Buenos Aires, 2000 XI REPSOL YPF-HARVARD SEMINAR HARVARD UNIVERSITY JOHN F. KENNEDY SCHOOL OF GOVERNMENT BUENOS AIRES, ARGENTINA DECEMBER 2000 ENERGY POLICIES AND MARKETS: NEW TRENDS OR OLD CYCLES? WILLIAM W. HOGAN BIJAN MOSSAVAR-RAHMANI EDITORS THE REPSOL YPF-HARVARD SEMINAR SERIES JOHN F. KENNEDY SCHOOL OF GOVERNMENT HARVARD UNIVERSITY 79 JFK Street Cambridge, MA 02138 USA REPSOL YPF Paseo de la Castellana 278 28046 Madrid, Spain FUNDACIÓN REPSOL Juan Bravo 3B 28006 Madrid, Spain ISBN: [TO BE ADDED] Depósito legal: [to be added] Copyright 2001© FUNDACIÓN REPSOL Servicio de Publicaciones CONTENTS FOREWORD ........................................................................................v EDITORS’ NOTE .................................................................................ix OPENING SESSION WELCOME MR. ALFONSO CORTINA ........................................................3 «ARGENTINA’S ECONOMY IN THE NEW CENTURY» THE HONORABLE JOSÉ LUIS MACHINEA ...................................11 KEYNOTE ADDRESS «LIBERALIZATION AND THE ECONOMY IN LATIN AMERICA» THE HONORABLE DOMINGO F. C AVALLO .................................17 SESSION I OIL INTRODUCTORY REMARKS MR. BIJAN MOSSAVAR-RAHMANI ..........................................29 «PERSPECTIVES ON THE INTERNATIONAL OIL MARKET» MR. ADRIÁN LAJOUS ..........................................................33 «POLITICS AND OIL» MR. RICHARD PERLE...........................................................43 «FURTHER CONSIDERATIONS ON THE PRICE OF OIL» THE HONORABLE HUMBERTO CALDERÓN BERTI .........................49 «PETROLEUM INVENTORIES: ECONOMICS AND LOGISTICS» MR. JAMES RAGLAND.........................................................57 iii iv SESSION II ENVIRONMENT: WHERE IS GLOBAL CLIMATE POLICY TAKING US? INTRODUCTORY REMARKS PROFESSOR ROBERT N. STAVINS.............................................71 «COP6: OBSERVATONS OF AN INTERESTED BYSTANDER» PROFESSOR CHARLES KOLSTAD ..............................................75 «OBSTACLES TO EFFECTIVE CLIMATE CHANGE POLICY» DR. ALAIN HEILBRUNN ........................................................83 «BEYOND KYOTO: A BETTER, LONG-TERM APPROACH TO CLIMATE CHANGE» DR. BRIAN P. F LANNERY ......................................................91 SESSION III LATIN AMERICAN ENERGY MARKETS INTRODUCTORY REMARKS MR. JOSÉ LUIS DÍAZ FERNÁNDEZ .........................................103 «ENERGY MARKET INTEGRATION IN LATIN AMERICA» MR. PHILIPPE REICHSTUL ....................................................107 «LATIN AMERICA’S CHINESE WALLS IN ENERGY MARKETS» MR. ROBERTO MONTI.......................................................115 «THE QUIET REVOLUTION IN LATIN AMERICA: ELECTRICITY AND NATURAL GAS MARKET INTEGRATION» DR. EVANAN ROMERO ......................................................123 CLOSING SESSION SUMMARY AND COMMENT PROFESSOR WILLIAM W. HOGAN.........................................133 «A REPSOL YPF-HARVARD SEMINAR RETROSPECTIVE» MR. JOSÉ LUIS DÍAZ FERNÁNDEZ .........................................143 BIOGRAPHIES OF SPEAKERS.........................................................151 LIST OF PARTICIPANTS...................................................................159 REPSOL YPF PUBLICATIONS ..........................................................167 FOREWORD In December 2000, the XI Repsol YPF-Harvard Seminar on Energy Policy convened in Buenos Aires, after meeting in Spanish cities for the previous ten conferences. We are proud of our new corporate identity as a Hispano-Argentine energy company and were delighted to join with our Latin American colleagues in presenting the Seminar in Argentina. Buenos Aires was, of course, an ideal site for our meeting. It is a cos- mopolitan city where Europeans, North Americans, and South Americans can enjoy a sense of shared culture, and one where all participants, no matter what their origin, can feel welcomed and enriched. To add to our enjoyment, we were able to sample the rich artistic heritage of Latin America. We were particularly pleased to draw from our cultural project, the Repsol YPF Program for the Music of Latin America, sponsored by UNESCO, by including an evening of Hispanic-American music performed by the Exaudi Chamber Choir. v vi Foreword We also were honored to share in Argentina’s intellectual culture. Our speakers included two Argentine economists and public figures of international stature: Dr. José Luis Machinea, Minister of the Economy of Argentina (1999–2001), and Dr. Domingo Cavallo, Minister of the Economy of Argentina (1992–1996; 2001 to present). Both spoke elo- quently on liberalization and the economies of Argentina and Latin America, focusing on the need to reform market structures and gov- ernment oversight in order to build consumer confidence, promote competition and cross-border trade, and encourage investment. In the 18 months since our last Seminar, the energy world has seen a disturbing increase in oil price volatility and a greater emphasis on controlling petroleum inventories. We also have become more aware of the complexity of the environmental challenges we face. In response to these developments, we structured our XI Seminar— titled “Energy Policies and Markets: New Trends or Old Cycles?”—to offer participants an opportunity to reflect on the significance of these changes, in particular those relating to oil prices and global cli- mate policy. We also thought it important to create a venue where we could join our Latin American colleagues in discussing the energy market situation in their part of the world. In all segments of this year’s event, the Seminar has again proven its worth by creating a forum where we could engage in lively, constructive dialog on impor- tant political and economic events and issues. As we have long known, the Seminar’s value stems from the way it allows us to step back from the kaleidoscopic flux of daily events to discuss and reflect on the longer-term significance of these occur- rences. This year we even had the chance to revisit past Seminars and learn how the focus and scope of this event have evolved, as well as what impact our sessions have had on the international energy, eco- nomic, and political fronts. José Luis Díaz Fernández, president of Fundación Repsol YPF, reviewed the history of the Seminars in his closing talk, “A Repsol YPF–Harvard Seminar Retrospective.” For those new to the Seminars, his presentation provided a splendid occasion to learn more about the Seminars. For those who have been with us before, it offered a sense of where we and the energy sector Foreword vii have been since the first meeting in 1987, and where we might be going in the future. Once again, I want to express my appreciation to all the speakers and participants whose significant contributions have made the Seminar the important event it is. Let me thank all our friends, old and new, with whom we have shared memorable days of intellectual and con- vivial contact. This book aims to collect all the thoughts and reflec- tions exchanged during the Seminar, some of which are immediately applicable to our professional activities. Repsol YPF, the Kennedy School of Government at Harvard University, and the Fundación Repsol YPF are proud of the Seminar’s role in the energy world, but of course we owe that to those who join us and contribute their experiences. Finally, let me once again thank Bill Hogan and his Harvard team, Bijan Mossavar-Rahmani of Mondoil Corporation, and José Luis Díaz Fernández of the Fundación Repsol YPF for their invaluable work in organizing this, the XI Seminar, from planning the program and selecting speakers to publishing this book. Alfonso Cortina Chairman and CEO Repsol YPF EDITORS’ NOTE To commemorate the successful merger of Repsol and YPF, the Repsol-Harvard Seminar, now the Repsol YPF-Harvard Seminar, shifted its venue from Spain to Argentina for the XI Seminar held in December 2000. But while the Seminar was held outside of Spain for the first time since its inception in 1987, the quality of participation, the rigor of the presentations, the vitality of the debates, and the gracious hos- pitality of our host Repsol YPF remained unchanged. Some 70 participants representing governments, corporations, and academia from over a dozen countries gathered for two days of informal presentations, discussion, and reflection on the changing landscape of global energy and environmental markets and the impli- cations for public policy and business strategies. ix x Editors’ Note The most profound change in these markets since the last seminar held in Madrid in June 1999 has been, of course, the dramatic and sustained increase in world oil prices. As in earlier Seminars, this meeting was structured around three ses- sions, each initiated by short, invited presentations and followed by general discussion among the attendees. Also, as before, one of the participants was given the responsibility of serving as the Seminar rap- porteur to make sense of what had transpired or at least to identify some common themes in a final summary session. Those concluding remarks are included in the “Closing Session” segment of this book. It should be noted that the Seminar was especially pleased to have as speakers two senior Argentine policymakers who shared with the participants their views of the fiscal challenges facing their country: the Minister of the Economy, Dr. José Luis Machinea, and Dr. Domingo F. Cavallo, who has served in that post between 1992 and 1996 and again since April 2001. Their participation underscored