Gentlemen what can NATO do, in concrete terms, to make your lives, as energy producers, suppliers, and transporters, a bit easier?  Let me start by saying NATO is certainly not the panacea to all our problems, but there are definitely things that we can do to help – and that we indeed are already doing.  Let me highlight three.

The first is to police and to protect on the high seas.  Naval forces are increasingly at the interface of homeland and international security concerns.  In many ways they are returning to their traditional role of providing maritime protection to keep our sea lanes of communication open and safe.  Since 2001, NATO’s maritime operation, called Operation Active Endeavour, in the Mediterranean, has helped to protect Europe from terrorists – and it has also indirectly helped to keep down insurance premiums for commercial shipping in the process.  And when you also consider that eighty per cent of NATO supplies for its operations in Afghanistan are transported by sea, it is clear to see why the Alliance has a direct interest in the rule of law and order on the oceans.

Today we are cooperating with the European Union to develop a greater naval presence off the coast of Somalia to stop piracy.  This is in response to a request by the United Nations and the World Food Programme for help in protecting the vital flow of food aid to Somalia.  Currently this food aid feeds two million Somalis or around 50 per cent of the total population.  A NATO Standing Naval Group is now heading to the Gulf of Aden and will be ready to intervene whenever necessary.  This is a real problem.  According to the Economist, over sixty ships have been attacked by Somali pirates so far this year and over one hundred million dollars in ransom money has been paid.

At the same time, we have to be ready to protect the essential choke points and navigation routes along which so much of our oil and gas supplies pass each day – but which are also highly vulnerable to disruption.  Twenty per cent of the world’s daily oil supply passes through the Straits of Hormuz.  Twelve per cent of international trade passes every day through the Gulf of Aden en route to the Suez Canal.  So although we cannot protect the whole of the international supply chain, we need to be focused on those nodal points where criticality and vulnerability intersect.

Just recently, as some of you in this room will know, I received a letter from four of the major oil companies asking what NATO could do to provide protection for their ships that pass through the Gulf of Aden to or from the Suez Canal.  I will tell you frankly that I do see complications for NATO in escorting individual private ships and tankers -  the governments of NATO nations and  their taxpayers ask who, for instance, would pay for the price of such NATO naval protection? How would command structures and lines of responsibility be defined?  But given the urgency of preventing growing lawlessness on the high seas, and our own economic interest in making sure that you can deliver your oil and gas as safely and as cheaply as possible to our homes and industries, there is clearly a role for NATO to play and clearly an answer to those taxpayers.  A dialogue between NATO and oil companies would be valuable.  So let’s begin this dialogue. 

I firmly believe that NATO can and must be a force for stability at sea in much the same way that we have acted as a force for stability on land.  To do so successfully, we will have to re-establish maritime security as one of the core functions of NATO.  We will need, in particular, to stop the decline in the number of ships available to our navies? Am I not right Adm. Stanhope? We will also need to see how we can use our existing ships in a more flexible way and to make new ships more modular so that they can be used not only for high tech warfare but also for the routine, but essential tasks, such as escorting shipping and providing security along our coasts.  And we will need to have a clearer maritime identity in our command structure to plan the increasing number of naval operations which I predict we will be taking on. 

We have taken a number of positive steps in this direction already: NATO has just adopted a very ambitious new concept called Maritime Situational Awareness.  This will give us and is giving us the ability to monitor what goes on on the oceans, in the same way that air traffic controllers monitor the situation in the skies.  It will also allow us to share much more data among our navies and with national authorities in coastal areas.  We have already tested part of this concept of Maritime Situational Awareness in our naval operation Active Endeavour in the Mediterranean I just mentioned.  The idea is not simply to use individual ships to deter or check on suspect behaviour, but to develop an entire information and sensor network which can detect anomalies in the behaviour of certain ships and which can use pattern recognition to enhance real time situational awareness.  This information can be shared with the International Maritime Organisation through the NATO Shipping Centre that we have established at Northwood.  Indeed the future of maritime operations will not be just about deploying ships but about establishing such an information and intelligence network to be able to effectively control the maritime domain. 

But we still have to confront some difficult issues, not least in the legal field.  International law, as you know, is not always very clear when it comes to stopping suspect commercial ships or arresting and detaining pirates.  Fortunately, the UN Security Council is increasingly aware of this problem and is willing to pass the necessary resolutions, such a recent resolution on Somali piracy. 

Another difficult question will be how to make the best possible use of our limited resources.  In an age where ships are extremely expensive to build and to operate, policing the seas will also require maximum coordination between those different organisations that are able to deploy naval task forces.  We cannot at sea -- any more than on land -- afford the luxury of competition, duplication or lack of coordination.

NATO’s primary role, then, is to police and to protect.  Our second role is to foster partnerships.  Over the last few years, the Alliance has developed a very extensive network of security partnerships with a large number of countries around the world. Several of these happen to be major energy producers, such as Russia, Azerbaijan in the Caucasus, Kazakhstan and Turkmenistan in Central Asia, Algeria in Northern Africa, and Qatar in the Gulf.  We also have partnerships with vital transit countries such as Ukraine and Georgia. In other words energy security is now very much on the agenda when we meet and develop cooperation with all these countries.  In fact just last week we held a major conference in Doha on energy security with several of our partner countries from the Gulf region. 

I believe that this vast and extending network of relations can help us to increase transparency and our ability to forecast future trends.  It can build trust and confidence by promoting a frank and open dialogue between producers, transit countries, and consumers.  And I hope in time that we can also move beyond analysis and dialogue to more practical cooperation, such as training for the protection of critical infrastructure, or consequence management in the event of natural disasters or terrorist attacks against that very infrastructure.  The interest of many of our partners in this cooperation is growing and we must be ready to respond, not just with good advice and know-how, but with practical and material assistance as well.

Finally, NATO can – and NATO should – support its member states in facing up to energy challenges.  Ever since NATO’s Washington Treaty was signed in 1949, we have agreed that Allies have the right to put on the NATO table any issue which they believe affects their security.  Energy security was identified as a challenge in our last Strategic Concept, which dates back to 1999.  Now I am not suggesting that NATO should be the place where decisions are taken on where the next pipelines should be constructed, nor that NATO would be the first responder in an energy crisis situation – I acknowledge that other international organisations are better suited for those tasks .  But I do believe that the NATO Allies should regularly consult on energy trends and try to reach a common analysis of our strategic vulnerabilities – and that is most definitely a role for NATO.  In short, NATO can and should act as a catalyst in persuading our countries to take a more strategic look at energy security and to develop a more collective approach.  Because it is obvious that energy suppliers need energy buyers as much as the other way round.  But it is also just as obvious that the energy buyers will not get the best commercial deals, nor maximize their negotiating leverage, nor guarantee their individual energy supplies in the long run, if they do not take a unified approach vis-à-vis the major suppliers.  A frank and open dialogue within the Alliance can help to foster this sense of common strategic interest.

At the same time, NATO can provide practical assistance in an emergency situation to any Ally who requests it – for example, as a result of a major attack against its energy infrastructure or even as the result of a natural disaster.  You will be aware that, a few years ago, Hurricane Katrina shut down the oil production facilities in the Gulf of Mexico for several days.  And that Hurricanes Gustav and Ike had a similar impact just a few weeks ago across the southern part of the United States, though who am I to say that in this company.  But you are probably not aware that NATO has been very active in the field of disaster relief and civil emergency planning for many years already and its coordination mechanisms and unique capabilities could well be activated in the event of an energy crisis. 

Ladies and Gentlemen,

Just as war is too important to be left to the generals, I believe that energy security is too important to be left only to market mechanisms..  For an issue that is so vital to our social and economic well-being, we need to bring all of our capabilities and assets into play in a coordinated way.  NATO has already begun to act in such a coordinated way -- with its own members, with its partner countries, and with other international organisations.  But up to now there has been one missing link in this important network of cooperation – which is dialogue with the private sector represented by you here this evening.  So once again, I am delighted to be here, to listen to your views as you have so graciously listened to mine, and to get this much needed dialogue under way. Thank you very much for listening.