EUROGULF: An EU-GCC Dialogue for Energy Stability and Sustainability Project Ref.: 4.1041/D/02-008-S07 21089 With the support of the European Commission, Directorate-General for Energy and Transport* Mediterranean Programme, Energy policy Unit - National Econergy Oxford Institute for Energy Robert Schuman Centre Technical University of Athens Studies (OIES) for Advanced Studies (RSCAS), (EPU-NTUA) European University Institute (EUI) Final Research Report (as presented at the Concluding Conference in Kuwait, 2-3 April 2005) For more info and programme, follow here *LEGAL NOTICE Neither the European Commission, nor any person acting on behalf of the Commission, is responsible for the use which might be made of the information contained in this publication. The views expressed in this publication have not been adopted or in any way approved by the Commission and should not be relied upon as a statement of the Commission's views. EUROGULF: An EU-GCC Dialogue for Energy Stability and Sustainability Executive Summary and Policy Paper Task 1: Economic and Political Conditions for Energy Security Subtask 1.1: Prospects for Oil & Gas Exports from the GCC Member Countries Paper author: Naji Abi-Aad (ECONERGY - Economics & Energy Consultants) Subtask 1.1b: Prospects for Oil and Gas Exports from the GCC Member Countries Paper authors: Robert Skinner and Robert Arnott (Oxford Institute for Energy Studies - OIES) Subtask 1.2: Supply Responses to Price Changes in the Medium Term and the Definition of an “Optimal” Price Band for Guaranteeing Energy Security in the Long Term Paper authors: Robert Skinner and Robert Arnott (Oxford Institute for Energy Studies - OIES) Subtask 1.3: Discussion of the Desirable Rate of Exploitation of GCC Hydrocarbon Resources in the light of the Objectives of Maximising Revenue and Achieving Economic Development in the Long Run Paper authors: Robert Skinner and Robert Arnott (Oxford Institute for Energy Studies - OIES) Subtask 1.4: Promoting Economic Diversification as a Tool to Encourage Countries holding Major Hydrocarbon Reserves to Increase Production in line with Growing Global Demand at Stable Prices Paper authors: Giacomo Luciani (EUI, RSCAS, Mediterranean Programme) and Naji Abi-Aad (ECONERGY - Economics & Energy Consultants) Task 2: Enhancing the Efficiency and Transparency of the International Oil Markets Subtask 2.1: The Reference Pricing System: Origins, Rationale, Assessment Paper author: Robert Mabro (Oxford Institute for Energy Studies - OIES) Subtask 2.2: Reforming Reference Pricing and Seeking for Alternative Pricing Systems Paper author: Giacomo Luciani (EUI, RSCAS, Mediterranean Programme) with the assistance of Ouarda Merrouche (EUI, RSCAS) Subtask 2.3: Strategic Stockpiles vs. Market Intervention for Price Stabilisation Paper author: Giacomo Luciani (EUI, RSCAS, Mediterranean Programme) Task 3: Promoting Greater GCC Reliance on Gas through the Development of an Interconnected GCC Gas Network and Competitive Gas Market; as well as Increased Exports to the EU through Major New Pipelines and LNG Projects Paper author: Naji Abi Aad (ECONERGY - Economics & Energy Consultants) Subtask 3.1: Potential for Greater Gas Utilisation in the GCC Countries Subtask 3.2: Creating an Integrated GCC Gas Grid and Promoting a Competitive and Transparent GCC-wide Gas Market Subtask 3.3: Promoting Gas Pipeline Exports from the GCC to the Near East and Europe Subtask 3.4: Potential for Increased LNG Exports from the GCC Countries to Europe Eurogulf – Tasks of the Project Page 2 of 3 EUROGULF: An EU-GCC Dialogue for Energy Stability and Sustainability Task 4: Development of Renewable Energies, Promotion of the Rational Use of Energy and Reduction of CO2 Emissions in the GCC Region Paper author: EPU-NTUA, Athens Subtask 4.1: Analysis of the Constraints for the Market Development of RES in the GCC Member Countries and Needs for Financial Support Subtask 4.2: Potential Role of the CDM to Support the Development of RES Subtask 4.3: Potential Role of a CO2 Emission-Trading Scheme in the GCC Member Countries to enable the Development of RES Projects Subtask 4.4: Establishing an Initial List of RES Projects for Priority Consideration in the Context of EU-GCC Co-operation Task 5: Institutional Aspects of EU-GCC Co-operation in the Field of Energy Subtask 5.1: Discussion of the Respective Role and Co-operation between the several International Institutions having Competence in the Field of Energy Paper author: EPU NTUA, Athens Subtask 5.2: The Relevance of the Energy Charter Treaty for EU-GCC Co-operation Paper author: Sanam Salem Haghighi (EUI, Law Department and RSCAS, Mediterranean Programme; OPEC, Vienna) Eurogulf – Tasks of the Project Page 3 of 3 %UROPEAN #OMMISSION 3YNERGY 0ROGRAMME &630(6-' "O&6($$%JBMPHVF GPS&OFSHZ4UBCJMJUZBOE4VTUBJOBCJMJUZ (JBDPNP-VDJBOJ &YFDVUJWF4VNNBSZBOE1PMJDZ1BQFS t.FEJUFSSBOFBO1SPHSBNNF 3PCFSU4DIVNBO$FOUSFGPS"EWBODFE4UVEJFT &VSPQFBO6OJWFSTJUZ*OTUJUVUF *UBMZ t0YGPSE*OTUJUVUFGPS&OFSHZ4UVEJFT 0*&4 6, t&OFSHZ1PMJDZ6OJU /BUJPOBM5FDIOJDBM6OJWFSTJUZPG"UIFOT &16/56" (SFFDF t&DPOFSHZ -FCBOPO ª"MMSJHIUTSFTFSWFE %UROPEAN /PQBSUPGUIJTQBQFSNBZCFEJTUSJCVUFE RVPUFEPSSFQSPEVDFECZBOZNFBOTXJUIPVU QFSNJTTJPOPGUIFBVUIPST*GQVCMJTIFEPOMJOF TJOHMFEPXOMPBEBOEQSJOUGPSQFSTPOBMOPO 5NIVERSITY DPNNFSDJBMVTFJTQFSNJUUFE*OBVUIPSJ[FERVPUBUJPOT QMFBTFBDLOPXMFEHFUIFTPVSDF 'PSRVFSJFTBOEJOGPSNBUJPO QMFBTFDPOUBDUBVUIPS T PSGPSJOGP!JVFJU )NSTITUTE EUROGULF: An EU-GCC Dialogue for Energy Stability and Sustainability Executive Summary and Policy Paper Giacomo Luciani © 2005 All rights reserved. No part of this paper may be distributed, quoted or reproduced in any form without permission by the author(s). EUROGULF: An EU-GCC Dialogue for Energy Stability and Sustainability Table of Contents Introduction......................................................................................4 1. Prospects for Oil and Gas Exports from the GCC Member Countries..................................................................................5 2. Defining a long-term equilibrium price band.............................6 3. Reforming reference pricing.....................................................9 4. A cooperative approach to Strategic Stocks ..........................12 Private stocks and demand flexibility .....................................12 Cooperative management of supply emergencies.................13 5. Economic Diversification........................................................16 Downstream integration of the oil producing countries ..........16 Petrochemical exports and the question of “double pricing” ..18 6. Gas dialogue..........................................................................20 7. Development of renewable energies, promotion of the rational use of energy and reduction of CO2 emissions in the GCC region .....................................................................................22 8. The GCC member countries and the Energy Charter Treaty.23 9. Concluding remarks...............................................................24 Robert Schuman Centre for Advanced Studies and the Mediterranean Programme ..............................................25 Executive Summary and Policy Paper Page 3 of 26 EUROGULF: An EU-GCC Dialogue for Energy Stability and Sustainability Introduction The EUROGULF project was launched in 2002 by a consortium led by the Robert Schuman Centre for Advanced Studies at the European University Institute, and comprising the Oxford Institute of Energy Studies, the Energy Policy Unit of the National Technical University of Athens and ECONERGY Sal of Beirut. Funding is provided by the European Commission through a grant from the SYNERGY programme. The objective of the project is to analyse EU-GCC relations with respect to oil and gas issues and propose new policy initiatives and approaches to enhance cooperation between the two regional groupings. The project has originated a collection of papers whose provisional drafts have been discussed in two workshops: in Riyadh in April 2004, and in Florence in November 2004. The final versions of all papers will be circulated at the concluding conference in Kuwait, on April 2 & 3, 2005. This Executive Summary focuses on the main themes of the project, and especially highlights the major policy recommendation that the project originated. Responsibility for analysis and policy recommendation rests with the author of each paper and is not necessarily shared by all members of the consortium. The responsibility for this Summary rests with the Project director, prof. Giacomo Luciani. Executive Summary and Policy Paper Page 4 of 26 EUROGULF: An EU-GCC Dialogue for Energy Stability and Sustainability 1. Prospects for Oil and Gas Exports from the GCC Member Countries Our research substantiates the commonly held view that oil production from the GCC is set to increase in importance over the next 20 years. However, the rate at which GCC production increases will be affected by increases (or declines) in non-Gulf and unconventional oil production, which in turn will be affected by a number of factors, including price. Prospects of GCC oil exports towards the EU are a potentially important area of “oil dialogue” between the EU and the GCC, considering that the share of the GCC countries in European oil supplies is limited when compared to the importance of their reserves. EU-GCC oil exchanges are influenced by three main factors: x Oil reserves in the GCC are exploited less intensively than elsewhere in the world: their share of global production