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The Coming Supply Crunch

How the recession is throttling much-needed investment.

The financial crisis that sent shock waves through the global economy is now reverberating in the energy world. Credit is hard to come by, the demand for energy is down, and cash flows are falling. So what will this mean for the future of the oil industry?

The short answer is: not as much as you might think. Even as market analysts everywhere are racing to revise their forecasts, the underlying trends will remain largely unchanged over the medium to longer term. To our knowledge, the International Energy Agency (IEA)'s World Energy Outlook 2008, which was published last November during the most turbulent period of the financial crisis, provided a more detailed assessment of oil-supply prospects than has ever before been released publicly. In the IEA's business-as-usual scenario, which assumes that policies won't change, oil demand continues to grow strongly up to 2030. All of the projected increase is expected to come from emerging markets, led by China, India, and the Middle East, while the bulk of the increase in supply is expected to come from OPEC countries. The prospect of accelerating declines in production at individual oil fields will represent a key challenge. Even if global oil demand remained flat until 2030, our analysis suggests that some 45 million barrels per day of additional gross capacity -- the equivalent of four times the current capacity of Saudi Arabia -- would need to be brought online simply to offset declining production at existing fields.

Thankfully, the world has enough oil to support this growth in output. But here's where the financial crisis matters: A lack of investment where it is needed, particularly in the short to medium term, has become a key risk to supply. We estimate that global upstream oil and gas investment budgets for 2009 have already been cut about 21 percent compared with 2008 -- a reduction of almost $100 billion. There is a danger that investment in the coming months and years will be reduced too much, pushing up decline rates and leading to a shortage of capacity when the economy begins to recover. To complicate matters, rich countries, as they depend on ever more imports from ever fewer sources, are becoming more vulnerable to supply disruptions and sharp price hikes.

In the long run, if governments don't take stronger policy action, rising consumption of fossil energy will drive up emissions and atmospheric concentrations of greenhouse gases, putting the world on track for an eventual global temperature increase of up to 6 degrees Celsius. At the global level, we will need to use all of our energy options simultaneously. We need to combine greater energy efficiency with increased deployment of renewable and nuclear energy, while minimizing our dependence on using oil, gas, and coal in an unsustainable way.

But even if we succeed, the oil industry won't be going away; low-carbon technologies won't replace fossil energy overnight. That's OK: Not only will there still be demand for oil, but today's oil industry runs on the type of transferable skills the world needs to shift toward the low-carbon fuels of tomorrow.

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The Mona Juul Memo

Deputy Ambassador to the United Nations Mona Juul, a high-ranking Norwegian diplomat, wrote this confidential internal memo to her country's Foreign Ministry. The leading Norwegian daily Aftenposten published it yesterday.

Secretary-General Ban Ki-moon's fruitless visit to Burma in the beginning of July is indicative of a Secretary-General and an organization struggling to show leadership. In a time when the UN and the need for multilateral solutions to global crises are more needed than ever, Ban and the UN are conspicuous by their absence. During the last six months, where the follow-up to the many crises that left their imprint on the General Assembly during the fall should have brought the Secretary-General and the UN into play at full force, the opposite seems to have happened.

In relation to the financial crisis, neither the Secretary-General nor the General Assembly -- despite the summit on the financial crisis during the end of June -- have shown themselves to be the most important arena, and the vacuum is being filled by the G-20 and other actors. Ban's voice on behalf of the G-172 and the poor is barely being registered. And at times an invisible Secretary-General, in combination with a rather special president of the General Assembly, has to a large extent placed the UN on the sidelines and the organisation has not known when to act. In the environment/energy area the UN also struggles to be relevant, despite the planned climate summit at the opening of the General Assembly in the fall. Even though the Secretary-General repeats ad nauseam that Copenhagen must "seal the deal," there is widespread concern that the UN summit will not contribute anything worth mentioning in the process towards Copenhagen.

In the many political/security-related  crises around the world the Secretary-General's leadership and ability to deliver on behalf of the international organization are also found wanting. Burma  is a shining example. There was no shortage of warnings that the Secretary-General should not go at this time. The Americans were among the most sceptical of him going, while the British believed he should. Special Envoy Gambari was also sceptical at the outset, but Ban insisted. Gambari noted that recent negative press (with headlines such as "Whereabouts unknown" in The Times and "Nowhere Man" in Foreign Policy) had made Ban even more determined to visit Burma. After a seemingly fruitless visit by the Secretary-General, the UN's "good offices" will be made even more difficult. Special Envoy Gambari will have major problems during the aftermath, after "the top man" has failed and the generals in Yangoon no longer want to meet with him.

Another example of weak handling by the Secretary-General is the war in Sri Lanka. The Secretary-General was a powerless observer to thousands of civilians losing their lives and becoming displaced from their homes. The authorities in Colombo refused to see the Secretary-General while the war was ongoing, but he was heartily invited -- and accepted an invitation -- as soon as the war was "won." Even though the UN's humanitarian effort has been active and honest enough, the moral voice and authority of the Secretary-General has been missing.

In other "crises areas" such as Darfur, Somalia, Pakistan, Zimbabwe and not least the Congo, the Secretary-General's appeals, often irresolute and lacking in dedication, seem to fall on deaf ears. Many would also claim that the handling of the investigative committee, following the war in Gaza, ended with an unstable and overly careful follow up.

More surprising, and all the more disappointing, is that Ban Ki-moon has been almost absent on the issue of disarmament and non-proliferation. This was an issue he himself held forward as a principal area of focus before he took over his post. The re-organisation of the department for disarmament into an office directly under the Secretary-General, run by a High Representative, signalled a major focus on this area, also given the Secretary-General's background on the Korean peninsula. With discussions of a new non-proliferation agreement in 2010 and a U.S. administration that have put the theme much higher on the agenda, it is discouraging that the Secretary-General is not to a larger degree involved.

What all these examples have in common is that a spineless and charmless Secretary-General, has not compensated this by appointing high profile and visible coworkers. Ban has systematically appointed Special Representatives and top officals in the Secretariat who have not been visibly outstanding -- with the exception of Afghanistan. In addition he seems to prefer to be in the center without competition from his coworkers and has implied quite clearly that press statements are for him exclusively. The result is that the UN is a less visible and relevant actor in various areas where it would have been natural and necessary for the UN to be engaged. An honorable exception is the appointment of Helen Clark as the new leader of UNDP. She has in a short time, done good things. It will be interesting to see if she will be given space to give the UN a profile in the area of development. As a woman from this side of the world, Clark could soon turn into a candidate for Ban's second term.

It is common knowledge that it was a deliberate choice of the former US administration not to prefer an activist Secretary-General. The current American Administration  has not yet signalled any changes in its postition towards Ban, however, there are rumours that in certain quarters in Washington Ban is refered to as a "one term SG." It is understood that people in the circles of Susan Rice and Hillary Clinton are very negative to Ban, but neither of them has given any declarations. China  is also quite positive to him and it is primarily China who holds the key to Ban´s second mandate. Russia has for a long time been dissatisfied with the Secretary-General´s handling of both Kosovo and Georgia but also the lack of appointments of Russians to leading position at the UN. At the same time the Russians, however, have no problems with a not too-interventionist Secretary-General.

Half way through his term, one feels that the member states are increasingly negative towards Ban. Many considered that Ban should be given time and he would improve as he gained experience and any comparison with his charismatic predecessor was unfair. Among those, however, the tone has changed, and now the argument of his learning-potential  has expired and the lack of charisma has become a burden. The Secretary-General seems to function quite well when he sticks to a script and performs at larger meetings and arrangements. The problem arises when he is "on his own" and is incapable of setting the agenda, inspiring enthousiasm and show leadership- not even internally. The consequence of Ban's lack of engagement and interest in studying well enough the problems, is that he fails to be an effective actor or negotiator in the many negotiation processes he is supposed to handle.

The atmosphere in the "house" is described as being less than motivating.  The decision making structure is hampered by the fact that all information both up and down is filtered by the omni-present chef de cabinet, Kim. After the latest round of negative media coverage, it is understood that the atmosphere on the 38th floor is rather tense. Ban has constant outbreaks of rage which even the most cautious and experienced staff find hard to tackle. The relations with the Deputy-Secretary-General Migiro are also tense and her marge de manouvre seems -- if possible -- to have decreased. There are constant rumours of replacements and reshuffling.  In addition to constant rumours about Migiro leaving, there are rumours that the overwhelmingly well liked OCHA chief John Holmes will be promoted to chef de cabinet and that Nambiar will leave. Same goes with the head of DPA, Pascoe -- Holmes is also tipped as a candidate for his succession. The Brits are understood to want that position "back." These are, however, only rumours and most likely Ban will continue with the same staff -- at least until the end of the year. If that is enough to secure him another term, only time can tell.