Energy Policy:

Deloitte's Stanislaw says U.S. must take lead in shaping international energy policy

With oil prices on the rise, international response has varied from country to country. Several major oil suppliers have opted to nationalize their energy resources. During today's OnPoint, Joseph Stanislaw, senior adviser at Deloitte and Touche and author of the new report, "Energy in Flux: The 21st Century's Greatest Challenge," discusses why he thinks energy can play a central role in solving every major international issue. He also questions the political loyalties of U.S. companies run by international figures.

Transcript

Mary O'Driscoll: Welcome to OnPoint. I'm Mary O'Driscoll. Joining us today is Joseph Stanislaw, independent senior adviser of Deloitte & Touche and head of the JA Stanislaw group and author of a new report "Energy in Flux: The 21st Century's Greatest Challenge". Welcome to the show.

Joseph Stanislaw: Thank you for having me.

Mary O'Driscoll: I wanted to ask you, part of an underlying theme of your report is don't make the mistakes of the past 30 years, since the last time we had our major energy crisis. And we can't afford the status quo because in 2035 a $70 barrel of oil will look like a real bargain. Is there a real danger that we can have those same kinds of problems that we had over the past 30 years? Is there a real danger of that?

Joseph Stanislaw: I think there is a danger of just settling back into our old ways. Those of us who were around in 1974, '75 and thereafter remember the first oil crisis, the only real oil crisis as such. And we have long memories. Our children don't remember that at all. And even if you think about the past four or five years we've had price spikes for gasoline. People would complain. Congressmen get angry. Politicians say things. And after three months we go back to our old ways, back to whatever the price of oil, gasoline happened to be. And that danger does exist. We could become very lethargic and settle into our old ways. Unless we're pushed hard or get the right signals in the market, there is a danger we will not make the changes that are required.

Mary O'Driscoll: OK. Your report provides, it kind of sets out the elements of this new debate in the 21st century and a roadmap for how society can deal with it. What are some of the elements of this new debate?

Joseph Stanislaw: Well I think the most important element in the paper, in the debate, is that energy is actually central to every major international issue we face and discuss, from population growth, obviously climate change, on the environment. The terrible word energy security, which makes everyone angry when they say it and no one does anything about it. It's the center to everything, think about clean water, think about sanitation. You can't do it without energy. So that's the driving force for us to say, look, put energy where it is. It's the center of every major issue and let's think about how we can deal with this in a comprehensive way to solve problems internationally together. And actually have a better world for everyone to get what they want, which is a better life for their children.

Mary O'Driscoll: Part of your report centers on the changing geopolitics of energy. You talk about this Saudi-Caspian-Siberia-Canada axis that kind of spans the globe and is really a new kind of force in where the energy resources are found. And that will have a big effect on the markets and about how things work in the coming years. Can you explain that little bit more?

Joseph Stanislaw: Guests. This Saudi-Caspian-Siberian-Canadian corridor or axis is really central to the 21st century. The energy world of the 20th century, which wasn't that long ago, had two centers, basically. I hate to sound simplistic, but it was Saudi Arabia, the center of oil, and the United States, the center of demand. If you think about this new corridor in the 21st century, the axis defines where most of the world's resources happen to lie. That is the energy resources; oil, natural gas, uranium, coal. They don't lie there totally, but predominantly they're along that corridor. And when you think about that corridor, also along that corridor lies the two most important growth markets of the 21st century, China and India. Now geography says to you probably those resources should go to the nearest market, which is China and India. And they'll be winning a tremendous influence on this new market as we go forward. But most important to this corridor is not just a natural resource called the energy resources, it also human knowledge, human capital, people. Where are the bulk of the world's people being trained in the petroleum sciences, in oil and gas in that industry? Also along that same axis of corridor. The number of kids being trained in Russia, in one institute alone, is 2,000 a year and it has 8,000 students. That's more than all the students enrolled in petroleum science and engineering in the English speaking languages by a factor, if not more. Who's going to dominate the industry in 20 or 30 years time? Those being trained in the sciences and engineering skills that will run it. That's also along that corridor and that axis. A lot to think about on that corridor.

Mary O'Driscoll: Well where does the U.S. fit in when you're talking about that corridor?

Joseph Stanislaw: Well the U.S. fits in the sense that, yes, we are still a center for innovation, development of new ideas, research and development. There's no question of that. And we are still leading that and I hope we will still lead that. It's the implementation of those new technologies which becomes critical. The know-how is how do you actually do it and make it work? And so it's how do we tie into that? How do we have our next generation of leaders in the companies that are domiciled in the United States? Will they be U.S. kids? Will they be U.S. trained kids or will they be expatriates from other countries coming to run our companies? That shouldn't be an issue in a globalized world, but where do people's political loyalties happen to lie in 20 or 30 years time when they happen to be from a different country running an American, what was an American company?

Mary O'Driscoll: Well that's interesting you mention that because another element in this is the concept of China and India as representing might and markets. They're mighty consumers and they're very shrewd market players. Can you expand on that a little bit as that kind of falls in with this axis here, this corridor?

Joseph Stanislaw: Absolutely right. When I said earlier on that the two biggest markets in the World in the future will be China and India, they lie along that corridor. They also happen to have so-called private companies that happen to have large state ownership in them in the oil and gas sector. And these companies go around the world trying to find access to oil and natural gas and natural resources. Well, when they walk into town, as such, wherever that town happens to be, they carry with them the might of their nation. They're one of the world's largest consuming countries, but also about to become one of the world's most important political powers. That has tremendous sway. They also have the market and the might of market, which is they have tremendous buying power. They have a lot of capital. They can outbid most everyone in most markets for oil and gas reserves or production opportunities. If one looks around the world the past half a dozen years and looks where there have been license rounds, et cetera, and who's paid the most, it's been Chinese and Indian companies. They have the surplus dollars because of their huge market efficiency to create that surplus. So they're big players.

Mary O'Driscoll: Another part of the elements that I thought was interesting, talking about the creeping nationalism, which is something that is really kind of emerging now that we're seen this happen in Venezuela, Bolivia and some countries in South America and Central America. How does that play into this whole issue?

Joseph Stanislaw: Well it's the issue of, this creeping nationalism is who controls the resource? Who will have access to develop that resource? And then where might it go in the marketplace? One country I know you're thinking about, but didn't mention, was Russia. Creeping nationalism there was almost rampant rather than creeping in terms of Gazprom. It has always been a national company. Rosneft is a national company that's acquired, relatively cheaply, the Yukos assets. One of the world's largest producers of oil right now it is Rosneft. But all those countries together represent a large portion of the world's potential exploration opportunities, but also a large portion of the world's production right now. They'll be able to exhibit large market power. And when you're in the situation, as we are now, different from the '90s, in the '90s it was almost a buyers market. You know, there was surplus oil. Now there is not surplus oil. Power shifts from the consumer, the buyer, to the seller. And as countries taste $70 oil and get used to it in their national budgets, and the power that brings to them, they'll want to exert more influence over that resource as they go forward because it's their key to international power basically.

Mary O'Driscoll: Right, right. And also another element was the march of democracy, the spread of democracy that you're seeing. That a lot of countries, people in countries that are underdeveloped or just emerging are starting to see the kind of lifestyle that the first world nations have. And so that's having an effect as well, because then that increases the demand. And then, you know, plays around with the whole supply/demand quotient.

Joseph Stanislaw: Absolutely. The whole democracy drive really is a complicating factor in the world today in general, but equally in the oil and gas sphere. Maybe it's coincidental and maybe it's just a fact of life, that very large almost singly natural resource countries happen to be more autocratic in their government systems. And when you're in a situation as you are today, with $70 oil again, and only a few years ago we were at $18 oil, people are going to have a three, fourfold increase in their revenues. Well governments can do a lot with that. Do they need to be democratic? Can they just give away the goodies to the people, give them things they need and hold onto their position of power? How do we feel about that, the United States, who are pushing the democracy drive? Who do we want to deal with? Where should our companies be? How do we want our companies to be behaving in this world? Complicating factors all over the place.

Mary O'Driscoll: OK. There are a lot of countries out there taking steps and emerging as major players. We talked about China and India. Japan is taking steps, doing a lot in innovative technology. But you say the United States must take a lead in shaping the energy picture, becoming the authorizing force for change. What is it that the United States can do?

Joseph Stanislaw: I think it's really quite critical that the U.S. really does take a very pronounced and strong lead to be either the authorizing force or focus, to focus attention on the fact that we do use a lot of the world's resources. We do emit a lot of the world's greenhouse gas emissions. And what can we do to show leadership in reducing these emissions much more dramatically and aggressively than we have to date? What can we do to say we're going to make sure that everything we do and how we use energy and how we supply energy is more efficient, more environmentally acceptable. To show the others, who we're asking to make their own sacrifices, that we're taking a strong lead here ourselves. And there's a lot we can do. I mean I just personally do not buy the idea we have to sacrifice. Most people don't like to sacrifice. My solution is we don't have to sacrifice. We can do a lot of things with more information and actually improve our lifestyle. The question I always ask people, is it so bad to have to drive a car that's twice as efficient, produces less emissions and you pay less for the gasoline to drive those miles? Who's worse off or who's better off? Have you sacrificed? Absolutely not. You're better off in every sense of the word. Steps all over the place on the demand side. We can do things to be better off and show leadership to the world that we're doing everything we can to preserve our lifestyle. But also make sure we're doing less pollution to the world, less emissions that will affect climate change and freeing up more resource of those emerging markets that have never had access to their oil and gas. And as I say in the report there are 2 1/2 billion people who live on less than a dollar or two dollars a day. Down the road they're going to want to have access to something. Well the more we can do to show leadership and free up those resources over time to them, the better off we are in the world of tomorrow.

Mary O'Driscoll: OK. We're going to have to end on that note. Thank you so much for joining us today. And thank you for watching. I'm Mary O'Driscoll. This is OnPoint.

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