Event — Conference

The Security of Energy Supply in China, India, Japan, South Korea and the European Union: Possibilities and Impediments

May 20-21, 2005

Second Conference of the Energy Programme Asia (EPA) in cooperation with the Clingendael International Energy Programme (CIEP)

Organized by EPA-IIAS & CIEP


Conference Report
On 20-21 May, 2005, The Energy Programme Asia (EPA)-International Institute for Asian Studies (IIAS) and the Clingendael International Energy Programme (CIEP) organized a conference entitled: "The Security of Energy Supply in China, India, Japan, South Korea, and the European Union: Possibilities and Impediments" at the Netherlands Institute for International Relations Clingendael, Clingendael 7, Den Haag and at the University of Leiden, Academy Building, University Council Room, Rapenburg 73, Leiden.

This conference was the third out of a number conferences held in Europe and Asia as part of the Energy Programme Asia, an IIAS research programme managed by Dr. Mehdi Parvizi Amineh. The Energy Programme Asia provides cutting edge research and publications on the impact of East and Southeast Asian (China, India, Japan, South Korea) energy supply strategies for the Caspian Region and the Persian Gulf in the 21st century. The EPA was initiated at the International Institute for Asian Studies in cooperation with the Clingendael International Energy Program (CIEP), Waseda University Tokyo, and the Beijing Normal University.

The conference brought together academics and diplomats to discuss possibilities for developing a shared perspective on geopolitical, economic and energy related (future) developments in East and Southeast Asia (China, India, Japan, South Korea), and identify main points of interest for future research. We also took up implications for the future direction of our research project. The main questions that were addressed at the conference were:
Will the rivalry between the main Asian energy consumer countries - China, Japan, India and South Korea - as well as the EU and US over Persian Gulf and Caspian energy production become an obstacle to the uninterrupted flow of oil and gas?
What are the main strategic scenarios in China, India, Japan, South Korea, US and EU to secure projected energy supplies?
How can producer-consumer dialogues and regional cooperation help reduce internal security risks in producer countries?

Economic growth in East and South East Asia has increased energy needs, as the regions' countries increasingly depend on hydrocarbon resources. The growing energy dependence of East and South East Asia is fuelling official concern over energy security. Oil production in the major East and South East Asian countries- China, and India has peaked or is about to peak. This will lead to increased reliance on imported oil and gas from a limited number of politically and economically unstable countries and regions- mainly the Persian Gulf and the Caspian region. The concentration of oil reserves in the Persian Gulf and the Caspian region, accompanied by growing demand, increases the dependency of large consuming countries such as the US, China, Japan, India and the EU member states on these two regions. A regional crisis in the Persian Gulf or Caspian region could easily create the type of supply shortage, which no swing-producers outside these regions could compensate for. In an environment of serious geopolitical competition for oil resources, the two unstable producer regions could easily become further destabilized, when external pressure to supply oil and gas cannot be combined with internal political and economic stability.
As global oil and gas consumption and imports rise, environmental conditions worsen, the availability of oil and gas decreases, and prices for these commodities rise, conflicts over the control of global oil and gas intensify.

Opening of conference
Mehdi Parvizi Amineh
EPA Director; Senior Research Fellow IIAS, Leiden

Wilbur Pertol
Researcher Clingendael International Energy Pgrogramme,
Globalisation and Geopolitics: International Developments

Reinaldo Figueredo
Director Global Programme UNDP/UN Energy; Former Minister of Foreign Affairs of Venezuela

The Nautilius Institute of California argues global problems can be distilled into broad categories arising from shared management of global commons, and stresses the imperative of global cooperation to create a common good. Others argue global problems are exceptional because they affect everyone and are not amenable to singular or local solutions. Enduring global problems (such as climate change, energy, etc.) may set severe limits on solving interrelated, medium-term problems. Jean Francois Rischard argues two major forces will drastically alter the world as we know it over the next twenty years. China is once again on its way to becoming the world's largest economy, followed closely by India; water will have replaced petroleum as the main cause of strategic tensions. The demographic explosion pursues its own course generating a major strain to the world.

We in UNCTAD believe a third component, the "Economy of Knowledge" and its interconnectivity with "Energy" and "Water" should be given a combined consideration concerning geopolitics, security and societal cohesiveness. Within a joint UNCTAD/UNDP Global Programme it is suggested a regional approach on these issues should be adopted, ensuring at least two development policy tools are set up and implemented: "competitiveness and social efficiency" and "norms and spaces for active development policies." Both of them essential for developing countries outward looking development strategies and securing the UN MDGs.

Natural as well as man made events disregarded by too many for too long have left us with little leeway to avoid the worst of catastrophic confrontations. We should look to specific causes and real options to secure harmonious development. On energy security, it is not solely a problem of uninterrupted and efficient supply sources, but rather how we encompass energy through energy services as an engine of growth.

Geopolitics and Security of Energy Supplies
Coby van der Linde
Director CIEP

Post Cold War Geopolitics and Security
Henk Houweling
Associated Professor, University of Amsterdam

Geo-politics, old or new, does not sit well with the notion of ‘globalization,' probably best popularized by Kenichi Ohmae. In his book, The End of the Nation State, he states that we live in, or are moving to, a borderless world in which "the National Interest is a Declining Industry" (to quote the title of one of the chapters). Pundits of globalization emphasize that state borders are historically arbitrary, have lost their economic meaning and therefore no longer make sense.
Geo-politics in the industrial age, on the other hand, is concerned with securing control of territory beyond legal state borders to get access to resources there in a competitive international state system in which the power to produce and to destroy is still highly concentrated in countries that industrialized first. The belief that enterprises in the first-industrializing countries got in the past, or are presently getting, access to resources in late-industrializing countries solely, or primarily, by means of the market overlooks the history of domestic market creation and of cross -border market extension by state power. Accordingly, governments use either market forces to create access to resources for enterprises in territories not under their control, or project military power beyond legal state borders to create access. The choice of means is itself subject to decision-making by governments. These governments have simultaneously to survive competition from domestic challengers as well as competitors from abroad.

The current debate on globalization versus geo-politics is reminiscent of the earlier one between Norman Angell and Halford Mackinder.
Just before the outbreak of World War I, Angell argued that market integration between countries in the part of the world that considered itself as ‘civilized' had progressed to a such degree that war between them fought by mass armies equipped with killing machines produced by industry, had become a counter-productive anachronism.
Halford Mackinder, on the other hand, defended in his most widely cited article in 1904 the thesis that the railroad and the combustion engine was bringing to an end the "Columbian Epoch." In the pre-industrial era of European history, naval powers had controlled the fate of political units on the Eurasian landmass. He anticipated an upcoming struggle for control of the ‘pivot' area of Eurasia between land-based powers and the Anglo-Saxon naval powers. Benefiting from hindsight, we now know who got it right about the peace and war question among the powers of the industrialized world.

An updated version of Mackinder's geo-politics helps to understand why naval power Britain, whose fleet was moving from coal to oil, brought in the midst of World War I troops to the oil rich part of Ottoman Empire and created after the war a dependent state of Iraq on former Ottoman territory.
The US is no longer constrained by the cold-war military bipolar environment. The intention to attack Iraq, the capital of OPEC, was on the mind of military planners at least since 1992.
Today, the US is exposed to the same sort of hostile response from host society as the British did before and is using the same means to eliminate resistance. The difference between past and present is, among others, firstly, that in addition to military dependence of fossil energy, households, enterprises and state, all require for daily functioning on secure access to affordable fossil energy beyond borders. Secondly, Anglo-Saxon power projectors are meeting in the oil rich part of the world late-industrializing countries that have the potential to challenge them in the future. Their governments have absorbed the lesson that falling behind in the power to produce and to destroy is to invite invasion cum humiliation from abroad. Their meeting in the oil-rich parts of the world prepares the ground for conflict at points where trajectories of rival power projections intersect. Whether or not the current mixture of cooperative and conflictive behaviour among rival power projectors in the fossil fuel rich parts of the Middle East is paving the way for future escalation is uncertain. Such an outcome will not only depend on their own current behaviour but also on the historical legacy they left behind, on interactions between them and domestic society, as well as on responses from host-societies and their allies.

The reform Orientating Market Economy and Energy Security in China
Shi Dan
Director Energy Economic Research Center, Beijing

The way to effectively solve the issue of energy security in China is to open its market. Rapidly enhancing reforms to open the energy industry will improve the competitive capacity of its energy enterprises and complete the adjustment of energy resources so that China's energy security can be more effectively assured. Current market-oriented reforms associated with energy security in China aim to open its market, diminish monopoly, and create a pricing structure determined by supply and demand. As one of the largest energy consumers in world, the energy trade privatization of China is a great contribution to global energy security

Since 1998, China has implemented a pricing mechanism to keep its prices in line with the international oil market. The Chinese government re-regulated the investment sector for foreign companies in accordance to relevant regulations in 2002, with the encouraged sector being greater than the prohibited sector. However, protection of the oil sector through regulations and laws has formed a barrier to foreign investment. The state-owned economy is thereby able to monopolize the oil and electric power producing sectors, yielding high industrial concentration and low levels of competition in the sectors which most often attract foreign investment. As a result, China's market share has no direct relation to the actual competitiveness of its energy industry. Yet the most significant factor impacting Chinese investment in foreign markets is not the price of oil, but rather the relations of international politics, economics, and diplomacy. At present, the national economy is greatly affected by the instability of oil prices; the pricing mechanism fails to avoid oil price risk and cannot reflect the relations between supply and demand.

Therefore, China should improve its policies on energy security assurance to deal with the market-oriented reform of the energy industry. In short, China should rapidly enhance development of a competitive energy market, immediately reform the present oil pricing mechanism, and seek to enhance international cooperation while also efficiently protecting and using domestic oil resources. To that end, China should establish a strategic oil reserve system and set up a risk fund of oil exploration to ensure the protection of energy security from demand and production.

The Japanese perspective: Japan as an energy island: liberalization and sustainability
Yu Shibutani
Director Energy Geopolitics Ltd, Japan

Japanese highly efficient quality products with low emission technology has reshaped its energy island by nature for vehicles, industry and commercial use, although it has very little oil and gas in place at home. Nuclear and natural gas are to the fore in energy supply mix policy so that it would decrease Middle East oil dependence of which oil is still a mainstay as primary energy source.

The Koizumi government has accelerated internal energy market liberalization policy to reduce high cost in line with the price competition program in electricity and town gas market.

Japan stresses to sustain better balancing energy supply mix policy with the Kyoto Protocol including CDM/JI models.

Japan has enhanced to deploy sub-regional co-operation manoeuvring in East Asia at large including an energy security issue in collaboration with China and Korea.

Dreams of Great Power and Energy Security in East Asia
Kurt Radtke
Institute for Asia and Pacific Studies Waseda University, Tokyo

This discussion focuses on energy security in East Asia as part of overall great power strategic thinking. Rapid industrialization requires stable supplies of raw materials (including energy), and secure, reliable lines of distribution. These were basic factors Japan took into account in constructing its pre-war (security) strategies. The first four decades after WWII witnessed a highly exceptional pattern of industrialization in China, while Korean industrialization proceeded very slowly and Japanese security concerns were relegated to Japan-US security defence arrangements. There was a dramatic change toward "normality" over the past two decades (especially the last five years), which required each of these countries to concentrate on the development and implementation of global strategy. China's strategy is deeply influenced by new variants of united front strategies and its perception of the US as a great power. Japan, often said to be "weak" on strategy, has definitive strategic goals and Korea also strives to find a limited space for independent strategy.

Chinese, India, and Japanese Energy Dependency on Energy from the Middle East and the Caspian Region and Geopolitical Challenges
Frank Umbach
Research Center of the German Council on Foreign Relations, Berlin

The terrorist attacks of 11 September 2001, subsequent military interventions in Afghanistan and Iraq, and rapid oil price increases have focused international attention on energy security issues. Such issues include future political and socio-economic stability of Central and Southern Asia and the Persian Gulf. The economic rise of Asia - above all China and India - has created enormous regional energy requirements which raise countless foreign and security policy issues for both regional and global stability.
The predicted increase in global oil production, the increasing market orientation of national energy policy including privatisation and the deregulation of national energy policy, more efficient use of energy and energy saving measures, could - in principle - overcome the massive increase in oil consumption in China and East Asia. But the regional and global energy security depends not least of all, on the policies of the states concerned and the choice of national strategies for energy security. Until today, however, EU and its member states have failed to heed and analyse these economic and political interdependencies and their geo-political implications of Asia's energy hunger for China's, India's, Japan's and, ultimately, also the EU's foreign and security policies, that will influence economic and political stability around the globe, including Europe.
While Asia-Pacific has made the increased use of natural gas a top priority for the next decades, the continent's high level of dependence upon imports of crude oil from the Persian Gulf will increase further due to growing imports of natural gas from the region and from the Russian Far East. Hence traditional energy security concerns and geopolitical factors may conceivably become more acute in the near future - particularly in regard to the political stability in the Persian Gulf and the entire Greater Middle East. Against this background, (1) more multilateral cooperation and engagement is very much needed in regional energy co-operation in Asia-Pacific such as by creating an Asian Strategic Petroleum Reserve. It would not only promote political and economic cooperation in crisis, but also help to stabilize volatile markets and reducing the financial burden of maintaining national stockpiles. (2) At the same time, a more expanded and deeper interregional cooperation on important global energy security issues between the EU and the Asia-Pacific region will extremely become important in the years ahead for both sides. Thereby, the different approaches of energy security (geopolitical/ strategic factors versus market forces) should not considered mutually exclusive but rather as complementary strategies in a rapidly changing global energy security environment.

South Korea's Energy Supply Policy
J.H. Lee
Institute for Asia and Pacific Studies Waseda University, Tokyo

The Republic of Korea (ROK, South Korea) was the world's tenth largest energy consumer in 2003, ranking sixth in the consumption of oil. But lacking the energy resources itself, the ROK imports 97% of its overall energy supplies; stability of supplies will remain the most important goal of its energy policy. A change in the ROK's energy policy occurred with the inauguration of the Roh Moo Hyun administration in February 2003, and its "Concept of Northeast Asia Energy Cooperation" based on the awareness of Japan and South Korea's high energy dependence, and that competition for resources will become more strident due to the sudden rise of China's energy consumption. Increasing cooperation, rather than competition, will contribute to stabilization of the region and creating a mood of reconciliation, thus moving in the direction of common prosperity.

Countries in Northeast Asia differ in compositions of labour force and levels of technological development and expertise; differences which could be used for common advantage. In the field of energy, this means cooperation in reserve (emergency) oil storage, construction of gas pipelines and coordination of electricity grids. South Korea is enthusiastic at all levels about the concept of Northeast Asian energy cooperation, yet Northeast Asia remains unstable in the area of military security making cooperation in "soft" areas possible, but not strategic cooperation. Although both the South Korea and Japan have long since maintained military alliances with the US, there is still a certain distance and tension between South Korea and Japan, and between China and Japan; the building of mutual trust will require considerable time and effort. Due to these political and security issues, this author predicts energy cooperation in Northeast Asia will advance through promotion of bilateral cooperation

China's Economic Growth and Energy Consumption
Xiaoning Wang
Organization for the prohibition of Chemical Weapons, The Hague

Since the late 1970s, China has embarked on a modernisation drive, pursuing both industrialisation and urbanisation, with an average annual growth rate of 9.4% between 1997 and 2004. The process is set to continue into the first two decades of the 21st century; China's economy is expected to maintain a growth rate of over 7% per year up to 2020, when China hopes to catch up with other "medium-level" developed countries. A consequence of China's manufacturing-led growth strategy is the surging demand on natural resources, particularly oil and gas. Secure supplies of reliable energy with due consideration to the local environment and public health is necessary to sustain China's modernisation programme.

In the coming decades there will not be any economically viable alternative source of energy. China's two-pronged strategy of increasing domestic energy production while ensuring overseas oil and gas supply makes it simultaneously a partner and a competitor with both the industrialised and the industrialising nations for oil and gas imports. The emergence of China on the international energy market and the reaction of other major oil and gas importing nations (notably the United States, EU, Japan and India) will largely determine the geopolitical landscape of the decades to come.

Some Considerations for the Oil Security of China
Wang Limao
Institute of Geographic Sciences and Natural Resources Research, Beijing

Beginning in 1993, China has changed from a pure oil exporter to a pure oil importer; in 2004, China's import of oil reached as high as 117 million tons. With its growing dependence on oil imports, "oil security" has gradually become the catchphrase in frequent discussions among China's oil enterprises and government decision-making departments. While developed countries have established an effective system for reducing risk in oil supply and price fluctuations, China - one of the world major oil consumers - China is increasingly dependent on oil imports and has not established strategic petroleum reserves. Oil security has become one of the very important problems of China in the 21st century.

Consideration of some important issues relating to oil security is essential in facing the challenges. (1) Do not overstate oil security problems; it is only one of the non-traditional security issues facing China in the future. (2) Increasing domestic oil supply can reduce short-term supply risks, but will increase the long-term risks. (3) An open and diversified oil supply system is more stable and safe. (4) When establishing strategic petroleum reserves, both oil security and cost must be considered. (5) Importing oil is a reflection of China's all-around opening policy, not a threat to the international oil market. (6) Oil security should pay more attention to non-traditional security issues; if there is a war (traditional security), there will be no oil security.

China's Energy Supply Security and the Middle East Resources
Michal Meidan
Centre Asia Institut Français des Relations Internationales, Paris

In 1993 China became a net importer of oil for the first time. The upward trend in domestic consumption as well as the decline of its national production has led to heavy reliance on imported sources, of which Middle Eastern petroleum accounts for half. This new found dependence on the Middle East has led China to greater political and commercial involvement in a region in which it traditionally had very few interests.

China's strategic approach to energy security and its growing political clout has strengthened bilateral ties with regional producers. Furthermore, as China seeks to develop overseas resources it is becoming more active in "niche markets" where it is sheltered from Western competition. Countries like Iran and Sudan have therefore become the main petroleum suppliers and bases for Chinese overseas exploration activities, making China more vulnerable to regional evolutions and more sensitive to these countries political and strategic needs. Moreover, China's record of arms sales to the region as well as its political culture lead analysts to believe that its growing dependence on the region will threaten regional stability.

This paper argues that while China's growing dependence on Middle Eastern oil has meant a re-evaluation of its regional strategy, it has not meant a radical change in its vision of the region. China's energy supply security has indeed meant forging closer ties with regional producers but under the auspices of the regional security framework guaranteed by the United States. As problematic as US positions may be to China, it has no interest in challenging the American presence in the region. Future perspectives and evolutions will also be discussed in light of the two storylines (Markets & Institutions and Regions & Empires) proposed.

China's Economic and Energy Policy Towards Central Asia and Russia
Katsuhiko Hama
Department of Foreign Languages and Studies Soka University, Tokyo

The internationalization of China's energy strategy began in 1994; by 1997 China participated in the development of Kazakhstan's oil fields and reached an agreement on the construction of an oil pipeline to China. This was also the year in which an agreement was reached with Russia toward construction of a gas pipeline to China. However from 1998, following the Asian financial crisis, supply exceeded demand in China's economy. In order to stimulate domestic demand and promote exports, China endeavoured to join the WTO and pursued development of its western regions to close the gap with its main regions. For a short period, this resulted in excess energy supply and it was therefore decided to delay production expansion; the construction of pipelines from Kazakhstan and Russia was not realized.

By 2003, however, China's shortage of energy sources had become more serious. Investments in the energy industry were undertaken and the internationalization of China's energy strategy entered its second phase. Construction of the oil and gas pipelines from Kazakhstan began in 2004 and within China itself it was decided to construct a oil pipeline parallel to the gas pipeline from Xinjiang to Shanghai. There was competition over the direction of Russia's pipeline between China's Daqing (a hub of China's development strategy for its North Eastern region) and Nakhodka as the final terminal. Although the pipeline toward China was to be built first, it cannot be said this was to Japan's disadvantage.

The EU's Rlations with Middle East Countries
Femke Hoogeveen,
Researer CIEP

Closure of conference: Mehdi Parvizi Amineh