Energy and Security in Northeast Asia: Supply and Demand, Conflict and Cooperation

Table of Contents

Introduction Susan L. Shirk and Michael Staniewicz

The Outlook for Energy Supply and Demand in Northeast Asia Fereidun Fesharaki, Sara Banaszak, and Wu Kang

Fossil Energy Consumption and Supply Security in Northeast Asia Wu Kang

Multilateral Cooperation in Northeast Asia's Energy Sector: Possibilities and Problems Mark J. Valencia and James P. Dorian

Introduction

The economic crises in Thailand, South Korea, Indonesia, and Japan have focused attention on the region's economic problems as well as its well-documented success. One potential problem is satiating these economies' increasing demand for energy. This problem has been made even more pressing by deep devaluations that substantially raised imported energy prices in local currency terms. IGCC Policy Papers 35-37, Energy and Security in Northeast Asia, seek to examine the international implications of the longer-term energy situation in Northeast Asia, including the decisions that government policymakers are likely to make to address their economies' pressing energy needs. ₁

Policy Paper 35, Fueling Security, debates the fundamental issue of whether rising energy demand generates new security dilemmas or whether efficient energy markets mitigate potential security risks arising from increased competition for energy resources. Kent Calder argues that energy rivalry might deepen tensions among the major powers in Northeast Asia, while Fereidun Fesheraki sees market competition where Calder sees rivalry. This paper examines the market assumptions behind these analyses, including the current status and projections for overall regional energy demand (Fesharaki, Sara Banaszak, and Wu Kang) and fossil fuel use (Wu).

Fesheraki et al. note that Northeast Asia's rapid economic growth has been accompanied by an even more rapid growth in energy demand, and seek to project future energy supply and demand for Japan, China, and South Korea. They conclude that the dramatic increases in energy demand that have accompanied economic growth are likely to continue in the next 15 years. Moreover, all of the countries in Northeast Asia will continue to be dependent on fossil fuels to meet these increased demands. However, Asian regional supplies of oil will make only a small dent in projected needs, forcing all Asian countries to become major oil importers. Even China, which is the only energy resource-rich country in the region and which relies heavily upon local supplies of coal for energy, will join the ranks of oil importers. While the United States has cut its dependence on the Middle East, relying more heavily on Latin America, Canada and the North Sea, most of Asia's oil imports (by 2010, 93 percent) will come from there, in part because of huge investments in refineries requiring low-sulfur crude.

Although Middle East oil imports dominate the story of energy trends in Northeast Asia, gas will supply as much of 10 percent of the region's energy demand, a notable shift in the fuel mix in Northeast Asia. Growth in the share of total energy needs met by gas implies significant expansion in gas field development and gas exploration in the region. Several large natural gas projects that are currently on hold such as the Natuna field in Indonesia and Sakhalin in Russia are likely to be developed.

Given their lack of domestic energy resources, it is not surprising that Northeast Asian countries also have ambitious nuclear power programs. However, their realization will be constrained by capital shortages, public resistance, and concerns about safety, storage and proliferation.

Continued reliance on fossil fuels raises a number of policy problems. The growth in demand for oil and gas in the region will affect global energy markets and raise anew issues such as the safe and environmentally-sound transport of ever larger amounts of oil and gas. Dependence on fossil fuels also threatens further degradation of the environment of Northeast Asia; this is especially the case in China where most factories operate on dirty coal-burning furnaces.

Many proposals for multilateral energy cooperation in Northeast Asia revolve around building pipelines to transport natural gas from the considerable reserves in Russia, China, and Central Asia to the major consumers in Japan, China, Taiwan, and South Korea, who also have the capital and technology to help develop untapped energy resources. A realistic analysis of the various grand schemes for pipelines and grids indicates that most of them will never materialize. They all face formidable political, economic, technical, and environmental obstacles. The visions for regional cooperation in constructing pipelines are motivated more by the desire to cement good relations among neighbors than by energy planning in utility companies.

Keeping in mind these policy challenges for energy planning policymakers, Policy Paper 36 addresses existing efforts at international cooperation. It supports Fesheraki's contention that markets can solve looming energy crises much better than attempts at multilateral solutions. This is clear after examining the evidence related to supply and demand projections and fossil fuel usage, as well as the inefficacy of ambitious proposals for regional cooperation regimes and pipelines. But Policy Paper 36 also confirms the potential political value of regional cooperation--the opportunities provided by the confluence of shared national interests in ensuring stable supplies of energy for growing economies.

If grandiose pipeline schemes are more likely to be pipe dreams, in what other way can multilateral cooperation be achieved? This question is addressed in Policy Paper 37, Proposals for Nuclear Cooperation, which details some of the multilateral energy cooperation schemes most popular in regional security-making circles, namely, proposals for nuclear cooperation.

For a related discussion of the relationship between economic growth and the environmental impact of fossil fuel consumption, see IGCC Policy Paper 32.

Endnotes

Note 1: Many papers in this collection first were presented to a September 1996 Northeast Asia Cooperation Dialogue (NEACD) workshop on Northeast Asian energy and security held in Seoul, Korea. IGCC founded NEACD in 1993 as an informal track two dialogue exploring the potential for cooperation on security issues among China, Japan, Russia, the Republic of Korea, the Democratic People's Republic of Korea, and the United States. This workshop on energy and security offered participating government officials and private experts an opportunity to explore the ramifications of increasing energy demand on future relations among their countries. After the workshop, IGCC solicited additional papers to fill gaps and analyze basic premises among our initial contributions. Back.