1
International Workshop on
“Cooperative Measures in Northeast Asian Petroleum Sector:
Focusing on Asian Premium Issues”
September 6, 2003 The Palace Hotel, Seoul
Ken Koyama, PhD
General Manager
Energy Strategy Department
Institute of Energy Economics, Japan
2
Presentation Topic Presentation Topic
z Growing energy imports in North East Asia and the energy security concern
z Strategy development in North East Asia and its implication
z Importance of the regional cooperation to enhance energy security
z Interdependence between the East and West Asia (Middle East) and the need to pursue
“common interests”
3
Growing Energy Imports in North East Growing Energy Imports in North East
Asia (Total Primary Energy) Asia (Total Primary Energy)
Note 1: North East Asia includes China, Japan and South Korea.
Note 2: Oil and gas production numbers account for Chinese data only.
Source: BP Statistical Review of World Energy 2003
1,223 1,734
813 1,084
410 649
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Energy consumption
Energy production Net import
(Million TOE)
4
North East Asia, Heavily Dependent North East Asia, Heavily Dependent
on Imports for Oil and Gas Supply on Imports for Oil and Gas Supply
((Supply/demand balance of coal, oil and gas in 2002)Supply/demand balance of coal, oil and gas in 2002)
606
122
868
169
29
705
438
93
164
0 100 200 300 400 500 600 700 800 900 1,000
Oil Gas Coal
Consumption Production Net import (Million TOE)
Note 1: North East Asia includes China, Japan and South Korea.
Note 2: Oil and gas production numbers account for Chinese data only.
Source: BP Statistical Review of World Energy 2003
5
Oil Imports Continued to Grow Rapidly Oil Imports Continued to Grow Rapidly
in North East Asia in North East Asia
Note 1: North East Asia includes China, Japan and South Korea.
Note 2: Oil production numbers account for Chinese data only.
Source: BP Statistical Review of World Energy 2003
275 295 325 336 367 384 395 411
386 414 436 430 438
0 100 200 300 400 500 600 700
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Consumption
Production Net import
(Million TOE)
6
North East Asia Depends Heavily North East Asia Depends Heavily on Middle East Crude Oil Import on Middle East Crude Oil Import
(Crude oil import source in North East Asia) (Crude oil import source in North East Asia)
Note: North East Asia includes China, Japan and South Korea Source: World Oil Trade, etc.
0 2,000 4,000 6,000 8,000 10,000 12,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Others
Asia
Middle East (1,000 B/D)
7
Gas Imports Continued to Grow Rapidly Gas Imports Continued to Grow Rapidly
in North East Asia in North East Asia
50 53 55 56 62 64
71 73 76
84 87 92 93
0 20 40 60 80 100 120 140
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Consumption
Production Net import
(Million TOE)
Note 1: North East Asia includes China, Japan and South Korea.
Note 2: Gas production numbers account for Chinese data only.
Source: BP Statistical Review of World Energy 2003
8
Asia-Pacific LNG dominates in North East Asia-Pacific LNG dominates in North East
Asia, but Middle East LNG increased Asia, but Middle East LNG increased
(LNG import source in North East Asia) (LNG import source in North East Asia)
Note: North East Asia includes China, Japan and South Korea Source: BP Statistical Review of World Energy 2003
0 20 40 60 80 100 120
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Asia-Pacific
Middle East
(Billion Cubic Meter)
9
World Oil Price Increased After 1999 World Oil Price Increased After 1999
WTI Futures Price in NYMEX WTI Futures Price in NYMEX
10 15 20 25 30 35 40
Jan Feb Mar Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec 1뙉 Jan Mar Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug Aug
걁USD/bbl걂
1998 1999 2000 2001 2002 2003
Source: NYMEX data
10
Asian LNG Price follows Crude Oil Price Asian LNG Price follows Crude Oil Price
((Crude oil and LNG CIF prices in Japan)Crude oil and LNG CIF prices in Japan)
10 15 20 25 30 35
Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr July Oct Jan Apr
2 3 4 5 6 7 Crude CIF LNG CIF
(USD/bbl) (USD/MMBTU)
1998 1999 2000 2001 2002 2003
Source: EDMC/IEEJ, “EDMC Energy Trend”
11
Growing Concerns for Energy Security Growing Concerns for Energy Security
in North East Asia in North East Asia
z Energy import dependence expected to grow rapidly
z China, an emerging large-scale importer
z Oil price increase after 1999
z Impact of September 11
z War in Iraq and potential instability in the Middle East
z Growing attention to “Geopolitical aspects” of energy
12
Perceived Risks for Energy Security Perceived Risks for Energy Security
z
Contingent risks
* Political and military risks in main energy supply area *Accidents in energy supply chain
*Consumers’ panic behavior z
Structural risks
* Supplier’s embargo with political objectives * Market power of major suppliers
* Supply/demand squeeze due to insufficient investment, rapid growth of demand, etc.
* Resource constraints and chronic energy shortage
* Side effects of market liberalization and environmental restrictions
13
Changes in the perception on the risks Changes in the perception on the risks
z In the 1970s, embargo and OPEC market power tended to be regarded as the most serious risks
z In the 1980s, concerns over the above mentioned risks receded, because of the structural changes in the world oil market
z In the 1990s, contingents risks tended to be regarded as major energy security risks
z Recent price increase and events in the Middle East arouse public concern again, and energy security concern revisited
14
Energy Security Initiatives Taken Energy Security Initiatives Taken
in North East Asia in North East Asia
z
Energy supply diversification
z
Oil stockpile buildup to strengthen emergency preparedness
z
Strategy development to strengthen ties with major energy producers
z
Promotion of regional cooperation
15
Promotion of Natural Gas Promotion of Natural Gas
z
Resource Potential in Asia
z
Advanced Technologies (CCGT)
z
Advantage as a “clean fuel”
Constraints are: Price competitiveness, requirement for large-scale investment in infrastructure buildup. But Numbers of LNG, P/L projects being examined or
implemented
16
Promotion of natural gas Promotion of natural gas
China West Gas to East Project, Guangdong and Fujian LNG project, P/L project from East Siberia (Russia), etc.
are now being examined/implemented.
Korea Progress in the 3rd LNG terminal and the completion of domestic trunk P/L. LNG demand is expected to increase from 18.3 million tonnes in 2003 to over 23.2 million tonnes in 2012.
Japan：Natural gas demand is expected to increase from 75 million TOE in FY 1999 to 82-83 million TOE in FY 2010 in the latest METI outlook
17
z Abundant Resource Potential
z Top-class production capacity and record (China: 2nd largest producer)
z Availability of Australian coal 3rd largest producer) as regional resource
z Price competitiveness
Promoted as base-load power source in many economies
But environmental constraints exist (SOx NO
CO2 emission). Importance of “Clean Technology”
for further promotion on coal
Promotion of Coal
Promotion of Coal
18
Nuclear Power Development in Asia Nuclear Power Development in Asia
z
Nuclear power, stagnant in US/European market
z
In Asia, nuclear power is promoted as:
– a) quasi-domestic energy
– b) mainstream of alternative energy in power sector
– c) important source of base-load power
z
New plants being constructed in Korea, China
and Japan
19
z Reduce risks from over-dependence on a specific source (Disruption risk in the source, market power risk, etc.)
z Constraints for diversification are: export availability and import economics of crude oil for diversification purpose (Production/export capacity, physical property,
transportation costs, refining configuration, etc.)
z Notable increase in crude oil imports from Africa
z Large-scale crude oil export PL projects from Russia are now being examined
However, Middle East will remain the mainstream of import source. Interdependence between Asia and Middle East will continue to grow.
Import Source Diversification
Import Source Diversification
20
Current Situation of Oil Current Situation of Oil
Stockpile in Asia Stockpile in Asia
z Japan and Korea hold national stockpile under direct government control
z Stockpile obligation to oil company exist in Japan and Korea
z In Asian developing countries, stockpile levels are low in terms of international comparison
z Majority of stockpile is commercial inventories, not emergency stocks
z Problems in international cooperation framework
21
Efforts for Oil Stockpile Buildup To Efforts for Oil Stockpile Buildup To
Enhance Emergency Preparedness Enhance Emergency Preparedness
z
Korea: National Stockpile program in progress, implemented by State KNOC.
Korea joined IEA on April 2001
z
China: Government announced a plan to establish national stockpile during the
10th 5 years plan. Inventory build-up for
Iraqi crisis
22
Initiatives To Strengthen Ties With the Initiatives To Strengthen Ties With the
Major Energy Producing Countries Major Energy Producing Countries
z
Buildup “strategic partnership”
- VIP visits to and from the North East Asia/ Middle East/ Russia
- Economic and energy cooperation agreement z
Strengthen cross investment relation
- Upstream investment by the North East Asia (China, Japan, etc.)- Downstream investment in the North East Asia (Korea, China)
23
Implications of the Initiatives Implications of the Initiatives
z In principle, pursuit of energy security by each country can contribute to enhance regional and global energy security
z However, if initiatives to enhance energy security conducted too exclusively, tensions could be
generated and escalated among Asian economies, thus damaging regional energy security
z Therefore, North East Asia has a common interest in establishing regional energy security.
24
z NE Asia: Bilateral dialogue and cooperation (incl.
Japan-Korea FTA talk). Seminar, workshop, etc. to facilitate regional cooperation.
z ASEAN + 3 (Japan, Korea and China): During the 8th IEF in Osaka, energy ministers of ASEAN + 3 met for the first time to discuss agenda for future cooperation.
They agreed on such issues as: creation of emergency network; initiative of oil stockpile development; joint study on the Asian oil market; etc.
z ASEAN: Review of ASEAN Petroleum Security Agreement (APSA), MOU for Trans ASEAN Gas Pipeline (TAGP) and Trans ASEAN Power Grid (TAPG)
International Cooperation in Asia
International Cooperation in Asia
25
z Understanding that energy security is a common challenge for (North East) Asia
z Cooperation can be beneficial:
– Synergies
– Optimal use of existing resources, capital, technology, know- how, infrastructure, etc.
– Bargaining power
– From “national energy market” to “regional energy market”
z Efficiency
z New business opportunity
Importance of Regional Cooperation
Importance of Regional Cooperation
26
Importance of cooperation between Importance of cooperation between
East and West Asia (Middle East) East and West Asia (Middle East)
Middle East needs NE Asia because:
Middle East needs NE Asia because:
z
Growing market for their most important commodity
z
Relative attractiveness compared to the US/European market
z
Crucial needs for stable and sufficient revenue flows for their sustainable
development
27
outlet for Middle East Crude Oil outlet for Middle East Crude Oil
(Middle East crude oil export by destination) (Middle East crude oil export by destination)
Note: North East Asia includes China, Japan and South Korea Source: World Oil Trade, etc.
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 0 5 10 15 20 25 30 35 40 45
Others OECD Europe OECD N. America North East Asia Share
(1,000 B/D) (%)
28
Most of Middle East LNG Heads for Most of Middle East LNG Heads for
North East Asia North East Asia
(Middle East LNG exports by destination) (Middle East LNG exports by destination)
0 5 10 15 20 25 30 35
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 0 10 20 30 40 50 60 70 80 90 100
O EC D Europe O EC D N. Ame rica North East Asia Share
(Billion C ubic Me te r) (%)
Note: North East Asia includes China, Japan and South Korea Source: BP Statistical Review of World Energy 2003
29
Middle East Needs Middle East Needs
Stable Energy Export Earnings Stable Energy Export Earnings
z Energy revenue dependent economy
z Growing financial requirement for domestic economic development
(Growing population, infrastructure buildup for higher living standard, etc.)
z Needs for re-investment in their energy sector
(to maintain and expand energy exports)
z Importance of economic diversification as a long-term target
30
Common Interests for Common Interests for
North East Asia and the Middle East North East Asia and the Middle East
z North East Asia needs sufficient energy supply at reasonable prices to meet their growing
energy requirement (Energy Supply Security)
z Middle East needs markets for their energy commodity to secure stable and sufficient revenue flows (Energy Demand Security)
z To achieve sustainable development, it is essential for the two region to have a better understanding of the interdependency and pursue the common interests
31
To Strengthen the Interdependence, To Strengthen the Interdependence,
z
Traditional approach (economic
cooperation and promotion of investment and trade relation) is still important
z
“Dialogue” to address an issue of common interests and seek better
solution for the addressed issue can also
be an important option
32
The Issue of Oil Price Determination:
The Issue of Oil Price Determination:
A Case for the
A Case for the “ “ Dialogue Dialogue ” ”
z Oil market is globalized, and the NYMEX futures price is a world reference
z NYMEX WTI is influenced not only by global fundamentals, but by US (local) fundamentals and “market psychology”
z Increased price volatility and possibility of “overreaction”
z This volatile price is the world benchmark
z The issue of benchmark crude oil. In particular, it is
essential to establish reliable benchmark for the Asian oil market
z Existence of the “Asian premium” (around 1$/bbl average in the 1990s for Asian bound crude oil)
33
Why It Matters?
Why It Matters?
z The volatility and large swing in energy prices matter because:
– Economic dislocation due to excessively high or low energy prices
– Difficulty in long-term economic and energy policy planning
– An obstacle to energy investment?
z The premium matters for Asian buyers because:
– Income transfer (Primary impacts)
– International competitiveness of the economy and the industry
– Impacts on growth in energy demand and industry
34
Conclusion Conclusion
z Pressed by the growing energy import dependence, North East Asia is now embarking on strategy
development to enhance energy supply security
z Pursuit of energy security by individual countries is expected to contribute to enhance regional and global energy security.
z Differences in resources, technology, human capital, etc. will lead to difference in priority in each country
z Intra/Inter regional cooperation should be promoted for the benefit of regional and global economic
development and prosperity
