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Original Article

Reflections on Energy Security in the Asia Pacific

Ian Cronshaw and Quentin Grafton*

Abstract

This article reviews key past trends in energysecurity from the perspective of both Interna-tional Energy Agency members and the AsiaPacific over the past 30 years, and assessesfuture energy risks. Developments in energyefficiency, unconventional oil and gas, and sta-tionary renewable energy sources are high-lighted. Lessons learned from past policysuccesses and failures provide the basis for 10reflections to promote energy security in theregion.

Key words: energy security, energy demand,Asia Pacific, China, India

. . . ensuring sufficient, reliable and environmen-tally responsible supplies of energy at pricesreflecting market fundamentals is a challenge forour countries and for mankind as a whole.[G8 Leaders’ Statement on Global Energy Secu-rity, St Petersburg, 16 July 2006]

1. Introduction

The risks of disrupted energy supplies haveexisted for developed economies for at least acentury (Yergin 1991) and have helped shapeglobal foreign policy (Yergin 2006). Energyvulnerabilities arise because of a dependenceon a small number of key energy sources,where rapid substitution is difficult or impos-sible, and networks that are supplied from fewsellers and/or from a restricted number oflocations.

The world’s biggest energy supply disrup-tion in the past 50 years was during and afterthe October 1973 Yom Kippur War betweenEgypt–Syria and Israel, members of theOrganisation of Petroleum Exporting Coun-tries (OPEC) unilaterally increased their offi-cial prices by 70 per cent, reduced productionby 25 per cent and imposed an embargo on‘enemy’ countries (Grafton et al. 2004, p. 211).These actions disrupted global oil markets,quadrupled oil prices and diminished energysecurity for all net oil-importing countries.This oil shock also resulted in a major struc-tural shift in the world economy that loweredgrowth and increased both unemployment andinflation.

The risks to energy supply networks do notjust apply to oil nor are they only caused by

* Cronshaw: International Energy Agency, Paris75737, France; Grafton: Crawford School, The Aus-tralian National University, Canberra, AustralianCapital Territory 0200, Australia. Correspondingauthor: Grafton, email �[email protected]�. Authorship is alphabetical. The viewsexpressed in this article are those of the authorsalone, and are not necessarily those of the Bureau ofResources and Energy Economics (BREE), theAustralian Department of Resources, Energy andTourism (RET), or the International Energy Agency(IEA). The article draws extensively on IEA dataand projections especially those contained in theIEA World Energy Outlooks (WEO) of 2011 and2012.

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Asia & the Pacific Policy Studies, vol. 1, no. 1, pp. 127–143doi: 10.1111/j.2050-2680.2013.00004.x

© 2013 The Authors. Asia and the Pacific Policy Studiespublished by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University.This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, whichpermits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for

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international conflicts. Disruptions to electric-ity generation networks in the form of cascad-ing blackouts have had devastating, albeitshort-lived, impacts. Natural disasters, such asthe Japanese earthquakes in early 2011 andtheir aftermath, resulted in the complete shut-down of Japan’s nuclear electricity generationcapacity. Hurricane Katrina in 2005 severelydisrupted oil and gas production in the Gulf ofMexico, but also had a major impact on oilprices globally as it temporarily closed downkey refinery facilities.

A framework for assessing energy risks andtheir flipside, energy security, is the four As:availability of resources, accessibility to theseresources, affordability in terms of generatingenergy flows from energy supplies, and accept-ability in terms of social and environmentalconcerns (Asia Pacific Energy ResearchCentre (APERC 2007; Kruyt et al. 2009).1 Asimilar list has been developed by Elkind(2010), who substitutes accessibility with reli-ability, defined as a robust and diversifiedenergy value chain, and replaces acceptabilitywith sustainability that he defines as energysystems that have a low impact on environ-mental quality. Three complementary perspec-tives to the four As on energy security includerobustness, or the risks from known and pre-dictable risks that require an engineeringresponse; resilience, which focuses on unpre-dictable risks that demand a systems-basedand economics focus; and sovereignty, whichconcerns itself with the actions and intentionsof countries in the energy supply chain that isin the domain of international relations andglobal governance (Cherp & Jewell 2011).

The Asia-Pacific region is particularly vul-nerable to energy supply risks as many coun-tries are highly dependent on energy imports(Cherp et al. 2012), and major developedeconomies, such as Japan and Korea, arealmost totally dependent on imported energysources. The trend is for increasing depen-dence for major energy-producing countries in

the region, such as China and India, as a resultof the rapid growth in their economies. Forinstance, China is already the world’s largestcoal importer, is likely to become the world’slargest oil importer before 2020 (InternationalEnergy Agency (IEA) 2012a, p. 119), and itsgas imports are expected to account for morethan 40 per cent of its gas demand in 2020(IEA 2012a, p. 147). Unsurprisingly, China’squest for energy security is an important influ-ence in terms of its 5-year plans and its inter-national relations (Cheng 2008). Indian energyimports, which are also rising rapidly, couldovertake China as the world’s largest coalimporter before 2020.

In this article, we offer insights about energysecurity in the Asia Pacific and review widelyproposed strategies for managing energy risks,including greater diversification of networksupplies, increased use of renewable energysources, enhanced energy efficiency, and agreater use of biofuels and unconventional oiland gas sources. Our analysis includes anevaluation of the policy responses to the 1970soil shocks, an examination of the multipledimensions of energy security, an overview ofrecent trends in terms of oil, gas and the powersectors, and a description of likely futuretrends in the Asia Pacific. Based on the successand failure of the past and current strategies topromote energy security, we conclude with 10reflections that provide a heuristic of the pos-sible ways to promote energy security in theAsia Pacific.

2. Responses to Past Energy Crises

In 1973–1974, and again in 1979–1980, globaloil supplies were disrupted and oil prices rosedramatically. At the time of the first shock,members of the Organisation for EconomicCo-operation and Development (OECD) con-sumed three-quarters of global energy produc-tion, and derived just over half of their totalenergy from oil.2 As a result of the oil priceshocks and deliberate government policies,

1. Sovacool and Brown (2010) compare indicators ofenergy security of OECD countries, and find that Demarkand Japan had the greatest improvements in security overthe period 1970–2007, while the United States and Spainhad the greatest decline in security.

2. IEA member countries are Australia, Austria, Belgium,Canada, Czech Republic, Denmark, Finland, France,Germany, Greece, Hungary, Ireland, Italy, Japan, Republicof Korea, Luxembourg, Netherlands, New Zealand,

Asia & the Pacific Policy Studies January 2014128

© 2013 The Authors. Asia and the Pacific Policy Studiespublished by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University

dependence on oil declined, especially in sta-tionary energy generation, and local energyproduction rose. Over the 1970s and 1980s,energy intensity measured by energy con-sumed per value of output in larger OECDeconomies, and especially oil intensity, fellsharply as a result of structural adjustment andimprovements in end use energy efficiency.

2.1 Diversification and Substitution

One of the most important tools to adapt to the1970 oil crises was active policies of substitu-tion and diversification in the power sector,driven by rapid oil price rises, fully transmittedto the sector, and in some cases active inter-vention. For instance, France was able toreduce oil use in its power sector by 90per cent over the period to 1990 by increasingits nuclear power generation some 20-fold.Japan reduced its oil use in its electricity gen-eration sector from more than 70 per cent in1973 to less than 10 per cent in 2010, while

more than doubling power output, throughrapid diversification into nuclear, then coal,and gas (see Figure 1). Italy dropped its oiluse from 70 per cent to just 6 per cent in itselectricity generation sector over the period1973–2010 using natural gas as the majorreplacement. All of these changes wereactively managed by national governments.

2.2 Removal of Price Controls and Subsidies

The removal of price controls and subsidies ondomestic oil and natural gas production inmany OECD countries was a key and success-ful response to the oil crises. This encouragedmore efficient end use of these commodities,plus stimulated hydrocarbon production ineconomies as different as United States(Alaska), North Sea (United Kingdom,Norway, Netherlands, Denmark) and Austra-lia. Subsidy removal and higher energy taxesstimulated investment, and market reformsencouraged infrastructure expansion in gas.

Government initiatives in terms of energyefficiency programs, mandatory standards forappliances and vehicles, and the promotion ofbest practice in building construction also con-tributed to lower growth in energy demand.

Norway, Poland, Portugal, Slovak Republic, Spain,Sweden, Switzerland, Turkey, United Kingdom and theUnited States. OECD member countries comprise all IEAmembers, and in addition include Estonia, Iceland, Israel,Mexico and Slovenia.

Figure 1 Japan’s Electricity Generation Fuel Mix 1973–2011

0.740 0.370 0.267 0.270 0.281 0.324

Notes: HHI = Normalised Herfindahl–Hirschman Index that has a value between 0 and 1.0. A value of 1.0 wouldindicate that only one fuel source provides 100 per cent of the energy inputs.

Source: IEA (2012b).

Cronshaw and Grafton: Reflections on Energy Security 129


Research and development programs helpedaccelerate these changes, increased fueleconomy in vehicles and contributed toadvances in coal mining techniques (such aslong-wall mining), and also the developmentof lower polluting combustion technologies.

2.3 International Cooperation andEnergy Security

As a direct response to the first oil crisis,OECD countries formed the IEA in 1974 topromulgate energy policy best practice, and tocoordinate oil stock releases. Its formationrecognised that individual country actions toseek new supplies at times of market shortfallwould result in self-defeating price spirals.IEA collective response actions are designed tomitigate negative impacts of sudden oil supplyshortages and have been deployed in 1991,2005 and 2011.

Over time, energy security has become lessfocused on oil and has come to include gas andelectricity security. As power supplies havebecome more dependent on gas, and the shareof energy fuel imports has risen in many coun-tries, gas security has received more policyattention. This has been accentuated by Euro-pean gas supply crises, first in 2006, and thenmore severely in January 2009 with the disrup-tion of gas from Russia.

2.4 Electricity Networks

The extreme dependence of developed econo-mies on continuous power supplies is illus-trated by the disruptions caused by blackouts(Farrell et al. 2004). For example, the January1998 Eastern Canada ice storm caused poweroutages to 1.6 million people and was Cana-da’s most expensive environmental disaster.City blackouts in major cities, such as NewYork, in 1977 and 1990 generated large costs,while regional blackouts, such as that occurredin northeast United States and Canada in 2003,or disruptions due to extreme weather eventssuch as Hurricane Sandy in 2012, cost billions.

Critical to enhancing resilience of powersystems is to manage generation and transmis-

sion networks as complex systems and tooperate them at below their critical loadings(Dobson et al. 2004). It has been argued that theresilience of electricity generation networkscan also be enhanced by distributed generation(Kahn 1979; Lovins & Lovins 1982) and byhigher shares of intermittent renewable sources(wind, solar). Such approaches, however,require greater interconnection, power storageor enhanced demand-side responses. Whileimproved power storage for intermittent energysources will assist, and is under development,at present higher shares of wind and solarcapacities in electricity grids are managed byincreased capacities of back-up plants. Typi-cally, these back-up plants are powered bynatural gas that creates additional risks shouldgas supply networks be disrupted.

3. Trends in Global Oil andEnergy Security

The geography and modality of global crudeoil and growth in energy consumption ischanging (see Figure 2). Non-IEA countriesrecently surpassed IEA countries in terms ofoil use, and the global share of non-memberswill increase towards 60 per cent by 2030 (IEA2011). Most new, non-OPEC oil output in thenext 5 years will come from North America,sharply reducing its import flows.

A key trend is the growing proportion of oilrefining closer to production, which will resultin more oil traded as a refined product. Refineryclosures in OECD countries, plus newly builtelsewhere, are expected to result in four globalcentres of refining: the United States centred onthe Gulf Coast, China, India and the MiddleEast. The concentration of refining capacity in asmall number of locations poses additionalsupply risks for countries that lack capacity inoil refining. Two recent large disruptions to oilsupplies related to natural disasters, the Japa-nese earthquake and tsunami of March 2011,and Hurricane Sandy in the United States,underline the vulnerability of energy systems.In both cases, no crude oil supplies were inter-rupted, butoil product delivery systems wereheavily disrupted, and this in turn affected gasand power supplies.



3.1 Unconventional Oil and Gas Extraction

In 2005, the United States imported over 60per cent of its oil needs, but had alreadybecome a net oil importer back in 1950 as aresult of steadily declining domestic oil outputand growing domestic demand. As shown inFigure 3, since the mid-1980s, US net oilimports climbed steadily, from around fourmillion barrels per day (mb/d) to 12.5 mb/din 2005, with conventional wisdom predict-ing that the trend would continue. In reality,US net oil imports have fallen to 7.5 mb/d in2012, and seem likely to continue to decline toaverage 6.1 mb/d in 2014 (EIA 2013).

Improvements in US oil security arebecause domestic oil and gas liquids outputhas grown rapidly from unconventionalsources, supplemented by biofuels, totalling10.4 mb/d early in 2013, while demand, whichpeaked in 2005, has continued to fall. Areassuch as the Bakken Basin in North Dakota,

where oil output was virtually non-existent atthe beginning of 2007, saw oil production risebeyond 700 kb/d by the end of 2012. Thisproduction is based on unconventional gasproduction techniques developed over 20years, but only widely deployed since around2009. Other countries are keen to progressunconventional oil developments as an energysource, notably China, but lack the long expe-rience that preceded the rapid build-up of gasand increasingly liquids output witnessed inNorth America (IEA 2012f).

IEA projections indicate that supply willcontinue to increase in the United States, asliquids output grows, driven by ongoing tech-nology improvement and deployment, and highoil prices, coupled with vehicle fuel efficiencyimprovements, drive demand lower. The com-bined effect of these likely developments is thatUS net oil imports are expected to fall to around5 mb/d by 2020 and 3.5 mb/d around 2030,about a quarter of the forecast demand.

Figure 2 World Primary Energy Demand: Per Cent Shares by Region—1980–2030

Note: Mtoe = millions of tonnes of oil equivalent.Source: IEA (2012a).



3.2 Asia-Pacific Oil, Gas and Coal Importsto Grow

For countries in the Asia-Pacific region, theenergy outlook is dominated by rapid eco-nomic growth that is expected to lift hundredsof millions out of poverty and increase oil andelectricity use. Among the 21 members of theAsia-Pacific Economic Co-operation (APEC),oil demand is expected to increase some 30per cent between 2010 and 2035, while elec-tricity demand and total energy demand areprojected to rise 80 per cent and 44 per cent,respectively, over the same period (APERC2013a).3 Greater private motor vehicle pen-etration, already observable in most of devel-oping Asia, will place greater strain onregional oil supplies as oil is expected toremain the primary fuel within the APECtransport sector and should still account for avery high proportion of domestic transportdemand in 2035.

Related to large increases in energy demandin many emerging economies in the Asia-Pacific region, oil import dependence is pro-

jected to grow (see Figure 4). In China, forexample, just over half of consumption is metfrom imports, and this is expected to be morethan 80 per cent by 2035, while imports areexpected to meet 40 per cent of its gas needs bythat time (IEA 2012a), with some forecasts ashigh as 60 per cent (APERC 2013b). Similartrends can be seen in all major energy userssuch that oil imports into APEC countries areprojected to grow by more than half between2009 and 2035 (APERC 2013a). In particular,India is expected to have 90 per cent oil importdependence before 2035.Association of South-east Asian Nations (ASEAN) member stateswill see increasing oil import dependence fromaround 35 per cent to more than 70 per centover the next two decades, although they shouldremain, in aggregate, net gas exporters.4

China and India have rapidly emerged alsoas large coal importers, initially of coking,but increasingly thermal coal. Although theshare of total use of these coal imports isrelatively small, the volumes are large.Increasing energy imports can be seen inalmost all energy-consuming regions, withthe exception of North America, the MiddleEast and Russia.

3. APEC economies include Australia, BruneiDarussalam, Canada, Chile, China, Hong Kong China,Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand,Papua New Guinea, Peru, Philippines, The Russian Fed-eration, Singapore, Chinese Taipei, Thailand, UnitedStates and Vietnam.

4. ASEAN member states include Brunei Darussalam,Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar,Philippines, Singapore, Thailand and Vietnam.

Figure 3 United States Net Oil Imports as Proportion of Consumption

Note: mb/d = millions of barrels per day.Source: 1985–2014 EIA, 2020–2030 IEA, 2012a.



3.3 Interregional Gas and Coal TradeWill Grow

Long-distance gas trade is likely to grow, withpipelines transiting multiple countries or vialong seaborne routes. Interregional gas tradeshould account for around a quarter of globalgas use by 2035, up from less than one fifthtoday. For Asia, such interregional trade will

rise to 30 per cent of gas demand comparedwith 6 per cent today (IEA 2011, 2012a). Morethan 40 per cent of China’s gas demand isexpected to be sourced via long distance trade,while India will import nearly half its gasdemand via long-distance trade.

Liquefied natural gas (LNG) is expected toaccount for a growing share of interregionaltrade. Total LNG trade can be expected to

Figure 4 Trends in Oil and Gas Dependency in Selected Economies 2010–2035



approach 500 billion cubic metres (bcm) before2020, up from 230 bcm in 2008 as a result ofmassive output increases in Qatar and Austra-lia. North American LNG supplies to the AsiaPacific are expected from 2016 onwards andwill diversify gas supplies in terms of origin,pricing and market liquidity (Bureau ofResources and Energy Economics 2012).

Increased coal imports into Asia byseaborne routes are expected over the nexttwo decades. China emerged as a large coalimporter only in 2009, after being a large netexporter as recently as 2005. Coal imports in2012 of about 235 million tonnes (Mt) werethe largest ever recorded by a single country,but still represent less than 10 per cent ofChinese coal demand (Cronshaw 2013). TheIEA anticipates that Chinese efforts to improveenergy intensity, and to diversify its powersector, are likely to reduce its thermal coalimports over the medium term. Nevertheless,coal will still dominate and is expected toaccount for over half its electricity generationby 2035 (APERC 2013b). India has also seen arapid rise in coal imports that now account forabout one sixth of its domestic demand, upfrom very low levels only 5 years ago. Thisincreasing import trend is expected to continue(The Energy and Resources Institute 2013),and before 2020 India could become theworld’s largest coal importer.

In summary, the Asia Pacific can expect tosee a rapid growth in the proportion of oil, gasand coal needs that are imported, generallyover longer distances, both overland andseaborne trade. While defining energy securityin terms of a single metric is inappropriate(Kruyt et al. 2009), greater import dependencewill bring increased risks to the region.

4. Alternative Fuels, Renewables andEnergy Efficiency

Three recent developments in terms of energysystems include the growing importance ofalternative fuels, stationary renewable energysources and energy efficiency. These develop-ments have been supported by governmentsfor both climate change mitigation purposesand to enhance energy security.

4.1 Alternative Fuels

Oil dominates road, sea and air transportation.The use of alternative liquid fuels, either gas toliquids, shale or coal to liquids, or biofuels,remains relatively small, although biofuelshave grown to around 2 mb/d of liquid fueluse, or around 1.8 per cent of global oil use.The United States accounts for around half thistotal, while Brazil and Europe represent muchof the remainder. About three quarters ofbiofuels are in the form of ethanol, made fromsugar, corn or other agricultural sources.

In non-OECD Asia, China is the majorbiofuels producer, with around 50 kb/d ofoutput, mostly ethanol. Indonesia and Thai-land are also major producers, and Indonesia isa large biodiesel producer, based on palm oil.By 2020, biofuels output in non-OECD Asiacould grow to around 200 thousand barrels perday (kb/d) from its current 120 kb/d, providinga useful supplement to crude oil demand thatis expected to reach 24 mb/d (IEA 2012b,2012e). Further growth in biofuels will requiregreater deployment of non-food feed stocksfrom agricultural wastes, such as straw, cornhusks, or non-food crops, such as grasses. Todate, progress in this technology has beenslow, and will probably depend on NorthAmerica and Europe demonstrating its feasi-bility. In Asia, agricultural residues are alreadywidely used as traditional biomass energysources, and arable land is both limited insupply and already used intensively. Thislimits the prospects of growth in the first orsecond-generation biofuel production in theregion.

4.2 Renewable Energy

It is widely believed that renewable energysources can increase energy security becausethey reduce the need for imported fuels. Nev-ertheless, the integration of a greater share ofrenewable power sources into power grids,such as hydro, wind and solar, creates newchallenges because they are dependent ontime of day and variable weather condi-tions (IEA 2013, p. 7). For example, wherehydroelectric power dominates, such as Brazil,



New Zealand, Norway and Tasmania, or whereinterconnection is either impractical or notavailable, the reliability of the power grid canbe compromised in periods of low rainfall.Solar and wind generation also requireback-up power in the form of energy storage,fast ‘start-up’ through electricity generatedfrom gas turbines, by greater spatial integra-tion of renewable supplies, and more respon-sive demand, such as through smart grids.

In some jurisdictions, capacities of renew-able energy sources are such that they can meet100 per cent of demand for periods of hours oreven days, but when wind or solar are unavail-able, power reliability is ensured by back-upgeneration. In turn, back-up power helps deter-mine the reliability of the whole system.Where such power is delivered by a reliabledomestic source, the system can be secure. Ifdelivered by systems that depend on importedmarginal gas or oil sources, the power systemwill only be as secure as those supplies.

4.3 Energy Efficiency

The United States shows that increasingsupply, coupled with efficiency policies, suchas vehicle efficiency standards, can substan-tially reduce oil dependency. Energy efficiencyalone, especially over the short to mediumterm, however, cannot eliminate energy risks.For example, Japan is one of the world’s mostenergy-efficient economies, but is virtually100 per cent dependent on imported energy.

Increased energy efficiency in electricitygeneration can help manage peak demand.These peaks may only arise for less than 100hours per annum, but still can impose severetechnical strains on electricity generationsystems to deliver a high-quality power supply,and are frequently associated with short-termblackouts. Peak demand also places severefinancial strains on network costs, raisingsystem investment demands in both generationand distribution in ways that raise electricityprices for all consumers.

Policies that effectively reduce peakdemand, through more efficient buildingdesign, more efficient appliances, peak ‘shift-ing’ with smart metering and arrangements

with large users to switch their time of usage,can markedly improve network security andlower network costs. Such measures can alsoimprove gas system reliability because gasis often the fuel of choice for generatingpeak power. While energy efficiency can gen-erate security gains, it is just one of a suite ofappropriate instruments, supplemented by tra-ditional risk management tools of diversifica-tion of supply and routes, redundancy, andenhanced network resilience.

5. Energy Risk Factors

Oil markets have been globalised for decades,and any major supply or demand shocksquickly become global in scope and impact. Asa result, the cooperative security mechanism ofthe IEA’s stock release program was created,and subsequently refined. Oil stocks held inIEA countries now amount to some 4.1 billionbarrels, of which 1.5 billion barrels is govern-ment stock held exclusively for emergency use(IEA 2012d); the United States alone holdsaround 700 million barrels of crude oil in itsStrategic Petroleum Reserve. These very largeIEA oil stocks are capable of supplying 2 mb/dfor 2 years, or 4 mb/d for 12 months, and rep-resent a large supply security buffer given thatglobal oil demand is around 90 mb/day.

IEA member countries are well aware of thegrowth in oil consumption in non-membercountries, and the need to involve other nationsin collective security measures. Emergencyresponse simulation exercises, a key tool fordeveloping and maintaining expertise to meetoil supply disruptions, have since 2002included participation from China, India andsome ASEAN countries. Any actual use ofemergency stocks, as occurred in 2005 and2011, involves close coordination with majoroil-producing states and with major oil usersnot in the IEA.5 Cooperative security arrange-ments facilitated by the IEA include ways toimprove the quality, completeness and timeli-ness of oil market data, and to enhance markettransparency and market functioning—key

5. IEA members in the Asia Pacific are Japan, Korea,Australia and New Zealand.



actions agreed to by G8 leaders in 2006 toimprove global energy security (see Appen-dix 1).

5.1 Gas and Coal Security

An examination of recent supply crises high-lights some valuable lessons in terms of gasand coal security. In the case of NorthAmerica, some 20 per cent of its gas supplywas disrupted for several months as multiplehurricanes, starting with Hurricane Katrina atthe end of August 2005, affected gas produc-tion, pipeline infrastructure and powersupplies which underpin gas delivery. Never-theless, despite the disruptions, the integratedand efficient North American gas marketresponded surprisingly smoothly to this supplyproblem, with strong price signals that resultedin storage drawdowns and fuel substitution,especially in the power sector.

Europe, with much less dense pipeline inter-connections than North America, and ones thatcannot be quickly reversed for physical or con-tractual reasons, was especially affected bytemporary gas supply disruptions in 2006 and2009 (Elkind 2010, pp. 134–7). In earlyJanuary 2009, when seasonal gas storage wasunder pressure and power demand was high,Russian gas supplied through Ukraine was cut.This, in turn, severely disrupted gas flows,especially to southeastern Europe. One of thebiggest contributors to alleviating the supplyshortage was stock drawdown in the UnitedKingdom, driven by rapid changes in pricedifferentials in differing parts of the Europeanmarket. Spot LNG purchases were alsoquickly mobilised to supply southern Europe.

Traded coal markets draw supply from keyexporting countries, including Australia, Indo-nesia, Russia, Colombia and North America.By contrast to gas, coal markets have proven tobe resilient to weather-related interruptions. Inpart, this is because users who rely on longseaborne supply chains routinely stockpilecoal close to consumption points, which ismuch cheaper than storing imported gas.Where substitution of coal and gas is feasiblewithin the electricity generation sector, coal

storage can act as a buffer to possible disrup-tions in gas supplies.

5.2 Electricity Security

The lessons learned from the power blackoutsof the early 2000s, seen in North America,Europe and Australia (Farrell et al. 2004; IEA2005), stress the importance of timely invest-ment throughout the energy supply chain. Inparticular, electricity generation investmentmust be matched to transmission and dis-tribution infrastructure. Multiple sources anddelivery paths as well as flexible marketmechanisms that can rapidly respond to dis-ruptions provide for greater energy security.

Greater spatial grid integration can bringimportant reliability and affordability benefits,but market design and control structures mustmatch. Geographically dispersed spatial gridscan also help in the integration of large inter-mittent renewable energy because a larger gen-eration area can smooth out variations in windand solar conditions while allowing for moreopportunities to provide back-up power andexport surpluses.

Diversity of electricity-generating optionscan provide greater security to gas, coal andeven oil supplies, where there is the possibilityof rapid fuel switching. By contrast, intermit-tent renewable energy sources can reduceflexibility especially if fossil fuels, such as gas,are needed as back-up. In the most securepower systems, variable renewable capacity ishandled through a mixture of generating flex-ibility, transmission, demand-side responsesand even power storage.

A major energy security challenge is theprovision of peak power supply. This isbecause of the increasing use of high-energydemand appliances, such as air conditioners,at peak times, and because peak pricingmarket signals are often absent. Demand-sideapproaches, based on large industrial users,have proven to be a cost-effective response tothese pressures. Managing peak demand alsorequires timely infrastructure investments andthe management of electricity generation gridsin ways that avoid critical loads (Dobson et al.2004).



6. Energy Security in the Asia Pacific

In the case of oil, Japan and Korea have actedto diversify their energy sources and supplyroutes, particularly in the stationary sector, andnotably in terms of electricity generation. Theywere pioneers in seaborne thermal coal tradeand LNG development, underpinned by long-term contracts that were required to cover thehigh capital costs of supply. Both countriesinstituted effective energy efficiency measures,including in the transport sector, throughsubsidy removal and taxation, along with regu-lation in vehicle efficiency and householdappliances. They have also participated in IEAcollective actions, recognising that oil securityis a global market issue, even when recent oilproblems were located in the Atlantic basin.Nevertheless, interconnection in power andgas market has been slow to occur in Japan,and this has reduced its security and flexibilityto natural disasters.

6.1 China’s Energy Security

China is the world’s largest consumer ofprimary energy, and has recognised thatdespite its large fossil fuel reserves and con-siderable renewable energy potential, it facesimportant energy security challenges (Cheng2008). China is expected to import two thirdsof its oil by 2020 and has established a systemof strategic oil reserves, initially 350 millionbarrels of crude oil, or around 50 days of netimports by the time of its completion laterthis decade. Its key national oil companies(China National Offshore Oil Corporation andSinopec) have built-up reserves and produc-tion overseas, collectively spending $92billion since the start of 2009 on the purchaseof oil and gas assets beyond China’s borders.While not an IEA member, China has partici-pated in emergency response exercises since2002. Fuel efficiency, electric vehicles, greatermass transit and railway systems are all beingpursued to lower oil use in the transport sector,although its transport energy demand is stillexpected to increase by almost 4 per cent peryear between 2010 and 2035 (APERC 2013b).

China’s power sector, the largest in theworld, is overwhelmingly coal-dependent(IEA 2012c). Partly in reaction to its growingimport dependence, its electricity generationsector is being diversified rapidly, althoughcoal is still likely to account for two thirds ofpower output in 2020. Diversification is beingpursued by expansion of non-coal energy pro-duction, including hydro, new renewableenergy sources, nuclear and gas, includ-ing unconventional gas. China has also setambitious targets to improve its energyintensity—or energy use per unit of economicoutput—and a carbon tax is currently beingtrialled for large emitters in particular loca-tions. Despite these efforts, its energy andcarbon intensity is expected to remain wellabove OECD best practice levels even by 2035(IEA 2012a).

Until recently, China met all its energyneeds from its own resources, but beginningwith oil around 20 years ago, and then extend-ing to gas and coal, imports are becomingmuch more important, with attendant securityconcerns. China’s rapid increases in car own-ership and growing per capita income will con-tinue the trend of increased oil use and oilimports.

China is addressing its energy security chal-lenges with vehicle efficiency standards, thepromotion of alternative fuels and electricvehicles, plus crude oil stockpiling. Its elec-tricity generation sector, long dominated bycoal, features massive new builds of gas,nuclear, hydro and new renewable sourcesintended to reduce the growth in coal con-sumption. New and more efficient coal-firedplants will also enable older, smaller, less effi-cient plant to be retired. Nonetheless, coal willremain the dominant fuel for power generationin China for decades to come.

6.2 India’s Energy Security

India is the world’s fourth largest consumer ofprimary energy. It faces similar energy securityissues to China in that it is becoming increas-ingly reliant on imported energy sources, espe-cially fossil fuels. It also urgently wants toprovide reliable, modern energy in the form of



electricity to a majority of its population thatrequires large investments to increase energysupplies and security.

To maintain its rapid growth trajectory,India will need to increase its primary energysupply by three- to fourfold over the next 20years (The Energy and Resources Institute2013). Oil imports currently account for about80 per cent of total demand and representabout one third of the total value of all imports.Increasing oil dependence is expected over thecoming decade. As a response to its increasingoil dependence, India has begun to establish astrategic petroleum reserve with the firststorage site of 1.33 Mt under construction,with an additional 4.0 Mt planned in the firstphase of construction. By comparison, Indiaimported over 170 Mt of crude oil in 2011–2012, an increase of 5 per cent from the previ-ous year, while domestic oil production some38 Mt in 2011–2012, which was some 18per cent greater than it was a decade earlier(The Energy and Resources Institute 2013).

Efforts to expand domestic energy sourceshave not been wholly successful. Offshore oilproduction is static, gas production is more orless unchanged over the past three years, andcoal output growth has slowed sharply. As aresult, India is becoming increasingly relianton fossil fuel imports. This represents anenergy security challenges given that collec-tively coal, oil and gas account for over 90per cent of the commercial Indian energysupply.

Coal production and imports illustrate thechallenge facing India in terms of its energysecurity. Coal accounts for over half of India’stotal energy supply and is the fuel source for56 per cent of the installed electricity genera-tion capacity. Total coal production in 2011–2012 was some 540 Mt. While productionincreased by about 6 per cent per year overmost the previous decade, it has failed tomatch the growth in consumption of over 8per cent/year. Further, in 2010–2011 and2011–2012, growth in coal production wasmuch less than in previous years, and was,respectively, 0.1 per cent and 1.4 per cent. As aresult, coal imports have increased rapidly,rising from about 25 Mt in 2002–2003 to some

100 Mt in 2011–2012 (The Energy andResources Institute 2013). While India hasvery large coal resources or some 300,000 Mt,only 40 per cent represent reserves, and of thisproportion about 60 per cent are located below300 m, which makes these reserves inacces-sible with open-cast mining techniques cur-rently employed in India.

The most pressing energy security issuefacing India is the need to match growth indemand in electricity with its generation.While installed capacity is rising rapidly, itgrew some 15 per cent in 2011–2012—thisincrease has fallen short of planned targetswhile the growth in network transmission lineshas been much less, or some 5 per cent in2011–2012. Despite improvements in electric-ity generation capacity, a total deficit betweenelectricity demand and supply of about 8per cent remains. Further, and in part due tothis deficit and deficiencies in network struc-tures, in August 2012 the temporary break-down in three of India’s transmission gridscaused blackouts and/or brownouts to hun-dreds of millions of Indians.

6.3 Japan’s Energy Security

Japan’s energy resources are meagre, andconcern about security of supply has alwaysbeen high in its energy agenda. Energy self-sufficiency is not possible, so efforts have con-centrated on a range of policy measures toensure reliable, competitively priced energy.

Diversification in the power and industrysector has been vigorously pursued, with arapid expansion of nuclear power and coaland gas use. Nuclear power peaked in 2010 at27 per cent of Japanese power output. Follow-ing the Fukushima accident and the subse-quent closure of most of Japan’s nuclearindustry, official government plans are puttingmore emphasis on energy efficiency andrenewable energy sources. In the interim,increased gas-fired power has been the mostimportant contributor in filling the energysupply gap. Energy efficiency has also beensuccessfully and widely implemented, withongoing improvements in energy intensity of



around 1 per cent per year between 1980 and2010.

6.4 Australia’s Energy Security

Australia’s geography precludes physicalnetwork interconnection with other markets,and its resource endowment has enabled it todevelop energy-intensive industries. In par-ticular, it has developed an important cokingand steaming coal export trade and a rapidlygrowing trade in LNG. By 2018, Australia islikely to become the world’s biggest LNGexporter (Bureau of Resources and EnergyEconomics 2013).

Demand for oil in Australia has increasedsteadily over the last decade, with three quar-ters of the use in the transport sector. Domesticoil production is declining and national refin-ing capacity is falling. As a result, a greaterproportion of oil and refined product demandis expected to be sourced from internationalsources, and in 2010–2011 over 80 per cent ofAustralia’s crude oil and other refinery feed-stock was imported. The refinery imports willbe met by drawing on international oil andproduct markets that are increasingly centredon Asia.

A near two-decade-long ongoing programof market reform in Australia’s energy genera-tion sector has encouraged large-scale infra-structure investment, and has linked previouslyseparate regions and provided both greatercompetition and increased reliability. As partof the reforms, previously isolated states, suchas South Australia and Tasmania, have beenconnected to national energy networks, withimportant cost, security and price benefits.

7. Reflections on Energy Security

Countries within the Asia-Pacific region varyenormously in their energy endowments, aswell as in their physical, social, cultural andeconomic backgrounds. Nonetheless, someobservations can be made on how energy secu-rity might be enhanced in the region despiteincreasing import dependence in oil, gas andcoal.

7.1 Energy Security Is Not Just about Oil

Increasingly, energy policy is directed atachieving a secure, reliable, competitivelypriced energy supply, with a sustainableimpact on the environment. In many cases,policies directed at improving energy securitycan produce positive environmental and reli-ability results. For example, improved vehicleefficiency can lead to improved environmentaloutcomes, while potentially reducing the costof transport in a cost-effective way. Removalof energy subsidies can result in a more effi-cient energy delivery system, while socialimpacts can be more effectively delivered inother ways. Diversification in the power sectorcan also increase the share of low carbon alter-natives, such as hydro, nuclear and new renew-able energy sources, noting that competitivemarkets may not always lead to low carbonoutcomes in the absence of a carbon price orrenewable energy targets.

7.2 Gas, Coal and Power MarketsNeed Attention

Gas and coal are key sources of stationaryenergy. Unlike oil, where substitution in termsof transport use is difficult, these fuels can besubstituted readily, especially within the elec-tricity generation sector. Increased globalisa-tion of the gas and coal markets and theirinterlinkages within the power and industrysectors requires greater attention to ensureresilient and robust supply chains.

7.3 Price Is a Powerful Signal of Scarcity

Prices are a powerful signal of the value of acommodity, including its security and environ-mental costs. Many consumers in non-OECDcountries have enjoyed subsidised prices thatcan result in inappropriate consumption pat-terns and investment choices. Where possible,subsidies and price controls for fossil fuels needto be removed while recognising social andequity concerns. To do otherwise will allowinefficient consumption patterns to continue,and stifle the long-term investment in supply



and efficient energy use that are the centralfeatures of secure, sustainable energy supplies.

7.4 Price Signals Also Need EffectiveSupplementary Policies

Markets and price signals are effective at allo-cating scarce resources within energy systemsto their highest value in use. However, exter-nalities associated with energy use, such ascarbon emissions, and actions that may notgenerate a return to investors, such as the pro-vision of information or basic research onenergy conservation and efficiency, are likelyto be underprovided. Coordination and effec-tive planning across competing energy suppli-ers and users are unlikely to be provided bymarket incentives alone. As a result, govern-ment policies to assist in basic research, theinternalisation of external costs, informationprovision, promotion of energy efficiency, andcoordination in investment and networks canimprove energy security.

7.5 Portfolio Management Is a Key RiskManagement Tool

Energy diversity is a proven approach tomanage risk, coupled with measures to stimu-late domestic energy output. Diversity in tra-ditional energy sources, supply routes andmode of supply can all improve resilience inthe energy sector. Non-fossil fuel and renew-able energy sources have a place in well-balanced electricity mix that can assist withgreenhouse gas mitigation, and also deliverimportant efficiency and environmental gains.

7.6 Sound Long-Term Investment PoliciesAre Important

Rapid growth in energy demand, and the needto rapidly augment existing supply sources andto develop new ones such as newer renewableand unconventional hydrocarbon output, arguefor stable long-term energy investment poli-cies. The long lead times for some parts of theenergy value chain, such as stock building,

nuclear power plants and long distance,complex gas pipeline or power transmissionlines, underline the importance of sound plan-ning and investment decision making to lowerrisk and to provide longer term stability.The enormous capital expenditures in bothmaintaining and expanding existing energynetworks also demand a stable business envi-ronment so as to encourage private investment.

7.7 Weather-Related Disruptions RequireCritical Infrastructure Planning

Greater connectedness poses energy risksarising from weather or natural disasters. Thus,there is a role for government in monitoringthe development of oil, gas and power infra-structure, identifying weaknesses that marketsmay not be addressing, and strengthening suchnetworks.

7.8 Energy Security Is Everyone’s Problem

Both seaborne and overland energy trade willgrow substantially within the Asia-Pacificregion, including oil, gas, coal and electricity.Oil markets are already global such that aproblem in one region can rapidly become aglobal challenge. This interconnectedness willdevelop for other energy sources. Thus, inter-national collaboration will become moreimportant in the coming decades. As theAsia-Pacific region becomes a more importantrefining centre, especially in China and India,the appropriate level of crude oil stocks heldclose to those refineries will need carefulconsideration.

Cooperation can provide multiple benefitsfor energy interconnection and transit acrosscountries. In turn, this can empower energyinvestment by, for example, enabling energysupplies, such as hydroelectric power to beused across the region. The closely integratedNorth American gas, oil and power marketsshow how important transit rules can be inpromoting affordable, reliable energy at a con-tinental scale. The European Energy Charter,established in 1991 to provide a multilateralrules-based framework for Eurasian energy



transit, is a useful starting framework for coop-eration in the Asia Pacific, as are the fora onenergy security initiated by APEC.

7.9 Emergency Planning and PreparednessPays Dividends

The release of oil stocks is one method ofresponding to oil supply crises. While theglobal nature of oil markets makes interna-tional collaboration essential, the use of stocksmust be transparent and credible to markets ifthe measure is to be effective. Advanced plan-ning and preparation on energy securitymechanisms, as well as the preparation ofmethods to deal with disruptions in otherenergy supplies, are also needed. Identifyingways to rapidly lower energy demand whileminimising economic damage are additionaland useful tools for managing supply disrup-tions, as is the identification of logistic, legaland other challenges to the supply chain.

7.10 Redundancy Costs but Has Value

Numerous examples exist of markets beingsupplied from a single gas or power sourcesuffering severe energy disruptions when thatsource fails, through network failure or byaccident. The evidence is that multiple supplysources, supplied through a resilient grid,will deliver a more reliable service, and canprovide a more competitive environment.These benefits help offset the additional costsassociated with investments in redundancy andback-up systems.

8. Conclusions

Complete energy self-sufficiency is not anoption for any country in the Asia Pacific, andincreased import dependency is expected formany. Greater energy trade and physical inter-connection, both within and between coun-tries, argues for greater regional coordinationand cooperation on energy security issues. Animportant part of this collaboration will beincreased transparency in market develop-

ments, investment, production, consumptionand stocks of key energy supplies.

The history of energy security shows thatwhile oil shocks remain an important risk, vul-nerabilities exist all along the supply chain,including gas and coal, and especially in elec-tricity generation networks. The only certaintyis that the energy future in the Asia Pacificwill be uncertain. Technology, the increasingdemand for better environmental outcomesand improved energy services will all driveglobal and regional energy markets in unpre-dictable directions. These uncertainties requireapproaches that support robust and resilientenergy networks, and that promote flexible andresilient energy systems and markets.

Market-based approaches are required toensure that energy prices reflect scarcity andexternal costs. If supplemented by carefullytargeted government interventions in terms ofresearch and development, information provi-sion, the coordination of energy networks, andcritical infrastructure planning, energy secu-rity in the Asia Pacific can be enhanced despitelarge projected increases in energy demand forthe region as a whole.

July 2013.

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Appendix 1: Summary of the StPetersburg Plan of Action on GlobalEnergy Security, July 2006

The G8 Leaders’ Declaration elaborated sevenkey action areas to improve global energysecurity.





http://www.eia.gov/energy_in_brief/article/foreign_oil_dependence.cfm



1. Increasing transparency, predictability andstability of global energy markets. Theimplementation of the then Joint Oil DataInitiative (JODI) was seen as a key practicalstep.

2. Improving the investment climate in theenergy sector. Better risk sharing wasidentified, with diversification betweendifferent types of contracts.

3. Enhancing energy efficiency and energysaving. Reducing vehicle fuel demand wasa high priority.

4. Diversifying the energy mix. Nuclear,renewables (including forests) and newtechnologies were highlighted.

5. Securing critical energy infrastructure,noted the interconnected and mutuallydependent nature of critical energy infra-structure, and its vulnerability to deliberateattack.

6. Reducing energy poverty, internationalfinancial institutions were identified ashaving an important role in alleviatingenergy poverty.

7. Addressing climate change and sustainabledevelopment, reaffirmed the previousyear’s Gleneagles Agreement, to stabilisegreenhouse gas emissions at levels thatprevent climate change impacts.



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bs bs banner - Australian National University · international conﬂicts. Disruptions to electric-ity generation networks in the form of cascad-ing blackouts have had devastating,