Energy Security in North Asia March 12, 2014 The Institute of Energy Economics, Japan CEO & Chairman Masakazu Toyoda
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 (C) 2014 IEEJ, All rights reserved 1
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 (C) 2014 IEEJ, All rights reserved 2
1971 1980 1990 2000 2011 2020 2030 2040 1. Asia : Center of growth and energy consumption 1-(1) World Energy Supply and Demand Outlook (by Region) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 石油換算百万トン Mtoe 5.1 Btoe 8.9 Btoe Asia North America OECD Europe Non-OECD Europe Latin America Africa Middle East Oceania World 2011 13.1 Btoe 2040 19.6 Btoe (Up 1.5-fold) Asia 2011 5.1 Btoe 2040 8.9 Btoe (Up 1.8-fold) 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 (C) 2014 IEEJ, All rights reserved 3
1. Asia : Center of growth and energy consumption 1-(2) Primary Energy Demand by country (Asia) Reference Adv. Tech. 2,000 1,500 1,000 500 Mtoe 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% China India Japan Korea Taiwan Indonesia Malaysia Philippines Thailand Vietnam Singapore Hong Kong Other Asia Indonesia Malaysia Philippines Thailand Vietnam Other Asia 4.2% 4.1% 0.6% 4.9% 8.1% 3.5% 2.9% 1.3% 3.4% 2.2% 4.0% 2.4% Adv. Tech. 17% 14% 37% Japan India China 21% 41% 0 1971 1980 1990 2000 2011 2020 2030 2040 7% 0.39 bil.toe (19%) Reduction 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) 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. Source: IEEJ Asia / World Energy Outlook 2013 (C) 2014 IEEJ, All rights reserved 4
1. Asia : Center of growth and energy consumption 1-(3) Energy independence is increasingly weakened in Asia 2,500 2,000 1,500 1,000 500 0 Mtoe 478 Demand Production Net import 52% 227 250 618 51% 301 317 1,198 69% 821 1,542 75% 1,151 1,842 79% 1,451 2,102 377 390 390 390 1980 1990 2011 2020 2030 2040 Adv. Tech. 77% Asia Net Oil Import 81% 1,712 2011 17mbd 2040 Reference 35 mbd (2.1-fold inc.) Adv. Tech. 27 mbd (1.6-fold inc.) 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). Source: IEEJ Asia / World Energy Outlook 2013 (C) 2014 IEEJ, All rights reserved 5
1. Asia : Center of growth and energy consumption 1-(4) Very low self-sufficiency in Korea and Japan Self sufficiency rate (2011) 200% 180% 160% With nuclear Without nuclear 162% 10% 180% 6% 140% 120% 100% 80% 60% 40% 20% 0% 11% 18% 19% 40% 9% 0% 5% 3% 19% 31% 6% 15% 54% 69% 72% 81% 10% 89% 88% 46% 59% 71% 72% 8% 1% 174% 153% 1% 10% Japan S.Korea Italy Germany France U.K. India U.S. China Canada Russia Source: IEA "Energy Balances of OECD countries" (C) 2014 IEEJ, All rights reserved 6
1. Asia : Center of growth and energy consumption 1-(5) Energy Vulnerability is increasing in China China s supply and demand outlook on Oil and Natural gas 1,000 900 800 700 600 500 400 300 200 100 800 700 600 500 400 300 200 100 0-100 0-100 Mtoe Consumption Production Net import Bcm Oil Import Dependency Ratio 20% 20% 89 108 Consumption Production Net import Natural gas Import Dependency Ratio 119 138-19 -20 0% 0% 10% 0 0 34% 221 163 13 13 14 14 23 25 58 (C) 2014 IEEJ, All rights reserved -2 Oil 442 62% 20% 120 95 1980 1990 2000 2011 2020 2030 2040 24 645 302 45% 166 438 136 783 239 203 206 210 1980 1990 2000 2011 2020 2030 2040 68% Natural gas 523 73% 51% 258 573 266 866 698 73% 234 50% 352 631 347 Net Oil Import 2011 239 Mtoe 2035 631 Mtoe (2.6-fold inc.) Net Natural gas Import 2011 24 Bcm 2035 347 Bcm (14.3-fold inc.) 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. Source: IEEJ Asia / World Energy Outlook 2013 7
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 (C) 2014 IEEJ, All rights reserved 8
2. Recent Uncertainties in the Global Energy Landscape 2-(1) Uncertainty in M.E. has deepened as Arab Spring spread. Uncertainty over Middle East Peace issues Iraqi situations after the war Tensions on Iran Nuclear development Shale Revolution and its impact on Middle East economics Rising energy demand and its impacts Growing Anti US sentiments in Arab and Islam society Uncertainties in the current regimes of Middle East because of Arab Spring Terrorism, threats to energy production and exports Source: Prepared by IEEJ (C) 2014 IEEJ, All rights reserved 9
2007 2008 2009 2010 2011 2012 2013 2014 2. Recent Uncertainties in the Global Energy Landscape 2-(2) Oil Prices hovering at high level (US$/bbl) 150 130 110 90 70 50 30 115 105 95 Historical high Recovbery from the bottom lehman shock "Arab Spring" Banded trading Iran nuclear issues Euro fiscal crises Euro credit concerns Brent WTI 105 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 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. (C) 2014 IEEJ, All rights reserved Source: EIA/DOE 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 $10/bbl. 10
2. Recent Uncertainties in the Global Energy Landscape 2-(3) Shale revolution 1 The surge in unconventional oil & gas has huge implication. Remaining technically recoverable Oil resources by type and region Conventional Unconventional (billion barrels) Extra heavy oil total Crude oil NGLs Kerogen oil Light tight oil and bitumen OECD Americas 253 57 809 1000 70 2188 OECD Europe 59 31 3 4 18 116 E.Europe/Eurasia 352 81 552 20 14 1019 Asia 100 37 3 16 63 219 Middle East 982 142 14 30 4 1172 Africa 255 52 2 0 33 341 Latin America 245 32 498 3 37 815 World 2245 433 1880 1073 240 5871 Remaining technically recoverable Natural gas resources by type and region (tcm = trillion cubic Unconventional meters) Conventional Tight gas Shale gas Coalbed methane total E.Europe/Eurasia 144 11 12 20 187 Middle East 125 9 4 137 Asia-Pacific 43 21 57 16 137 OECD Americas 47 11 47 9 114 Africa 49 10 30 0 88 Latin America 32 15 33 80 OECD Europe 24 4 16 2 46 World 462 81 200 47 790 Source: IEA "World Energy Outlook 2012 (C) 2014 IEEJ, All rights reserved 11
May, 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2. Recent Uncertainties in the Global Energy Landscape 2-(3) Shale revolution 2 : Asian premium ($/MMBTU) 22 20 18 16 14 12 10 8 6 4 2 0 Henry Hub New York Citygate Russian pipeline gas (at German border) Algerian LNG (in France) Japan LNG Japan LNG France LNG from Algeria German border: Pileline gas from Russia US:NY City Gate (Pipeline gas) US: Henry hub (Pipeline gas) Sources: Japan's customs clearance statistics and Energy Intelligence Data from the US Department of Energy (C) 2014 IEEJ, All rights reserved 12
2. Recent Uncertainties in the Global Energy Landscape 2-(3) Shale revolution 3 : Implications of US Energy Independence 30% Dependence of Oil import on the Middle East Dependence of Natural gas import on the Middle East 30% 25% 20% US Europe 25% 20% 15% 10% 5% 15% 10% 5% Europe US 0% 0% 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 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. (C) 2014 IEEJ, All rights reserved 13
2. Recent Uncertainties in the Global Energy Landscape 2-(3) Shale revolution 4 : Possible Impact on Real GDP Enhanced Development Scenario : Changes in 2040 from the Reference Scenario 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 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. Source: IEEJ Asia/Word Energy Outlook 2013" (C) 2014 IEEJ, All rights reserved 14
2. Recent Uncertainties in the Global Energy Landscape 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) (C) 2014 IEEJ, All rights reserved 15
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 (C) 2014 IEEJ, All rights reserved 16
EU-27 Japan USA Canada Australia Korea India Russia China Japan EU-27 Australia USA Canada Korea India China Russia 3. How to ensure energy security under those uncertainties 3-(1) Energy conservation is beneficial for all importing countries. Energy conservation would increase energy independence and contribute to combat Climate Change CO2 emissions per GDP (2011) (Carbon Intensity) Primary energy supply per GDP (2011) (Energy Intensity) 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 [ kgco2/us$(standard exchange rate in 2005 ) ] 1.90 1.75 1.32 0.40 0.43 0.44 0.56 0.24 0.26 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 [ ktoe/1000 US$(Standard exchange rate in 2005) ] 0.77 0.65 0.57 0.25 0.20 0.10 0.11 0.14 0.17 (C) 2014 IEEJ, All rights reserved Source: IEA CO2 emissions from fuel combustion 2013 17
3. How to ensure energy security under those uncertainties <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). (C) 2014 IEEJ, All rights reserved 18
3. How to ensure energy security under those uncertainties 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 METHODOLOGY FOR THE EXERCISE Stakeholders from: The Government s energy department Organizations or companies in the energy industry The Government s industry, commerce & transport departments Arrange the whole schedule for the exercise the Host Economy APERC discuss, question and answer Organize experts on energy emergency the External Review Team Experts from: APEC economies IEA ASEAN institutions ERIA APERC 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. (C) 2014 IEEJ, All rights reserved 19
3. How to ensure energy security under those uncertainties 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 (C) 2014 IEEJ, All rights reserved 20
3. How to ensure energy security under those uncertainties <Reference> Possible Gas pipeline network in North east Asia (C) 2014 IEEJ, All rights reserved 21
3. How to ensure energy security under those uncertainties 3-(4) Nuclear Power could expand safely based on lessons from Fukushima GW 1000 900 800 700 600 500 400 300 200 100 0 495 GW 235 GW History Forecast Middle East, Africa 11% 33% 31% 23% FSU, non-oecd Europe Latin America OECD Europe North America Asia 13% 20% 22% 41% 11% 18% 17% 47% Adv. Tech. 1980 2013 2020 2030 2040 2040 World 2013 389 GW 2040 Reference 624 GW (Up 235 GW) Adv. Tech. 885 GW (Up 495 GW) 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. Source: IEEJ Asia / World Energy Outlook 2013 (C) 2014 IEEJ, All rights reserved 22
3. How to ensure energy security under those uncertainties <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 (C) 2014 IEEJ, All rights reserved 23
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 (C) 2014 IEEJ, All rights reserved 24
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 (C) 2014 IEEJ, All rights reserved 25
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