1 Energy Security Policies in the Asian Economics October 5, 2001 Ken Koyama, PhD General Manager, Department of Energy Intelligence & Analysis Institute.

1

Energy Security Policies Energy Security Policies in the Asian Economicsin the Asian Economics

October 5, 2001

Ken Koyama, PhDGeneral Manager, Department of Energy Intelligence & Analysis

Institute of Energy Economics, Japan

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OutlineOutline

1. Growing Oil Imports and the Oil Price Increase

2. Energy Security Policies in Asia　　　　　　● To Limit Oil Imports

　　　　　　● To Secure Oil Imports

　　　　　　● To Enhance Emergency Preparedness

3. Implications of the policy development

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Growing Energy Imports in Asian Growing Energy Imports in Asian Developing EconomiesDeveloping Economies

Source: Prepared from BP Statistics

55 65 101

134

159

192

219

256

254

291

315

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Million TOE

Consumption

Production

Net Import

4

Supply/Demand of Coal, Gas and Oil in Supply/Demand of Coal, Gas and Oil in Asian Developing Economies Asian Developing Economies （（ 20002000 ））

34

-43

325

-100

0

100

200

300

400

500

600

700

800

900

Coal Gas Oil

Million TOE

Consumption

Production

Net Import

（Net Import）

（Net Export）

Source: Prepared from BP Statistics

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Growing Oil Imports in Asian Growing Oil Imports in Asian Developing EconomiesDeveloping Economies

75 89

129 15

7 185 21

8 243 27

5

261 30

2 325

0

100

200

300

400

500

600

700

800

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Million Tonnes

Production

Consumption

Net Import

Source: Prepared from BP Statistics

6

Oil price (WTI) increased Oil price (WTI) increased sharply since 1999sharply since 1999

10

15

20

25

30

35

40

1月

2月

3月

3月

4月

5月

6月

7月

8月

9月

10

月11

月

12

月1

月

2月

3月

4月

5月

6月

7月

8月

9月

10

月

11

月12

月

1月

2月

3月

4月

5月

6月

7月

8月

9月

10

月11

月

12

月1

月

2月

3月

3月

4月

5月

6月

7月

8月

9月

（USD/bbl）

1998年 1999年 2000年 2001

年

Source: Prepared from NYMEX data

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Policies To Limit Oil ImportsPolicies To Limit Oil Imports

Alternative Energy Development (Natural gas, Coal, Nuclear, etc.)

Energy ConservationPromotion of Domestic Oil Production

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Promotion of Natural Gas Promotion of Natural Gas

Resource Potential in AsiaNumbers of LNG, P/L projects being

examined or implementedAdvanced Technologies (CCGT)Advantage as a “clean fuel”→Constraints are: Price competitiveness,

requirement for large-scale investment in infrastructure buildup

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Promotion of natural gas in Asia Promotion of natural gas in Asia

　● China ： West Gas to East Project, Shenzhen LNG project, P/L project from East Siberia (Russia), etc. are now being examined/implemented.

　● Korea ： Progress in the 3rd LNG terminal and the completion of domestic trunk P/L. LNG demand is expected to increase from 12.7 million tonnes in 1999 to over 20 million tonnes in 2010.

　● Taiwan ： Progress in the 2nd LNG terminal construction and Tatan LNG fired power plant. LNG demand is targeted to reach 13 million tonnes in 2010 (4.5 million tonnes in 1999).

　● India ： Promotion of domestic gas production by NELP, numbers of LNG projects, P/L projects from Iran and Bangladesh.

　 ● ASEAN countries ： Numbers of P/L projects actually being implemented.

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Abundant Resource Potential (China, India) Top-class production capacity and record(China:

2nd largest, India: 4th largest producers) Availability of Australian coal （ 3rd largest

producer) as regional resource Price competitiveness→ Promoted as base-load power source in many

economies→ But environmental constraints exist (SOx 、 NO

ｘ、 CO2 emission). Importance of “Clean Technology” for further promotion on coal

Promotion of Coal Promotion of Coal

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Stagnation in US/European market In Asia, nuclear power is promoted as:

a) quasi-domestic energy

b) mainstream of oil alternative

c) important source of base-load power New plants being constructed in Korea,

Taiwan, China, India (and Japan)

Nuclear Power Development in AsiaNuclear Power Development in Asia

In Operation Under Construction Planned Total

Numbers of plant Capacity Numbers of plant Capacity Numbers of plant Capacity Numbers of plant Capacity

Korea 14 12.0 6 5.7 10 11.2 30 28.9

Taiwan 6 5.1 2 2.7 8 7.8

China 3 2.1 8 6.6 11.3 20.0

India 2.7 4 1.4 8 3.9 12 8.0

Total 21.9 16.4 26.4 64.8

Unit: Million ｋ W

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Energy conservation has benefits to:

a) Limit energy (oil) demand and imports

b) Reduce environmental load

c) Enhance economic competitiveness

→ Energy conservation is a top priority in many Asian economies. Governments set long-term target for energy conservation.

→ In reality, however, energy conservation is difficult to achieve due to the “income effects.” Energy intensity flattened out or increased in many cases

Promotion of Energy ConservationPromotion of Energy Conservation

0

100

200

300

400

500

600

700

800

1980 1985 1990 1995 1996 1997 1998

TO

E/ M

illio

n U

SD

(199

5$)

SingaporeKoreaIndonesiaMalaysiaPhilippinesThailandIndia

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Promotion of Domestic Oil ProductionPromotion of Domestic Oil Production State oil companies as the major player (China: ： CNPC,

SINOPEC, CNOOC; 　 Indonesia: Pertamina; India: ONGC; Malaysia: Petronas)

Growing role of IOCs for capital requirement and introduction of advanced technologies

Onshore/offshore opening up in China, incentive policy in the frontier areas in Indonesia, New Exploration & Licensing Policy in India, etc.

In reality, however, oil production is expected to flatten out

6.0

7.1 7.2 7.2 7.1 7.0

0

1

2

3

4

5

6

7

8

1990 1999 2005 2010 2015 2020

Million B/D

Source: EIA, “International Energy Outlook 2001 （ Reference case)”

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Outlook for Oil Imports in Outlook for Oil Imports in Asian Developing EconomiesAsian Developing Economies

Source: EIA, “International Energy Outlook 2001 （ Reference case)”

1.6

6.2

9.6

13.4

17.9

22.7

0

5

10

15

20

25

30

35

1990 1999 2005 2010 2015 2020

Million B/D

Production

Consumption

Net Import

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Import source diversificationStrengthening ties with oil producersOverseas upstream investmentIntroduction of oil producers’ capital into

domestic downstream market

Policies to Secure Oil ImportPolicies to Secure Oil Import

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Reduce risks from over-dependence on a specific source (Disruption risk in the source, market power risk, etc.)

Constraints for diversification are: export availability and import economics of crude oil for diversification purpose (Production/export capacity, physical property, transportation costs, refining configuration, etc.)

Notable increase in crude oil imports from Africa

　 However, Middle East will remain the mainstream of import source. Diversification policy has a limit.

Import Source DiversificationImport Source Diversification

0

200

400

600

800

1,000

1,200

1991 1992 1993 1994 1995 1996 1997 1998 1999

Thailand

Philippines

Indonesia

Singapore

Japan

China

Taiwan

Korea

India

(1000BD)

0.6%

6.6%

8.8%

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Secure oil supply by enhancing access to oversea oil resource

Make full use of know-how and human resources accumulated in state oil companies

Diversification of business, improvement of portfolio, enhancement of profitability

China: CNPC in Sudan, Venezuela, Iraq, Kazakhstan, etc. SINOPEC in Iran

Malaysia: Petronas in 13 countries (Iran, Vietnam, Sudan, etc) over 30% earnings from overseas operation

India: ONGC Videsh Limited in Russia, Iraq, Venezuela, Vietnam, etc

Overseas Upstream InvestmentOverseas Upstream Investment

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Secure stable oil import by strengthening capital relation

Investment burden-sharing in the case of JV refinery construction

Korea ： Saudi Aramco participates in S-Oil (35%). IPIC (UAE) in Hyundai Oil (50 ％ )

Philippines: Saudi Aramco participates in PETRON (40%)

New refinery projects, refinery expansion and upgrading, capital participation are examined in China, India, etc.

Oil Producers’ Capital in the Asian Oil Producers’ Capital in the Asian Downstream MarketDownstream Market

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Only Japan and Korea hold national stockpile under direct government control

Stockpile obligation to oil company exist only in Japan, Korea, Taiwan, Thailand and Indonesia

As a result, stockpile levels are low in terms of international comparison

Majority of stockpile is commercial inventories, not emergency stocks

Problems in international cooperation framework

Current Situation of Oil Stockpile Current Situation of Oil Stockpile in Asiain Asia

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Oil Stockpile level in Asia (1999)Oil Stockpile level in Asia (1999)

Source: Koyama, K. “Oil Supply Security Initiatives in the Asian APEC economies”

81

169

56 60

4436 40

20

34

0

20

40

60

80

100

120

140

160

180

OECD Japan Korea Taiwan Singapore Thailand Philippines Indonesia China

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Taiwan: After enactment of Petroleum Business Act, national oil stockpile is to be established

Korea: National Stockpile program in progress implemented by State KNOC. Korea joined IEA on April 2001.

Thailand: Government (NEPO) now examines stockpile build up programs

China: Government announced a plan to establish national stockpile during the 10th 5 years plan

Moves to Stockpile buildup in AsiaMoves to Stockpile buildup in Asia

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Despite the policy development, oil import dependence continues to rise rapidly

Constraints for further policy development are:

　 a) Limited economic capacity

　 b) Coordination with other policy agenda

such as environmental protection, economic

liberalization, etc.

　 c) Pursuit of higher cost-effectiveness

Points to be consideredPoints to be considered

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In principle, pursuit of energy security by each economy can contribute to enhance regional and global energy security

However, if initiatives to enhance energy security conducted too exclusively, tensions could be generated and escalated among Asian economies, thus damaging regional energy security

Therefore, the development of energy security policy in Asia is a great concern to Japan

To enhance energy security in Asia, Japan can play an important role. With respect to Japan’s cooperation, the following points are important: making full use of Japan’s experience and know-how, focus on cost-effectiveness, prioritization, etc.

ImplicationsImplications