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Energy trade situation in Asia within the context of global ...

  1. 1. DRAFT FOR DISCUSSION Energy trade situation in Asia within the context of global energy trade 1.Introduction As a result of the global economic and financial crisis, global energy demand for the first time since 1981 is set to fall up to 2% in 2009. However, once economic 1 recovery is underway beginning 2010, the International Energy Agency (IEA), in its latest edition of the World Economic Outlook (WEO 2009), predicts that “it would quickly resume its long-term upward trend” and increase 1.5% per year between 2007 and 2030. The IEA also predicts that the fastest increase in primary energy demand will be that of ASEAN, and “with the emergence of China and India, these trends point to a refocusing of global energy activiity towards Asia.” 2 The above-mentioned trends will have important consequences on global energy trade and investment flows, particularly for Asia (which is defined here as refering to the group of countries comprising the ESCAP region ), which holds vast amouint of fossil 3 and non-fossil energy resources and is a net exporter of coal and natural gas but a net importer of oil. These trends will also impact regional energy cooperation that tends 4 to focus on energy security as a top priority issue, with all other issues—notably climate change and sustainable development—being purposely linked to it. The paper studies the energy trade situation in Asia focusing on the trade of primary energy commodities—oil, coal, natural gas—as well as cross-border trade of electricity. The study will be based on analysis of published historical data on energy trade and review of literature on energy trade, including recent authoritative projections. The objective of the paper is to inform an expert group discussion on pressing issues related to Asian energy trade and cooperation. The next section reviews the literature on the global context of Asian energy trade and investments and attempts a quantitative assessment based on available data and statistics, particularly where trade matters most (that is, in countries highly dependent on energy imports, on one hand, and those highly dependent on exports of surplus energy, on the other hand). The third section provides an analysis of the structure and evolution of trade in primary energy commodities and cross-border electricity within and from the ESCAP sub-regions. The chapter will trace energy flows of oil, coal, natural gas, and electricity from, to, and within the ESCAP region and thus sets out the importance of the region in a well-functioning global energy market. Section 4 analyzes investment flows in the upstream or energy exploration and production and electricity generation sectors, as well as possibly investments in oil and gas transportaton and processing that are also crucial to energy security. 1 IEA/OECD 2009. 2 IEA/OECD 2009, p. 3 The ESCAP region refers to the 59 member-Asian economies of ESCAP. 4 UNESCAP 2008. 1
  2. 2. DRAFT FOR DISCUSSION Depending on the availability of statistical data, this section will analyze the evolution of upstream investments or investment flows in the exploration and production sectors in the ESCAP region or subregions, and how this has been affected by the evolution of energy prices. Clearly upstream investments have been affected by energy price movements in the short term, but Section 4 will try to quantify the long-term economic relationship between them. Section 5 surveys and gives an overview of the various international and regional agreements and cooperation and highlight their role with respect to energy trade and investments. It will survey multilatel and bilateral agreements and cooperation as well as relevant sectoral agreements (e.g. the Energy Charter). Section 6 also surveys national, regional and international frameworks for providing energy trade intelligence among the Asian countries. Indeed, the availability of energy information is one measure or indication, perhaps even a requirement, for facilitating open and transparent trade and non-discriminatory investment frameworks. The last section elaborates on the current challenges facing the global energy markets and their implications on Asian energy trade and investments. It will also discuss how regional cooperation between countries in the region and with other regions can overcome these challenges. 2.Importance of energy trade in Asia and its global context At the global level, energy trade and investment flows balance the differences in energy resource endowments and capital among countries and regions. Energy trade benefits both the importing and exporting countries. On one hand, energy trade contributes to meet energy demand, particularly of energy import-dependent countries. On the other hand, energy trade contributes to increase national income of energy exporting countries. In fact, in some cases for countries wih surplus energy resources and highly dependent on energy exports, it is crucial to secure demand in the same way that energy import-dependent countries need to secure their energy supply. Asia as a whole is nearly energy self-sufficient. The region holds vast oil, coal, and natural gas resources,as indicated in Figure 1. It is a net exporter of coal and natural gas. However, because of the above-mentioned resources imbalance and high growth in energy demand in some countries, it is still a net importer of oil. In fact some Asian countries previously boasting of net oil exports (e.g. Indonesia and Malaysia), joined recently the club of net oil importing countries. Moreover, some countries in the region, particularly the more developed ones, are also net importers even of coal and natural gas (e.g. Japan, South Korea, Taiwan, Singapore). Figure 1: Contribution of ESCAP to world’s fossil fuel resources 2
  3. 3. DRAFT FOR DISCUSSION Contribution of ESCAP to world fossil resources Key ESCAP countries ROW 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Oil reserves Natural gas reserves Coal recoverable reserves Share of key ESCAP countries to fossil fuel reserves World Total Key ESCAP countries 100% 80% 60% 40% 20% 0% Oil reserves Natural gas reserves Coal recoverable reserves Note: Oil and natural gas reserves as of 1 January 2009; coal reserves as of 1 January 2006 Source of basic data: EIA 2009 With increasing concern for the environment, in particular to mitigate climate change, and coupled with the persistent goal to diversify energy supply (which is also one of the key strategies to attain energy security), recent years also saw a dramatic increase in trade and investments in renewable energy technologies (with wind turbines and solar PVs leading the surge). The restructuring of the power sectors in Asia that has paved the way for the break up of generation monopolies and distributed generation also prefers or favors renewable energy technologies. 3
  4. 4. DRAFT FOR DISCUSSION 2.aEnergy supply security The two figures below clearly shows the increasing dependence of the world and the ESCAP region on energy imports, in particular as a result of the high and growing energy demand in the developing countries in the region. Even North and Central Asia that has very low energy import dependence, in absolute terms and compared to other subregions, has exhbitied increasing dependence on energy imports. Figure 2 : Growth in energy import dependence of ESCAP region, 1985-2004 Import Dependency Per cent of energy imported to the total primary energy supply 60 50 40 30 20 10 0 1985 1990 1995 2001 2004 Global North and Central Asia includes the Former Soviet Union for the years 1985 and 1990, and from then on Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Russian ESCAP total Federation, Tajikistan, Turkmenistan and Uzbekistan. South and South-West Asia includes Afghanistan, Bangladesh, Bhutan, India, Iran (Islamic Republic of), Maldives, Nepal, Pakistan, Sri Lanka and Turkey. ESCAP Developing Pacific includes Australia, Cook Islands, Fiji, French Polynesia, Kiribati, Nauru, New Caledonia, New Zealand, Niue, Palau, Samoa, Solomon Islands, Tonga, Vanuatuu and North and Central Asia Papua New Guinea. South and South-West Asia East and North-East Asia includes the People's Republic of China, Hong Kong (China), Macao (China), Taiwan province of China, Japan, Democratic People's Republic of Pacific Korea, Republic of Korea and Mongolia. East and North-East South-East Asia includes Brunei Darussalam, Cambodia, Timor Leste, Indonesia, Lao People's Democratic Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand South-East Asia and Viet Nam. Source: UN Statistics Figure 3 : Increasing energy imports in ESCAP regions, 1992-2005 (ktoe) Growth in total energy imports by subregion, 1992-2005 1,800,000 1,600,000 1,400,000 1992 2005 1,200,000 1,000,000 ktoe 800,000 600,000 400,000 200,000 0 East and North and Pacific South and South-East ESCAP Developed Developing North-East Central South- Asia region ESCAP ESCAP Asia Asia West Asia 4
  5. 5. DRAFT FOR DISCUSSION Source: UN Statistics Energy trade and investments has been important in meeting growing energy demand of Asia and consequently satisfyng its thirst for energy imports. The future will be no different inspite of the global economic downturn in 2008 and 2009. IEA in its latest projections in the World Economic Outlook 2009 predicts that world primary energy demand will slow down to an average annual growth of 1.5 percent per year in 2007-2030 from 1.9 per cent in 1980-2007. It is estimated that the Asian region, as represented by the ESCAP countries, will maintain a higher annual average growth rate of 2.2 percent during the 23 –year projection period though this is also lower than the 2.5 percent recorded in the last 27 years. Nothwithstanding, ESCAP’s share in global primary energy demand will continue to increase, from 38 percent in 1980 to 52 percent in 2030. The role of trade and investments will be of particular importance in the high growth regions. As expected, developing Asia will continue to grow faster than the 5 developed world. However, its projected 2.9 percent average annual growth for 2007-2030 is a might lower than the 4.3 percent recorded for 1980-2007. Even the 0.3 percent projected for developed Asian countries in the Pacific does not compare with the 2.4 percent recorded during the same period in the past. One result of this increasing difference in the growth between developed and developing Asia is that the share of the former in global primary energy demand will be further eroded, from 8.3 percent in 2000 to 5.6 percent in 2030. Meanwhile, the latter’s share will continue to consistently expand, from just about 15% in 1980 to nearly 40 percent in 2030. China and India will remain as trailblazers with projected growth in primary energy demand of 2.9 and 3.4 percent, respectively. ASEAN primary energy demand is projected to expand annually at an average of 2.5 percent, although this is close to only half of the 4.7 percent recorded in 1980-2007. Yet, even in the scenario of limited or safe GHG emissions levels, growth in ASEAN primary energy demand is expected to average 2.1 percent per year. Russia, on the other hand, though belonging to the ranks of developjng Asia, will exhibit a growth pattern similar to that of the developed world. Its mnimal growth of 1.2 percent in 1980-2007 will further slide to 0.9 percent. Similarly, its share of six percent of global primary energy demand will be down to less than five percent. However, possessing huge surplus energy that drives the economy, Russia is not so much concerned with energy supply security as with demand security. 2.bEnergy demand security Indeed, a number of economies in the Asian region rely heavily on earnings from trading energy surplus or energy commodity exports. In Asia, Brunei, Indonesia, and Malaysia are major exporters of LNG, which along with Australia, accounted for 38 percent of total LNG exports in 2008. Indonesia and Malaysia also deliver piped gas to Singapore, in the same way that Myanmar supply gas to Thailand. But among the 5 Excluding ESCAP members in North and Central Asia. 5
  6. 6. DRAFT FOR DISCUSSION Asian countries, Russia is the single largest exporter of natural gas; it supplied more than 26 percent of the total piped gas trade, largely to Europe. 6 Russia, Australia, and Indonesia are also large exporters of coal, combining for 47 percent of total world coal exports in 2007, or about two-thirds of the ESCAP region’s contribution. Russia turns out to be also an important exporter of crude oil and oil products. In 2008, oil exports from Russia accounted for 15 perent of the total worldwide. IEA estimates that Russia’s cumulative earnings from oil and gas exports in 2008-2030 will amount to USD7 trillion, some 3.5 times larger than in 1980-2007. As against GDP, Russia’s energy export earnings will fall from 19 percent in 2008 to 12 percent in 2030. However, on a per capita basis, earnings would increase steadily from around USD2,300 in 2008 to USD3,100 in 2030. All these indicates the importance of the above-mentioned Asian countries in the global trade of primary energy commodities, both as huge consumers and critical suppliers of energy. 3.Energy trade: overview and analysis of historical and future trends As mentioned, Asia holds vast amount of energy resources and is a net exporter of coal and natural gas but a net importer of oil. Indeed, “fossil fuels will remain the dominant source of primary energy worldwide…accounting for more than three- quarters of the overall increase in energy use between 2007 and 2030,” according to IEA. It adds that coal will see the biggest increase in demand during this period but oil will remain as the single largest fuel in the primary energy mix in 2030. In fact, all the growth in oil demand will come from developing countries, notably those in Asia. The above-mentioned IEA forecast of fossil energy demand is based on a scenario of continung of current policies. WEO 2009 also presents a “450 scenario” targetting or limiting GHG emissions to safe levels, which thus calls for more aggressive clean or low-carbon energy policies. This also has important implications on trade flows of the primary energy commodities, as well as clean energy sources, notably biofuels. Indeed, efforts to reduce or limit GHG emissions that cause climate change have created a global market for biofuels and regional markets on bioenergy. Though less significant compared to trade in primary energy commodities in absolute terms, the trade in bioenergy and biofuels is gaining in relative importance. 3.aOil trade Oil trade, of both crude oil and petroleum products, amounted to 2,700 million tonnes in 2008. Asian oil imports of 1,132 million tonnes accounted for 42% of global oil trade, while oil exports of 683 million tonnes was 25% of world’s total, further defiing the region as a net oil importer. Asian oil imports have already surpassed that of the US or Europe. In fact, the combined oil imports of China, India, and Japan 6 Russia exports substantial amount of natural gas to Turkey, which is counted here among the Asian or ESCAP countries, although most statistics count it among the European countries. 6
  7. 7. DRAFT FOR DISCUSSION alone, amounting to 612 million tonnes in 2008, was already close to either oil imports of these two larger and more developed economies, amounting respectively to 637 and 681 million tonnes. The oil imports of the rest of Asia was placed at 520 million tonnes in 2008. Figure 4: Major oil trade movements, 2008 (million tonnes) Source: BP Figure 5 : Oil imports of Asia, 2008 Oil imports of Asia, 2008 400 350 300 million tonnes 250 200 150 100 50 0 Australasia China India Japan Singapore Other Asia Pacific Source: BP 7
  8. 8. DRAFT FOR DISCUSSION The largest source of oil imports of Asia is the Middle East, which supplied more than 60% of the region’s total oil imports in 2008. Oil exports from within the region is also substantial and provided 26% of the region’s total oil imports and represented 43% of the region’s total oil exports. The largest exports from within the region came from Singapore, which siphoned most of its oil exports to the region. In fact, the other oil exporting countries in Asia, , except the FSU, namely, Australia, China, India, Japan, and the other Asia-Pacific countries trade most of its oil exports within the region. With China as its most important market within the region, the FSU also exported a lot of oil to the region in absolute terms. However, this represented less than 10% of its total oil exports. Figure 6 : Sources of Asian oil imports Sources of Asian oil imports, 2008 S & Central America North America 3% Europe 1% 1% Asia-Pacific FSU 22% 4% Africa 8% Middle East 61% Source: BP Oil exports of the Former Soviet Union (FSU) represented 15% of the world’s total oil exports and close to 60% of the Asian region’s total. As expected FSU’s main market is Europe, which abosrbed almost 80% of its oil exports. Indeed, Europe accounted for almost half of the region’s oil exports. Asia’s exports within the region, also represented 43 percent of its total exports. Asia also exports oil to the US, and this was about 5% of the region’s total oil exports. Figure 7 : Asian oil exports and exporters, 2008 8
  9. 9. DRAFT FOR DISCUSSION Asian oil exports, 2008 450 400 350 300 million tonnes 250 200 150 100 50 0 Former Australasia China India Japan Singapore Other Asia Soviet Pacific Union Source: BP 3.bNatural gas trade Natural gas is traded by pipeline and by ship as LNG. Natural gas trade by pipeline dominates natural gas trade, accounting for 72% of the total in 2008. Asia accounted for 31% or 183 bcm of total natural gas exports by pipeline. The bulk of this, 154 bcm or 28% of total natural gas traded by pipeline in 2008, came from Russia alone, making it also the largest exporter of natural gas. Russian piped gas are destined only to Europe and Turkey. In fact, Russia supplied 36% of total piped gas to Europe in 2008. The largest export destinations of Russian piped gas were Germany and Italy, which are also among the largest importers of piped gas globally. Turkey in Asia is also a large importer of piped gas and imports mainly from Russia. Figure 8: Major natural gas trade movements, 2008 (billion cubic meters) 9
  10. 10. DRAFT FOR DISCUSSION Source: BP Figure 9 : Natural gas exports and exporters of Asia, 2008 Natural gas exports by pipeline from Asia, 2008 180 160 140 billion cubic meters 120 100 80 60 40 20 0 Russia Turkmen. Iran Indonesia Malaysia Myanmar Source: BP The other Asian countries that export natural gas by pipeline are Iran, Turkmenistan, Indonesia, Malaysia, and Myanmar. But unlike Russia, owing mainly to the relatively small natural gas surplus from these countries, each exports natural gas to a single importer. Iran exports only to Turkey; Myanmar only to Thailand; and Indonesia and Malaysia export only to Singapore. Turkmenistan exports only to Iran. 7 7 Iran both exports and imports piped gas... (Explain!) 10
  11. 11. DRAFT FOR DISCUSSION Thus, besides Turkey, the other Asian countries that import piped gas are Iran, Singapore, and Thailand. All in all, natural gas imports of ESCAP by pipeline accounted for only less than 10% of total natural gas trade by pipeline and was sourced essentially only from within the region. This also means that Asia is a net exporter of natural gas as far as natural gas trade by pipeline is concerned. Figure 10 : Asian natural gas imports by pipeline, 2008 Asian natural gas imports by pipeline, 2008 35 30 25 billion cubic meters 20 15 10 5 0 Turkey Iran Singapore Thailand Source: BP LNG trade, on the other hand, reached around 230 bcm in 2008 and represented 28% of total natural gas trade. As far as LNG trade is concerned, Asia is a net importer of natural gas. In fact, Asia imported (or 161 bcm) about twice as much LNG as it exported (or 86 bcm) in 2008, and Asian LNG imports accounted for more than 70% of total LNG trade worldwide. Japan’s LNG imports alone represented more than 40% of the world’s total. The Republic of Korea, Taiwan, and India are the other large LNG importers in Asia. China and Turkey also imports LNG. Figure 11 : Asian LNG imports, 2008 11
  12. 12. DRAFT FOR DISCUSSION Asian LNG imports, 2008 100 90 80 70 billion cubic meters 60 50 40 30 20 10 0 Turkey China India Japan South Korea Taiwan Source: BP The single largest source of LNG imports to Asia is Qatar, which supplied 20% of LNG imports to the region in 2008. The other Middle Eastern countries of Oman and and UAE also had large LNG exports to Asia.. The African countries of Algeria, Egypt, and Nigeria also shipped LNG to the region. However, in aggregate, most LNG imports of Asia come from within the region, particularly from Australia, Brunei, Indonesia, and Malaysia, which in fact combined to supply more than half of the region’s total LNG imports. Figure 12 :Asian LNG exports, 2008 Asian LNG exports, 2008 35 30 25 billion cubic meters 20 15 10 5 0 Australia Brunei Indonesia Malaysia Source: BP 12
  13. 13. DRAFT FOR DISCUSSION The above-mentioned four Asian countries are also the only LNG-exporting countries in the region, and their LNG exports, which in fact have been traded only within the region, represented 38% of total LNG trade.  The Trans-ASEAN gas pipeline The foregoing indicates that ASEAN is an important player in the natural gas trade, especially as a supplier of LNG. Total natural gas exports of ASEAN represented 30 percent of the region’s total in 2008. Japan, South Korea, and Taiwan are practically the only destinations of LNG from ASEAN. 8 Natural gas is also exported to Singapore and Thailand via bilateral pipeline connections with these countries. Nine bilateral gas pipeline interconnections, with a total length of approximately 2,600 km, are in operation. These are usually a long- term contract between a state-owned gas company and a state-owned power utility. Figure 13 : ASEAN natural gas trade, 2008 ASEAN natural gas trade, 2008 40 35 30 25 Exports Imports billion cubic meters 20 15 10 5 0 Indonesia Malaysia Myanmar Brunei Singapore Thailand (5) (10) (15) Source of basic data: BP Table 1 : Existing bilateral pipeline interconnection 8 Statistics shows a minimal amount of gas is shipped to China from Malaysia. 13
  14. 14. DRAFT FOR DISCUSSION Source: OECD/IEA 2009, p. The Trans-ASEAN Gas Pipeline (TAGP) project builds on these existing bilateral relations and gas pipeline infrastructures. TAGP aims and will enable the transfer or trade of natural gas from gas-surplus or rich ASEAN-member countries to gas-deficit or poor countries. “The original TAGP Masterplan 2000 aimed to develop an ASEAN regional gas grid by 2020, largely by linking the existing and planned gas pipeline networks of the ASEAN member countries. Under the revised TAGP Masterplan 2008, these interconnections are to be accelerated by 2015. They are seen as a key driver of growth for the energy-consuming sectors of the ASEAN economies.” 9 Table 2: Planned gas pipeline interconnection in ASEAN Source: OECD/IEA 2009, p. 9 OECD/IEA 2009, p. 574. 14
  15. 15. DRAFT FOR DISCUSSION Figure 14 : The Trans-ASEAN Gas Pipeline project Source: OECD/IEA, p. 15
  16. 16. DRAFT FOR DISCUSSION 3.cCoal trade Asia is also a net coal exporter. Asian coal exports reached 751 million short tons in 2007, while coal imports amounted to 599 million short tons. Asian coal exports also represented 71% of the global coal trade, while the region’s coal imports accounted for 59% of the world’s total. Both were also growing faster than the global average. The region’s coal exports was growing at 7.79% per year on average between 2004 and 2007, compared to the global growth of 6.27%. Similarly, the region’s coal imports was growing at 5.82% per year on average compared to the global average of a flat 4%. Figure 15 also indicates that the share of Asian coal trade (both exports and imports) to global coal trade has not changed dramatically in the last few years, although both imports and exports recorded a slight increase. Figure 15 : Global and Asian coal trade, 2004-2007 Global and Asian coal trade, 2004-2007 World coal exports ESCAP coal exports World coal imports ESCAP coal imports 1,500,000 1,000,000 thousand short tons 500,000 0 2004 2005 2006 2007 -500,000 -1,000,000 -1,500,000 Source: EIA Russia, Australia, and Indonesia are the region’s largest coal exporters. Together they combined for 491 million short tons of coal exports in 2007, which represented 46% and 65%, respectively, of the world’s and region’s total. The coal exports from these three Asian countries were also growing at a fast rate of more than 11% per year in 2004-2007, owing to the high growth of coal exports from Russia (13% per year) and Indonesia (24% per year). Australia also recorded a positive growth rate that year. China is also exporting coal, representing 10% of the region’s total coal exports in 2007. However, it was declining at the rate of more than 12% per year in 2004-2007, even if coal production was growing at more than 8% during the same period. This was obviously due to a growing domestic demand, which in fact recorded a 10% growth in the same period. As shown below, this also caused a huge rise in China’s coal imports. 16
  17. 17. DRAFT FOR DISCUSSION Figure 16 : Growth of coal exports in key Asian countries, 2004-2007 Growth of coal exports in key Asian countries, 2004-2007 2004 2005 2006 2007 300,000 250,000 thousand short tons 200,000 150,000 100,000 50,000 0 Russia Australia China Indonesia Source: EIA On the other hand, China, India, Japan, South Korea, and Taiwan are the largest coal importers in the region. They accounted for 48% of the world’s total coal imports in 2007 and 82% of the region’s total. Japan’s share alone was 20% of the world’s total and 35% of the region’s. The growth of coal imports in these five Asian countries in the four years to 2007 was slightly higher than the region’s but hid the 37% and 24% growth recorded by China and India, respectively, during the same period. Figure 17 : Growth of coal imports in key Asian countries, 2004-2007 Growth of coal imports of key Asian countries, 2004-2007 2004 2005 2006 2007 250,000 200,000 thousand short tons 150,000 100,000 50,000 0 China India Japan Korea, South Taiwan 17
  18. 18. DRAFT FOR DISCUSSION Source: EIA 3.dCross-border electricity trade Based on latest available statistics from the Energy Information Administration (EIA) of the US DOE, Asia is a net exporter of electricity. The region exported 74 TWh of electricity in 2007 compared to its electricity imports of 57 TWh during the same year. The region’s electricity exports represented 12% of the world’s total electricity trade, while its electricity imports, 9%. Moreover, electricity exports in Asia was growing at close to 3% per year in 2004-2007, even though this is less than the 4% average annual growth of global electricity trade, compared to the 1.6% annual decline in electricity imports, indicating overall electricity surplus in the whole region. Russia, China, and Uzbekistan are the largest exporters of electricity in the region. Russia’s electricity exports to other countries in North and Central Asia and Europe totaled more than 18 TWh in 2007 and accounted for 25% of the region’s total. China exported 14 TWh of electricity to Hong Kong and Macau, primarily, which represented 19% of the region’s total. Uzbekistan exported more than 11 TWh, or 15% of the region’s total, to _____________. Interestingly, Uzbekistan was also importing more or less the same amount of electricity, which represented 20%, or the largest in the region. To a lesser degree, Tajikistan and Kazkhstan were in the same situation as Uzbekistan, importing and exporting more or less the same amount of electricity. Hong Kong was slightly behind as the second largest importer of electricity in the region, importing also around 11 TWh (mainly from China?), but at the same time exporting 4 TWh in 2007. In contrast, Russia and China were importing electricity but much less than what these two economic giants were exporting. Russia imported 5.67 TWh in 2007, which represented 10% of total imports by the region, while China imported 4.77 TWh, which represented 8% of the total. India and Thailand are the two important importer of electricity in the region, importing 4.96 TWh and 4.488 TWh, respectively, in 2007. Unlike the other countries mentioned above, their electricity exports were relatively minimal. Unlike trade in primary energy commodities, electricity trade occurs within definite or well-defined subregional markets, corresponding to the various subregions of the ESCAP region. In addition, electricity is traded beyond the borders of these subregions to neighboring subregions or countries, including those outside the ESCAP region. The bulk of electricity trade in the ESCAP region is currently taking place in North and Central Asia, which accounted for 53 per cent of the total electricity trade in the region in 2007. Substantial electricity trade also occurs in East and Northeast Asia, which accounted for close to 30% of the whole ESCAP region’s total. Significant electricity trade also transpires in South West Asia and South East Asia. Extensive plans to boost electricity trade are underway in all these subregions. Figure 18: Cross-border electricity trade in ESCAP 18
  19. 19. DRAFT FOR DISCUSSION Cross-border electricity trade in ESCAP, 2004-2007 2004 2005 2006 2007 60 50 40 Exports 30 20 billion kWh 10 0 -10 NCA NEA SWA SEA NCA NEA SWA SEA -20 -30 Imports -40 -50  Electricity trade in North and Central Asia 10 More than one-third of electricity trade in North and Central Asia is accounted for by the Russian Federation. The unified power system of Russia exports electricity to former USSR territories, most of which now form the Commonwealth of Independent States (CIS), and the Baltic countries. Electricity from Russian Federation is also exported to Finland, Norway, and Bulgaria (via Ukraine). Electricity trade also occurs among the five Central Asian Republics of Kazakhstan, Kyrgyztan, Tajikistan, Turkmenistan, and Uzbekistan through the Electricity Pool of Central Asia (EPCA). USAID and ADB had been involved in strengthening power 11 trade among these countries and rehabilitating and improving the operation of EPCA. Figure 19:Central Asian Power Grid 10 This is an updated account of a similar section in UNESCAP 2008. . 11 EPCA was formed in the 1980s as a power grid of the four Central Asian countries and South Kazakhstan. The construction of the 500-kV electricity ring in 1991 unified the electric power systems of the five Central Asian countries (ADB, 2000). 19
  20. 20. DRAFT FOR DISCUSSION Source: Energy Charter Turkmenistan, Uzbekistan, and Tajikistan also export electricity to South and South- West Asia, particularly Afghanistan. Tajikistan has also signed an MOU with Pakistan for the export of 100 MW of hydropower. ADB and other multilateral organizations, including the World Bank, are also assisting the concerned countries to increase and enhance the trading opportunities between the two subregions. Figure 20 : Proposed Tajikistan-Pakistan transmission line 20
  21. 21. DRAFT FOR DISCUSSION Source: Energy Charter  Electricity trade in East and North-East Asia 12 Within East and North-East Asia, electricity exchange occurs between mainland China and Hong Kong, China. Moreover, electricity interconnection has been contemplated between Russian Federation (North and Central Asia) and China, Japan, Republic of Korea, and Mongolia (East and North-East Asia). For example, an UNESCAP expert group meeting in 2001 issued the Khabarovsk Communiqué proposing the interconnection among the above-mentioned countries. Table 3 presents, on the other hand, the proposals that came out of the expert group meetings organized by the Nautilus Institute in Beijing (2001), Shenzhen (2002), and Vladivostok (2003). Most of these proposed interconnections would take advantage of the energy surplus in Russian Federation and meet energy demand and energy security in the East and North-East Asian countries. Table 3: Proposed interconnection between Russian Federation and East and North- East Asia Interconnection Length Voltage Capacity Output (km) (GW) (TWh/a) 1. East Siberia (Bratsk) – North China 2,600 600 kVDC 3.0 18 (Beijing) 2. Russian Far East (Bureya) – Northeast 700 400 kVDC 1.0 3 China (Harbin) 3. South Korea – North Korea - 345 kVAC n.a. n.a. 12 This is extracted from UNESCAP 2008 but should be updated. 21
  22. 22. DRAFT FOR DISCUSSION 4. Russian Far East (Sakhalin) – Japan 1,800 600 kVDC 4.0 23 (Honshu) 5. Russian Far East (Uchur) – Northeast 3,500 500 kVDC 3.5 17 China (Shenyang) – South Korea (Seoul) 6. East Siberia (Buryalia) – Mongolia 500 500 kVAC 0.5 2.5 (Ulan Bator) Source: Cited in APERC, 2004. Through the GMS programme (see later section), Southern China is also exporting electricity to South-East Asia. In 1993, the Yunnan Electric Power Group of China began discussing with EGAT of Thailand the development of hydropower projects in Yunnan and the sale of electricity to EGAT. In 1998, China and Thailand signed an MOU on a power purchase agreement between the two countries. China has also exported electricity to Viet Nam. Since 2004, three 110-kV lines transmit electricity to Viet Nam from Yunnan province and Guangxi Zhuang Autonomous Region (Guangxi). In September 2006, an additional 220-kV line was installed in Yunnan’s province capital. These four lines have transmitted 1.84 TWh to Viet Nam. This is planned to increase to 2.5-2.8 TWh per year when a fifth 220-kV 300-km line linking Wenshan (Yunnnan) and Ha Giang (Viet Nam) is completed in 2007.  Electricity trade in South and South-West Asia The electricity trade in South and South-West Asia is relatively small compared to those of NCA and ENEA. SSWA’s total elecricity trade of around 17 TWh in 2007 was less than half the total electricity in ENEA and just one-fourth that of NCA. However, there were significant recorded trade in electricity between countries in the subregion and with countries in neighboring subregions: 13  Bhutan had been expected to export 5,664 GWh in FY 2007 to India from 1,764 GWh in FY 2006, with the construction and commissioning of a fourth large hydropower, bringing the total hydropower generating capacity exporting to India to 1,416 MW. The hydropower project was constructed with substantial grant assistance from India. Bhutan electricity export was growing at 35% per year in 2004-2007  Afghanistan imported about 430 GWh (or about 28 percent of its total supply) from Iran, Turkmenistan, Uzbekistan, and Tajikistan in 2006. This share was expected to increase with the rehabilitation of the associated transmission links and the construction of the country’s backbone transmission system called North- East Transmission System (NETS). The available statistics from EIA would 14 show that Afghanistan’s electricity imports was growing at 13% per year in 2004-2007.  Nepal imported 266.23 GWh (or 9.6 percent of its total supply) from India, and exported 101 GWh (or 5 percent of its total sales) to India. Nepal’s power system is interconnected with the power systems of the states of Uttar Pradesh and Bihar in India by one 132 kV line, eleven 33 kV lines, and one 11 kV line. Most of them have limited transfer capacity. 15  Pakistan imported about 25 MW of power from Iran to the isolated grid of Baluchistan near Gwadar deep-seaport. One 132 kV single-circuit line and two 13 World Bank/ESMAP 2008, p. xix. 14 World Bank/ESMAP 2008, p. 11. 15 World Bank/ESMAP 2008, p. 12. 22
  23. 23. DRAFT FOR DISCUSSION 20-kV lines provide the cross-border interconnections between the two countries. There had been a plan to for Pakistan to increase the imported capacity to 100 MW. For this purpose, a new 170-km-long, 230 kV line is planned. Iran’s portion is 70 km and Pakistan’s is 100 km. 16 Figure 21 : Existing electricity interconnections and imports of Afghanistan Source: Quoted in World Bank/ESMAP 2008, p. 13.  Electricity trade in South-East Asia 17 At present, there are three completed electricity interconnections that facilitate electricity trade in the SEA subregion: Thailand- Malaysia, Malaysia-Singapore, and Thailand-Lao PDR. The Thailand-Malaysia interconnection began in February 1981 and initially consisted of an 80-MW link between EGAT (Thailand) and TNB (Malaysia), the respective countries’ national vertically-integrated utilities. The transmitting capability of this interconnection, however, was too small compared with the size of the two systems. Thus, in 1988, EGAT and TNB studied the feasibility of 18 upgrading the interconnection, and HVDC was seen as a solution to the synchronization problem. The HVDC link project started in 1994 and completed in 2001, raising the capacity of the interconnection system to 300 MW. Commercial operation of the HVDC interconnection officially commenced on 3 June 2002. 19 16 World Bank/ESMAP 2008, p. 13. 17 This is extracted from UNESCAP 2008 but should be updated. 18 A fully synchronized operation could not be achieved because of this. Thus, partial isolation of the receiving system was seen as a remedy. During the power exchange, the power system had to be operated in such a way that EGAT’s southern system or TNB’s northern system had to be isolated from their own main grid in order to be connected to the network of the other system. 19 The 300 MW Thailand – Malaysia HVDC interconnection system consists of Khlong Ngae converter station on 23
  24. 24. DRAFT FOR DISCUSSION Meanwhile, both TNB and EGAT have agreed to initiate studies to look into upgrading the HVDC interconnection from 300 MW to 600 MW transfer capability. The (Peninsular) Malaysia-Singapore interconnection began operation in December 1985, with a capacity of 300 MW. At the normal condition, the interconnection is 20 operated synchronously with normal power flow of 80 MW. Thailand and Lao PDR began to exchange power in 1968 following an agreement. With the proposed development of several hydropower plants in Lao PDR, Thailand signed an MOU in 1983 for the import of 1,500 MW from Lao PDR by 2000. Later in 1996, the MOU was revised to increase this capacity to 3,000 MW by 2006. Electricity trade in SEA will increase with the implementation of the ASEAN Power Grid, a flagship program of the ASEAN energy cooperation, and the power interconnection projects under ADB-sponsored GMS program of economic cooperation. Figure 22 and Table 4 show the proposed interconnection projects to realize the ASEAN Power Grid. Table 5, on the other hand, lists the interconnection projects under the GMS programme. the Thai border and Gurun converter station on the Malaysia border. Both stations are linked by a 300 KV DC overhead transmission line of 110 km. EGAT’s Khlong Ngae converter station is situated at Sadao district in Southern Songkhla province , about 24 km.from Thai-Malaysia border. TNB’s Gurun converter station is located in Kedah,about 86 km from Malaysia’s northern border 20 The interconnection is between Plentong 275 kV Substation in Johor, Malaysia and Upper Jurong 230 kV Substation in Singapore. But initially, the point of interconnetion at the TNB side was at Pasir Gudang Power Station via 2x250MVA 132/230 kV transformers. In September 1996, the interconnection point was shifted to Plentong 275 kV substation which provided a stronger tie to TNB’s main 275 kV transmission grid backbone. In 2000, at the PGL side (Power Grid Limited), the interconnection point was shifted to the Upper Jurong substation. 24
  25. 25. DRAFT FOR DISCUSSION Figure 22: Planned interconnection in South-East Asia within the framework of ASEAN energy cooperation Source: Quoted in OECD/IEA 2009, p. 15. 25
  26. 26. DRAFT FOR DISCUSSION . Table 4: Summary of the ASEAN planned interconnection Planned interconnection Type Capacity (MW) Year 1. Thailand-Lao PDR HVAC (PP) 2015/1578 2008/2010 2. Thailand – Myanmar HVAC (PP) 1500 2013 3. Thailand-Cambodia HVAC (PP/EE) 80/300 2004/2016 4. Viet Nam-Lao PDR HVAC (PP) 1887 2007/2016 5. Cambodia-Viet Nam- HVAC (PP) 80/120 2003/2006 6. Peninsular Malaysia – HVDC (EE) 600 2008 Sumatra (Indonesia) 7. Singapore – Peninsular HVDC (PP) 700 2012 Malaysia 8. Singapore – Sumatra HVDC (PP) 600 2014 (Indonesia) 9. Singapore – Batam HVAC (PP) 200/200/200 2014/2015/2017 (Indonesia) 10. Sabah/Sarawak HVAC (EE) 300 2019 (Malaysia) – Brunei 11. Sabah/Sarawak HVAC (EE) 300 2007 (Malaysia)- West Kalimantan (Indonesia) Source: ASEAN, 2003. ASEAN Interconnection Master Plan Study – Volume I, Main Report. Note : Numbers correspond to those in Figure 22. Table 5: Summary of the interconnection proposed under the GMS program Proposed interconnections Year Viet Nam-Lao PDR-Thailand 2008 Lao PDR-Thailand 2009 Thailand-Lao PDR-Viet Nam 2010/2012 Cambodia-Viet Nam 2018/2019 Source: Asian Development Bank/Norconsult, 2002. Indicative Master Plan on Power Interconnection in GMS Countries. 4.Investment in the upstream oil, gas and coal and electricity sectors The global financial crisis has caused energy investments to plunge in 2009 and will have serious consequences in the short and medium term, especialy if current investment decisions are not reversed. Meanwhile in the long term, a stagerring amoung of capital is needed to produce and supply energy to meet projected growth in energy demand. The power sector will corner more than half of this total investment and around half of all energy investments worldwide will be needed in developing countries. Additional investment is needed to limit the greenhouse gas emissions of energy production and consumption and avoid a catastrophic climate change, even if it means a reduction in investment in fossil-based capital. Indeed, recent years have seen a high growth in investments in cleaner and low-carbon technologies to meet demand, even during the global economic and financial crisis. However, the uncertainty in the 26
  27. 27. DRAFT FOR DISCUSSION current climate negotiations is not only affecting investment in sustainable energy but also investments in the fossil-based primary energy sector. Oil price movements, or more specifically, changes in oil prices, have had an impact on energy investment decisions, both in upstream and electricity sector investments and GHG-limiting or low-carbon technologies. 4.aImpact of the global economic and financial crisis21 Upstream investments have been worst affected by the global economic and financial crisis. IEA estimates that global upstream oil and gas investment budgets for 2009 have been cut by around 19% compared with 2008—representing a reduction of over USD90 billion. Since October 2008, over 20 planned large-scale upstream oil and gas projects, involving around 2 million barrels per day (mbpd) of oil production capacity, have been deferred indefinitely or cancelled. Moreover, a further 29 projects, involving 3.8 mbpd of oil production capacity, have been delayed by at least 18 months. The 50 leading oil and gas companies will at least cut back on planned spending by 16% on average, from a total of USD524 billion to USD442 billion. Smaller companies are expected to be more affected so that the actual reduction in oil and gas investment worldwide is larger. Energy investments have been affected by the crisis in three main ways. For one, the crisis has tighten credits, in terms of both lack of needed funds or capital and high cost of securing funds. The crisis has also led to lower than expected demand and thus profitability. The low oil prices complicated the situation and has further eroded profitability. Last but not least, the crisis has resulted in less immediate need and appetite for new capacity. Depending on how governments respond to these trends, the latter can have far- reaching and potentially serious implications on energy security, climate change, and energy poverty. “Falling energy investment will have far-reaching and, depending on how governments respond, potentially serious effects on energy security, climate change and energy poverty. Cutbacks in investment in energy infrastructure will affect capacity only with a lag; sustained lower investment could lead to a shortage of capacity and another spike in energy prices in several years’ time.” 22 Also, “(t)he impact of the crisis on investment varies considerably across fuels and countries, reflecting differences in risk, market and ownership structures, the level of leverage, the state of local credit markets, changes in relative fuel prices and costs, project lead times, the economic outlook and prospects for energy demand in the near to medium term. In some cases, notably in the power sector, the main reason for cutbacks in investment has been difficulty in securing finance, both for new projects and current operations; in the oil and gas sector, the drop in prices and the expectation of lower costs in the near future have been the main drivers of cutbacks in capital spending” 23 21 This derives heavily from IEA/OECD 2009. 22 IEA 2009, p. 135. 23 IEA 2009, p. 136-137. 27
  28. 28. DRAFT FOR DISCUSSION 4.bGlobal and Asian energy investments In its “Reference scenario” for the World Energy Outlook 2009, IEA estimates that the capital required to meet projected energy demand through 2030 amounts to a staggering USD25.6 trillion or USD1.1 trillion per year on average (at 2008 prices). Sixty percent of the projected total energy investment is requred in developing countries, as primary energy production continues to shift towards non-OECD regions. It is estimated that ESCAP accounts for 45 percent of this total investment. Among the ESCAP countries, China requires the largest investment of USD 4.1 trillion, or 16% of the total. Russia, including the rest of Eastern Europe and Eurasia, need 11%. India needs USD 1.7 trillion, which compares well to ASEAN’s requirement of USD 1.1 trillion. For reference, the investment requirement of all the OECD countries, including OECD Asia, represents 37% of the total (with OECD North America getting the highest investment in absolute dollar terms). Figure 23 : Projected cumulative investments in energy supply infrastructure Cumulative investment in energy supply infrastructure 2008-2030 (US 2008 dollars) Inter-regional transport 346 1% Latin America North America 1,508 4,857 6% 19% Africa 1,855 7% Europe Middle East 3,391 1,960 13% 8% Pacific 1,212 Asia 5% 7,547 30% Eastern Europe/Eurasia 2,878 11% Source: OECD/IEA Source: OECD/IEA 2009 The projected total global energy investment equates to 1.4% of global GDP on average through to 2030. The share of energy investment in GDP varies across countries and regions. The share is highest in Africa (more than 3%). The share in most of the ESCAP countries, particularly Russia, India, and the former Soviet repuiblics, as well as in the Middle East (which here includes Iran, an ESCAP member) is also approaching 3%. In other developing Asian countries, the share of projected cumulative investments to GDP during this period is close to 2% in China and more than 2% in the rest of developing Asia. In OECD Asia, it is between 0.5% and 1.0%. Energy expenditures always take up a larger portion of income in less developed countries. Figure 24: Projected share of cumulative energy investment in 2008-2030 to GDP (%) 28
  29. 29. DRAFT FOR DISCUSSION Source: OECD/IEA 2009, p. 107. More than half of the total projected cumulative investment in energy supply infrastructure go to the power sector, and it is estimated that more than half of which, or some USD7.3 trillion, will be accounted for by the ESCAP region. Figure 25 : Cumulative energy investment by sector 2008-2030 Cumulative investment in energy supply infrastructure 2008-2030 6,000 North America 5,000 Europe Pacific billion US 2008 dollars Eastern Europe/Eurasia 4,000 Asia Middle East 3,000 Africa Latin America 2,000 Inter-regional transport 1,000 0 Coal Oil Gas Power Source: OECD/IEA 2009 On the other hand, investments in the oil and gas sector in ESCAP will be only around one-third of the corresponding global investments, which are in turn about 20% of the global total. The coal sector worldwide accounts for less than three percent of the total investments, but it is estimated that 70% of this will be in ESCAP. Figure 26 : Cumulative energy investment in ESCAP 2008-2030 29
  30. 30. DRAFT FOR DISCUSSION Estimated cumulative energy investment in ESCAP 2008- 2030 16,000 14,000 12,000 World ESCAP billion 2008 USD 10,000 8,000 6,000 4,000 2,000 0 Coal Oil Gas Power Source: Based on OECD/IEA 2009 Figure 27: Share of sectoral investments in ESCAP Share of sectoral investment in ESCAP Coal Oil Gas Power ASEAN India China Asia Russia Eastern Europe/Eurasia Pacific 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: Based on OECD/IEA 2009 4.cUpstream investments in the oil and gas sector The oil and gas sectors represent one-third of the estimated total investments in ESCAP, and interestingly, ESCAP’s investments in these two closely related sectors are also roughly estimated to be about one-third of the corresponding global sectoral investments. 30
  31. 31. DRAFT FOR DISCUSSION Focusing only on the oil sector, developing Asia will account for about 45% of the ESCAP region’s corresponding sectoral investment. China alone will take up 25%. Slightly higher investment than China’s will go to Russia. The investment in the oil sector of ASEAN will also be significant at 10%. The story in the ESCAP gas sector by subregion and country is different even if it shares almost the same total investment as the oil sector. Developing Asia still accounts for the largest share in the sectoral investment at 40%. This time, however, the investment in the ASEAN, equivalent to 14% of the ESCAP region’s total for this sector, will be slightly higher than China’s 12%. The single largest investment, though not surprising, goes to Russia, which corners 31%. The gas sector investments in OECD Pacific, which is a mix of both big supplier (Australia) and big consumers (Japan and South Korea), nearly equals that of ASEAN’s. 4.dUpstream investments in the coal sector The coal sector is allocated less than four percent of the estimated total energy investments in ESCAP, but as mentioned earlier, this represents 70% of the world’s cumulative investments in coal production and supply. Sixty percent of the region’s investment in the coal sector is accounted for by China. India accounts for more than 12%. At around 8%, the respective shares of ASEAN’s and OECD Pacific’s coal investments to the ESCAP region’s total is also significant. In ASEAN, this is due mainly to activities in the local sectors of Indonesia, Vietnam, and the Philippines. In OECD Pacific, this is largely Ausralia’ domestic coal activities. 4.eInvestments in the electricity sector More than 60 percent of the estimated total energy investments in ESCAP go to the power sector. More than three quarters, or USD 5.5 trillion, will be accounted for by developing Asia, which is larger than the required total investments in all sectors in North America. China’s power sector alone will corner 43 percent, or USD 3.1 trillion. India represents also close to 20 percent of the estimated total cumulative investment in ESCAP’s power sector. In the whole developing Asia, on average, and particularly in China and India, electricity sector investment represents between 70 and 80% of these subregion’s and countries’ cumulative energy sector investments in 2008-2030. In OECD Pacific, the share of the electricity sector is also huge at 68%. In ASEAN, the electricity sector accounts for 55% of the total projected investment in the subregion. 4.fImpact of oil prices The recent global financial and economic crisis also saw oil prices weakening from a peak of USD 126 per barrel in June/July 2008 to USD 31 per bbl in February 2009. 24 On average, oil prices is expected to go down from a high of USD91.48 in 2008 to USD 52.40 in 2009. This quick landing of oil prices after a surge that began in 2004, coupled with “restricted corporate cash flow positions have stymied massive capital outlay and project cancellations in the oil and gas market. The International Energy Agency estimates that investment budgets for global upstream oil and gas sector has fallen by around 21.0% (or around USD 100 billion) in 2009. Since October 2008, more than twenty upcoming massive upstream oil and gas projects, valued at more than USD 170 billion in aggregate, were cancelled. Another 35 oil and gas projects were postponed for duration of two years. It is anticipated that the upstream sector 24 Based on history of Illinois Basin posted crude oil prices at 31
  32. 32. DRAFT FOR DISCUSSION will lower capital expenditure on drilling and exploration sharply in 2009. This is attributed to large capital spending associated with the completion of most ventures prior to 2007-08. Oil sands projects in Canada account for a large share of the postponed oil capacity. High development cost projects initiated by small players are more likely to be shelved.” 25 Investment in energy infrastructure will only affect capacity with a lag of around 5-10 years. Hence, current weak demand will result in a rise in spare production capacity in the short term. However, sustained lower energy investment (due to weak oil prices mainly) will lead to capacity shortages and push energy prices up in the long term. “Rapid economic progress without adequate investment in energy infrastructure might derail the path of global economic performance. Supply restriction will lead to higher cost of production and inflation expectations across all economic sectors.” 26 In addition to these economic consequences, falling investment has environment and social implications. “Second, current economic slowdown will lead to lesser greenhouse gas emissions in the near term. However, the ongoing financial turbulence may curtail investment in clean energy technology and thereby lead to greater emissions in the medium to longer term through the use of fossilized-fuel energy commodities. Concomitantly, risk adverse investors will divert funding for clean energy projects to proven technologies in attractive markets. It is worth noting that once the global economy recovers, any short-term emissions benefit will be negated off. “Third, weakened energy investment might limit poorer people’s access to various forms of modern energy. There are nearly 1.6 billion people around the world without access to electricity. Financial difficulties will impede poorer households the ability to connect to electricity or other forms of energy. Hence, cutbacks in modern energy investment will stymie numerous efforts of poverty eradication around the world.” 27 4.gTrends in sustainable energy investments Investments in the primary energy sector and electricity sector have been also affected by the growing investments in the development of low-carbon or clean energy sources and technologies. For example, UNEP reports in Global Trends in Sustaimable Energy Investment 2009, an annual installment, that “renewables currently account for the majority of investment and over 40% of actual power generation capacity additions last year.” IEA’s “450 scenario” for its World Energy Outlook 2009 entails an additional investment of USD 10.5 trillion in energy infrastructure and energy- related capital stock through 2030, which are translated into savings in fossil fuel consumption. 5.International agreements and cooperation and implications on energy trade and investments 25 Foong, Ke-Kuan 2009. “The financial crisis and global energy investment.” 26 Ibid. 27 Ibid. 32
  33. 33. DRAFT FOR DISCUSSION The universal importance of liberal trade and investment frameworks and their consequences for the energy sector is demonstrated by the numerous international and regional agreements and cooperation promoting them. The ESCAP countries are also members of various economic cooperation programs that in most cases have the facilitation of trade and investments in general and energy trade and investments in particular as among their many agenda. (See Appendix 9.a.) The various sub-regional multilateral and bilateral cooperation in Asia (e.g. ASEAN, APEC, EU-ASEAN, ASEM, and UNESCAP-assisted cooperation) promotes liberal frameworks in energy trade and investment as a means to achieving energy security. These cooperative frameworks also include binding agreements in responding to supply emergencies or shortfalls. Energy trade and investment issues also figure prominently in a number of multilateral agreements (e.g. WTO and UNFCCC). In fact, since the international negotiations on climate change have captured the headlines, its implications on open and transparent trade and non-discriminatory foreign investment rules have been discussed at length but seems to have never been resolved. 5.aMultilateral cooperation The Asian countries have cooperated on energy through various sub-regional cooperation frameworks. Thus, energy cooperation exists among nations in Southeast Asia, South Asia, Asia-Pacific, and the Greater Mekong Sub-region. There have been efforts in recent years by nations particularly in Southeast Asia to expand cooperation beyond the sub-region. This is resulting in the growing cooperation between countries in Southeast Asia and those in East Asia, South Asia, and the Pacific. It is not surprising if energy security continue to top the list of priorities for energy cooperation within Asia among the various regional cooperation frameworks in the region. In fact, then and now energy security has been the driving force for energy 28 cooperation between and among economies. The only difference is that today energy security cannot be discussed or tackled separately with other equally important issues, notably climate change and sustainable development. But cooperative mechanisms focusing or stressing energy security on top of other concerns remain. In many ways, energy security has come to be associated with, if not equated to, energy independence, which is usually measured by its converse, energy import dependence. In Asia, energy security has been a growing concern even if the region holds significant energy reserves. Malaysia and Indonesia, for example, which had been known for their rich reserves of indigenous fossil fuels in Southeast Asia, have become net oil importers recently. Oil import dependency of the whole Southeast Asian region is projected to balloon from 10% in 2002 to nearly 70% in 2025. The different cooperation instruments on energy security tend to be catch-all packages, if not baskets of measures, which encompass diverse energy issues but related insofar as their contributions to energy security are concerned. Their main objectives are to limit vulnerability to supply disruptions of imported energy, on the one hand, and increase reliance on indigenous energy sources, or limit energy import 28 And in fact between EU and Asia among the various multilateral and bilateral cooperation arrangements existing between the two regions. 33
  34. 34. DRAFT FOR DISCUSSION dependence, on the other hand. Indeed, Asia’s energy security cooperation remains a top concern that is singled out from other priorities. 29 ASEAN, for instance, has the long-standing Petroleum Security Agreement (APSA) that established in 1986 the ASEAN Emergency Petroleum Sharing Scheme for crude oil and petroleum products in times of both shortage and over supply. The objectives of the APSA are to (a) enhance petroleum security, either individually or collectively, through the implementation of short, medium, and long term measures; and (b) minimize exposure to an emergency situation through long-term strategies, including diversification to alternative fuels, diversification of supply sources, exploring for new petroleum resources, and improving market and utilization efficiency. The main mechanism of ASEAN to address supply disruption in the short term is the Coordinated Emergency Response Measures (CERM). CERM is established under the APSA as the basis or framework for regional consultations and coordination. Its aim is to assist the ASEAN Member Country in Distress at the aggregate amount equal to an increase of 10% of its Normal Domestic Requirement. Nevertheless, assistance rendered under the CERM shall be made on a voluntary basis, and the mechanism will be updated to reflect changing circumstances. To achieve petroleum security in the medium and long term, the strategies are based on ASEAN energy cooperation frameworks and include exploring for new petroleum reserves, energy diversification and improvement of energy efficiency, diversification of supply sources, oil and gas market liberalization, and oil stockpile. ASEAN also cooperates with other Asian countries to enhance the attainment of energy security not only in ASEAN but also in Asia-Pacific through the East Asian Summit (EAS). During the 2nd East Asian Summit (EAS) in January 2007 in Cebu City, Philippines, the ASEAN, together with India, China, Japan, South Korea, New Zealand, and Australia (or the ASEAN +6) jointly issued the “Cebu Declaration on East Asian Energy Security” to:  Improve the efficiency and environmental performance of fossil fuel use;  Reduce dependence on conventional fuels through intensified energy efficiency and conservation programmes, hydropower, expansion of renewable energy systems and biofuel production/utilisation, and for interested parties, civilian nuclear power;  Encourage the open and competitive regional and international markets geared towards providing affordable energy at all economic levels;  Mitigate greenhouse gas emission through effective policies and measures, thus contributing to global climate change abatement; and  Pursue and encourage investment on energy resource and infrastructure development through greater private sector involvement. Meanwhile, APEC’s main instrument in enhancing energy security is the Energy Security Initiative (ESI) endorsed by the APEC economic leaders in 2001. The ESI essentially comprises and implements short-term measures to respond to temporary supply disruptions and long-term responses to address the broader energy challenges 29 It is true that climate change and sustainable development have become important priorities in Asia. However, these remain secondary to energy security and in fact linked to it rather than placed in equal footing. 34
  35. 35. DRAFT FOR DISCUSSION facing the APEC regions. The short-term measures include: monthly oil data initiative, maritime security, real-time emergency information sharing, and oil supply emergency response. The long-term responses are categorized into energy investment, natural gas trade, nuclear power, energy efficiency, renewable energy, hydrogen, methane hydrates, and clean fossil energy. In November 2004, the APEC economic leaders issued the CAIRNS Initiative to strengthen the ESI under the themes energy security, sustainable development, and common prosperity. 5.bBilateral cooperation Besides promoting multilateral cooperation among the countries in the region, these regional economic cooperation frameworks have relations with EU as a single economic and political entity that may be considered bilateral in nature. For example, the year 2007 marked 30 years of EU-ASEAN cooperation. To mark this occasion, the “Nuremberg Declaration on an EU-ASEAN Enhanced Partnership” was endorsed by the Foreign Ministers of the Association of Southeast Asian Nations (ASEAN) and the European Union (EU) at the 16th ASEAN-EU Ministerial Meeting in Nuremberg, Germany, on 15 March 2007. Pursuant to that declaration, the EU-ASEAN Action Plan was drawn up “to serve as the master plan for enhancing ASEAN-EU relations and cooperation in the medium term (2007-2012) in a comprehensive and mutually beneficial manner.” Under the EU-ASEAN Action Plan 2007-2012, the priority areas for energy cooperation are oriented towards energy security:  Promote energy security and multilateral measures to ensure stable, effective, open and competitive global energy markets, geared toward providing sustainable and affordable energy at all economic levels;  Cooperate closely in the promotion of energy saving, energy efficiency & conservation (EE&C) measures, energy efficiency technology and renewable energies; and  Build on the results of the EC-ASEAN Energy Facility Programme which served to stimulate regional energy projects and initiatives proposed by the energy industry, either public or private, from the EU and ASEAN. Following that plan, the first meeting of the ASEAN-EU Senior Officials Dialogue on Energy was held in August 2007 in Singapore. The meeting echoed and specified the above-mentioned priority areas for cooperation, particularly energy efficiency, biofuels and investment climate and other areas such as strengthening policy dialogue on security, environment and investments in energy; cooperation towards implementation of plans and programs of APAEC; energy security, environmental protection, investment facilitation; renewable energy for rural development; energy efficiency and conservation; environmental instruments and measures, and sustainability issue of the EAEF. Meanwhile, China, India, and Japan—the three Asia’s economic giants that have emerged as the world’s new economic powers—have separate bilateral energy relations with EU that can promote energy trade and investments. A common characteristic of the energy cooperation between these three Asian countries and EU is that it is much younger than their bilateral relations or economic cooperation. In 35
  36. 36. DRAFT FOR DISCUSSION other words, energy has indeed emerged as a very important area of economic cooperation that it calls for a separate cooperative mechanism altogether. The main instruments for EU-China energy cooperation are the MoU on the EU- China Dialogue on Energy and Transport Strategies between the Commission’s DG TREN and the NDRC, and the EU-China High Level Working Group on Energy between the Commission’s DG TREN and MOST (Ministry of Science and Technology). The Commission has also signed an MoU with China’s MOST on Cooperation on Near Zero Emissions Power Generation Technology through CCS and two Action Plans, one on Clean Coal and the other on Industrial Cooperation on Energy Efficiency. In addition, every two years, there is an industrial conference organized jointly by DG TREN and MOST, which aims to enhance cooperation by bringing together high-level European and Chinese representatives from industry and administration. The European Commission and China also co-operate via the Energy and Environment Programme that runs from 2002 to 2009. The program has the overall objective “to promote sustainable use of energy whereby Chinese energy users will have a secure energy supply at improved economic, social, and environmental conditions, thus contributing to improved environmental quality and health condition.” The specific objectives, meanwhile, are: (1) to foster the cooperation between Chinese and EU industries in China’s energy markets; (2) to strengthen the security of energy supply in both China and Europe; (3) to protect the global environment in line with international objectives and to ensure sustainable development. To achieve these objectives, EU-China energy cooperation is focused on energy policy development, improving energy efficiency, and increasing use of RE and natural gas. The decision to embark on an energy dialogue between EU and India came only in November 2004 during the 5th EU-India Summit. In June 2005, the EU-India Energy Panel was constituted as the formal mechanism for energy cooperation between the two economic giants. The technical counterparts of this high level (at the energy minister level) dialogue are the five technical working groups: renewable energy and energy efficiency (constitutive meeting on 23 March 2006); coal (initially constituted as a coal/clean coal technologies working group on 22 March 2006); clean coal technologies (initially constituted as a coal/clean coal technologies working group on 22 March 2006, but a separate group following the decision of the 3rd EU-India Energy Panel); fusion energy (1-2 February 2006); and petroleum and natural gas (25 January 2007). In April 2006, the first EU-India Business Conference on Energy was held. Also relevant to bilateral work in the energy sector is the EU-India Initiative on Clean Development and Climate Change. As the key deliverable on climate change under the EU-India Joint Action Plan, it concentrates on practical measures recognizing the importance of cleaner technologies for tackling climate change, strengthening the implementation of the Kyoto Protocol's Clean Development Mechanism and cooperation on adaptation to climate change. At the EU-India Summit in 2008, the two sides agreed to a Joint Work Programme on Energy, Clean Development and Climate Change to increase activities in the fields of energy, environment and research cooperation. 36
  37. 37. DRAFT FOR DISCUSSION The political and economic cooperation between the EU and Japan had run for almost two decades. But only very recently has the energy cooperation between them been formalized. The first EU-Japan Energy Dialogue between DGTREN and METI was held on 19 April 2007. On 5 June 2007, the two parties declared their commitment to climate change and energy security during the 16th EU-Japan Summit in Berlin. The declaration enumerated the priority areas of energy cooperation:  Increasing transparency, predictability, and stability of global energy markets  Improving investment climate in the energy sectors  Enhancing energy efficiency and energy saving  Diversifying the energy mix  Ensuring physical security of critical energy infrastructures  Reducing energy poverty  Addressing climate change and sustainable development  Increasing use of non-fossil fuels and low carbon technologies  The use of nuclear for those who decide to use this option 5.cSectoral agreements and cooperation A unique multilateral framework for energy cooperation with special emphasis on energy trade and investment is provided by the Energy Charter Treaty (ECT). ECT “is designed to promote energy security through the operation of more open and competitive energy markets, while respecting the principles of sustainable development and sovereignty over energy resources.” 30 The Energy Charter Treaty was signed in December 1994 and entered into legal force in April 1998. The Treaty has been signed or acceded to by fifty-one states, the European Community and Euratom (the total number of its Signatories is therefore fifty-three). 13 ESCAP members—all the countries belonging to North and Central Asia and China, Japan, Australia and Turkey—have full member status in the ECT, while six have observer status. The 1994 Treaty is a legally binding multilateral agreement. It is the only agreement of its kind dealing with inter-governmental cooperation in the energy sector, covering the whole energy value chain (from exploration to end-use) and all energy products and energy-related equipment. The Treaty's provisions focus on four broad areas:  the protection of foreign investments, based on the extension of national treatment, or most-favoured nation treatment (whichever is more favourable) and protection against key non-commercial risks;  non-discriminatory conditions for trade in energy materials, products and energy-related equipment based on WTO rules, and provisions to ensure reliable cross-border energy transit flows through pipelines, grids and other means of transportation;  the resolution of disputes between participating states, and - in the case of investments - between investors and host states;  the promotion of energy efficiency, and attempts to minimise the environmental impact of energy production and use. 30 Energy Charter website 37
  38. 38. DRAFT FOR DISCUSSION 5.dMultilateral agreements Two multilateral agreements that inlcude most or many of the UNESCAP countries as members are the the WTO and UNFCCC. Both have direct and indirect implications on energy trade and investments, though both seem to have no direct reference to energy trade and investments and intersect on a number of issues that seem to be in conflict or at least need to be resolved (see section 7). 6.Institutional arrangements on energy trade intelligence National energy planning and policy formulation has obvious needs for statistics, data, information, and intelligence, in that order, to make important and appropriate decisions and policy. The importance of energy intelligence is also reiterated at regional levels in terms of scope for regional planning and policy formulation, achieving regional energy security, and regional response to supply emergencies under the various regional cooperation frameworks. Indeed, various regional initiatives have emerged as a result of these concerns, and these initiatives require energy intelligence for them to fulfill their goals. 6.aRegional and international frameworks A quick survey of data and information resources on energy trade beyond national frameworks indicates that energy trade intelligence at the regional and international levels occurs in what maybe categorized as real time, the short term, and long term information resources. The real-time resources are a result of regional and international cooperation and initiatives. A foremost example of real-time trade intelligence is the Joint Oil Data Initiative (JODI), which is a global collaboration among various international agencies and regional cooperation to promote energy security through improved oil data and greater data transparency (see below). APEC and ASEAN also have real-time information sharing systems to respond immediately to supply emergencies. Though obvious, it is important to note that these intelligence and information sharing systems are in the framework of energy security cooperation among these economies. For example, along with JODI, the RTEIS discussed below is one of APEC’s measures under its Energy Security Initiative. The short-term information resources are exemplified by IEA’s weekly, monthly, and quaretrly reporting and analysis of news and trends at the oil, gas, coal, electricity markets in particular and energy markets in general. The long-term information resources are provided and derived from annual statistics, projections, and analytical reports on the various energy markets. BP, IEA, and EIA are the long-time publishers of annual energy trade statistics. BP is known for its comprehensive compilation and reporting of historial energy statistics, including latest status on international trade in oil and natural gas. Besides publishing energy trade and other statistics, IEA and EIA also prepare annual global and regional energy projections through the World Energy Outlook and International Energy Outlook, respectively. IEA also publishes it annual Information series on the oil, natural gas, coal, and electricity markets, with particular focus on the OECD countries. EIA also publishes analysis of national and regional energy markets through its “country analysis briefs” and regional briefs. All of these information resources on energy trade and other aspects are available on line through the internet. 38
  39. 39. DRAFT FOR DISCUSSION  Joint Oil Data Initiative (JODI) JODI, currently housed at the International Energy Forum Secretariat in Riyadh, was launched in 2001 with the combined effort of six pioneer international organizations, namely, the Asia Pacific Economic Co-operation (APEC), the Statistical Office of the European Communities (Eurostat), the International Energy Agency (IEA), the Latin- American Energy Organization (OLADE), the Organization of Petroleum Exporting Countries (OPEC) and the United Nations (through the UN Statistics Division). The main objective is to raise awareness of all market players to improve the quality and transparency of international oil statistics. At present, more than 90 countries and economies are participating in JODI through submission of energy data to form world database. As of November 2007, out of 90 members of JODI, 22 belong to ESCAP countries. Some of these countries are also members of the IEA and APEC: Developed ESCAP countries (3): Australia, Japan, New Zealand Southeast Asia (8): Brunei, Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam South Asia (3): India, IR Iran, Turkey East and Northeast Asia (4): China, Chinese Teipei, Hong Kong China, DPR Korea North and Central Asia (3): Azebaijan, Kazakhstan, Russian Federation Pacific Islands (1): Papua New Guinea The joint global database is made free and accessible to all organizations, countries, industries, analysts, others. 39
  40. 40. DRAFT FOR DISCUSSION Box 1: The Joint Oil Data Initiative (JODI) JODI addresses data transparency, assisting in the implementation of more efficient investment decisions in the oil market and leading to enhanced energy security. JODI’s first priority was to assess oil data collection methods in participating countries to better understand and quantify any gaps. This data collection assessment was followed by the development of a framework and template by which countries could collect monthly oil statistics in a harmonised manner. The primary goal was not just to build a database, but to raise the awareness of all oil market participants of the need for greater transparency in oil markets. JODI has played an important role in raising awareness of the difficulties encountered in improving data reliability and timeliness. Networks have been established and data collection systems have been improved. Attitudes towards confidentiality and reliability have evolved and contacts between oil companies, countries and organisations have multiplied. The release of the first JODI World Database (late 2005) was a significant development, with one of the more important outcomes being the facilitation of an oil producers and consumers dialogue. The JODI Manual (released late 2006).has definitions of products and flows are at its heart, but information on the JODI questionnaire and database is available as well. The Manual also includes chapters on data verification methods and examples of practices from participating countries. The Manual is available for download from the JODI website: JODI data include seven product categories: 1. crude oil; 2. LPG; 3. gasoline; 4. kerosene; 5. gas/diesel oil; 6. fuel oil; and 7. total oil, which includes categories 2-6 and all other petroleum products (refinery gas, ethane, naphtha, petroleum coke, white spirit & industrial spirit (SBP), paraffin waxes, bitumen, lubricants and others). Data includes six flows: 1. production of crude oil and refinery output; 2. imports; 3. exports; 4. closing stocks; 5. stock changes; 6. refinery intake of crude oil and demand of oil. The 6th International JODI Conference (Saudi Arabia, November 2006) introduced a trial revision of the reporting format extending the number of product categories to eleven and the number of flows to twelve to improve the usefulness of the Initiative and the entire database. The new products that have been added are: NGL and Other Hydrocarbon for primary products as well as Naphtha, Jet Kerosene and Other Products for secondary products. The additional flows for the primary products are: From Other Sources, Products Transferred/Backflows, Direct Use and Statistical Difference. Primary Product Receipts and Inter-product Transfers flows were added for petroleum products. As regards the World JODI Database that is being hosted by the IEFS, two additional flows were opened to the public: Refinery Intake and Output data. In 2005, only the Indigenous Production, Stock Closing, Stock Change and Demand were released among all the collected flows mentioned above. Source: APEC-EWG 2009. ELEVENTH REPORT ON IMPLEMENTATION OF THE ENERGY SECURITY INITIATIVE (ESI), Presented at EWG37 Santiago, Chile, 2-23 April 2009 40