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.