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. Last Updated: 07/27/2016

Helping With Energy

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Maintaining energy security and tackling climate change are two of the most important challenges of the 21st century.

The last five decades have seen unprecedented increases in global trade, wealth and prosperity. Underpinning this growth has been a steady increase in the use of energy resources and increasing pressure on the environment. Since 1970, total global energy consumption has almost doubled and demand could increase by a further 50 percent by 2050. The oil crises of the 1970s vividly illustrated the huge economic damage that can result when there are disruptions or shortages of energy supplies.

Russia's role will be crucial. Russia is currently the world's largest producer of gas, and the second-largest producer of oil. It is home to more than one-quarter of global gas supplies, and has potentially vast, as-yet untapped reserves of hydrocarbons in eastern Siberia.

At the same time, these resources need to be used carefully. Russia is the third-largest greenhouse gas emitter, with the gas sector accounting for 15 percent of the emissions through leaks and gas flaring. President Vladimir Putin has made clear that there is much that can be done to make energy consumption radically more efficient.

Russia has plenty to gain from continuing its role as one of the world's foremost suppliers of energy. At the Group of Eight summit in St. Petersburg in July, Putin secured agreement that "free, competitive and open markets are essential to the efficient functioning of the global energy system." The alternative leads to inefficiency, underinvestment and, ultimately, a failure to provide sufficient output.

There are already signs of increasing pressures, especially in the gas market. Electricity plants in Russia have had to switch from gas supplies to more expensive coal and fuel oil. Many of the more mature fields are reaching the stage of decline. Massive new resources in terms of finance and technology will be needed to realize their successors, which are often located in geographically challenging environments. The International Energy Agency warns that without major investment, there could be a major shortfall in gas supplies from as soon as 2010.

It is clear that for Russia to reach its full potential as an energy supplier, significant investment will be necessary. The Russian government estimates that Russia will need to attract $300 billion in foreign investment. This is just part of the trillions of dollars that will be needed worldwide.

Britain stands ready to provide a significant share of this investment. In the first nine months of 2006, Britain was the largest foreign investor in Russia. Of the $5.5 billion invested, much of it took place in the energy sector. As well as the direct financial benefits, investment also brings positive spillovers of technology and expertise. British companies in the energy sector have world leading technology and production techniques. Several of the new areas of development in Russian energy, such as giant offshore fields or liquefied natural gas, are in areas in which British companies have already developed significant expertise.

British companies want to invest in Russia. It is in Russia's interests that they do so. But they need to be given the opportunity and be assured that the rules are not going to change. At the G8 summit, leaders committed to providing "transparent, equitable, stable and effective legal and regulatory frameworks" to promote the development of their energy sectors. Companies welcome transparent rules that are applied in a predictable way. Uncertainty leads to underinvestment and loss.

The liberalized approach to energy markets has much to offer business and customers. In an open, well-regulated market, British customers have on average enjoyed the lowest energy prices in Europe over the past decade. Russia could benefit from similar approaches. Access to transit infrastructure on transparent terms would help increase production, spurring supply growth in a tight market. And providing clear rules to investors would clarify the terms on which investment can take place.

It is these opportunities for both our countries that will form a major part of the new British-Russian energy forum announced Wednesday. It will maintain the close dialogue between the two countries in this vital sector. And there is no greater opportunity than in energy efficiency.

As energy resources become tighter around the globe it is essential that we use the energy we do have more carefully. Energy saved is energy produced. Preserving resources is protecting the environment. Together with my European partners, I want to work closely with Russia to develop energy-efficient technologies and to implement reforms that will improve the effectiveness of our power consumption. We have enjoyed considerable success in this area. Since 1970, the energy efficiency of British homes has doubled, saving consumers some $20 billion and reducing harmful carbon emissions. There is huge scope for even more impressive savings in Russia.

Developing our global energy resources at the rate necessary to sustain economic growth while taking action on the environment will not be easy. The future can be bright, but only if we work together. I am keen to strengthen that cooperation with Russia, and to assist Russia to achieve its full potential as a secure and reliable energy provider.

Alistair Darling is the British secretary of state for trade and industry.