Development and the Environment"
on the Sakhalin Offshore Oil and Gas Fields II
Copyright (C) 1999 by Slavic
Research Center, Hokkaido University.
The Russian Far East and
All rights reserved
Aspects of Energy Demand and Supply Cooperation
Victor D. Kalashnikov
- The Ramifications of
Energy Demand and Supply for International Cooperation in
- Since the 1970s,
issues have become tightly interwoven with economic, social and
political problems, largely determining the development process
of global and regional economies, as well as influencing national
security and political stability.
- The end of the Cold War
has brought positive political changes in the NEA region and the
opening of the Chinese and Russian economies has enhanced
multilateral economic cooperation. However, there is no widely
recognized conception of economic cooperation in the region. Even
the geographic definition of "the NEA region" itself
remains rather "vague", lacking definite territorial
identification. Policy-makers and researchers have included a
variety of countries along with various sub regions with
different economic and political characteristics to the NEA
- The concept of
economic cooperation in NEA still lacks a basic driving force
behind economic cooperation. It is also necessary to take into
account the existing political tensions among the region's
members as well as cultural, ethnic and institutional obstacles.
NEA has no general economic or sectorial institutional agreements
or unions like the European Union, ASEAN, OPEC, the European
Energy Charter, or the ASEAN Council on Petroleum (ASCOPE, NORDEL,
- Despite recent positive
political and economic trends, Northeast Asia lacks sufficient
mechanisms to facilitate economic cooperation as well as those to
facilitate trade, technology and investment transfers.
- The NEA energy
sector holds significant potential for multilateral resource
cooperation. Such interaction goes beyond simple export-import
trade relations; the ramifications and implications of such
interaction could link the region in an "energy community"
and thus contribute to the process of regional integration.
Similar to the International Energy Agency's*7 approach, three key policy
challenges derived from the ramifications and implications of
energy demand-supply can be applied to Northeast Asia. These are
the so-called "Three Essential E's":
- Efficiency and
- Energy Security:
central point for providing energy security is
diversification. Diversification implies diversification of
energy sources in the energy balance and diversification of
energy supplies. The largest energy consuming NEA countries (China,
Japan, South Korea) have identified natural gas as a cleaner and/or
underutilized source of energy and plan to increase its share as
a percentage of total energy consumption. These three countries,
along with North Korea, also have ambitious nuclear power
programs to meet electricity demand but face problems due to
financing and public opinion. A failure to meet nuclear power
targets will affect future oil, coal and gas demand in these
countries and the region.
- Within the region, Japan
and South Korea have long been dependent on imported fossil fuels
to meet their energy demands. Among fossil fuels, Japan's import
dependence on oil is almost 100 percent, 96 percent for coal, and
100 percent for LNG. Over the next 15 years, Japan will continue
to import nearly all of its fossil fuels. Like Japan, South Korea
is completely dependent upon imported oil and LNG, and 92 percent
dependent upon imported coal. Through 2010, the country will
retain its high dependence on imported fossil fuels.
- In 1993, China
net oil importer, dramatically changing the Northeast Asian
energy picture. Over the next 10 to 15 years, China will expand
its own oil production, but the growth rates in production will
be obviously lower than the predicted rates of oil consumption.
In 2010, China will join the ranks of Japan and South Korea as
Asia's largest oil importers.
- A key issue regarding
the region's oil imports is the dependence on supplies from the
Middle East. In the 1990s, 70 to 80 percent of Japan's oil
imports came from the Middle East. More than 70 percent of South
Korea's current oil imports also come from this region. It is
predicted that through 2010 the share of Middle East crude oil
imports in the Asia-Pacific region as a whole will increase from
75% in 1995 to 90% and 93%, respectively, in 2005 and 2010*8.
- Such a high degree
dependence on one region for oil supplies will make Northeast
Asian economies especially vulnerable to oil price shocks. As
well, instability in the Middle East or along the oil's transport
routes could threaten the security of their supplies.
- An important feature in
strengthening energy security rests in developing and
transforming the infrastructure of international shipments of
energy resources. In recent years, various organizations have
formed several large and, for the region, technologically
advanced bilateral and multilateral international energy projects;
some of them are as follows:
- The Asian Energy Community Trans-Asia
Pipeline Grid (extending from Western and Eastern Siberia and Yakutia
to Dampier in northwestern Australia connecting Russia, China, Korea,
Japan, Taiwan, Turkmenistan, Uzbekistan, Alaska, Australia, and six
- The formation of an
interconnected interstate electric power grid in Northeast Asia;
- The Irkutsk-China
- The Irkutsk region gas
- Sakhalin gas-pipeline
Siberia-Yakutia-Sakhalin-Northeast Asia oil and gas projects.
- The practical
realization of these multinational and bilateral projects will
reinforce the participant-countries' energy interdependence and
expand the basis for the formation of a Northeast Asian "energy
- Energy is not
simply a product or complex of products; it links
other needs and issues. The energy industry is relevant to people
in terms of the services it can render to them in terms of
heating, cooling, light, and transportation. Energy is also an
important and universal production factor for the manufacturing
of a vast variety of non-energy commodities and services.
Providing energy services and facilitating the production of
other commodities and services are important economic goals.
- On the other hand, in
terms of economic development, international cooperation needs to
focus on ensuring the availability of capital for large-scale
investments with long repayment periods to meet increasing energy
needs. A country's ability to mobilize sufficient capital for its
energy investment needs will depend on the quality of its
investment, fiscal and regulatory policies. Investor confidence
is also a critical factor.
- The NEA countries'
combination of interrelated production characteristics represents
an ideal and unique combination. Table 7 illustrates the point
that regional cooperation can take place in Northeast Asia
because of complementary conditions among the principal countries
and sub regions*9. These production characteristics
can ensure profitable economic-related energy cooperation in the
region. As shown, each country and sub region has certain
comparative advantages which complement each other. Resource-rich
and capital-poor and managerial-expertise-poor and
areas exist alongside resource-poor and capital-rich and
managerial-expertise-rich and demand-scale-rich regions.
Qualitative Comparison of Northeast Asian Countries' Production
- Note: VR=
Very Rich; R =
Rich; P=Poor; VP = Very Poor; A = Absent.
from Keun-Wook Paik, 1993. Multilateral Energy Cooperation in
Northeast Asia: a Focus on oil and Natural Gas Development. J.
Dorian et.al. (eds.). CIS Energy and Minerals Development.
Prospects, Problems and Opportunities for International
Cooperation. Kluwer Academic Publishers in cooperation with East-West
Center. Honolulu, Hawaii.
- Efficiency and
Along with regional economic development, energy growth in
Northeast Asia has resulted in a host of regional and global
environmental problems, including:
- high emissions of sulfur and nitrogen
oxides - these gases that are major contributors to "acid rain" -
particularly as a result of coal usage and increasing transport-sector
- increasing emissions of
carbon dioxide, methane and other greenhouse gases that contribute to
global climate change.
- Fossil energy will
continue to be major source of energy for every Northeast Asian
country in the foreseeable future. Even a superficial reading of
the Kyoto Protocol demonstrates that energy is central to the
issue, although quantifying the exact level of required
reductions in energy-related emissions is very difficult.
- Carbon dioxide emissions
from fossil fuel combustion represent about four-fifths of all
greenhouse gas emissions in industrialized countries. Policies to
reduce energy-related CO2, SOx, NOx
emissions in Northeast Asia and increase energy efficiency can be
grouped into several categories:
- shifting to less carbon-intensive
fossil fuels - from coal to oil or gas, from oil to gas;
- moving from fossil to
- increasing the
standards for refined petroleum product consumption;
- controlling and
preventing SOx and NOx emissions from thermal
- switching to more
energy efficient equipment;
- shifting expenditures
to less energy-intensive products and services.