Energy Security in North Asia · energy imports = Increasingly recognized (esp. by China) •Full-scale countermeasures include developing domestic energy, diversifying supply sources,

Energy Security

in North Asia

March 1２, 201４

The Institute of Energy Economics, Japan

CEO & Chairman

Masakazu Toyoda

IEEJ: March 2014. All Rights Reserved.

Unauthorized reproduction prohibited

(C) 2014 IEEJ, All rights reserved 1

Table of Contents Table of Contents

1. Asia: A Center of Growth and Energy Consumption

2. Recent Uncertainties in the Global Energy Landscape

3. How to ensure energy security under those

uncertainties

: Four cooperative agenda for North East Asia

4. Conclusions




1. Asia: A Center of Growth and

Energy Consumption



uncertainties


4. Conclusions




1. Asia : Center of growth and energy consumption

1-(1) World Energy Supply and Demand Outlook (by Region)

• Under steady economic growth assumptions, Asian energy consumption in 2040 will increase 1.8-fold

from the present level (from 5.1 billion tons in 2011 to 8.9 billion tons in 2040). Non-OECD countries

will account for about 90% of global energy consumption growth between 2011 and 2040.

Source: IEEJ “Asia / World Energy Outlook 2013”

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

19

71

19

80

19

90

20

00

20

11

20

20

20

30

20

40

石油換算百万トン

Asia

North America

OECD Europe

Non-OECD Europe Latin America

Middle EastAfrica

Oceania

5.1 Btoe

8.9 Btoe

Mtoe

2011

13.1 Btoe

↓

2040

19.6 Btoe

(Up 1.5-fold)

World

2011

5.1 Btoe

↓

2040

8.9 Btoe

(Up 1.8-fold)

Asia





1-(2) Primary Energy Demand by country (Asia)

• Though the vehicles’ fuel efficiency may be improved, and clean energy vehicles may expand, oil

demand in Asia will expand from 24.5 million B/D in 2011 to 43.0 million B/D in 2040, due mainly to its

escalating vehicle ownership. The share of China and India together in Asian oil demand will grow from

51% in 2011 to 62% in 2040.

• Even in the Adv. Tech. Scenario, projected oil demand saving will be equal to 19% of the Reference

Scenario in 2040.

0

500

1,000

1,500

2,000

1971 1980 1990 2000 2011 2020 2030 2040

China India Japan

Korea Taiwan Indonesia

Malaysia Philippines Thailand

Vietnam Singapore Hong Kong

Other Asia Adv. Tech.

Mtoe

17%

14%

37%

China

India

Japan

41%

21%

7%


AAGR China India Japan Korea Taiwan Singapore

1980-2011 5.3% 5.3% -0.4% 4.1% 2.2% 5.2%

2011-2040 2.3% 3.4% -1.2% -0.1% 0.7% 1.5%

Indonesia Malaysia Phi l i ppines Thailand Vietnam Other As ia

4.2% 4.1% 0.6% 4.9% 8.1% 3.5%

2.9% 1.3% 3.4% 2.2% 4.0% 2.4%

Reference Adv. Tech.

2011

1.20 bil.toe (24.5 mbd)

↓ 2040

●Reference

2.10 bil.toe (43.0 mbd) ●Adv. Tech.

1.71 bil.toe (35.1 mbd)

0.39 bil.toe

(19％) Reduction





1-(3) Energy independence is increasingly weakened in Asia

• Net oil import in Asia will expand from 17 mb/d (720 Mtoe) in 2011 to 35 mb/d (1,712 Mtoe) in 2040.

• Oil production in Asia (such as China, India, Indonesia and Malaysia) will marginally increase, not

keeping pace with the steady increase in oil demand. Therefore, net oil import ratio will reach 81% in

the Reference Scenario, and 77% in the Adv. Tech. Scenario by 2040 (compared with 69% in 2011).


478

618

1,198

1,542

1,842

2,102

227301

377 390 390 390

250317

821

1,151

1,451

1,712

0

500

1,000

1,500

2,000

2,500

1980 1990 2011 2020 2030 2040

Demand Production Net import

52%

51%

69%

75%

79%

81%

Mtoe

2011

17mbd

↓

2040 ●Reference

35 mbd

(2.1-fold inc.)

●Adv. Tech.

27 mbd

(1.6-fold inc.)

Adv. Tech. 77％ Asia

Net Oil Import





1-(4) Very low self-sufficiency in Korea and Japan

Source: IEA "Energy Balances of OECD countries"

5% 3%19%

31%

8%

59%71% 72%

88%

153%

174%

6% 15%0%

9%46%

10%1%

10%

1%

10%

6%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Japan S.Korea Italy Germany France U.K. India U.S. China Canada Russia

With nuclear

Without nuclear

11%18%

40%

54%

69% 72%81%

89%

162%

180%

Self sufficiency rate (2011)

19%



(C) 2014 IEEJ, All rights reserved

13 14 23

120

302

523

698

13 14 25

95

166

258

352

0 0

-2

24

136

266

347

-100

0

100

200

300

400

500

600

700

800

1980 1990 2000 2011 2020 2030 2040

Consumption

Production

Net import

Bcm

0% 0% ▲10%

20%

45%

51%

50%

Natural gasImport DependencyRatio

89119

221

442

645

783

866

108138

163203 206 210

234

-19 -20

58

239

438

573631

-100

0

100

200

300

400

500

600

700

800

900

1,000

1980 1990 2000 2011 2020 2030 2040

Consumption

Production

Net import

Mtoe

▲20%▲20%

34%

62%

68%

73%73%

OilImport DependencyRatio

7


1-(5) Energy Vulnerability is increasing in China

Net Oil

Import

2011

239 Mtoe

↓ 2035

631 Mtoe

(2.6-fold inc.)

China’s supply and demand outlook on Oil and

Natural gas


Oil

Natural gas

• Increasing dependence on

energy imports

= Increasingly recognized

as a vulnerability

(esp. by China)

• Full-scale countermeasures

include developing domestic

energy, diversifying supply

sources, independently

conducting overseas

development and

strengthening companies as

players.

• However, these actions may

increase the hoarding of

and competition for

resources, destabilizing the

international markets.

2011

24 Bcm

↓ 2035

347 Bcm

(14.3-fold inc.)

Net Natural

gas Import





2. Recent Uncertainties in the

Global Energy Landscape


uncertainties


4. Conclusions





2-(1) Uncertainty in M.E. has deepened as Arab Spring spread.

Source: Prepared by IEEJ

Iraqi

situations

after the war

Terrorism, threats

to energy

production and

exports

Uncertainty

over Middle

East Peace

issues

Tensions on

Iran Nuclear

development

Uncertainties in the

current regimes of

Middle East because of

“Arab Spring”

Shale Revolution

and its impact

on Middle East

economics

Growing Anti US

sentiments in Arab

and Islam society

Rising energy

demand and its

impacts




30

50

70

90

110

130

150

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

(US$/bbl)

Recovberyfromthe bottom

Historicalhigh

lehmanshock

Irannuclearissues

"ArabSpring"

Eurofiscalcrises

Eurocreditconcerns

Brent

WTI

Bandedtrading

105

95

105

115

10

• In 2013, oil prices remained high (more than $100/bbl)

for the third consecutive year since 2011.

• Average Brent crude oil price is forecasted at $105/B

(±$10/B) for 2014.

• Average Brent crude oil is

$109/bbl (WTI $98/bbl)

• The price has remained at a

historically very high level

since 2011.

• In November 2013, provisional

agreement was reached on

Iran’s nuclear development.

However, its impact on oil

prices is limited due to

persistent geopolitical

concerns over Syria and Iraq.

• In the US, WTI prices have

dropped since the summer of

2013 due to the easing

demand for oil caused by

increasing production of shale

oil. The difference with the

Brent price is now greater than

$10/bbl.


2-(2) Oil Prices hovering at high level

Source: EIA/DOE





2-(3) Shale revolution ①

The surge in unconventional oil & gas has huge implication.

（billion barrels）

Conventional Unconventional

total Crude oil NGLs

Extra heavy oil

and bitumen Kerogen oil Light tight oil

OECD Americas 253 57 809 1000 70 2188

OECD Europe 59 31 3 4 18 116

E.Europe/Eurasia 352 81 552 20 14 1019

Asia 100 37 3 16 63 219

Middle East 982 142 14 30 4 1172

Africa 255 52 2 0 33 341

Latin America 245 32 498 3 37 815

World 2245 433 1880 1073 240 5871

（tcm = trillion cubic

meters） Conventional

Unconventional total

Tight gas Shale gas Coalbed methane

E.Europe/Eurasia 144 11 12 20 187

Middle East 125 9 4 137

Asia-Pacific 43 21 57 16 137

OECD Americas 47 11 47 9 114

Africa 49 10 30 0 88

Latin America 32 15 33 80

OECD Europe 24 4 16 2 46

World 462 81 200 47 790

Remaining technically recoverable Oil resources by type and region

Remaining technically recoverable Natural gas resources by type and region

Source:

IEA

"World

Energy

Outlook

2012“



(C) 2014 IEEJ, All rights reserved 12 Sources: Japan's customs clearance statistics and Energy

Intelligence Data from the US Department of Energy

Japan LNG

US:

Henry hub (Pipeline gas)

US:NY City Gate (Pipeline gas)

German border: Pileline gas from

Russia

France LNG

from Algeria


2-(3) Shale revolution ②

： Asian premium

0

2

4

6

8

10

12

14

16

18

20

22

Ma

y, 2

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Henry Hub New York Citygate Russian pipeline gas (at German border) Algerian LNG (in France) Japan LNG($/MMBTU)





2-(3) Shale revolution ③

： Implications of US Energy Independence

0%

5%

10%

15%

20%

25%

30%

20

00

20

02

20

04

20

06

20

08

20

10

20

12

US

Europe

0%

5%

10%

15%

20%

25%

30%

20

00

20

02

20

04

20

06

20

08

20

10

20

12

US

Europe

Dependence of Oil import

on the Middle East

Dependence of Natural gas import

on the Middle East

• Oil: US dependence on the Middle East continues to decline, while imports from Canada and Central

and South America are increasing. European dependence on the Middle East also continues to decline,

while imports from former USSR countries are increasing.

• Natural gas：Dependence on the Middle East is slightly increasing due to reinforced LNG export

capacity in the Middle East.





2-(3) Shale revolution ④

： Possible Impact on Real GDP

Source: IEEJ “Asia/Word Energy Outlook 2013"

Enhanced Development Scenario : Changes in 2040 from the Reference Scenario

• As oil & gas industries expands, net energy import value drops and energy price falls, most national

economies benefit. The degree of benefits depends on output growth, industrial structure, oil and natural

gas industries’ portion of the economy, energy supply and demand structure, external demand changes

in trading partners, etc.

• Traditional energy producing countries will face downward pressures on their GDP due to a combination

of demand loss and price drops.

Reference: Accumulation after U.S. shale revolution

Latin America

India

Oceania

China

Southeast Asia

USA

Japan

Europe

FSU

Middle East

Note: Effects of a shift

from the Reference

Scenario to the Enhanced

Development Scenario





2-(4) Serious concerns with Nuclear Energy

The trust on nuclear safety was seriously damaged because of Fukushima

nuclear accident.

<Global shift in opinion on nuclear energy after Fukushima>

Source: Gallup International (April 19,2011)






3. How to ensure energy security

under those uncertainties

: Four cooperative agenda for

North East Asia

4. Conclusions




0.24 0.26

0.40 0.43 0.44 0.56

1.32

1.75

1.90

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

EU

-27

Jap

an

US

A

Canad

a

Austr

alia

Ko

rea

Ind

ia

Russia

Chin

a

17

Energy conservation would increase energy independence and

contribute to combat Climate Change

CO2 emissions per GDP (2011)

(Carbon Intensity)

［ kgCO2/US$（Standard exchange rate in 2005 ）］

Primary energy supply per GDP (2011)

(Energy Intensity)

[ ktoe/1000 US$（Standard exchange rate in 2005） ]

3. How to ensure energy security under those uncertainties

3-(1) Energy conservation is beneficial for all importing

countries.

Source: IEA “CO2 emissions from fuel combustion 2013”

0.10 0.11 0.14 0.17

0.20 0.25

0.57

0.65

0.77

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Jap

an

EU

-27

Austr

alia

US

A

Canad

a

Ko

rea

Ind

ia

Chin

a

Russia





＜Example of cooperation＞：It is important to continue to hold

Energy and Environmental Forum for China and Japan

The above mentioned forum has been held with about 1000 business people and Government officials for seven years since 2006, in China, either in Tokyo or in Beijin, alternately. The forum has been hosted by Ministers of METI and NDRC (National Development and Reform Commission). The last meeting was held in Tokyo.

Various issues have been discussed such as policies, technology transfer, and experiences with respect to energy conservation and introduction of low and zero carbon. A large number of projects have been agreed.

Trends of cooperative projects：

(1) 5 projects → (2) 10 → (3) 19 → (4) 42 →

(5) 44 → (6) 51 → (7) 47 （Total 218 projects)

Unfortunately the meeting was not held last year(2013).





3-(2) Emergency Response Arrangement

(IEA)

Emergency

Response

Measures

Source: IEA “IEA

Emergency Response

System” New Delhi,

30 May 2012

(APEC) APEC Oil & Natural gas Security Exercises

• Upon the instruction from APEC Energy

Ministers Meeting (EMM) in St. Petersburg

on June 2012, APERC has worked on

activities to improve the response to oil and

gas emergency situations in the APEC

region, including two emergency response

exercises in Thailand (jointly with other

ASEAN APEC economies) on September

2013 and in Indonesia on October 2013.

• The result of these activities will be reported

to the forthcoming APEC EMM in Beijing on

September 2014.

METHODOLOGY FOR THE EXERCISE

the External Review Team

the Host Economy

• discuss, question and answer

APERC• Arrange the

whole schedule for the exercise

• Organize experts on energy emergency

Experts from:• APEC economies• IEA• ASEAN institutions• ERIA• APERC

Stakeholders from:• The Government’s

energy department• Organizations or

companies in the energy industry

• The Government’s industry, commerce & transport departments





3-(3) Joint efforts are essential to eliminate Asian premium

(1) Goals 1. Relaxing supply and demand of natural gas in Asia

2. Increasing liquidity in Asia LNG market

3. Developing a benchmark LNG price in Asia

(2) Possible cooperation 2-1) Cooperation by private sectors

a. LNG swap

b. Joint purchase and development for diversification of supply sources (incl. pipeline gas) and pricings (e.g. Henry Hub, Hybrids, Spot LNG)

2-2) Cooperation by Governments

c. Diplomatic and financial supports for upstream gas project

d. Prohibiting destination clause of LNG contract

e. Ensuring free flow of goods, personals and money through EPA

f. Deciding energy mix, which will improve price negotiation capability





<Reference> Possible Gas pipeline network in North east Asia





3-(4) Nuclear Power could expand safely based on lessons

from Fukushima

• Global nuclear power generation capacity in 2040 will grow by 235 GW in the Reference

Scenario and by 495 GW in the Advanced Technology Scenario. Asia will lead the growth

and account for nearly half of the global capacity in 2040 in the Advanced Technology

Scenario.

0

100

200

300

400

500

600

700

800

900

1000

Adv. Tech.

1980 2013 2020 2030 2040 2040

GW

Asia

North America

OECD Europe

FSU, non-OECD

Europe

Middle East, Africa

Latin America

23%

31%

33%

11%

41%

22%

20%

13%

47%

17%

18%

11%

History← →Forecast

495 GW

235 GW

2013

389 GW

↓

2040

Reference

624 GW (Up 235 GW)

Adv. Tech.

885 GW (Up 495 GW)

World






＜Example of cooperation＞: Formation of cooperative

framework for nuclear safety

(1) Elements to be considered

a. Types of cooperation : those among gov. (either promoting agencies or regulators) and /or operators

b. Nature of cooperation : EU like cooperation (Non-binding but virtually effective)

(2) Points of cooperation a. Establishing meaningful regulatory frame

b. Accident preparedness or crisis management

c. Risk communication

d. Enhancement of nuclear security and coping with terrorism

e. nuclear cycle

f. liability scheme

g. human resource development




Table of Contents Table of Contents




uncertainties


4. Conclusions




4. Conclusion

1. Asia is a center of growth, but this means that Asia is a center of energy consumption 2. Energy landscape surrounding North Asia is full of uncertainty 3. Energy security in North Asia is getting more vulnerable unless regional cooperation is promoted to cope with recent uncertainty 4. At least four cooperation can be listed to be promoted; 1) Energy conservation => more energy independence 2) Emergency Response arrangement => helping each other among countries with similar characteristics 3) Elimination of Asian premium for LNG trade => cheaper and cleaner fuel 4) Ensuring nuclear safety => safer North Asia


Thank you for your attention !!


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Documents

Energy Security in North Asia · energy imports = Increasingly recognized (esp. by China) •Full-scale countermeasures include developing domestic energy, diversifying supply sources,