Kick-starting the debate at this third workshop of the Aspen Energy Forum was the observation that low oil prices and the consequent volatility are causing instability in energy markets, with the situation unlikely to change at least for a while. The choice made by OPEC to maintain its production levels despite the drop in prices has raised a number of questions, particularly as regards the role played by Saudi Arabia in the final decision taken by the cartel of oil-producing countries, with the Saudis having every incentive to strike at adversaries such as Iran and perhaps Venezuela and Russia. Not cutting production means letting free market forces play out, such that as a low-cost producer, Saudi Arabia could exclude competition from countries with higher production costs.
It was suggested that by adopting this position, OPEC has foregone its strategic role in agreeing the volume and price of oil exported by producing countries, conceivably opening the way for a shift towards other organizations, such as the G20, which would also include exporting countries that do not currently belong to OPEC. According to some analysts, at this time of economic crisis and highly destabilizing volatility, prices should have been controlled and not left to the whim of the market.
In addition, it was further remarked that lower resource costs should have been accompanied by greater levels of investment, and, hence, by economic growth. Having fallen into a regrettable situation of low inflation and low growth, the climate of uncertainty and price volatility have in fact discouraged investment due to fears of a low economic return.
Another issue highlighted was the price gap between the US and Europe, stemming mainly from American production of shale gas which has led to a reduction in manufacturing costs that has effectively put paid to the crisis. This was characterized as different from the situation facing industry in Europe, which must contend with strong infrastructural inefficiency, a dependence for energy supplies on countries with high geopolitical risk, and a fragmented regulatory framework and market. In this regard, it was noted that striking an “energy” deal within the ambit of the Transatlantic Trade and Investment Partnership (TTIP) talks will unquestionably be key to greater/improved cooperation between the United States and the European Union.
Even so, it was submitted the answers to Europe’s problems lie elsewhere, first and foremost in the diversification of energy supply through new strategic choices. This entails that, alongside the usual suppliers, new ones need to be sought. Africa offers very high potential and is seeking an influx of foreign investment, including so as to stimulate growth in its economies. From a geopolitical point of view, cooperation between Europe and America in Africa would help in the containment of a China always frantically in search of raw materials. Furthermore, given the failure – at least for now – of the South Stream project and the difficulties of securing East-West supplies, it would be in Europe’s interests to pursue a North-South energy corridor, with Southern Europe potentially becoming the hub for energy supplies to the rest of the continent. It was conceded, however, that achieving this goal would entail addressing a second issue, namely, that of improving infrastructure efficiency by increasing the effectiveness of regasification terminals, which would avoid waste and loss of resources due to over-competitiveness.
Finally, it was argued that in the case of both infrastructure investment and new “alliances”, it is crucial for Europe to develop a common strategy and regulatory framework that enables not only the creation of an internal energy market, but also the attraction of foreign investment which is currently discouraged by the existing fragmentation.
In summing up, it was reiterated that the steps which Europe must take in order to close its energy price gap with the US include overcoming regulatory fragmentation in favor of a common strategic vision that ensures energy security (through diversification of supply and geopolitical risk), increased investment in alternative energy, and improved efficiency of existing infrastructure.