Market forces can help manage energy security, climate concerns - BP Energy Economist gives insight into global issues

Speaking to fellow economists at the Kuwait Economic Society about global energy issues, Finley said energy markets have historically adapted to redirect supplies during times of crisis, with physical shortages only occurring when markets have not been allowed to work.

"Across the world there are legitimate concerns about energy security. But history shows that markets have been able to ensure the availability of energy supplies in face of a very wide range of circumstances. That said, there are clearly 'catastrophic' circumstances for which market forces would not be sufficient, and it is appropriate for government policies to seek insurance - such as strategic stockpiles or surplus production capacity - against such events. In normal disruptions the best form of energy security is the market. Markets ensure availability and that means security of supply," Finley explained.

Finley also touched upon climate change, demand and oil prices, and how energy economists have a role in assisting decision makers in the oil and gas industries as well as governments.

"Climate change is a concern for an economist as it is for an environmentalist. Carbon concentrations in the atmosphere are rising. The economics debate is over the costs and benefits of mitigation or abatement. Spend today or wait until tomorrow. Will the technology of tomorrow be able to deal with the problem more cost effectively? These questions are much debated and the answer is crucial. But economists should agree that the first step is to ensure that the cost of climate change is reflected in the activities which contribute to it — for example through a cap and trade system or a carbon tax," Mr Finley continued.

Finley, who manages the annual production of the BP Statistical Review of World Energy, now in its 55th year of publication concluded, "increased energy prices, particularly where passed onto consumers, slow demand growth. Where costs are not passed to consumers, demand continues to be strong. The price effect is seen most clearly where there is a choice of fuels available and where fuel switching is a viable option. Nobody can accurately forecast oil prices but economists tend to offer caution on long run oil price prospects."

BP employs energy economists around the world who produce market analysis across the energy sector including oil and natural gas.