GGP: Energy Relations and Policymaking in Asia: A summary of the book
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This is an excerpt from a paper by the King Abdullah Petroleum Studies and Research Center (KAPSARC) published in August 2016.
Summary
Energy security is not a new topic for policymakers in NEA. The paradigm usually adopted by both researchers and policymakers has been to view energy security as an asymmetric risk. Energy suppliers worry about security of demand; energy consumers worry about security of supply and often about diversity of supply. Our premise is that it is time to replace this paradigm with a new one. Energy security need not be about asymmetric risks: policymakers can, by adopting a broader view, use these energy relations to reinforce mutual interdependence between economies and reduce the risk asymmetries.
These ideas were discussed in a series of workshops held in the GCC and NEA throughout 2015. The result was a collection of papers from 16 different collaborating research institutions on a range of perspectives, with four main themes: the consequences of trade and connectivity; domestic policies; energy security and energy; and the environment. These collected papers are being published by Palgrave Macmillan in 2016, under the title Energy Relations and Policy Making in Asia.
As shown in Figure 1, [KS1] in 2013 the countries of the GCC exported $367 billion worth of goods, almost entirely hydrocarbon related, to NEA while imports from NEA totaled $104 billion. To put these numbers in perspective, 44 percent of GCC exports flowed to NEA and 23 percent of GCC imports came from NEA. By contrast, 10 percent of NEA imports came from the GCC, a market which accounted for only 3 percent of NEA’s exports. The picture of NEA dependence on the GCC changes markedly if the focus is centered on oil: Japan imports 74 percent of its oil from the GCC, South Korea 71 percent and China 35 percent.
Despite this trade, and the interdependence it might suggest, in other areas the energy relations are very limited. Restrictive upstream ownership laws in both the GCC and NEA have reduced joint ventures to a handful, mostly downstream in refining or through the liquefied natural gas (LNG) projects of Qatar Gas. The only upstream GCC-NEA joint venture is Kuwait’s stake in China’s Yacheng oil field.
The hydrocarbon trade between the GCC and NEA is also vulnerable to a trio of potential shocks: price volatility; the discovery and exploitation of new fuel sources, such as methane hydrates; and even new supply sources for conventional hydrocarbons. Any of these could shift the energy relationship between the two regions, suppressing economic growth and oil demand, or fundamentally altering the current supply and demand balance and associated trade flows. How the GCC responds to these vulnerabilities will be key to shaping future relationships.
For some years, NEA, and especially China, has been seen almost as a boundless market, soaking up oil and gas. However, demand growth is weakening, storage facilities are filled and NEA markets may no longer be able to absorb excess cargoes. Even in China, the gas supply situation may become much less tight by 2020, once again presenting a challenge to GCC exporters. How countries in the GCC respond to this, to their own growing demand and even to within-region politics and rivalries will again shape the inter-regional relationships. By contrast, the development of oil stockpiles in NEA, and of energy cooperation within and between the regions, could do much to deepen and strengthen the relationships, even against the backdrop of shifting demand.
Despite forecasts by Japan’s Institute of Energy Economics (IEEJ) that fossil fuels will continue to supply 80 percent of global energy needs until 2050, environmental concerns have raised the profile of low-carbon technologies, in the form of either renewable energy or improved energy efficiency. More importantly, the costs of renewables continue to fall, and forecasts suggest that solar and wind will be the fastest growing energy sources in the years to come. This is an area that seems perfect for building cooperation between the two regions. The GCC, with plentiful renewable energy resources, is suffering from growing energy demand and has struggled to improve its energy efficiency. In contrast, NEA economies have great expertise in renewable and energy efficient technologies, and can share lessons learnt in using policy to drive improvements in energy efficiency.
Taken together, the energy relations between the GCC and NEA are robust and, while there are vulnerabilities, there are also opportunities to offset them. Energy relations need not be merely transactional. In the 21st century, they can also be a way to improve mutual interdependence, to build trust and to lower risk.
Leo Lester (book editor) is a former Research Fellow at the King Abdullah Petroleum Studies and Research Center (KAPSARC).
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.