Asia's Energy Security Outlook
This is one of eleven essays in the “2014 Asia-Pacific Watch List.”
By Clara Gillispie
December 19, 2013
Asia has emerged as the global center for energy demand growth, a trend that is reshaping energy markets. By the 2020s, the region will be home to the largest importers of fossil fuels, and by 2035 it will account for half of global energy consumption. In the coming year, Asian energy specialists will be watching three areas closely: (1) U.S. energy policies, (2) uncertainties surrounding the role of nuclear energy in Northeast Asia, and (3) China’s energy reforms.
U.S. energy policies. Observers in Asia are closely monitoring U.S. decisions on energy exports, particularly on gas and coal. With Asia’s fossil-fuel demand outstripping its current supplies, U.S. exports could help satisfy regional needs while also putting pressure on prices (most significantly on oil-linked contracts for natural gas). Still, U.S. exports have been limited due to an approval process for natural gas requiring that exports to non-FTA countries be deemed “in the national interest.” The U.S. Department of Energy approved 5 such requests in 2013, but 23 are pending and approvals have averaged 1–2 per month. Washington State is also reviewing proposals to build new terminals that would facilitate coal exports. Yet the outcomes of recent state elections and protests by environmental groups suggest that the Pacific Northwest is in store for a longer-term debate. This debate will not dampen Asia’s need for coal but could decrease the United States’ role as an important supplier.
The future of nuclear energy. Since his July re-election, Prime Minister Shinzo Abe has reiterated his pledge to restart Japan’s nuclear plants, but this process is likely to be slow. All of Japan’s reactors are currently idle and plans to restart them still face opposition. Meanwhile, Taiwan and South Korea are also considering what role nuclear energy should play in their energy mix. Ultimately, the pace and viability of moving forward with nuclear energy in Northeast Asia will be shaped by how well policymakers address voters’ safety and environmental concerns.
China’s energy developments. As the world’s largest energy consumer, China will continue to have a dramatic impact on Asia’s energy security. The government’s twelfth five-year plan outlines an ambitious agenda to reshape the country’s energy mix in a manner that doubles gas consumption by 2015—a share on par with the current contributions from nuclear, hydro, and renewables combined. More recently, China’s Third Plenum promoted a number of policy reforms, including opening up the electricity sector to more market-oriented pricing, that would make the greater integration of gas more viable. Pricing reform, in particular, is an issue that Chinese and international industries will be following for signals about investment opportunities.
In tandem with these reforms, Beijing will need to find sources of increased production. While China has been hailed as the site of the next shale gas revolution, NBR’s 2013 Energy Security Report found that projects have been beset by difficulties and are unlikely to realize their potential in the near term. A likelier scenario is that China will import more LNG, thereby creating a tighter LNG market in Asia.
Overall, any progress on strengthening Asia’s energy security will require closer ties and coordination among consumers and suppliers to avoid mistrust and perceptions of scarcity. The United States can contribute to this process by continuing to promote an open, transparent, and market-oriented approach to the energy sector.
Clara Gillispie is Assistant Director of Trade, Economic, and Energy Affairs at NBR, where she leads research, publications, and activities for a range of initiatives, including the Energy Security Program, the Pacific Energy Summit, and the organization’s programming on China’s intellectual property rights, standards, and innovation strategies.