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

2. 2 Outline 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

3. 3 Growing Energy Imports in Asian Developing Economies Source: Prepared from BP Statistics

4. 4 Supply/Demand of Coal, Gas and Oil in Asian Developing Economies （ 2000 ） Source: Prepared from BP Statistics

5. 5 Growing Oil Imports in Asian Developing Economies Source: Prepared from BP Statistics

6. 6 Oil price (WTI) increased sharply since 1999 Source: Prepared from NYMEX data

7. 7 Policies To Limit Oil Imports Alternative Energy Development (Natural gas, Coal, Nuclear, etc.) Energy Conservation Promotion of Domestic Oil Production

8. 8 Promotion of Natural Gas Resource Potential in Asia Numbers of LNG, P/L projects being examined or implemented Advanced Technologies (CCGT) Advantage as a “clean fuel” →Constraints are: Price competitiveness, requirement for large-scale investment in infrastructure buildup

9. 9 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.

10. 10 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

11. 11 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 Asia Unit: Million ｋ W

12. 12 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 Conservation

13. 13 Promotion 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 Source: EIA, “International Energy Outlook 2001 （ Reference case)”

14. 14 Outlook for Oil Imports in Asian Developing Economies Source: EIA, “International Energy Outlook 2001 （ Reference case)”

15. 15 Import source diversification Strengthening ties with oil producers Overseas upstream investment Introduction of oil producers’ capital into domestic downstream market Policies to Secure Oil Import

16. 16 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 Diversification

17. 17 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 Investment

18. 18 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 Downstream Market

19. 19 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 in Asia

20. 20 Oil Stockpile level in Asia (1999) Source: Koyama, K. “Oil Supply Security Initiatives in the Asian APEC economies”

21. 21 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 Asia

22. 22 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 considered

23. 23 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. Implications