Written by Lauren McKee.
Assessing energy security in East Asia requires an understanding of geopolitics as well as the individual economic, national, and environmental security interests of actors in the region and beyond. However, considering that developing countries in Asia account for two-thirds of global energy growth and two of the three largest economies in the world—China and Japan—are located there, issues of energy security in East Asia will be of importance to global security in 2018.
The IEA anticipates that by 2040 one-third of solar and wind capacity will be in China, and the country’s choices in the next few years will play a large part in determining global clean energy trends.
To understand energy security in East Asia in 2018, we must understand at least three emerging energy trends.
(1) Changing Roles of Producers and Consumers
Global energy demand is expected to increase almost everywhere in the coming years, but nowhere as drastically as in East Asia. China is the world’s largest energy consumer, solely accounting for 23 percent of global consumption. Additionally, the International Energy Agency reports that energy demand in Southeast Asia has grown more than 60 percent in the last 15 years and is currently growing at twice the pace of China.
Currently, 73 percent of Persian Gulf oil exports go to the Asia Pacific, satisfying roughly 50 percent of the region’s energy demands. The rest is made up from a combination of exports from Africa, central Asia, and internally traded oil and gas from countries like Indonesia and Malaysia. Saudi Arabia sends roughly two-thirds of its oil to East Asia, while some countries, like Iran and Qatar, send between 85-95 percent, according to some calculations. While this arrangement has mostly worked for East Asian consumers in the past—barring maritime tensions in trade route choke points such as the Strait of Hormuz and piracy in the Strait of Malacca—consumption patterns in producing countries may change key energy exporting capabilities. Saudi Arabia alone, a country with increasing urbanisation and industrialisation, has seen its oil consumption increase roughly 40 percent since 2005.
Though spokespeople for the Persian Gulf producers have affirmed the region can continue to supply Asia in the coming years, it is clear that many countries in Asia are keen to diversify their supply baskets. If this trend increases, China and other major consumers may not only have to, but may want to, look for alternative sources of oil and gas imports in the coming year.
Alternative suppliers could possibly be found in the United States and/or Russia. In 2017, the U.S. exported energy at a record high, largely due to the success of the hydraulic fracturing boom. China increased its crude oil imports from the U.S. from 8.3 million barrels (mbs) in 2016 to 63.4 mbs in 2017, buying more than the U.S.’s northern neighbour Canada for the first time. Similarly, oil production in Russia reached a post-Soviet high in 2016, and China and Russia have signed various framework agreements to strengthen energy cooperation ties between the two countries.
While this move toward supply diversification won’t happen overnight, it is a trend to watch in 2018.
(2) Renewables are gaining ground
Much of the discussion of energy security tends to revolve around fossil fuels since they are the sources consumed at the highest levels. However, the environmental repercussions of high fossil fuel use, especially coal consumption, has begun to take its toll on public health and air and water quality in developing countries. In 2018 and beyond, we will see rapidly increasing investments in environmentally friendly renewable energy sources, especially in electricity generation in much of East Asia.
The IEA reports that renewables will capture 40 percent of global power investment through 2040, led by China and India. This will include increases in solar and wind power and decreases in coal and nuclear produced energy. Most of these renewables will be used to produce electricity as more citizens in developing countries are connecting to the electrical grid. In Southeast Asia, electricity demand is expected to more than double in the next five years, mostly from the residential and service sectors. One area where electricity will make less progress is in the transport sector, which is still largely fuelled by oil. However, China, a country with a growing middle class, many of them car owners, will account for more than 40 percent of investment in electric vehicles through 2040.
Though renewables are expected to account for nearly 40 percent of electricity growth through the next year, renewable energy sources still make up a small fraction of global energy consumption. As with the previous trend, a global switch to renewables certainly won’t happen instantly, but its growth in East Asia in particular may be an indicator of future global energy trends.
(3) China’s Energy Revolution
Tied to the second point are important changes in China’s energy policy. President Xi Jinping has recently called for an “energy revolution” consisting of three major points. First, China plans to decrease its energy consumption by increasing its efficiency and reliance on electric vehicles. Secondly, China plans to broaden its energy mix by reducing its excessive reliance on coal and increasing its capacity for clean coal, gas, oil, nuclear, and renewable energies. Finally, China plans to increase the efficiency of its operating plants. To this end, China has recently announced plans to implement a carbon emissions trading scheme that would become the largest of its kind, eclipsing the ETS of the European Union.
China’s new energy policies will have at least two potential consequences. First, if China invests as extensively in renewable energy technology as it plans, it could be responsible for a much faster energy transition globally. The IEA anticipates that by 2040 one-third of solar and wind capacity will be in China, and the country’s choices in the next few years will play a large part in determining global clean energy trends. Second, since the U.S. has withdrawn from the Paris Climate Agreement, China is positioning itself as the global leader on fighting climate change, a move that may increase its soft power appeal globally.
Geopolitically, 2018 will also likely see China continue to turn away from energy exports via potentially risky sea routes through the Malaccan Strait and the South and East China Seas and increase its investment in on-land trading routes. This will strengthen the Iran-China-Pakistan-Russia axis. As has been noted elsewhere, the Iran-Pakistan pipeline is already completed, and China is keen to finish the Pakistan-China connection, though that will take time and is dependent on security issues within Pakistan. As a part of the much bigger new Silk Road plan, China is expected to soon complete its leg of the second East Siberia Pacific Ocean Pipeline which would connect it to Russian crude oil with an annual capacity of 15 million tonnes. This pivot toward South and Central Asia makes political sense for China, considering it has historically good relations with Iran, Pakistan, and Russia.
In sum, 2018 will see a continuation of energy trends already in motion in East Asia, though persistent low oil and gas prices may complicate these trends’ progress. Although oil prices have risen, they are likely to remain far below their highs. The lower oil and natural gas prices are, the less investment goes into alternative energies, all other things being equal. Coal will be a region-wide loser as environmental policy comes into effect, and nuclear energy will remain in place as a stop-gap measure between fossil fuels and renewable energies. Geopolitically, energy trading will continue to shift from maritime trade routes to on-land pipeline routes. While this is meant to solve many of the transport security issues of the route between the Persian Gulf and East Asia, pipelines pose their own set of political and security issues, even when the pipelines connect countries that are traditionally allies. Finally, it seems China, the world’s largest energy consumer, has recognised the environmental and economic costs of heavy fossil fuel use. This may hasten the global clean energy conversion, and poses an opportunity for China to step into a global leadership role in combatting climate change in the absence of American leadership in this arena.