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Home Archive April 2013 Issue From the Editor Mr. Rosner's Education: Energy Security in the Asian Context

Mr. Rosner's Education: Energy Security in the Asian Context

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By 2050 it is estimated that more than 5 billion people or more than half of the world’s population will live in Asia, a region replete with rich geographic, cultural, economic, and religious diversity.  This industrially expanding and burgeoning expanse- which covers about 60% of the world’s landmass stretches  (according to a Western definition)  from somewhere in the Aegean Sea to the Pacific Ocean-shares for the most part a seemingly insatiable hunger for energy resources and power.  Asians know and recognize this. 

In terms of global primary energy consumption China, India and Japan (which rank number 1, 4 and 5 respectively in terms of current consumption) are augmented by the United States (number 2) and Russia (number 3) which are both Pacific nations with substantial Asiatic populations however diverse as measured by country-of-origin.  In short, the multiple factoids that we use to define who we are and how we perceive the world we live in are shifting significantly away from Caucasian to Asian.  The world doesn’t look like the El-train in Chicago it looks like the passengers on a ferry on the Chao Phraya River in Bangkok, Thailand.  

For leadership in Jakarta, Beijing, Bangkok and Mumbai the bump and grind of keeping the lights on (in many cases where they burn only intermittingly) may or may not keep them up at night but life continues, Tuk Tuks putter through the teeming streets, and people scurry about as they do the world over clutching their plastic bags, eating on the run durum sandwiches or take-away Dim Sum from street vendors, and breathing bad air (also a global phenomenon) based on an energy model that can no longer be sustained with its present form and structure. 

In short, what I learned on my first and a most remarkable trip to the Asian Energy Security Summit in Bangkok in February was that the government owned and operated energy and power sectors--which are vastly common across every Asian nation--are unable in their present form to keep pace with changing and challenging economic development and the demographics that are driving expansion. 

This is not a ‘they’re wrong’ ‘we’re right’ argument but an observation gleaned from highly educated, incredibly energetic Asian energy professionals themselves.  Many Asians themselves readily acknowledge that state-on-state competition among and between Asian nations for energy resources (not public-private sector competition to generate power) is intensifying distrust, worsens maritime tensions, and aggravates key strategic rivalries among neighbors across Asia.       

The common denominator is that in all corners Asia nations are scrambling to provide power to electrify their societies using any means (resources) possible.  Power options are in many cases constrained by resource availability and electricity cost and availability is constrained by antiquated public policies originally designed to keep the lid on energy prices; these same policies (however well intended) are  currently preventing privately-generated power from flowing to the masses because the price of providing new power is constrained by government regulatory policy. 

Based on historical legacy, national governments are far and away the owner-operators of energy and power assets in Asia.  They set the price that state-owned power generators and distributors may charge their customers and they (in turn) subsidize the cost for whatever resource is to be burned, boiled or transformed from national budgets.  In 2011 globally governments subsidized fossil fuel consumer prices to the tune of US$ 523 billion up almost 30% on 2010 according to 2012 IEA statistics.  To nuance this a bit further, about half of these subsidizes are to oil products.  Generally in Asia the subsidy is between 0.3% and 23% (see map).  In India the average subsidization rate is 18.6%, in Thailand it is 20% while in China the average is 4.6%.  The point is that these subsidizes (regardless of how well intentioned) distort the real price of liquid fuels for transportation and power and in doing so encourage inefficiencies, delay restructuring power markets towards more competitive fuels and fuel use, and prevent competition from emerging in the absence of regulatory reform.            

One would think that people would at least be mildly annoyed and in some vicinities even alarmed at the growing gap between population growth and power availability.  But on the contrary there seems to be wide-spread resignation or recognition among many Asians that government structures are slow to evolve in order to meet current demand and indirectly suggest that the democratic process is at least in part to blame.  Where democracy exists (take India as an example that proudly proclaims that it is the world’s largest democratic state) decision making is designed to be deliberative (compared to what is often celebrated as expedient in autocratic regimes).  But systematic static-deliberation (is this an oxymoron?) leading nowhere can be highly dysfunctional to which many in the United States well attest to.  Independent power producers in India are doing their best, slogging it out in the political trenches, shoring up transmission losses through metering and preventing outright pilferage, and in growing their profitability in the face of daunting odds.  But even here there is nary a word about turning the Asian energy model on its head by unleashing the power (as measured by effectiveness and efficiency) of the private sector to confront the public sector’s energy woes.         

The Asian gas example
The OECD (IEA) points out that 76% of the global rise in gas demand is coming from non-OECD countries.  Where LNG is concerned this is not a bad story but keep in mind LNG is a small percentage of overall global gas consumption.  On the positive side of this story, the four largest global LNG suppliers are either Asian or in its neighborhood.  In order of magnitude these exporters are Qatar, Malaysia, Indonesia and Australia. India's percentage of natural gas in their overall energy mix is low (as calculated by IEA standards).  Despite this fact, they are already experiencing problems in meeting domestic demand. Already in 2011 domestic Indian gas production could only meet approximately 81% of its present demand from domestic sources and this was in-spite of a 45% increase in domestic production in 2010 over 2009 due to India’s Reliance Industry bringing online gas from India’s Krishna Godavari Basin (KG).  Gas import dependence is expected to increase to 35% by 2017.   Meeting these growth projections according to the Indian Independent Power Producers Association (IPPAI) there are two ready-solutions.  Either create a necessary (but expensive and extensive LNG import infrastructure for re-gasification) or to succeed in obtaining piped gas.  On the latter part of this solution-package the IPPAI admits it has been outbid and outdone across the board by China in countries like Kazakhstan, Nigeria, and across the Middle East.  This leaves piped gas.  Here again the Asian Energy Security Summit provided a backdrop to spirited discussions regarding the future of the IPI (Iran-Pakistan-India) pipeline, the TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline and a Myanmar-India pipeline.  However none of these are operational.  Many are bogged down as collateral damage inside larger geopolitical debates and the TAPI pipeline is no closer to completion that Europe’s Nabucco pipeline which is a dead fish in the water. 

So what to do?  There is a hunger for more information regarding the potential of shale gas and oil and amazement at what the Americas have accomplished on these fronts.  There is also a good deal of unnecessary hand-wringing citing high expected costs for unconventional gas and oil development in Asia (note: oil from a dependency standpoint is even more dire than gas in India which imports 76% of its crude) but at the same time a great deal of interest in these American revolutions.  Indian challenges to unconventional oil and gas development include land-use and environmental restrictions, right-of-way legislation, and a culture of small, rural farming. The low hanging fruit here is bi-and-multilateral cooperation on the American public policy, technology, and regulatory experience-fronts which could be of assistance to those on the Indian sub-continent.  One can only hope that the US Department of Energy and the Bureau of Energy inside the US State Department are paying attention.  

Cooperation is key
Aside from the fact that Asian economies need to seriously re-examine their state-based, state-run energy model is the glowing opportunity that cooperation can play in building-down energy security related tensions in-and-among Asian nations.  Outright conflict prevention over energy resources is the objective.  And on this point, a chapter can be borrowed from how water resources are managed globally between states.  There are more than 250 water treaties in place around the world that govern the management and sharing of riparian water resources.  While we don’t know why these treaties exactly work which is to say which elements in these treaties are truly the ties-that-bind often conflicting nations together on the water-front (again take India and Pakistan as an example through the Indus Water Treaty) the fact is these treaties work.  Examining and identifying what elements in these treaties are the most effective and essential could very well prove helpful not only in avoiding future energy resource related conflicts between states that share the same resource basin but could also pave the way for the creation of regional power pools in Asia where power is needed most.  Keep in mind that water and energy resources are not evenly spatially delineated which promotes and prioritizes regional approaches to regional solutions. [For the sake of transparency it should be noted that IAGS (the publisher of the Journal of Energy Security) is a member of the Water Energy Security Consortium (WES) which also includes the Stockholm Environmental Institute, the Stockholm International Water Institute, US Sandia National Laboratory and the Center for Scientific and Industrial Research in South Africa.  The WES Consortium is pioneering the effort to promote integrated water-energy-and national security planning and policy in Southern Africa.]

Southern Hemisphere View of the World 

Map: Courtesy of the Government of Canada

Conclusion
Mr. Rosner’s education from his Asian tutors bottom-lines out as the solutions we advocate are not ‘my way or the highway’ but will be shaped and nuanced by the geographic, resource, and historical roots of Asian societies themselves. Democratic cultures and liberal economists do have something positive to offer in that they are grounded on the strength of debate, arriving at (sometimes) imperfect solutions to complex problems (but solutions none-the-less), and in their enduring experience that competition provides a greater good to the many than do monopolies (public or private) in spite of their best intentions. 

Second, what happens in Asia is already shattering the energy security demand paradigm worldwide and will continue to do so for the decades to come.  

Finally, international experience and cooperation in sharing policy options, scientific and technological experience and exchange in thwarting resource-based menaces to conflict among-and-between states is a resource vastly under-utilized and appreciated.  Asian nations are not alone in their quest to provide competitive economic and political solutions to their energy challenges because what-goes-around-comes-around and this time the true-North as determined by the mercury compass will be on the receiving end of the success or failure Asia encounters.  

Kevin Rosner is the Editor-in-Chief of the Journal of Energy Security       

 

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