1. Asia’s Energy Insecurity: Markets or Mercantilism Mikkal E. Herberg The National Bureau of Asian Research Conference on Remaking Economic Strengths in East Asia: Dealing with the Repercussions of Increased Interdependence Institute of East Asian Studies UC Berkeley April 8-9, 2005

2. Asian Oil and Gas Trends Oil demand, imports will drive global market Oil demand, imports will drive global market 75% of recent growth, 50% of future growth 75% of recent growth, 50% of future growth Economic growth, rising per capita incomes Economic growth, rising per capita incomes Motorization, vehicle boom Motorization, vehicle boom Poor production prospects Poor production prospects Weak demand management policies Weak demand management policies Asian state energy security policies reflect fears over global oil outlook, regional mistrust Asian state energy security policies reflect fears over global oil outlook, regional mistrust Responding with increasingly aggressive “Energy Nationalism”: regional cooperation weak Responding with increasingly aggressive “Energy Nationalism”: regional cooperation weak Will become major force on global oil markets Will become major force on global oil markets Gas import dependence likely to reinforce this trend Gas import dependence likely to reinforce this trend

3. Asia = 75% Global Oil Demand Growth 1990-2003 WorldAsia China WorldAsia China 1990 1,097837 -6 1991 63606 158 1992 641971 252 1993 -321687 251 1994 1,401 1,117 232 1995 1,106939 245 1996 1,498774 282 1997 1,827812 263 1998 381 -429 112 1999 1,633926 369 2000 846810 569 2001 443105 45 2002 705582 349 2003 1,481858 603 11,885 8,871 3,729 11,885 8,871 3,729 Source: BP

4. Asia’s Oil Imports 1978-2003 (MBD) Demand Production Imports 14.7 4.5 Source: BP

5. Asia’s Future Oil Import Needs Source: IEA WEO 2004 Imports 2002 14.4 2030 36.0

6. China’s Oil Imports Rising Source: IEA WEO 2004

7. Asia and Mid-East Exports (MMBD) 20012020Change Total ME Exports 16.2 25.2 9.0 Asia 9.4 16.8 7.4 North America 2.8 3.2 0.4 Western Europe 3.1 3.9 0.8 Other 0.9 1.3 0.4 Asia Share 58% 67% Source: IEEJ 2004

8. Asia’s Natural Gas Imports 2002-2030 20022030 SE Asia to NE Asia 69 104 Persian Gulf to NE Asia 29 57 Alaska to NE Asia 1 0 SE Asia to China 0 10 Persian Gulf to China 0 13 Persian Gulf to India 0 44 Russia to NE Asia 0 22 Russia to China 0 19 Total 99 269 of which Persian Gulf 29 114 Russia 0 41 Southeast Asia 69 114 Total Asian gas imports nearly triple Imports from outside region rise five-fold Outside import share rises from 29% to 58% IEA WEO 2004

9. Policies Driven by Fears over Long-Term Oil Environment High prices, uncertain supply outlook, “scarcity” High prices, uncertain supply outlook, “scarcity” Growing import dependence, transit bottlenecks Growing import dependence, transit bottlenecks Fears of worsening instability in PG, other producers Fears of worsening instability in PG, other producers Terrorism threats: producers, transit corridors Terrorism threats: producers, transit corridors Destabilizing US war in Iraq, threats to Iran Destabilizing US war in Iraq, threats to Iran Rising Russian energy nationalism, capricious policy Rising Russian energy nationalism, capricious policy Overlay of Asian regional rivalries, lack of regional security institutions Overlay of Asian regional rivalries, lack of regional security institutions Fears over “peaceful rise” of China Fears over “peaceful rise” of China China’s suspicion of U.S. energy encirclement and U.S.- Japan Alliance China’s suspicion of U.S. energy encirclement and U.S.- Japan Alliance

10. Response: Energy Nationalism “ Too Important to be Left to the Markets” Asian powers aligning strategic ties to energy needs Asian powers aligning strategic ties to energy needs Bilateralism rather than regional or multilateral Bilateralism rather than regional or multilateral Oil and gas diplomacy and alliances with exporters Oil and gas diplomacy and alliances with exporters Regional competition for oil supplies, fields Regional competition for oil supplies, fields Competition to control transportation & maritime routes Competition to control transportation & maritime routes National competition for global equity supplies National competition for global equity supplies China China Japan Japan India India Self-help: SPRs in China, India Self-help: SPRs in China, India Limited progress in regional cooperation Limited progress in regional cooperation

11. Gas Geopolitics and Asia Gas trade likely to reinforce same supply security concerns as oil Gas trade likely to reinforce same supply security concerns as oil Same outside suppliers, similar geopolitical issues Same outside suppliers, similar geopolitical issues Persian Gulf - Qatar, Oman, Yemen, Iran, UAEPersian Gulf - Qatar, Oman, Yemen, Iran, UAE Russia -- Sakhalin 1 and 2, Irkutsk pipeline, possibly W. SiberiaRussia -- Sakhalin 1 and 2, Irkutsk pipeline, possibly W. Siberia Possibly Central Asia -- Kazakhstan, TurkmenistanPossibly Central Asia -- Kazakhstan, Turkmenistan

12. Implications Mercantilism trumping markets in energy security strategies Mercantilism trumping markets in energy security strategies Energy is fueling geopolitical rivalries rather than cooperation Energy is fueling geopolitical rivalries rather than cooperation China, Asia to become big players in global energy geopolitics China, Asia to become big players in global energy geopolitics Persian Gulf Persian Gulf Central Asia Central Asia Russia Russia OPEC OPEC Competition looming for U.S. geopolitical primacy in key regions Competition looming for U.S. geopolitical primacy in key regions Russia’s role in Asia will grow: present policy aggravating tensions Russia’s role in Asia will grow: present policy aggravating tensions Zero-sum scramble risks disrupting global oil markets as demand booms Zero-sum scramble risks disrupting global oil markets as demand booms Inflating prices in global E&P market Inflating prices in global E&P market Changing competitive landscape of global E&P - IOCs Changing competitive landscape of global E&P - IOCs

13. Long-Term Questions Asia is where the Industrial Countries were during 1973-74 oil shock Asia is where the Industrial Countries were during 1973-74 oil shock Will Asia, China move up learning on energy markets? Will Asia, China move up learning on energy markets? China is key to this China is key to this Cannot possibly meet needs bilaterally Cannot possibly meet needs bilaterally Similar to trade – WTO progression? Similar to trade – WTO progression?

14. U.S. Policy Issues Likely source of tension in U.S.-Asia relations Likely source of tension in U.S.-Asia relations U.S.-China U.S.-China Sudan, Iran, sea-lanes, TaiwanSudan, Iran, sea-lanes, Taiwan China’s role in Persian Gulf, ME likely to growChina’s role in Persian Gulf, ME likely to grow New involvement Latin America, CanadaNew involvement Latin America, Canada U.S.-Japan U.S.-Japan New source of strain in Alliance: Iran nukesNew source of strain in Alliance: Iran nukes U.S.-Russia U.S.-Russia Energy reinforcing nationalismEnergy reinforcing nationalism Energy ties to Asia seen as alternative to U.S. dominanceEnergy ties to Asia seen as alternative to U.S. dominance US Government and Company concerns over Asian NOCs competition US Government and Company concerns over Asian NOCs competition

15. Background

16. Cumulative Gas Demand Growth 2001-2030 Asia’s gas demand to nearly triple by 2030 IEA WEO 2004