The PACIFIC ECONOMIC CO-OPERATION COUNCIL (PECC) is one of the preeminent trans-Pacific private-public cooperation research organizations. Three quarters of a century ago, trans-Pacific energy trade was robust, with the United States serving as one of Japan's major oil suppliers. This monograph chronicles and analyzes the dawn of a new historical era of deepened and expanded interdependence in trans-Pacific energy relations.
Two fateful events clearly separate the past of trans-Pacific energy relations from their future, and thus prefigure this new chapter: the Fukushima nuclear tragedy and the North American shale gas revolution. The papers that follow address both the significant technical and economic changes now emerging in trans-Pacific energy relations and their political implications for Japan, Canada, and the United States. But they are united in their conviction about the historic nature of the transformations now approaching trans-Pacific energy relations and the importance of market tools in dealing with them.
The authors all note that some domestic interests in both Canada and the United States are ambivalent about the interdependence of Pacific Ocean hydrocarbons.
YUEN PAU WOO PRESENTATION TO JAPAN-US-CANADA TRILATERAL COOPERATION PROJECT WASHINGTON, DC 8 MAY 2012
Expected start date Kitimat LNGCanadaWest Coast10.02015 BC LNGCanadaWest Coast15.02015 Petronas/ProgressCanadaWest Coast-2016-18 Douglas Chanel LNGCanadaWest Coast1.82014 Sabine Pass LNG (Cheniere.USA/020subish/Coast)USA/020subish/Coast16/0201816/02014 Coast-- British GasCanada West coast - - Freeport LNGUSAGulf Coast15.0> 2015 Lake Charles (BG)USAGulf Coast17.6- Cove Point LNG (Dominion)USAEast Coast-- North Slope, Alaska (BP/ConocoPhillips). The potential environmental risks of transporting oil and gas from Canada to Asia outweigh the potential economic benefits. The economic benefits of Asia's investment in Canada's energy sector outweigh concerns about foreign ownership of our natural resources.
Ensure that the development of energy projects has the approval of affected First Nations communities. Build pipelines to facilitate the flow of crude oil to ports on Canada's west coast for export to Asia. Allow tankers carrying crude oil to enter waters off Canada's west coast. : Asia Pacific Foundation of Canada 2 0 1 2 National Opinion P o l.
ProsPects for transPacific
The underlying patterns of energy use in the Asia-Pacific region are unlikely to change materially in the foreseeable future. In this scenario, the use of non-fossil fuel energy sources (nuclear, hydroelectric and renewables) increases significantly in each of the major economies. However, fossil fuels continue to dominate the energy mix, accounting for 60-80% of the energy mix in most economies.
The importance of energy trade to the economies of Asia and the Pacific is underlined by the fact that a large part of Asia's fossil fuel needs is met by imports1. Natural gas imports are quite significant, accounting for 37.2% of total natural gas consumption, while coal imports are relatively less important, accounting for only 14.9% of total coal use. Taking all three fuels together, 41.2% of the fossil fuel needs of Asian economies are met by imports.2.
By far the largest crude oil trade flow is from the Middle East (ME) to Asia (AS), worth approximately MMBD 14.1 million; The largest gas flow comes from Russia and the Central Asian FSU countries to Europe (185.7 billion cubic meters), although Europe also receives significant gas imports from Africa (84.3 billion cubic meters) and the Middle East (45.0 billion cubic meters). In addition to gas imports from the SEA, Northeast Asia receives imports from the Middle East (46.8 billion cubic meters) and, increasingly, from the former Soviet Union (16.0 billion cubic meters).
Source: BP World Energy Statistical Review 2011 Figure 5: Oil trading pattern in the Asia region in 2010 Figure 6: Gas trading pattern in the Asia region in 2010 The Middle East is the only other significant exporter in Asia , accounting for almost all of India's gas imports and a significant portion of South Korea's and, to a lesser extent, Japan's gas imports. Trans-Pacific oil and natural gas trade are particularly limited in scale, accounting for only 1.2% of global oil trade and 0.3% of global natural gas trade in 2010, respectively (BP Statistical Review of World Energy, June 2011).
Trans-Pacific coal trade is relatively more important in the global coal trade, but even so, it accounts for only 4.6% of the total coal trade. Aggregating the three fuels, trans-Pacific energy trade accounts for just 1.4% of global energy trade, more than two-thirds of which is from North America to Asia.
ProsPects for transPacific natural gas trade
First, Indonesia and Malaysia, two of the largest gas exporters in the region, are both experiencing declining supply from aging fields. The earthquake not only shut down much of Japan's nuclear power generation capacity, in the wake of the Fukushima disaster, but also damaged oil and coal-fired thermal power stations. The growing demand for natural gas in Asia is also accompanied by a large increase in North American gas production, driven by the shale gas revolution that has made it possible to exploit large reserves of unconventional gas in the US and Canada.
Historically, natural gas in the Asia-Pacific region has been priced higher than North American natural gas (see Figure 9). However, as Figure 9 shows, price differences have widened considerably in recent years. All of the projects proposed in Canada are new terminals on the west coast of British Columbia, with access to the vast reserves of largely unconventional gas in the Western Canadian Sedimentary Basin (WCSB) spanning the provinces of Alberta and British Columbia. .
The Japanese contract price and the Henry Hub price (ie the US domestic price) refer to 2011 and are calculated as described in the notes to Figure 9. The majority of gas demand in North America is in the US and with US gas production all major Canadian gas exports to the US have been steadily declining. Regardless of the actual volume of exports, the prospect of significant North American LNG exports is likely to affect gas and oil and gas price differentials in the region.
While oil indexing was logical in the 1960s when natural gas used to be a substitute for home heating oil, today natural gas tends not to be a substitute for oil, and the previous logic behind indexing no longer holds. One way Asian prices may fall in response to the entry of North American producers is through adjustments to oil indexing formulas (eg, a decrease in the slope of a typical formula). Although oil indexation formulas are likely to remain, if pricing based on North American gas hub prices is adopted at some point in the future due to the influx of North American exports, Asian prices (and therefore price differentials between Asia and North America) are likely to decline, regardless of whether sellers pursue a strategy of to lower prices to maintain market share.
Furthermore, price differentials can be expected to narrow due to a possible shift in the balance between contract and spot LNG prices charged by Asian buyers. For example, in the aftermath of the March earthquake, Japanese buyers have tended not to rush into new long-term contracts, instead relying on spot LNG and LNG from short-term contracts to offset the loss of nuclear and thermal capacity .
ProsPects for transPacific oil and coal trade
THE EMERGING TRANS-PACIFIC ENERGY ECONOMY
IMPLICATIONS FOR POLICY AND ECONOMIC PARTNERSHIP
More generally, trade in oil and natural gas across the Pacific Ocean has been practically non-existent - the gas trade across the Pacific Ocean was, for example, in 2010, only 0.3 percent of total worldwide trade, while trade in oil in the Pacific was only 1.2 percent. of global totals.4 Yet this unintegrated pattern, in the wake of the historical development on the two coasts of the Pacific—the shale gas. Suddenly, the prospect of an era of true trans-Pacific energy interdependence, fraught with important geostrategic implications, seems to be emerging. To fully understand the new profile of trans-Pacific energy dependence and its historical political and geopolitical implications, it is important to review the embedded patterns of energy supply and demand prevailing in the United States, Japan, and Canada.
Following this survey, this paper then considers economic prospects for the new era of deepening trans-Pacific energy interdependence. In conclusion, it lists the strategic benefits of the new trans-Pacific energy relationship and reviews policy issues raised by the new trans-Pacific energy economy. Given the trans-Pacific LNG price trends of the past two years, driven by the shale gas revolution in North America and the Fukushima accident in Japan, trading natural gas across the Pacific is now economically feasible.
However, long-term economic logic makes trans-Pacific natural gas trade finally economically feasible. Korea has also become an important investor, facing fewer regulatory barriers to its investment and exports from the United States than Japan, due to provisions of the US Natural Gas Act of 1938, as amended by The Energy Policy Act of 1992, which establishes preferential treatment, through a Department of Energy approval process, for countries that enter into free trade agreements with the United States.11 Coal has historically been an important part of U.S. trade and investment. trans-Pacific energy and cannot be neglected in the future. Civil nuclear power has traditionally been the energy sector where trans-Pacific interdependence has been deepest.
Canada has also been an important participant in trans-Pacific energy trade17, including the nuclear dimension. Flexible delivery of expanded North American natural gas supplies to Japan is also likely to have tangible diplomatic benefits for the United States and Canada that will help strengthen Pacific-Pacific relations. After all, the three countries have significant shared interests and concerns as energy interdependence in the Pacific continues to increase.
These shared interests focus on maintaining free trade and transparent investment practices in the energy sector, while also ensuring that trans-Pacific energy trade and investment does not undermine shared national security concerns. No.13 A Changing Arctic and the Trans-Pacific Relationship: American Perspective No.14 Towards a New Era of Trans-Pacific Energy Interdependence.
