Friday, February 8, 2013

Asia’s energy problems: why APEC now?

The world’s energy environment is undergoing great change

In particular, the Asia-Pacific region, which accounts for over half of the world’s energy consumption, is approaching a turning point with regard to energy security.

On the demand side, despite a relative slowdown in the economic growth rate across Asia as an effect of the European financial crisis, primary energy consumption is still showing steady increases. On the supply side, concerns over the safety of nuclear energy are escalating globally after the Fukushima nuclear power plant accident in Japan and decisions to review the energy mix have been on the political agenda in many countries. Counteracting this ambiguity in the future of supply is the shale gas revolution.

Energy security has increased in importance since the ‘Arab Spring’ as the resulting political instability and other geopolitical risks in the Middle East make energy resources there less reliable. The Asia-Pacific is particularly at risk from these developments because it imports much of its energy from the Middle East.

To tackle these hot issues, ‘energy intensive’ discussions have taken place within APEC’s Leaders meetings and Energy Ministers’ meetings. At the Vladivostok summit this year, following the declaration agreed upon at the 2011 Honolulu summit, APEC leaders agreed ‘to develop an Action Plan in order to achieve the aspirational goal to reduce APEC’s aggregate energy intensity by 45 per cent by 2035’.

According to the Asia Pacific Energy Research Centre’s (APERC) calculations, satisfactory improvements in energy intensity are observable in the period 2005–2008. But emission-intensity levels have stagnated at around 34 per cent as of 2010. Greater efforts are needed to fulfil APEC’s challenging goal of a 45 per cent reduction by 2035.

APERC is contributing to this effort by implementing a Peer Review on Energy Efficiency (PREE) program, issuing policy guidelines to economies in the region and undertaking sector-specific activities such as the Cooperative Energy Efficiency Design for Sustainability (CEEDS). Efforts to address the issue from the supply side include the Peer Review on Low Carbon Energy Supply (PRLCE) and some regional initiatives of Low Carbon Model Town (LCMT) projects in Tianjin, China, and Samui Island, Thailand.

Nuclear power continues to be an important energy source for Asia. The recent APEC Leaders meeting made a declaration to ‘Ensure the safe and secure use of nuclear energy as a clean energy source in interested economies by sharing expertise, knowledge and best practices, improving nuclear safety standards and coordinating emergency response and preparedness mechanisms’.

For Japan, where nuclear energy has been one of the most important sources of energy supply, public opinion on nuclear energy is split, and even the energy-starved government is cautious about planning new energy policies. Yet the number of nuclear power plants will increase throughout the rest of Asia in the near future. This makes it vital that APEC deepen cooperation and learn lessons from Japan’s recent experiences by paying closer attention to safety, staff training and sharing crisis-management policies.

Natural gas has a smaller impact on the environment than any other fossil fuel. Its reserves are also relatively evenly distributed, meaning that we can safely predict its continued market expansion and expect steady investment in the development of natural gas and liquefaction facilities along with expansion of trade in Liquefied Natural Gas (LNG).

At this year’s summit in Russia, which is a large producer and exporter of natural gas, APEC leaders recommended that authorities ‘Review the current state and prospects of energy markets of the APEC region, with a view to increasing the share of natural gas in the energy mix as one of the most widespread and cleanest burning fossil fuels in the region’.

In response, Japan’s Ministry of Economy, Trade and Industry and APERC jointly held an ‘LNG Producer–Consumer Conference’ in Tokyo in September this year. It was attended by over 500 delegates from around the world, including the energy ministers of Japan, Australia, Canada, Qatar and South Korea, with the aim of increasing transparency in the demand and supply of LNG and facilitating better trade in the resource.

Many APEC economies have a high level of energy dependence on the Middle East, which is notoriously volatile. There is thus a need to strengthen security strategies to prepare for emergencies. Previously, initiatives for responding to oil supply shortages were taken under the International Energy Agency; but, since the use of LNG is predicted to spread throughout the APEC region in the near future, the need to explore emergency response exercises for both oil and natural gas is increasing.

With this understanding the latest APEC summit decided to ‘Promote activities to improve the response to oil and gas emergency situations in the region’. This was a follow-up to the APEC energy ministers’ clear directive to ‘encourage the Energy Working Group and APERC to work on activities to improve the response to oil and gas emergency situations in the APEC region, including emergency response workshops and exercises’.

APERC releases an APEC energy demand and supply outlook report every two to three years. The fifth edition is currently being finalised, with the target year of 2035. APERC predicts that, on the energy demand side, energy efficiency will improve by 45 per cent by 2035 under an assumption of 4 per cent economic growth per annum across the region. This would see APEC meet its energy intensity target.

Oil production within the region will also increase, but not enough to meet expanding consumption. Imports of oil from outside the region will thus also increase. This is clearly a danger for energy security and economic stability within the region. Alongside oil, demand for all fossil fuels is forecasted to increase, and as a result CO2 emissions are predicted to grow by 72 per cent by 2035.

The projection outlined above assumes ‘business as usual’. If serious changes in policy can be enacted it would be possible to create a framework which is softer for the environment. In particular, if there is increased use of natural gas, the fossil fuel that emits the least CO2, we can expect a much better energy balance to become reality. In such a scenario, if restrictions such as price interventions and export prohibitions in the gas sector can be lessened, APERC predicts a 30 per cent increase in gas production by 2035. If this gas displaces coal power, CO2 emissions will be reduced by 15 per cent in electrical production and will contribute to a 5 per cent reduction in CO2 emissions throughout the APEC region.

In the quarter of a century since APEC was founded it has dealt with a number of energy crises. These have always battered the region. Even now, energy problems in the APEC region are running hot. To combat these challenges all the APEC economies must strengthen cooperation in the energy field to enjoy continued and lasting stable growth and prosperity.

Takato Ojimi is President of the Asia Pacific Energy Research Centre. 
This article appeared in the most recent edition of the East Asia Forum Quarterly,‘Energy, Resources and Food’.

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