Changing Rules of the Game

Global Energy Governance in the 21st Century

January 2008 - December 2009

Project context

At present, oil and gas stand firmly at the front and center as sources of global energy. Oil will remain a critical component of our energy mix, supplying an estimated 33 percent of global energy as far into the future as 2030. Hence, it remains the single largest fuel in the primary fuel mix and total consumption is expected to increase by 70 percent. Gas, on the other hand, accounted for 21 percent of world marketed energy in 2004, rising to an estimated 23 percent by 2030.

Being crucial components of the economic and social health of a nation, it is thus not surprising that oil and gas markets do not operate in a political vacuum. Since the end of the Second World War, a set of formal and informal institutions have emerged that govern central aspects of financing, trading and hedging oil and gas ventures. These institutions regulate investment by setting rules on financial markets, through investment treaties and via bilateral, regional and global trade agreements; they structure oil and gas transport by transit and transportation arrangements; and finally, they address short-term supply risks on the consumers’ side and manage supply on the producers’ side.

However, a number of significant trends are currently transforming the framework conditions for global energy governance – and require us to rethink the suitability and effectiveness of current arrangements and potential transatlantic policy responses to tackle the resulting challenges. Four interlocking trends are currently transforming the dynamics of the oil and gas markets with profound implications for the institutions that structure them:

  1. The rise of new consumers;
  2. Increasing scarcity and rising exploration and production costs, especially of oil;
  3. The increasing role of state players on oil and gas markets;
  4. The elevation of climate protection and domestic resource governance to “high energy politics”.

Together, these trends present significant challenges to the existing institutions that structure the global energy landscape. It is crucial to determine exactly what implications these trends will have for existing institutions and mechanisms of energy governance, what the consequences specifically for the transatlantic partners are, and what they can do to effectively deal with the resulting challenges.  

Project objectives

This study raised three key questions: What are the functional logics of existing institutions governing oil and gas markets? How do these institutions need to adapt to meet the challenges of the 21st century in terms of security of supply at affordable prices, environmental sustainability and good governance? What can and should be the contribution of the transatlantic alliance in managing this crucial transformation process?

These questions were addressed by examining the rules of the game governing the three previously mentioned areas of global oil and gas governance: Financial markets, trade and investment agreements, and supply (risk) management.

The main output of the project was an edited volume entitled "Global Energy Governance: The New Rules of the Game" which was published by the Brookings Institution Press in January 2010. However, we believe that the process is as important as the end product. In this respect, by tying the research process together with our Transatlantic Energy Security Dialogues program, we aimed to forge a transatlantic study group on global energy governance drawn from various disciplines (political science, law, economics, development studies, finance) and including practitioners. In addition, the project generated a series of policy papers focusing on major public policy issues of concern to the transatlantic alliance.