Muller Lecture by Minister of Foreign Affairs Frans Timmermans, Monday 25 March 2013, The Hague

Toespraak | 26-03-2013

Ladies and gentlemen,

Throughout history, there has always been a close connection between innovation in the field of energy and the geopolitical make-up of the world.

In 1824 Nicolas Sadi Carnot, the French son of one of Napoleon’s war ministers, wrote a book called Réflexions sur la puissance motrice du feu et sur les machines propres à développer cette puissance. Carnot was the first to comment on the ‘great revolution’ that oil, coal and gas had set in motion in the civilised world. He argued that for the first time in history, humanity had broken free from the limitations of man and animals. The locomotive engineer, it was proclaimed, now held the power of 100,000 men in his hands.

In 1939, two German scholars published a paper on Kernspaltung. Scientists were quick to see the implications of the discovery. Within three months, 18 scientific teams in five different countries confirmed the discovery and were feverishly thinking up ways to apply this new power. For succeeding generations, it was crystal clear that atomic power would revolutionise the world in the same way Carnot had predicted that fossil fuels would. But the ‘collateral damage’ caused by nuclear power has been too high. Hiroshima, Chernobyl and most recently Fukushima have cast a dark veil over its future. Nuclear energy will be part of our energy mix for generations to come. But I suppose that most countries will look for alternatives as soon as they can.

Just when the world had come to terms with the continuing dominant position of oil and coal in the energy market, the United States made an unexpected move: it invested heavily in fracking. And although at first sight it seems only another way to produce more oil and gas, this invention is worthy of Carnot’s label: it is a ‘great revolution’ once again. Fracking is a game changer and energy strategists all over the world are thinking hard what the consequences could be.

With shale gas, the US now has a much cheaper and cleaner energy resource than oil and coal. This will have consequences for the economic structure of the United States and thus strongly influence economic structures elsewhere, including Europe.

So the face of the world is changing. Geopolitical relationships are shifting. We need to rethink our national and European energy, resources and climate policies. And we need to do so quickly. There is no time. Europe has to protect the welfare of its people, its security and its global position.

But before I get to the solutions, let me run through some of the intricate underlying problems. The first of which is growing demand.

The world’s population will grow by two billion people in the next 20 years.

This growth will take place largely in developing markets in Asia, Africa and Latin America. And over the next generation, many people on these continents will see an enormous rise in their pay cheques. The middle class will grow by hundreds of millions, which is absolutely great. We’re always focusing on the challenges this poses. Just imagine what a great success it is for these continents and these nations to see so many people moving up the income scale and reaching middle-income levels. This is a dream come true for many people from previous generations, who wanted this for everyone in the world.

So if these people move from an income below 10,000 dollars a year to an income between 10,000 and 30,000 dollars a year, it will make a world of difference. There is a song by Katie Melua, I think, called ‘Nine Million Bicycles in Beijing’. Just imagine nine million bicycles becoming nine million motor cars in Beijing, and all these cars needing energy and gas. What this will mean for demand in China alone. And people with higher incomes change their living patterns. They change the way they eat. They eat more meat. And more meat means more crops. You need more water and you need to feed more animals. So the rise in the world’s demand for resources, water, land and energy will be enormous.

Let’s focus on energy. The increase in demand for energy in the next two decades alone will be greater than all the energy the world consumed in 1970. By 2030, the demand for energy will be 35 to 40% higher than it is today. This sounds challenging, but we can meet this challenge. The real problem is not that we’re running out of fuel. The real problems are high prices, conflicts over resources and environmental stress.

Because new techniques – most importantly fracking – mean we can meet the world’s increasing thirst for energy. The most important development in the energy market is the huge increase of gas and oil production in North America. For years, the exploration of the shale gas and oil that is buried deep beneath the face of the earth in the US and Canada was deemed too costly for successful exploitation. But the high oil price of the last few years has totally changed the equation. Now shale gas has revolutionised the energy market. Where for decades the United States had to import two-thirds of the energy it needed, now it will become an energy exporter again. The United States will be the biggest gas producer in 2015 and the biggest oil producing country in 2017. Because of fracking, the United States has reserves of 6.5 trillion barrels, compared to the 1.3 trillion in the Middle East. Shale gas has also been found in Algeria, Mauritania, Niger and Mali.

But this also means that the price of gas in Europe is currently three times higher than it is in the US. Asia pays six times as much. And the price of oil is rising as well. China and India will double their demand for energy over the next two decades. They get it mostly from the Middle East and Latin America. According to the International Energy Agency, in 2035 about 90% of all oil from the Middle East will go to Asia. And China is investing heavily in Latin America. The expansion of the Panama Canal with Chinese funding is a case in point. Broadly speaking we can say that the oil trade is moving east.

Let’s take a look at Europe. At the moment, Europe imports 60% of its energy. In 2035, this will be 80%. Europe will have a hard time competing with China and India for oil from the Middle East. As energy expert Fatih Birol put it, ‘The energy future of the EU will be shaped more in Beijing than in Brussels.’

Moreover, when energy gets more expensive, the prices of food and transport go up as well. This could hit our competitiveness. High energy prices are not good for investment. On the other hand, high energy prices are good for transformation. And they’re also good for proximity to markets. With Europe in a prime position to profit from this, with 500 million consumers. And they all want to buy stuff, with their high levels of income. Even though we’re going through a crisis. And if you have proximity to markets that’s good for Europe.

International markets do not function according to the laws of supply and demand. In the energy and resources trade, state companies dominate the market. We are witnessing resource nationalism. The state is back. And it is back with a vengeance.

This is not a sector that you can outsource to private companies, even if some of their balance sheets are bigger than certain national budgets. Europe and the Netherlands have to address this issue by political and diplomatic means in support of, and in addition to, the activities of private companies. We shouldn’t be naïve about this. All across the world the state remains in firm control of energy resources and energy markets. And we should be aware of this. We should organise ourselves as Europeans in a way that allows us to counter this if necessary and allows us become a big player if necessary – and it will increasingly be necessary.

One question you might ask is: why don’t we start searching for shale gas ourselves? Well, we will be starting in that field. All across Europe you can see the first moves. Even the Russians have told me that they are now looking at possibilities in that sector. And I say even Russia, because they have so many other resources they can build on.

But it is more difficult for us in the Netherlands than in many other countries, for obvious reasons. Our national circumstances. The fact that we are densely populated. And the fact that there are very complicated environmental issues, such as the use of water. My fellow minister Henk Kamp has ordered an investigation into the possibilities of fracking in the Netherlands.

Let me turn to the issue of security.

Increasing demand leads to higher prices, and in the energy and resources market, this leads to tension and strife, for obvious reasons.

Fifteen years ago, the South China Sea was a beautiful but somewhat boring splash of blue on our maps. Now, China, Japan, Vietnam and Taiwan are squabbling over ownership of this sea, because the South China Sea is filled with gas and precious resources. And the booming Asian economies need both. Closer by, the same holds for possible gas reserves off the coast of Cyprus. We have seen discussion about this in the last couple of days and weeks. Because everyone wants to get their hands on that gas.

As I said, the world can meet the growing demand for energy in the coming decades. That is not the problem. The effects on the environment of rising demand, however, do pose a serious problem. Climate change will continue to haunt us.

By the way, people often say: global warming? We’re freezing! But these are all aspects of the same problem. The climate will become more erratic. We will see some changes with global warming, and some periods of greater cold. Another problem is a lot of rain. And other issues.

They are all linked to climate change. I tell my kids: it may be freezing cold outside, but that is also part of climate change.

We need to keep the climate on the political agenda. It has dropped off the agenda, and that is not good.

Despite all our efforts, over the next two decades, 75 to 80% of the world’s energy will be supplied by fossil fuels: oil, coal and gas. Of the three, coal produces by far the highest CO2 emissions, followed by oil, while gas is significantly cleaner.

The fastest growing economies, such as China and India, will meet their increased demand mainly by using more coal. 19,000 of the world’s 24,000 coal mines are in China. I have great respect for coal. Both my grandfathers were coal miners, so you see where I come from.

Unfortunately Europe is also increasingly running on coal. This has a negative impact on Europe’s carbon footprint. This is directly linked to what is happening in the American market.

Because shale gas is decreasing the price of energy in the United States, coal is also becoming cheaper in the United States. And thus has a competitive edge on the European market. And is creating increasing problems here.

The United States is meeting its CO2 reduction targets without any action because of its shift to shale gas. Whereas we are increasingly facing problems because of our shift to coal.

This is by and large the situation. I want to make a couple of remarks about the economic effects.

The fact that shale gas has been found and developed in the United States will lead to economic restructuring. It will become more attractive to start producing again in the United States. It will become more difficult to keep production up in Europe.

Companies in for example the chemicals field, even more advanced chemicals companies such as DSM, are experiencing a huge loss in competitive edge vis-à-vis the United States because of changing energy prices. This is in itself an incentive for European companies to relocate to the United States. And we have to be very careful that this does not happen and that we do keep a competitive edge.

So you have a combination of cheaper energy in the United States and the tendency towards proximity to markets. And this is combined with one of the biggest economic restructuring challenges we’ve seen in the past generation.

More competition for energy and other resources threatens our security and the environment. We need to turn this situation around. In particular, we need to work for:

• Secure access to energy and resources.
• Prevention of conflicts over resources, food, water and the environment.
• A global strategy to combat global warming.
• Sustainable growth, worldwide.

We need to respect the earth’s capacity. CO2 emissions and the use of natural resources such as water should be incorporated into the price of energy. They are left out of every business model today; they should be part of every business model tomorrow: access to water, food and energy for all of this great planet. Efficient exploration of, trade in and use of resources.

The solution to the problem of this new Great Game, the challenges for our security, our environment and our livelihood, can be pursued along a number of tracks.

Security of supply is the most important part of our international energy policy. We need to secure our own energy and resources. In part, we do this by contributing to a more stable, worldwide energy market. By stimulating gas production in countries such as Tanzania, where new resources have been discovered. More gas on the market means more competitive gas prices. This diminishes price volatility and the potential for political conflicts.

The Netherlands has a lot to offer. As an expert on sustainable supply chains, governance, international standards and norms for clean energy. We want to underscore this by creating a ‘Sustainability Valley’ in this country.

We need to promote a level playing field in the markets for energy and natural resources. More transparency, integrated reporting and actual playing by the rules to enable our companies to compete fairly worldwide. We face state-owned enterprises that have vertically integrated operations. In other words, they operate the entire chain from mine or source to the company, factory and consumer. Because these companies produce for the sole purpose of supplying their own country they do not participate in the free market. And their country has an incentive to prevent free markets from accessing that country.

Other countries are restricting the export of natural resources. We are seeing other forms of resource nationalism in which governments seize back concessions from foreign investors for domestic political gain or preferential supply of their domestic industries. There in the energy field, the investments are billions of dollars. Over a long period of time, you have to make sure that these investments yield profits. And if you’re not sure your investment will be protected by the country you’re investing in, you’ll likely not want to invest in that country; you’ll look for other possibilities. So the protection of investment is a great good.

The environmental challenge is arguably the biggest challenge we face. For this, we need a better understanding of the way energy, food, water and the environment are interrelated. No one can do this on their own. Here, governments, business, international organisations, NGOs, consumer organisations, academia and individual citizens will need to work together if we want to come up with a solution to this most complicated of issues. Because it means that we’ll have to live differently. Not just produce differently and trade differently; we need to change the way we live.

Shell recently stressed the need for a public debate about the nexus energy-water-food. Sadly, we have no blueprint. We have to learn by doing. Whatever our solution is, there is always some negative butterfly effect. Tapping unconventional sources of energy consumes a lot of water, often in areas where fresh water is already scarce. Biofuels cost a lot in terms of land and water. Fossil fuels produce high CO2 emissions and cause climate change. The market does not address this issue, because these effects are not built into the price.

So we need governance, public governance at a global level, led by global players. Which means that you have to look at it from a European perspective. Only a common European energy policy will put us in a position to be part of that team of global players that needs to address this issue.

Also, we need more innovation. Obviously, we need new, effective techniques and approaches. If we are to introduce fracking in areas where there is high population density, we need to find new techniques. Present techniques will not suffice. We need to find techniques that need less land and less water, and we need to be inventive to bring this about.

We need to think about high-tech information exchange. This could make our transportation more efficient. Imagine sharing a car with your neighbour through an app that tells you exactly when the car is available. Eelco Blok, CEO of KPN, has said, ‘In the future we’ll all drive around in smart phones.’

And we need a lot of innovation in the field of saving energy. Perhaps not in Europe, but I’ve seen when I’ve travelled worldwide how much energy is still wasted simply between the moment it is produced and the moment it reaches a consumer. We see such a high percentage of energy not being put to good use. The International Energy Agency recently stressed the enormous potential for saving energy and called it a ‘hidden fuel’.

Ladies and gentlemen,

I began my presentation with Nicolas Sadi Carnot’s book.

Incidentally, he was named Sadi by his father, who was a general in the army that fought in Egypt. He completely fell in love with Egypt and Egyptian culture, so he gave his son the extra name Sadi.

Nicolas Sadi Carnot talked a lot with his father after the Napoleonic Wars about strategic issues. He wanted to know, why did we lose this war? And the answer they came up with – and Sadi Carnot was a scientist who was mainly interested in gas and the properties of gas – is that it was especially because the English were the first to use fossil fuels as an energy resource to set things in motion.

It is very interesting to read that, because he was a combination of a military strategist and a scientist, looking for an answer. This proves my point that energy and geostrategic questions have always been intimately linked.

Growing demand from China and India, American shale gas and the way we deal with CO2 emissions will not only influence, but arguably shape tomorrow’s international relations.

You can already see this now. If I’m not mistaken, changing relations on a global scale influence the choice that some countries make in concentrating on certain areas in the world where they see greater strategic interests than in others.

It is very clear to anyone who is willing to follow events that although the United States and the European Union will for a long time remain strategic partners, American foreign policy will concentrate more on the Indian Ocean and the Far East than it will on Europe. This gives Europe a greater responsibility for creating stability within Europe and in its environment.

This has everything to do with the fact that the Americans now depend less on energy from the Middle East and are in a better position to find their own resources and diversify. Look at what they did in West Africa. So there is no real distinction between strategic issues and energy issues.

How should we go about tackling this situation? I think there are two routes open to us.

Firstly, more than ever before, international cooperation on a global level will make the difference between failure and success. We need to work with partners who have something to offer and whom we can offer something in return. For example, we want tin and gas from East Africa. We can offer Dutch and European technology for clean energy extraction in return.

But we also seek cooperation multilaterally. Within the EU, and through the EU with global and regional organisations. Like Germany and the United Kingdom, the Netherlands wants energy, climate, resources and water to be put on the agenda of the Foreign Affairs Council, because they all involve strategic risks and strategic opportunities. The EU should cooperate with its neighbours (Russia, Ukraine, Turkey and the wider Mediterranean region) and with organisations such as OPEC and ASEAN.

It is clear to me that a unified EU position is the best starting point for the EU as a whole and for the individual member states. It is very clear to me that if we are not able to reach that unified position, it will be easy for our partners – and I would do the same if I were in their shoes – to play one member state off against the other and thus strengthen their own position.

Especially in our very important relationship with Russia, which is almost a relationship of, I would say, mutual interdependency – strategic mutual interdependency – it will be crucial to be firm on those things that are important for Europe. And at the same time to be absolutely clear that only a strategic relationship with Russia can benefit both sides. There is no distinction in this respect, especially when you’re talking about natural gas, between supplier and customer.

And it will be increasingly difficult to see who depends on whom. I think interdependency is a relationship of equality. The European Union as a customer is not in a weaker position than Russia as a provider of energy. And Russia as a provider of energy should not be in a weaker position than its customers in Europe.

Secondly, to protect our environment and our competitiveness, we need to rethink the European climate and energy policy.

At the moment, we have the EU 2020 programme. What are its goals? By 2020 in Europe we want a 20% CO2 reduction, to get 20% of our energy from renewables and to be 20% more efficient in energy consumption. The intentions of EU 2020 were great. The programme has, however, been overtaken by events. In practice EU 2020 turned out to be too expensive, too inefficient and, on a global scale, just a drop in the ocean. It is not helping the environment very much. It is not helping our competitiveness. And according to Dieter Helm, author of The Carbon Crunch, it is not sustainable for the future.

It is no coincidence that both Helm and Paul Gilding, author of The Great Disruption, compare decarbonisation to the war industry of the 1930s. It means overhauling some of our most fundamental structures such as energy plants, industry and transportation. We should be brave and say: if we really want to decarbonise, we will have to pay for it. The International Energy Agency, the European Climate Foundation and the Stern Review have tried to calculate what a reduction of our CO2 emissions of 80% by 2050 would cost. Their answers range from between 300 and 600 billion dollars worldwide. Per annum. A liveable planet doesn’t come cheap.

So we need to think about life after EU 2020. And ask ourselves important questions. No subjects should be off-limits. Do we need a simpler system? With one ambitious CO2 emissions goal for the long term? Should we assign a global price to CO2? With one European market for renewable energy and one system of subsidies?

We need to have a debate about this. And we need to have this debate on several levels. Nationally, we need to discuss governance. But of course we also need a debate at EU level, with all relevant ministers, the Commission, the European Parliament and other stakeholders. This is such a huge issue: it concerns climate, competitiveness, finance and foreign relations.

None of this will occur if we are not able to do what I said in my first point: create an international platform to attain these goals.

I think this is a time when people in many countries are talking a lot about nationalism. About patriotism. About the need to retain our own national sovereignty.

This time, we should come to terms with the fact that with fundamental issues at stake about the structure of our economy, about geopolitical matters, about power relations between continents in the future, if Europe wants to play a role in these matters, it should leave behind discussions about nominal sovereignty. And start discussing real sovereignty. And the reinvention of sovereignty on issues such as these can only take place on a European scale. Nation states are too small – in Europe at least – to wield the same power as nation states that operate on the scale of continents, such as the United States, China and others.

A level playing field in the world in these matters can no longer be created by saying that in terms of international law all states are equal. It can only be created by coming to terms with the fact that some states are more equal than others, and that we can only ensure equality by working more closely together as European states.

Thank you very much for your attention.