The Hon. Alexander Downer, MP
The Hon. Alexander Downer, MP


11 October

The Impact of Energy Security on Australia's International Relations


I would like to start by thanking the Australian Institute of International Affairs and also the Australian Homeland Security Research Centre for arranging this symposium today, because your topic is not just timely, but an important one.

It's easy to quote dramatic statistics on energy consumption and prices.

Most of you will know that the International Energy Agency has forecast global demand to grow by more than 50 per cent between 2003 and 2030.

The US Department of Energy has estimated that over 80 per cent of Asia's energy needs will be imported by 2025 - an important statistic to focus on.

Energy exports this financial year (2006-07) are expected to reach $43 billion, which is one-third more than our combined agriculture, fisheries and forestry exports. For Australia, that's an enormous figure.

And we don't need Al Gore to tell us that the growth in carbon emissions from fossil fuels is a major global challenge that must be confronted.

What we need to know is how these events will affect Australia's national interests.

We need to know what measures can be taken to manage their economic and strategic implications. And these are not easy questions to answer.

But I do think that it is very clear that we stand at a major crossroads at present.

Energy security is not a new issue for our region.

But a number of factors have merged over the past few years to put energy at the top of the international agenda.

These include the rise of China and India; high oil prices; climate change; terrorism; and renewed interest in nuclear energy.

As a nation, we have a reasonable degree of energy security ourselves.

We have abundant domestic sources of energy, substantial infrastructure for moving electricity and gas around the country, and good access to world markets.

Nevertheless, our interests could be significantly affected by the way in which other countries deal with their energy security challenges.

This applies as much to policy settings in Europe and the United States as to decisions made by the emerging importers in Asia.

In fact, for a number of reasons which I will explain, I think that Australia is well placed - perhaps even uniquely placed - to play a major role in shaping how the international community deals with these intersecting issues.

And we certainly need to take this opportunity, because we have an enormous amount at stake.

Energy Security in the Asia Pacific

The first reason Australia is well placed to engage in this great energy debate is that we are close to the growing energy demand in Asia.

We have a reputation - and a justified reputation - for political stability and as a reliable supplier to the region.

Rising demand from China and India is having a significant impact on the energy world. It is a factor in higher prices and the changing patterns of energy trade and energy geo-politics.

For instance, while European countries are increasingly reliant on Russia for their energy supplies, more Persian Gulf oil and gas is heading to India and China.

With increasing dependence on imported energy to fuel their economies, China and India are naturally concerned to ensure access to secure and reasonably-priced supplies of energy.

In India, Prime Minister Singh recently remarked that energy security was to India today what food security had been to the country in earlier decades.

So China, India and others are looking for ways to reduce their vulnerability to energy supply disruptions.

They are developing strategic oil reserves, expanding nuclear power, and working on energy efficiency.

Asian energy importers have adopted Winston Churchill's famous dictum that "safety and certainty in oil lie in variety and variety alone", and they are investing more and more equity abroad to secure sources of supply.

History tells us that when vital resources are perceived to be in short supply or vulnerable to disruption, there is a risk of rapidly escalating into conflict.

We can think of all sorts of examples. One of the perhaps more forgotten ones was the North Atlantic Cod Wars.

I don't think competition among Asia's major energy consumers is likely to lead to conflict.

But if we choose the wrong strategies for dealing with energy issues...

... competition for resources could undermine cooperation on other issues of vital importance to us such as counter-terrorism and maritime security...

... and impede progress towards greater regional economic cooperation and integration.

For example, cooperation is important to ensure open sea lanes in the region.

Half of all the oil headed to East Asia and two thirds of global LNG shipments pass through the Strait of Malacca between Indonesia and Malaysia.

At some points, only 500 meters wide, it's a choke point that is vulnerable, among other things, to terrorist attack.

More generally, concerns over sea lanes could be a factor in the development of naval capabilities around the region.

There is also the risk of territorial disputes over access to seabed resources in the region.

We could see more competition over routes for oil and gas pipelines.

For example, Russia recently faced rival Japanese and Chinese bids to build a pipeline from the Siberian fields to either northeast China or the Sea of Japan Coast.

The search for energy resources could complicate the way the international community deals with humanitarian, human rights and security challenges such as, for example, Iran's nuclear ambitions.

I've already said that tension and conflict are not inevitable.

In many cases there is a clear convergence of interests among countries in the region, opening the way for more cooperative approaches to energy security.

The management of vital resources and commodities can be a catalyst for enhanced cooperation among states.

Think of the European Coal and Steel Community, which helped cement cooperative relations between France and Germany after World War II and was really the foundation for what we call today the European Union.

Australia - as one of the world's major energy exporters - can play a significant role in encouraging regional cooperation.

We have strong bilateral relations with the major energy importers of our region - such as Japan, China, South Korea and India...

...which have been constructed on a foundation of reliable supply of energy and minerals.

We already work closely with these countries on regional trade and security issues through APEC, the ASEAN Regional Forum, and increasingly I suspect through the East Asia Summit and the Asia Pacific Partnership on Clean Development and Climate, which we call "AP6".

And in discussions with my counterparts in the region, I emphasise the Australian view that the best route to Energy Security for Asia's energy consumers...

... is through efficient markets, aided by free and open trade and secure frameworks for investment.

We will be making the case internationally this year and next year, including at meetings of the G-20 group of countries, which will be hosted by the Treasurer in November this year - those of you at the dinner last night would have heard him speak about this.

The G-20, which includes most of the major producing and consuming nations, as well as the fastest growing ones, has a central interest in how global energy and minerals markets are working.

We also have a unique opportunity to pursue these issues through APEC, which we host next year.

APEC already has an Energy Security Initiative, with a dozen or so practical projects to stimulate investment, improve efficiency and encourage transparency.

And it has strong business involvement, which Australian energy producers should take advantage of next year.

We'll be also discuss energy security issues in the Trilateral Strategic Dialogue between Australia, Japan and the United States.

And of course, we'll be pursuing energy security within the Asia-Pacific Partnership, the AP6, which has a mechanism for cooperation on the diversity of energy sources.

Climate Change

That brings me to an important variable in the energy equation - the international response to climate change.

The first point to make here is that we feel as the Government fully seized of the importance of this problem and we are contributing to international efforts to combat global warming.

It is clear that we will need to change the way we produce and use energy in the years ahead.

More than that, it is in fact vitally important that we shape the international debate because the wrong approaches to this issue could have a devastating effect on the Australian economy.

The Government is already responding very substantially, with over $2 billion in measures aimed at reducing emissions and adapting to climate change.

We're one of the few countries - ironically - on track to meet its Kyoto target

However, further action to reduce substantially emissions in Australia beyond this is in the short to medium term, in the absence of similar action by all global emitters, very costly.

This fact is backed up by an ABARE report released in July, which suggests that developing vital new low emissions technologies is going to be the most efficient outcome.

Unilateral and arbitrary emissions targets will simply shift our industry offshore, for no net benefit to the climate.

Moreover, Australia could shut down its entire economy tomorrow and stop emitting carbon dioxide and it would take only 10 months for the growth of China's emissions to offset the 1.4 per cent of global CO2 emissions saved by Australia.

Basically, we could sacrifice Australia's wealth creating export industries and the world's climate would not be noticeably better off.

We also won't be drawn into a hasty adoption of a cap and trade system of managing carbon emissions.

Again, in the absence of global action on a global problem, such an approach is likely to impose significant costs which will fall disproportionately on some industries in some regions.

And Australia is in any case as I've said on track to meet its Kyoto targets without such a system.

We are playing a constructive role on the international stage.

First, we are part of a dialogue on long term action under the UN Framework Convention on Climate Change.

In fact, the Dialogue is co-chaired by an Australian, Howard Bamsey from the Department of the Environment and Heritage.

This is a process that includes developing countries and holds out the best hopes for an inclusive agreement.

Second, under the AP6 Partnership we are playing a leading role in developing technology-based solutions with the private sector.

Technologies such as clean coal and carbon sequestration will be crucial if Australia is to adjust to the new, low carbon economy without destroying jobs and livelihoods.

And this partnership includes China, India, the US, Korea and Japan, which between them produce 50 per cent of the world's emissions.

Modelling by ABARE suggests AP6 could result in greenhouse abatement of up to 90 billion tonnes of CO2 between 2006 and 2050 - more than 150 times Australia's annual greenhouse emissions.

Nuclear Energy

The final area in which I think Australia needs to be active in the international debate is on the peaceful use of nuclear energy.

As I have mentioned, Australia already has a high degree of energy security, so it is unlikely for energy security reasons that we would start generating nuclear power.

Rather, the benefits would come in the form of saved greenhouse emissions and lower levels of atmospheric pollution.

The economic and environmental costs and benefits of nuclear power will be weighed by the Nuclear Taskforce headed by Dr Ziggy Switkowski.

I can't say where they will come out on the issue. I simply do not know.

But I can say that we shouldn't be excluding nuclear power on the basis of phoney proliferation and environmental arguments.

And we wouldn't be the odd one out if we built nuclear power plants.

Nuclear energy already provides 16 per cent of the world's energy in 30 countries plus Taiwan.

In our region, Japan has 54 nuclear power stations, saving roughly the equivalent of Australia's total greenhouse emissions.

China, South Korea, Taiwan and Indonesia either have nuclear energy programs or they are planning them. Malaysia and Vietnam are considering nuclear power programs.

In other regions, Canada, the UK and the US are looking at expanding their nuclear power generation.

Safety has improved dramatically in recent decades and on the horizon are new generations of reactors that are cheaper to build and run.

Furthermore, Dr Switkowski's committee will examine the feasibility of adding value to our uranium exports through enriching uranium for use in nuclear power plants.

We'll have to wait and see whether the economics of enrichment are positive, and some argue they won't be - but we'll just have to wait and see.

Of course, enrichment is also a highly sensitive process.

But to claim that expanding the nuclear fuel cycle in Australia sends a signal that we want nuclear weapons is ridiculous.

Other countries are not so stupid.

They would know we don't have motives of that kind at all.

In fact, Australia has exceptional non-proliferation credentials.

We were an early signatory to the Nuclear Non-Proliferation Treaty.

I myself introduced the Comprehensive Test Ban Treaty to the UN General Assembly in 1996, where it was adopted.

We actively promote its entry into force by encouraging other countries to join the Treaty.

We have the world's most rigorous uranium export safeguards.

There are some legitimate concerns about new countries enriching uranium, and we understand the US position - they would prefer no new countries to enrich above the countries that already do it.

I've spoken to Secretary of State Condoleezza Rice about this issue.

An approach worth considering is to build a regime that allows enrichment based on a range of strict criteria.

Criteria could include judgements on a country's track record and whether it is in a sensitive and dangerous region and therefore enrichment would have a destabilising effect.

The Nuclear Suppliers Group is already working on such an approach.

Our Government will make sure that any decision on enrichment would be internationally responsible and in line with preserving regional and international security, indeed enhancing it.

We certainly wouldn't want this to become a cause for concern in the region or amongst our allies.

And there is no reason that it should.

In fact, regional governments have already indicated that they understand our position.

So, to come back to energy security, it is not much understood, but uranium is an ideal fuel from an energy security standpoint.

Firstly, unlike oil and natural gas, uranium price volatility is not a major concern for electricity generators.

Whereas a doubling of the price of natural gas can increase the cost of electricity by about 70 per cent, a doubling of the uranium price will increase the electricity price by as little as a few percent.

This gives long term predictability in energy costs.

Secondly, uranium is very amenable to stockpiling as an insurance against supply interruptions because of its high energy density.

To illustrate, one kilogram of uranium is equivalent to around twenty tonnes of coal in terms of the energy it can produce.

So it's much easier to store in case the unexpected occurs.

Finally, there is high diversity in the sources of uranium.

Uranium is also one of the more common elements in the earth's crust - more common even than tin - so a great number of countries have economically recoverable resources of uranium.


To conclude my remarks,

Australia has too much at stake to address energy security issues in anything other than a rational and clear-minded manner.

And we need practical solutions to real world problems, not ideologically blinkered positions.

It is critical to our interests how the major powers manage the competition for strategic resources.

We simply must be at the forefront of the development of the new international initiatives to enhance energy security and climate change.

Our approach will be centred on two principles - market based mechanisms and international cooperation.

We are a major energy producer and a country with a lot to gain from a world of high energy demand.

But we also have a lot to lose if the wrong approaches are taken to what are admittedly very complex problems.

So we simply must be fully engaged in the debates on security of supply, maritime security, climate change and nuclear energy.

And it should be our aim to shape the outcome of those debates.

Thank you.