Theme: Following the recent East Asia Summit in Cebu (Philippines), which approved an important initiative on the region’s energy security, this paper looks at the main problems facing the energy sector in the Asia-Pacific region.
Summary: This analysis first sets forth the content of the ‘Cebu Declaration on East Asian Energy Security’ (15 January 2007). It goes on to examine the three main problems which this declaration aims to address: energy inefficiency, excessive dependency on fossil fuels and potential instability of supplies, particularly those coming from outside the region. The work ends by arguing that the ‘Cebu Declaration’ is an important step in the right direction, but it is only the first of many measures which must be taken to promote the necessary cooperation on energy in the Asia-Pacific region.
Analysis: The second East Asia Summit between Heads of Governments and States was held on 15 January in the Philippine city of Cebu, after a one-month delay due to poor weather conditions. The summit, first held in Kuala Lumpur in December 2005, assembles leaders from 16 Asia-Pacific countries, including not just East Asia in the strictest sense but also South Asia and Oceania (India, Australia and New Zealand were also present). These 16 countries, which together account for half of the world’s population, are sometimes known as ASEAN+6, ie, the 10 countries belonging to the Association of South-East Asian Nations, plus China, South Korea, Japan, India, Australia and New Zealand.
Compared with the Kuala Lumpur Summit in 2005, which yielded few results (due to differences of opinion between Japan and China, disagreements in the preliminary talks over the appropriate members to be involved in the process and the hostility of the US), the Cebu Summit was more productive. Among other results, it approved a declaration on the denuclearisation of the Korean Peninsula, the fight against pandemics, the future creation of a free trade area in East Asia and, most importantly, cooperation for energy security in the region.
The ‘Cebu Declaration’
The ‘Cebu Declaration on East Asian Energy Security’ is considered the most important tangible result so far obtained from the East Asian summit process.
Its aim is threefold: (1) to increase energy efficiency, in order to reduce the growth of what is already clearly excessive energy consumption in relation to GDP; (2) to cut dependence on fossil fuels, by developing alternative energies, so that the region can diversify its energy sources and reduce its carbon dioxide emissions; and (3) to guarantee a stable energy supply, especially in countries which have become more dependent on imports, by developing regional infrastructure or creating strategic oil reserves.
In particular, the Declaration states that the countries adhering to it shall work together to:
- ‘Improve the efficiency and environmental performance of fossil fuel use’.
- Reduce dependence on conventional fuels through intensified energy efficiency and conservation programmes, the development of hydropower and other renewable energy systems (especially bio-fuels, such as sugar cane or palm oil), and ‘for interested parties, civilian nuclear power’.
- Encourage open and competitive markets, both regionally and internationally, geared towards providing affordable energy.
- ‘Mitigate greenhouse gas emission through effective policies and measures, thus contributing to global climate change abatement’.
- Pursue and achieve greater investment in energy resources and infrastructures through private sector involvement.
For this purpose, in Cebu Japan announced a cooperation initiative, worth US$2 billion, to promote energy savings and to spread the use of clean energy in the rest of the Asia-Pacific region. Furthermore, the East Asia Summit agreed to create a working group on energy cooperation, which will deliver a report at the next summit, as well as arrange a system of periodical meetings between Energy Ministers (already in place in ASEAN and the ASEAN+3 process, known as AMEM and AMEM+3, respectively).
The Asia-Pacific region consumes too much energy in relative terms. It is highly dependent on coal, oil and natural gas, and its emissions of greenhouse gases are therefore considerable. Furthermore, the countries in the region are increasing their dependence on energy imports, particularly those from outside the region. The following sections illustrate these three aspects of the energy situation in Asia-Pacific, with figures obtained from various reports by international bodies and research centres: the International Energy Agency (IEA), the Energy Information Administration (EAI) dependent upon the US Energy Department, APEC’s Asia-Pacific Energy Research Centre (APERC), the Institute of Energy Economics of Japan (IEEJ), statistics from British Petroleum (BP), etc.
Energy Inefficiency
It is well known that energy consumption has soared in the Asia-Pacific region in recent years. According to figures from BP, between 1990 and 2005, commercial energy consumption in the region rose from 1.792 billion tonnes of oil equivalent (btoe) to 3.434 btoe; in other words, it has almost doubled, while consumption in the world as a whole has increased by 30%. The region has accounted for two-thirds of the rise in world-wide oil consumption in the last two years. Its natural gas consumption has rocketed by 160%, while world-wide natural gas consumption has increased by 40%.
Much of this huge increase has been due to economic growth in the region outpacing that of the rest of the world. Furthermore, the massive investments in infrastructure and construction work in East Asia, plus the decline in the number of people using non-commercial energy (biomass and waste) to cook or heat themselves or who do not have electricity (still an estimated 1 billion and 1.7 billion people, respectively, especially in South Asia) explain the surge in the consumption of commercial energy.
Energy efficiency in the Asia-Pacific region, although improving, is still, with the exception of the area’s richest countries (Japan, Australia and New Zealand), substantially lower than in developed nations. For example, according to the IEA, energy intensity, measured by energy consumption per unit of GDP is, in relation to the OECD average, four to five times higher in China, India, Indonesia and Vietnam, more than three times higher in Thailand and two to three times higher in the Philippines, Sri Lanka and Bangladesh. For Asia-Pacific as a whole, energy intensity is three-and-a-half times higher than in Spain or the US.
Excessive Dependence on Fossil Fuels
A second feature of the energy situation in Asia-Pacific is the high proportion of coal, oil and natural gas in commercial energy consumption. According to figures from BP for 2005, in the region as a whole these three fuels account for more than 90% of commercial energy consumption. China is 70% dependent on coal, 21% on oil and 3% on natural gas. In Japan, the figures are 23%, 46% and 14% and in India, 55%, 30% and 8%, respectively. For comparison purposes, nuclear, hydroelectric and other renewable energies together account for 12% of consumption in Spain and 45% in France, vs. 9% in Asia-Pacific and 7% in China and India.
In other words, nuclear, hydroelectric and other renewable energies are very underdeveloped in Asia-Pacific. This extreme dependence on fossil fuels has two main consequences.
The first is that the emission of greenhouse gases, in particular CO2, is very significant in relation to GDP or energy consumption. According to IEA data, while CO2 emissions in 2004 averaged 0.47 kilos per US$2,000 of GDP in OECD countries, they were 2.76 in China, 1.91 in Vietnam, 1.90 in India, 1.71 in Indonesia, 1.38 in Thailand, 1.35 in Pakistan and 1.28 in Malaysia. Even Taiwan (with 0.79) and South Korea (0.75) easily outstrip the emissions of Japan, with scarcely 0.25 kilos. Although per capita emissions are still low in Asia’s developing countries, their high population means that China, South Korea, India and Japan jointly account for 30% of global emissions and that the parts corresponding to China and India are together now larger than the proportion belonging to the US.
The second consequence is that the energy base of the Asia-Pacific region depends on coal, which is plentiful but highly pollutant, and on oil and natural gas, which Asian countries are forced to import in increasingly large amounts. According to BP, in 2005 the Asia-Pacific region consumed 1.650 btoe of coal, 1.116 billion tonnes of oil and 0.366 btoe of natural gas. It is self-sufficient in coal, with production totalling 1.645 btoe, and 90% self-sufficient in natural gas, but oil production amounted to just 382 million tonnes, in other words, the region had to import two-thirds of its oil requirements.
Energy Supply Stability
Net energy imports, as a proportion of total energy consumption, have increased in most of the Asia-Pacific region, and considerably so in some countries (see Table below, which also includes forecasts for 2010, 2020 and 2030).
Table 1. Net energy imports (as a percentage of primary energy consumption)
| (%) | 1980 | 2002 | 2010 | 2020 | 2030 |
| Australia | -25 | -121 | -162 | -184 | -193 |
| Brunei | -630 | -668 | -737 | -711 | -688 |
| China | -3 | 0 | 6 | 11 | 18 |
| South Korea | 77 | 84 | 82 | 79 | 77 |
| Philippines | 54 | 51 | 56 | 61 | 68 |
| Hong Kong | 99 | 100 | 100 | 100 | 100 |
| India | 9* | 18** | 28 | 42 | 62 |
| Indonesia | -120 | -55 | -55 | -26 | 0 |
| Japan | 88 | 82 | 61 | 80 | 78 |
| Malaysia | -44 | -57 | -30 | 6 | 32 |
| New Zealand | 43 | 19 | 30 | 29 | 30 |
| Singapore | 100 | 97 | 97 | 98 | 99 |
| Thailand | 52 | 53 | 78 | 80 | 81 |
| Taiwan | 81 | 87 | 86 | 88 | 89 |
| Vietnam | 8 | -26 | -17 | -2 | 15 |
| US | 17 | 30 | 30 | 32 | 35 |
(*) 1980.
(**) 2003.
Sources: APERC, APEC Energy and Supply Outlook 2006 and, for India, World Bank, World Development Indicators 2006, and own estimates based on data from Government of India, Planning Commission, Integrated Energy Policy. Report of the Expert Committee, New Delhi, August 2006.
We highlight the increase in dependence on imports (actual or potential) in several countries, such as China, India, the Philippines and Thailand, and also the fact that others, which are currently net exporters of energy, will cease to be so in the next few years (Malaysia between 2010 and 2020, Vietnam in the twenties and Indonesia in the thirties).
More specifically, oil consumption has been increasingly covered by imports, mostly from the Persian Gulf, and this trend is expected to continue in the next few decades. For example, in 2005 the Asia-Pacific region produced 10% of world-wide oil, but consumed 30%, and between 1990 and 2004 dependence on oil imports in proportion to oil consumption in China has gone from less than 25% (in other words, in 1990 China was a net exporter) to 49%, and in India from 44% to 68%. The main oil importers in the Asia-Pacific region are, in this order, Japan, China, South Korea and India. The proportion of oil imported from the Middle East is very high in all cases: 40% in China, 67% in India, 80% in South Korea and 82% in Japan. According to the IEEJ, the Asia-Pacific region’s dependence on oil imports will increase from 55% in 2004 to 89% in 2030, and the percentage of that oil imported from the Middle East will increase from 90% to 93% in Japan, from 72% to 83% in South Korea and from 46% to 74% in China.
Will Cebu Signal a Real Turnaround?
All forecasts point to a strong surge in energy consumption in the Asia-Pacific region in the coming decades. According to the EIA, between 2003 and 2030, the region will be responsible, in proportion to the increase in global consumption, for half in total energy, 85% in nuclear energy, 75% in coal, 56% in CO2 emissions and 46% in oil. As a result, what happens in the Asia-Pacific region will be decisive to the energy and environmental situation of the entire planet.
Specialists also consider that, if current trends persist, the overall proportion of fossil fuels in total commercial energy consumption in Asia-Pacific in 2030 will be very similar to the present situation, at around 90%. The relative weighting of coal will decline slightly, but it will do so to make way for natural gas. In other words, unless there are radical changes, greenhouse gas emissions will continue to grow rapidly. According to the EIA, CO2 emissions in Asia-Pacific will double between 2003 and 2025, rising from 32% to 42% of the global total.
To avoid this scenario, it is vital to do more to promote nuclear, hydroelectric and other renewable energies, but also to foster cleaner consumption of fossil fuels. As the Cebu Declaration puts it, ‘fossil fuels underpin our economies, and will be an enduring reality for our lifetimes’.
The Declaration does not contain specific commitments, in the form of objectives, periods or financing, in regard to the increase in energy efficiency or the reduction of CO2 emissions. As regards the latter, the situation in the Asia-Pacific region is very different to the one in the EU, which has just announced the target of cutting emissions by at least 20% in 2020 vs. 1990. The main reason for this, as is well known, is that many Asian countries have not signed the Kyoto Protocol.
However, Cebu is nevertheless a huge step forward, since for the first time there are talks in a Pan-Asian forum (without the presence of American countries and with India’s membership, unlike APEC) to deal with such essential matters as energy inefficiency, the low levels of development of alternative energies and the lack of regional cooperation in terms of energy supply. This might help to contain the non-cooperative measures so far implemented by some Asian countries in regard, for example, to agreements with producer countries (Japan, China and India have competed with each other for resources in Russia, Central Asia, the Middle East, Africa and Latin America) or the unilateral development of nuclear energy (Japan, China and, more recently, India).
Conclusions: Strong past and potential growth in energy demand in the Asia-Pacific region has finally brought to the fore, for the first time, in a strictly Asian forum with the significant presence of India, matters such as energy inefficiency, excessive dependence on fossil fuels and the eventual instability of energy supplies that are increasingly oriented to imports from non-Asian countries.
In these three aspects, the situation in the Asia-Pacific region, with the exception of Japan, Australia and New Zealand, leaves a lot to be desired. The various indicators which have been used in this analysis confirm that, in energy efficiency, use of fossil fuels, CO2 emissions, energy imports and dependence on oil from the Middle East, the situation for China and India is really serious. Malaysia, Pakistan and Thailand, and, to some extent Indonesia, also present adverse conditions. The remaining countries in the Asia-Pacific region are posting intermediate indicators.
In view of this information and the Cebu Declaration, there appear to be two main conclusions.
First, Japan has much to teach in terms of energy to the rest of Asia, so that the cooperation initiative unveiled in Cebu is clearly necessary. With primary energy consumption in Japan in 2005 lower than in 1990 and only slightly higher than in 1980, it is proving to be exemplary in terms of savings and conservation. Japanese energy efficiency has improved by 37% in the last three decades. Furthermore, Japan has experience in developing nuclear energy, which will no doubt be useful for China and India, with their very ambitious nuclear programmes.
Secondly, the Cebu Declaration entails necessary but insufficient measures, in the absence of more determined national commitments and quantified objectives. Among other issues, there are priorities which seem evident and urgent: drastically improving energy efficiency in China and India; developing non-conventional energy sources, including nuclear where applicable, in China, India, Thailand, Malaysia and Indonesia; ambitiously reducing CO2 emissions per GDP unit in China, India, Indonesia and Vietnam; dealing with the increasing feeling of energy insecurity by jointly exploring resources and integrating production and distribution infrastructures; mitigating the implications of the inevitably increasing dependence on oil imports from the Middle East, by creating strategic crude oil reserves in a regional context, improving infrastructure and security in the Malacca Straits and implementing a coordinated energy policy in respect of the Persian Gulf.
The East Asian Summit has set up an effective mechanism for energy cooperation in the Asia-Pacific region, which was long overdue. The question now is whether the countries in the region can afford it some real content in the next few years.
Pablo Bustelo
Senior Analyst, Asia-Pacific, Elcano Royal Institute, and Professor of Applied Economics at Madrid’s Complutense University