Atlantic Council Energy & Economic Summit: “New Opportunities in a Dynamic Region”

Breakfast Briefing: World Energy Outlook

Orhan Taner, 
Director, Energy & Economic Summit,
Atlantic Council

Fatih Birol,
Chief Economist,
International Energy Agency (IEA)

Christof Rühl,
Chief Economist,

Fuji Ballroom II
Swissôtel, The Bosphorus
Istanbul, Turkey

7:30 – 8:50 a.m.

Friday, November 16, 2012

Transcript by
Federal News Service
Washington, D.C.

ORHAN TANER: Good morning, everyone. Thank you. Good morning again.

I am Orhan Taner. I am the director of the Atlantic Council of Energy and Economic Summit. I met personally many of you in this room, and I hope you enjoyed the first day of our summit. We have another great program today, as you know, which goes all the way into our gala dinner tonight at the Ciragan Palace, and we hope to be able to see you in our sessions this morning and this afternoon.

And we have the honor to start the day with a great panel, with our very distinguished guests. We have a little bit of a time constraint on our morning program, so therefore, I am just going to go right into introducing our panel very briefly and then give the podium to our keynote speaker. At the end of our panel, our distinguished guest, Mr. Christof Ruhl, who is the group chief economist and vice president of BP. Prior to working at BP, he was with the World Bank group and he was a professor of economics at the University of California at Los Angeles. Dr. Ruhl is a specialist in macroeconomics and energy economics and he is widely published in this field.

Next to me, as many of you know very well, is Dr. Fatih Birol, who is the chief economist of the International Energy Agency based in Paris. He is also the founder and the chair of the IEA’s Energy Business Council. There are so many things that I can tell about Dr. Birol, but for the sake of time, I’m going to skip all of that, just to mention that he was also appointed the chairman of the World Economic Forum’s Energy Advisory Board.

We are again honored and privileged to have such a distinguished panel. First thing, the International Energy Agency’s small book of – (inaudible) – the “World Energy Outlook,” was published, only 2000 and throughout only about four days ago, from November 12. Again, we are very lucky to have Dr. Fatih Birol, the chief author of this report, here with us.

So, without further ado, Mr. Birol, the podium is yours. And thanks for being here, to both of you.

FATIH BIROL: So, good morning, ladies and gentlemen. It is a great pleasure to be here, and I am very impressed, I should say, with the Atlantic program, with the meeting and how many important players are here in this summit. I am very happy, as somebody who loves this city very much.

As Mr. Taner mentioned, we just released our – (inaudible) – publication, “World Energy Outlook.” There are a couple of messages coming from the book on the efficiency side, on the water, climate change and others. But I will skip all of them and focus on one issue today with you, which is the issue of the effect that the foundations of the global energy system are shifting, and shifting in a significant and in a rapid way. And it will affect everybody. Even if you are not the driver of this shift, you will be definitely affected from the consequences of that shift.

So, I will talk about this very briefly today. Much of the drivers of the shift, on the oil and gas side, the – (inaudible) – national energy oil and gas boom in the United States and Canada — and I will come to that in a minute – as well as the changes happening in Iraq. Why Iraq? Because not only the production is going to grow significantly, but at the same time, Iraq has a different way of running the country, different in lesser frame, compared to some other major producers in that region.

Another driver of this change is the very fact that some key countries in the world are changing their plans as far as the nuclear energy is concerned. Germany, Switzerland, Japan, and maybe in France are changing their plans and cutting back their nuclear targets, phasing out nuclear. This would mean that that energy, which is supposed to come from nuclear, should come from other energy sources – natural gas, renewables, coal and others. So that’s the second driver.

Third, and the not very well known driver is the one on the energy efficiency. At least four major economies recently, within the last one year, put legislations on energy efficiency, which is a major impact, using energy more efficiently. China, in its last five-year plan, is a very strong target. Europe has a very stringent energy efficient directive now. The United States has fuel efficiency standards put in place, and also Japan has a very important electricity efficiency legislation now.

Another point I am going to look at today is the oil prices. And here, my distinguished colleague, Dr. Ruhl, I am sure, is going to talk about the oil markets in depth. Everybody, when we talk about the prices, the high prices, can remember the $147. It is good from a perspective as a speculation point of view, but now you look at the average price of the year, first of January, this year, and the first of November, we hit, on average, the highest oil prices ever in the history. And ladies and gentlemen, this is a significant problem, because, I believe so, for the economic recovery of many parts of the world.

But, when you look at the gas prices, natural gas prices, I should say, there is a major discrepancy between the gas prices in the United States, Europe and Japan. In Europe, we pay up to five times higher natural gas prices, and in Japan, up to eight times higher. This is striking. But what is most striking, I believe, which is very important, only five years ago, those prices were, in three regions, almost the same. There was only one (dollar) or $1 ½ difference. So, Europe, U.S. and Japan prices are very close to each other, and now five times higher and eight times higher. There are many consequences of that, which I will come to in a minute.

A couple of other issues, which I think are important, fossil fuel subsidies are increasing substantially, killing the chances for renewables, killing the efficiency efforts. And this year, we have observed that there was an increase of fossil fuel subsidies, oil, coal and gas, about 30 percent increase, mainly coming from the Middle East and North African countries. In the year 2010 we had thought that most of the countries in the Middle East and North Africa had plans to phase out the subsidies to improve their economies, but after the Arab Spring, what we see is that subsidies have in fact increased rather than decreasing.

Climate change, very great. Carbon emissions increased an additional – (inaudible) – last year, which made us closer to the point of no return in terms of climate change and this is a big worry. And at the same time, renewable energies are going through very difficult times. Many governments are reviewing their subsidies schemes in terms of renewables, and we may well see more and more pressure on the renewable energies.

Now, one point that many of us don’t think about and persists at the heart of the agenda of many of us, but since we have a lot of colleagues from the U.S., I know that the U.S. Secretary of State is very keen on this issue, namely energy access of the poor. We followed this issue since ten years. The point is, ladies and gentlemen, 1.3 billion people, about 20 percent of global population, they have no access to electricity, in sub-Saharan Africa, in South Asia and elsewhere. And this is an economic issue, but maybe beyond that, a moral issue.

My final point in the context, issue of water. We need more and more water for energy use and it is becoming more of a problem in the next years to come, as the water resources are scarce and energy needs more water. As such, the limited water becomes important criteria when assessing the feasibility of many energy projects.

Let me look at the future, which is, the future doesn’t bring very good news for the organization I am working for, the International Energy Agency. When we were founded in 1975, our member countries’ share in the global energy use was about two-thirds. And now, when we look at the future, it will go down to about, down to one-third. Our member countries — the U.S., Canada, all European countries, Australia, Japan, Korea and New Zealand. So, our role in terms of energy demand is going down, and the role of the emerging countries, especially, China, India and the Middle East, is increasing substantially.

So, this means decisions in terms of energy demands taken in Beijing or New Delhi will affect all of us in terms of energy demand. Even though these decisions may be focused on their domestic markets, through different linkages, it will affect all of us in the next years to come, and the very fact that, as this slide shows you, the center of gravity of the energy demand is moving to east, leaving west.

Now, we – in our report, we paid a lot of attention to the U.S. energy picture. U.S. conventional oil production was declining through years and years. And as a result of the technological developments that many of you are familiar, we see an increase on the tract oil and as a result of that, we expect, as you might have heard, the U.S. will be a top oil producer before 2020, around 2017, overtaking Saudi Arabia.

Having said that, it should not be misunderstood, Saudi Arabia is and will remain the largest oil exporter of the world for several decades to come, but U.S. will be the top producer, and of course, most of this oil, if not all, is going to be used at home in the United States.

The second one is on the natural gas front. Conventional gas was declining, and now we expect this, as a result of the shale gas revolution, we see a major growth in U.S. gas, and as a result of that, very soon, in five or six years’ of time, we should see U.S. is exporting gas. So, this change that is happening in the United States has implications for the entire energy markets in terms of the trades, in terms of prices, including domestic prices, and in terms of geopolitics.

And, I would like to talk a few words on the Middle East and the changing geopolitics of the energy picture. First of all, the United States, let me start with this. U.S. oil imports in general are declining, and especially from the Middle East. When we look in the distance, we expect that the U.S. oil imports from the Middle East, which was a significant chunk a few years ago, will go down almost to zero. So, very soon, U.S. may not need to import any oil from Middle East. This is definitely something to take note of.

But something I think even more important, because we have perhaps focused too much on the developments in the U.S. and don’t look at the consequences of that. One consequence is that Middle East oil, only a few years ago, about 50 percent less going to east, mainly in Asia, and 50 percent to west. What we expect is that in the next two decades, about 90 percent of the Middle East oil will go to Asia – 90 percent, which is almost everything. So, therefore, there is a new trade access being built between the Middle East, the Gulf region and Asia — Beijing, New Delhi, and Seoul and others. So this is something definitely we want, I believe, there are many colleagues who know the feel the transition much more than me, but I believe these may well have consequences for the foreign policy making.

Now, one word on Iraq. I mentioned the foundations of the global economic system is shifting. Much of it in the U.S. and Canada is important, definitely a determining factor. But Iraq is also very important. We made a special report on Iraq this year, and I had the pleasure to present it in Turkey again, with the Atlantic Council. Iraq production is set to double from 3
(million) to 6 (million) within ten years’ of time, and grow further to 8 million barrels per day. I know that there are many colleagues from the foreign office, foreign services here, many distinguished ambassadors.

If you want to take one number at home – there are so many numbers I am saying – the number I would suggest is the following. According to our analysis projections, and I should say that our projections for Iraqi growth is much more modest than the Iraqi government’s projections of it. The number that I suggest that you keep in mind is that we expect about 45 percent of the growth in the global oil production will come from Iraq, and the rest from all other countries put together.

So, almost every second barrel coming to oil markets, global, oil markets, the first one will come from Iraq and the rest from the other countries. And Iraq is also providing a lot of oil to Asia in the future. And China is a very important destination, about two million barrels per day to go to China. And there will be another way around. When I say the Iraqi production growth is that much, 30 percent of that growth in Iraqi oil production will come from the fields, which are either directly owned by the Chinese companies, or co-owned involved by the Chinese companies.

So, this is also something that we have to keep in mind, which I call new trade access, B to B, Baghdad to Beijing, both ways, oil is going and investments coming. It’s not only the oil sector, but also the other parts of the infrastructure developments. My initial guess, participating in the shale gas business is definitely changing, in both U.S., Canada, Australia – let’s don’t forget Australia – catching up to Qatar very soon as one of the largest energy exporter of the world.

And yet to come, China. Please don’t forget this, what I’m suggesting here to remember. China may well make a major surprise in terms of the shale gas production very soon, truce efforts are going. And these changes in the shale gas changing divert, as we had predicted four years ago in the World Energy Outlook. At that time, I said – (inaudible) – a silent revolution is taking place in the United States, and now it became very loud and is going everywhere.

So, this is turning the trade picture, as it is out of these developments, trade is becoming much more widespread ,and this has major implications, mainly for the traditional exporters. Traditional exporters are losing from volumes they are exporting, and also their pricing regime will be more and more under pressure. The gas importers have more chances now to discuss, negotiate with the traditional gas exporters, to have better prices. The United States gave a major gift to the gas importers in Europe to make their hands stronger. I am not sure that this was a deliberate gift but, at the end of the day, it was a gift given to Europeans to discuss, to maybe enhance strong use of the major gas exporters.

So, I am coming to the end of my words, and one word on energy security, which is, as we know, very closely linked with national security, with economic and the vulnerability of the economies. And there is a big sign of a shift here. When you look at major economies in the world, their energy security and their energy imports are huge, and for example, China here, today imports 15 percent of its gas needs and 50 – about half of it is oil import needs. And for China, it’s a major concern, a major concern.

And then look at the future, all of these regions, oil and gas imports are increasing substantially with major implications on the vulnerability of the economies on their foreign policy positioning and other things. And this is not the only thing. The surprising thing is the United States, while everybody’s oil and gas imports are increasing – except for Japan, because it cannot increase to more than 100 percent – the – all of the United States goes to completely the other direction. In the United States, we see that the, as the U.S. has worked to export gas and the oil imports go to very, very low levels.

But I would like to mention to you one thing. After we published our report, we had a huge, beyond our expectation, media coverage, with the U.S. becoming self sufficient and so on. But they missed a point, and this is very important, and I wanted to, even though, it may sound very technical, I wanted to share this with you. It’s not technical. It is something that what the first Obama administration did and many people don’t know. Perhaps – (inaudible) – as well.

Now, the success story about the lessening oil import dependency or self sufficiency has not one, but two factors behind it. The first factor is, as everybody knows, as I tried to say, the increase in the oil production, which is very well established, and I think everybody knows, our numbers are here.

But there’s a second one, ladies and gentlemen, I would very much like to bring to your attention. Namely, as a result of the recent fuel efficiency standards, so-called the CAFE standards, thinking of that, that the Obama administration, the first administration put in place, there’s also a strong downward pressure on the oil, domestic oil use in the U.S. So, it means the U.S. will not only produce more oil, but consume less oil at home, because cars are becoming more efficient, need less oil to go, to drive the same amount of perimeter.

So, there are two factors here: more oil production and less oil consumption at home, and the combination of these two brings you to self sufficiency. Therefore, this is, I think, an example for many countries around the world, pushing the energy efficiency button in addition to increase the domestic production levels.

So, one final slide as I am finishing here. What does this all mean? We talk about the gas, oil markets. There are at least two implications of that, one is a geopolitical implication. I believe to you, I put a couple of dots there. But the other one is on the economies and competitive economies of different countries. This is the electricity prices in the future under this vision. How do they go?

What you see here is that, for example, in the case of Europe, European electricity prices will be about 50 percent higher than the U.S. electricity prices, and almost three times higher than the Chinese electricity prices. And this is huge. Anybody, I don’t know if we have colleagues of manufacturers here, will tell you that this is a major issue for them. And the reason why Europe pays so much for electricity prices, there are a couple of reasons there. First of all, in Europe, we use gas – very expensive compared to U.S. and China. Oil-index gas pricing is very, very expensive.

In Europe, we have subsidies on renewables, which comes unprotected. In Europe, we have a CO2 price, a carbon price, that other parts of the world do not have. And in Europe, some of the countries made a decision to phase out nuclear power, don’t have nuclear power plants, which are producing electricity at low cost. And as a result of that, Europe electricity prices are very high – bad news for Europeans and good news for Americans and the Chinese.

And this is for two reasons. One, in Europe it would be the manufacturing industry which would suffer because of the competitiveness issue, vis-a-vis the other countries. One of the major input, especially for the heavy energy industries, they will use much more expensive energy to produce the same goods, and it will be more and more difficult to compete with the American and the Chinese companies.

And the second one is the – (inaudible) – the producing power will be negatively affected when you compare the citizens of the United States and Chinese. So, from that angle, I believe this picture, plus the picture I told you about the natural gas prices, also very different history of major consequences for the U.S. economy in a positive sense, and it would be a major challenge for the European economy.

So, let me just put my talks together. Policymakers – we have a lot of distinguished prime minister here – will face tough choices in terms of energy policies, especially in the next few years, because some of the decisions they may make on energy may very well have negative consequences for economy, and for me, for example, phasing out of nuclear power is one of them, from my own personal view, or some decisions they take on the environment may very well have implications for the economic performance of those countries.

So, it is very important in the governments that there is a consistency of those policies are crucial, not only to look at one issue, one topic, but the general implications of that. The changes in the global energy system is important. Foundations are shifting rapidly and this will leave implications for the economic positioning of different countries and also the geopolitical structure. Iraq is set to play a crucial role. South of Iraq, central Iraq, north of Iraq, they are all very important and I think, the production growth will come from the entire country, will have implications for the global oil and gas system.

I didn’t talk about climate change today, and it is a pity we didn’t have much time. But the later we move on climate change, the more costly it will be to fix the problem. The more costly it will be, the more difficult it will be to have agreements – (inaudible) – among the countries. So therefore, we may well be too late already to make the necessary steps in that direction.

And, finally, I didn’t talk much, but the major part of our – (inaudible) – energy efficiency – and we already saw a revolution on the unconventional energy incomes of oil and gas in the last few years, and it’s continuing. And I very hope that we will see another unconventional energy revolution on the energy efficiency side very soon, including in my country, Turkey.

Thank you very much for your attention. (Applause.)

MR. TANER (?): Before I want to turn the podium over to Dr. – (inaudible)

MS. : (In foreign language.)

MR. : When – (inaudible) – and I discussed about the timing of this panel, I insisted that we should have it during breakfast because I know that he always makes some eye-opening remarks. And by looking at the audience, I saw that a lot of eyes opened up right at breakfast. So thank you for that as well.

Dr. Ruhl?

CHRISTOF RUHL: Good morning to all of you. Thank you very much for the invitation and for the opportunity to do this difficult job.

First of all, I think congratulations are in order. We all use the world economic and world energy outlook. We all appreciate it. It’s transparent. It’s well founded. And most importantly to me, it helps all of us to lift the debate on energy on a slightly higher level. And most of us will agree that this is badly needed.

The attendance today confirms that you and your team have done that again. The interest is large. People are willing to take on these issues. And for that, I think it’s not only congratulations, but you really deserve a big thank you from all of us in the industry.

Secondly, it’s almost – it’s a very tough job to comment on this thing. It’s not only that it’s very big and very substantial; it is also a particular setup. So how does one normally approach a comment on projections? One could say, OK, I compare it with other projections and then nitpick around for a difference – (inaudible) – that’s not possible because the international energy agency is quite expressive that this is not a forecast but rather an exploration of different various policy scenarios. And so comparing it with other forecasts like that one – (inaudible) – would make little sense. All we will discover is that both are wrong but for very different reasons.

The second approach is one could pick numbers and disagree on them, but this is a big tome of work, and so we would still be here tomorrow. It’s also not very useful.

So when I – when I was thinking about it, what I decided to do was to concentrate on two areas or on the overlap of two areas. I want to concentrate on a few examples where the world energy outlook actually postulates a change in historic energy trends; so where it says history was different from where we will be going.

And I want to throw some light on this – on these areas by looking at the scenario approach, by asking how would the insights gained from the world energy outlook possibly change if I’m allowed to deviate from the underlying policy assumptions which determine much of the results in the world energy outlooks? I’ll give you an example of this and it will become clearer.

The first such topic is energy efficiency or energy intensity. Here I have no quarrels in translating energy efficiency into energy intensity which, for those who don’t know is a measure which is the broadest possible efficiency measure really, which is the amount of energy one needs to produce one unit of GDP. That, I think, is a useful measure.

And here, the WEO postulates a change in trends from a deceleration of improvements in energy intensity to an acceleration. Now, I have no quarrels with that result, but I think it misses a bit of an opportunity. In the WEO, this is the outcome of policies and of regulation. In fact, I think in history, the single most important driver of improvements in energy intensity over the long term have proposes been structural shifts in the economy. There is this well-known picture that energy intensity across all the countries we know, with the exception of the Middle East, and also for the world as a whole, first rises then peaks and then falls. And that rise and peak and fall coincides with the normal pattern of economic development as people move from low energy-efficient agriculture into high energy – sorry, from low energy-intensive agriculture into high energy-intensive industry, energy intensity rises pretty steeply. And then, as people and production move from industry into lower energy intensive services, it starts to decline gently.

There are insights to be gained from this historic approach. One of them is that we are actually, for the world as a whole, having the lowest energy intensity level or the highest energy efficiency in the world since about a hundred years. Another one is that we have observed a very rapid process of conversion where the differences across countries increasingly disappear and countries become more and more similar in the age of globalization.

The differences between countries and energy intensity today are the lowest since the beginning of industrial – of the Industrial Revolution in Great Britain. Why does this matter? I think it matters because it would indicate a certain degree of caution as to the speed with which energy intensity is likely to proceed in the future, and the speed which is postulated in the WEO is quite high compared to what others say. And so here, I think, a view of history would add a grain of salt and of caution to this – to this projection.

The second point I would like to raise is energy efficiency. There is a whole section on this important topic which outlines efficiency gains which are possible and, it is said, are all economically viable. But this reminded me of a bad joke among economists which comes from the University of Chicago where you have the situation where a student comes to his course with a big, big smile on his face, and the professor – it has to be an economics professor – asks him, so what are you smiling about. And the student says, I’m smiling because I found five bucks on the sidewalk on the way to school. And the professor says that’s not possible. And the student says, what do you mean it’s not possible, it just happened to me. And the professor says this famous saying – there are no $5 bills on the sidewalk because, if there were, somebody would have picked them up.

And like all bad jokes, to me, this has a kernel of truth. And that kernel of truth in the energy efficiency scenario is, if it is so easy and if these options which, again, are all derived in terms of regulation and changed policies, if these options are economically sound and beneficial, why hasn’t it happened a long time ago?

In that respect, there is always – when one wants policy changes – and all of us want to have better energy efficiency – there is always the possibility of pointing at the carrot, which is down here, or exploring why it didn’t work. And in that sense, I would have wished myself a bit more of the exploration of why it hasn’t happened and where the obstacles are, rather than just the postulants that it can be done, and it actually would be quite easy.

A third example is the rapid growth of renewables – which is projected in the report – where we have a world contribution of commercial renewables – so without the biomass which the (IEA ?) includes – which goes up from 3.5 percent between 2010 and – from between 2000 and 2010 to about 20 percent for the next few years. And it is, as the WEO is quite open about, it is all subsidized. In fact, there are huge subsidies postulated to keep this going. I think it’s about $288 billion.

Now, if one wants to look at renewables and the experience, one has to look at Europe. That’s where they have to be around – have been around the longest and where their share is highest. What happens in Europe, also observed in the report, is that in country after country now, we are seeing subsidies being cut not because people don’t like renewables anymore, but because they became too expensive.

There’s a very simple rule of thumb. If the rate of expansion of subsidized fuels such as renewables is faster than its productivity gains, then the amount of subsidies has to increase to sustain that expansion. And so in a very real way, in the region where they are most advanced, they became, to some extent, a victim of their own success where governments, surprisingly, cut down subsidies because they couldn’t afford it anymore.

And yet if one translates the underlying assumption in the world economic outlook, it comes to an increase, an annual increase, of subsidies in real terms of 4.3 percent every year until 2035 in real terms. That is higher than the underlying rate of GDP growth. And I, for once, had my doubts that this can be sustained, and again, I think we all want more renewables, but one probably has to be realistic and emphasize that the (rulebook?) of governments – again, the rules of the process scenario are not enough to accomplish this. One needs more competition. One needs to unleash the innovation potential in a better way. And one needs a change in relative prices through carbon prices to accomplish that, I think.

And then fourth and the last point I wanted to raise is on the underlying prices, in particular, as you guessed rightly, on oil prices. Again, here the world economic outlook postulates a change in historic trends by having very high – very aggressive oil price assumptions. In nominal terms, I think $215 in the new policy scenario, $250 in the currently policy scenario by 2035.

Now, that would put us certainly in new territory, and it raises the specter of two big changes in the system; one on the demand side, where the report postulates ongoing subsidies for fuels which are high to an extent which I cannot actually – which I don’t find in the data – but it’s quite likely that if oil prices like that demand reacts more flexible than is assumed there.

And the other and more interesting aspect would be potentially on the supply side, because with these assumptions of very high oil prices and, at the same time, very rapid supply growth in North America – but also in place like Iraq – the question is what happens if we enter a period of low oil prices. That would potentially change all sorts of things. Among other things, it will have an impact on the rate of growth of unconventional oil supplies in the U.S. and elsewhere.

So these are some of the sort of fault lines where I think the scenario approach derived from what is possible in terms of policies collides a little bit from a perspective which would come from more history and more economics. And overall, then this leads to conclusions like – that the scenario which has the higher prices has actually the lower efficiency improvements, and the one which has lower prices has higher efficiency improvements.

And in that respect, I think, one of the big services the report does is that it enables us to have this kind of discussion. And in that respect, I think the most productive parts of the report, in a real sense, are very controversial to these real growth observations. And I hope that we can have that discussion in that – in that spirit.

Just one last remark – because you mentioned it explicitly – the story about oil and energy efficiency, where it really puzzle me was in the assumptions about the Middle East. The Middle East is different from other regions. It was the only region in the world where energy intensity continued to increase, not to improve; energy there is oil and gas, basically.

The – (inaudible) – postulates that, within the next 10 years, that increase turns into a decline and a rapid improvement in efficiency. And that’s another of these points, but I’m not sure where it comes from, but I think it’s probably a good way to start to connect that to your – (inaudible).

All in all, a tremendous piece of work; I’m really grateful that we have it every year. And don’t take these things in the wrong way. (I have faith ?) in almost all of the big picture at a glance, but I have here just matters of perspective rather than detail.

Thank you. (Applause.)

MR. TANER: Thank you, Dr. Ruhl.

We have probably about another 15 minutes left. I’m sure there are a lot of questions from the floor for both Dr. Birol and Dr. Ruhl.

But in terms of also programming note, we are, again, privileged to have Dr. Birol later on today on a different panel on unconventional gas.

So leaving those issues to that particular panel, I just want to ask you very quickly: Obviously, the energy efficiency seems to be a very important topic. And in your report, you are talking about six principles. Your reaction to Dr. Ruhl’s remarks – and if you could elaborate on that and then we will take some questions from the floor. Thank you.

MR. BIROL: Energy efficiency is a very important field, in fact, which is a field such as oil, gas, electricity and others. But we do not use it. Our analysis has shown that we only use today about one-third of the economically available energy efficiency potential. And I say economically available.

Why energy efficiency is a problem? The problem is the following. I’ll explain very simply. You are going to buy a car. You go to the car dealer. There are two cars there. One of them is $10, the other one is $8. The $10 one is more energy efficient – exactly two cars, more energy efficient but $2 more expensive. So what do you do? You normally go and buy the $8 car. This is the same thing for the refrigerators, the same thing for the factories. This is the same thing for the buildings and so on. There should be a mechanism in order to provide the person who goes to the auto gallery to buy the $10 car to make him or her understand that this $2 difference will pay back in a few years of time.

And our analysis shows that about – we can improve our energy efficiency – how we use energy – at least 60 percent by making the right choices. Governments need to provide incentives in order to have the decision-makers, the consumers, to go and buy the more expensive in the beginning, but more efficient infrastructure, equipment. This will pay back.

And this needs a major organization of the governments’ energy ministries, finance ministries, construction ministries, and all of them come together. This is a very complex issue, much more complex than the commercial energy sources and so on, but this can be done. And we can provide the – (inaudible) – of that. And energy efficiency is also very crucial, not only making money, and making it – (inaudible) – benefits (about ?) everything climate change.

Climate change is unfortunately, I should say, sliding down in the international policy agenda, and it is – I believe it is our role, including the oil companies, to bring it up because it is the rich and poor, south and north. It is everybody’s problem. It’s a major challenge for all of us. And energy efficiency is definitely a tool to end this climate change in addition to bringing economic gains and improving energy security.

MR. TANER: Thank you. I’m just going to go directly to the floor because I already see hands coming up, and we have about like six or seven minutes left.

So I believe that we have a question at the table, if I can get a microphone there, please. It’s coming.

Q: Well, it was extremely interesting. Thank you. It was very clear that this independence of the United States concerning energy makes it stronger, more competitive. But we, abroad in Europe, in Middle East, ask ourselves what does it mean concerning the engagement of the United States in the Middle East and abroad.

I’m not talking about neo-isolationism. There are other subjects – Israel, Iran, proliferation, but even the gradual retreat of the U.S., because it’s not necessary anymore to engage as they used to be because they are energy independent, would mean a lot.

So do you have any comments about what this means in foreign policy terms for the whole world, this new energy independence and strength of the United States?

MR. BIROL: I think this is a very well justified question, but I am an expert on two things. One is energy. The other one is football, so nothing to do with the other thing. (Laughter.) It is beyond my professional mandate, but what I can tell you is that if we can get those trends, there may be a need for a different look from the U.S. side on the U.S. engagement in that region from an economic incentive’s point of view, because there’s an important change there as all imports will be coming mainly (in very little terms ?), and mainly from Canada, Mexico and Brazil in the future.

But this, of course, economic incentives are not the only driver for the U.S. engagement as far as I know in Middle East. But there are much more difficulties here, and all this is much better done.

MR. TANER: Dr. Ruhl, one or two sentences, because I see other hands coming up too?

MR. RUHL: (It’s about the same ?) – I’m not as good at football expertise probably, but I would say that much at least. It certainly could mean that the ground on which energy policies have been based is shifting. And personally, I have no problem in visiting a Mr. or Mrs. U.S. president, say, in 2030 who looks at some problem in the Middle East and says, well, no skin off my nose. I will only need very little oil to import, if any, and that I can get from Canada or Mexico.

And we all know markets and politics and nature don’t like bad jokes. So something has to fill the gap, and I think you can see on – (inaudible) – graphs that as the U.S. becomes less import-dependent, other countries become more import-dependent. And that’s where I stop and where speculation starts, because we don’t know.

MR. TANER: OK. Let’s take a final question. Then we have to go. Any other questions from the floor? I guess not.

In that case, I am going to ask each panelist to please make closing remarks if there are any.

Dr. Ruhl, please start with you.

MR. RUHL: Well, in a nutshell, again, I’ll reiterate the things we have in this community, to this service. And I would also like to reiterate – to encourage maybe a world in which it is possible to – (inaudible) – (more to what’s ?) a most likely scenario and take a – (inaudible) – on some of these historic economic factors and less being dependent on basic policy assumptions, which we all know change over time.

But that’s such a methodological criticism that it is almost not touching the publication.

MR. TANER: Thank you very much.

Dr. Birol?

MR. BIROL: Just one line only – only one line, and that will do with oil and gas. I talked enough about oil and gas, and I’m sure you will talk a lot about oil and gas today and yesterday. It is about climate change. I am sorry to mention that.

Now, recently, when I get the political picture – (inaudible) – Atlantic has been widening. And I hope with relations on both sides of the Atlantic – with the new picture, I think Atlantic – I hope Atlantic can be narrowed down a bit and the joint efforts to address the climate change in both sides of the Atlantic can be a cornerstone of this new look at the Atlantic, both from the American side and from the European side. This is what I expect from the leaders in Washington and in Europe.

Thank you.

MR. TANER: Thank you. I just want to thank both of our speakers, not only for their wonderful remarks and for being here with us, but also sticking to the time. That helped a lot.

Our next session starts at 9:00, and we will see you throughout the day. Thanks a lot. (Applause.)