A scramble for energy resources?

A scramble for energy resources?

Asia's Deadly Triangle: How Arms, Energy and Growth Threaten to Destabilize Asia Pacific

By Kent E. Calder

Nicholas Brealey Publishing, London, 1996,

253 pages

SINGAPORE: In a recently published book, Asia's Deadly Triangle, Princeton University's Kent Calder has raised the specter of a future energy "gap" developing in East Asia in the next few decades.

Calder's basic thesis is that if the region's rate of economic growth is sustained at around current levels there will be increasing competition for oil and other non-renewable energy resources. This may lead to supply bottle-necks, cost increases, or both, which will increase tensions among energy deficient states scrambling for a diminishing and more expensive share of the energy cake.

Calder points out that the levels of energy dependence in North-east Asia, already high, are rising. Japan relies on imports for 88 percent of its primary energy supply and 90 percent of its oil. South Korea has an even higher level of energy dependence than Japan, North Korea has no oil at all and Taiwan has major energy vulnerabilities.

The situation in South-east Asia is more complex. Thailand, Cambodia and Singapore are major energy importers. Vietnam, Laos and possibly the Philippines are likely to be future modest net exporters, while Malaysia and Indonesia are significant suppliers of energy, mainly to the Asian region.

But here again the overall energy picture is worsening, Calder argues, because of sky-rocketing domestic demand, high energy exploration and development costs, political and strategic uncertainties associated with some economically exploitable energy deposits, and a decline in recoverable oil reserves.

However, the really bad news on the energy front is that the production of oil from Indonesia, the region's largest oil supplier, is falling, while domestic demand in Indonesia and East Asia's other emerging economic giant, China, is soaring.

Indonesia's oil production has fallen steadily since the late 1970s and it will become a net importer shortly after 2000.

The situation in China is even bleaker. Although possessing substantial reserves of its own and, having been a significant oil exporter as recently as 1990, China's energy balance deteriorated so quickly, thereafter, that by 1993 it was being forced to import oil, mainly from the Middle East. Energy experts predict that China will be importing as much oil as the United States by 2015.

Calder makes two important points about these developments. The first is that because China accounts for nearly a quarter of the world's population its thirst for energy threatens to create either an energy gap, or at least introduce major uncertainties into the market.

The second is that East Asian energy demand is focused to an unusual degree on oil. Alternative energy sources may be able to fill some of the potential gap in supply. However, the high level of regional oil dependence, allied with problems and costs linked to alternative sources of power - solar, geothermal, LNG, coal and nuclear - will limit oil's substitutability.

Is Calder right? Like all forecasts of this kind, Calder's arguments rest on a number of assumptions about aggregate energy supply and demand which are open to interpretation.

If regional economic growth slows significantly, or the market responds more quickly and effectively than Calder anticipates to rising East Asian demand, then the forecast energy gap, like the "missile-gap" of the 1960s, may prove to be illusory.

Calder's assessment that the demand for oil in China will rise from 600,000 barrels a day to three million a day by 2010 is not contested, but some oil industry analysts believe that future global production is sufficient to meet this level of demand without major disruptions in supply.

Yet he does make compelling reading. His basic energy demand forecasts are supported by several authoritative studies, and his skepticism about finding economically viable and environmentally acceptable substitutes for oil is well founded.

There is also little doubt that China's latent potential demand for energy has the capacity to profoundly affect world oil markets, even if the impact and time frame is difficult to forecast precisely.

The issue transcends simple supply and demand calculations. If the perception develops that shortages are possible, the level of economic and strategic uncertainty will rise, and governments and the market will react accordingly.

If oil prices rise, richer countries such as Japan will be much better placed to compete on international oil markets than East Asia's less wealthy economies. Should the rises be substantial, then growth may be significantly impaired, particularly among the region's less developed states, with obvious implications for social and political stability. One other point which Calder touches on, but could have developed more, is that certain kinds of energy usage will incur growing environmental and political costs.

Coal and nuclear power are two notable examples. Coal, while relatively abundant, is polluting and a primary source of greenhouse gas emissions, which are directly linked to global warming.

Nuclear power, on the other hand, produces no greenhouse gases but has an environmental image problem and is politically contentious, domestically and internationally, because of past nuclear accidents and waste disposal problems.

These factors will complicate future energy usage and exacerbate the energy vulnerabilities of East Asian states.

-- Alan Dupont

Alan Dupont is the Director of the Asia-Pacific Security Program at the Australian National University's Strategic and Defense Studies Center.