Competition for Energy Security:

A Challenge to Regional Cooperation

2004. 11. 27

whkim@kiep.go.kr

Korea Institute for International Economic Policy

Won-Ho Kim, Director, Center for Regional Economic Studies

Contents
. Growing economy, Growing consumption of Energy

. Raising Gap between Demand and Supply of Oil

. Energy-consuming Structure

. Alternatives to Short Supply of Oil

. Petrodiplomacy

. Regional Cooperation and/or Competition

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I. Growing economy, Growing consumption of Energy

Asia has become a principal driver in world energy market,

largely due to China’s remarkable growth in demand
1. Energy importers in Asia
□ China
- Accounts for 12.1% of the world’s energy consumption,
while the US reaches 24%
- China’s rising oil demand and import is a significant
factor in world oil markets

□ Japan
- Depended on external sources to keep its economy
running
- 2nd largest energy importer after the US
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I. Growing economy, Growing consumption of Energy

□ Northeast Asia
- World’s fifth oil importer and second largest LNG importer
after Japan
- Depends on oil for 55% of its energy consumption

□ South Asia
- Contains more than one-fifth of the world’s population
- Experiencing rapid energy demand growth

□ India
- Coal meets more than half of India’s energy demand and
oil makes up 30% of its energy portfolio
- Imports 73% of its oil

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I. Growing economy, Growing consumption of Energy

□ Thailand
- Energy consumption is growing rapidly as a result of
strong economic growth in this country

2. Energy Exporters in Asia

□ Bangladesh
- Large potential natural gas reserves as world energy
markets

□ Brunei
- Large liquefied natural gas producer (third largest in Asia)
- Located close to vital sea lanes through the South China
Sea linking the Indian and Pacific Oceans
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I. Growing economy, Growing consumption of Energy

□ Indonesia
- OPEC membership and substantial, but declining, oil
production
- World's largest liquefied natural gas (LNG) exporter

□ Malaysia
- 75 trillion cubic feet of natural gas reserves
- Net oil exports of almost 300,000 barrels per day

□ Vietnam
- Potential to become a regional oil and natural gas
supplier

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II. Raising Gap between Demand and Supply of Oil

As the gap b/t consumption and production levels in Asia

expands, concerned that tight supplies and consequent
high prices may constrain economic growth

□ China
- Demand for oil will nearly double by 2020
- Chinese annual growth of oil demand reaches 4.6%
(2.5 times the world average of 1.9%)
- China’s demand for oil will continue to grow at 5% or more

□ India
- Needs to triple its power generation by 2025 to feed
fast-growing technology and manufacturing industries
- Shorter on energy resources than China
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III. Energy-consuming Structure

□ Industrial Structure of China
- “Factory of the world”
- A Fast growing economy requires more energy
- China’s modernization drive has produced a
manufacturing structure that requires huge increases in
energy consumption
- Oriented toward industries that are primarily energy-driven
- Heavy industrial structure is the tremendous waste of
energy
- China uses three times or more as much energy as the
global average to generate every $1 of GDP,

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 III. Energy-consuming Structure
□ Consumption Pattern of China
- Policies for energy efficiency and energy
conservation, but weak in implementation
- The transport sector is an extreme example of inefficient
energy usage
- Household electrical appliances are all growing at an
unprecedented rate

□ Conservation
- China must curb its demand for more energy and focus
on conservation
- Push for cooperation between China and other major
powers to explore energy and secure the oil supply
- Easing China’s energy crisis through non-traditional
means
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IV. Alternatives to Short Supply of Oil

□ Diversification
- Most of China’s power is generated by coal
- Large deposit of natural gas, yet it makes up only 2% of
its energy supply, far below the world average of 23%

□ Overseas Supply
- The Chinese government seems to have adapted and
combined all the approaches in its overall energy strategy
- China’s approach to security of energy supply is based
on “uncertain” international energy markets and a
preference for self-reliance

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5
 IV. Alternatives to Short Supply of Oil

- Key element of official strategy

• Build political relations with a wide range of oil exporting
nations
• Construct pipelines from oil fields in neighboring countries

- China has signed billions of dollars in deals around the

world in energy purchasing and pipeline building
- Chinese companies have stepped up their investment
abroad to acquire direct control or partial rights in some of
the world potential petroleum fields

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V. Petrodiplomacy
20% of China’s oil and gas come from Africa and 40% from
the Middle East

□ Middle East
- Middle East still remains as the traditional and vast oil
tank where most of the world’s remaining oil lies
- China’s new plan to enhance energy cooperation with
6 Gulp countries through Gulf Cooperation Council (GCC)

□ Africa
- China is attracted to the relatively under-exploited
petroleum resources in Africa
- China has already signed deals to import oil from Nigeria,
Gabon, Equatorial Guinea, Cameroon and Angola
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6
 V. Petrodiplomacy
□ Russia

- As China, Japan and South Korea scramble to meet their

energy needs, the largely undeveloped resources of
neighboring Siberia have become the prize

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VI. Regional Cooperation and/or Competition

□ Asia’s Undeclared Oil War
- Between China and Japan, a diplomatic battle over
access to the big oil field in Siberia has broken out
- The region’s energy thirst is so intense, so is their quest
for energy security
- Potential consequences of rising energy competition in
Asia vary, ranging from dire predictions of conflict
to scenarios for unprecedented regional cooperation

□ China-Japan Conflicts
- Diplomatic battle over access to the natural gas field in
Chungxiao
- Japan, depends on imported oil, is lobbying
Moscow for a 2,300-mile pipeline from Siberia to the
Pacific port of Nakhodka
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7
VI. Regional Cooperation and/or Competition
- China settled a long-standing border dispute with
Moscow and promised some $12 billion in business
investment in Russia

□ India-Pakistan Cooperation
- Agreed to negotiate on energy cooperation with Pakistan,
indicating the possibility
of unprecedented regional cooperation

□ Desperate Regional Cooperation

- Energy importers in Asia rely on oil subsidies, import tariff

reductions, oil consumption regulation as short-term
measures
- Concerns about inflation, economic slowdown, and
fiscal constraints
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Thank you

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