Six Steps Toward Increased Energy Security in Asia Pacific

By Kang Wu, Fereidun Fesharaki, Sidney B. Westley and Widhyawan Prawiraatmadja

HONOLULU (Aug. 25) — Concerns about energy security affect economic performance and political stability all over the world, but nowhere are these issues more critical than in Asia and the Pacific - and oil is at the heart of the region’s energy challenge.

Countries in Asia and the Pacific already consume around three times more oil than they produce, and consumption is increasing twice as fast in the region as in the world as a whole. With less than 4 percent of the world’s proven oil reserves, the region has few options to increase or even maintain current levels of domestic production, and efforts to diversify to other types of energy, such as natural gas or renewable energy, have achieved only limited success.

Oil consumption in the region could be reduced by eliminating inappropriate government intervention in oil markets, removing price distortions and allowing market prices to reflect the true cost of oil. Tax benefits and incentives should be designed to encourage the use of energy-saving goods and services, such as hybrid automobiles, and to support increased use of renewable energy. In addition to these “carrots,” policymakers will need to introduce “sticks” such as higher taxes on excessive energy consumption and higher mandatory standards for automobile fuel efficiency.

Yet the possibilities are limited. Given the region’s growing populations, expanding transportation needs and rising expectations for a better standard of living, the demand for oil can only go up. The result is a steadily growing dependence on imported oil, largely from the volatile Middle East.

This is no doubt cause for concern, but a number of policy options can help governments improve the security of their oil supplies and, in the long term, bring oil supply and demand into better alignment. The following policy measures could make a significant contribution to energy security in the region:

1. Initiate joint ventures with oil producers.

Over the years, a number of governments and private companies in Asia and the Pacific have invested in oil exploration and production outside the region. Conversely, governments and companies from oil-producing regions have invested in refining and marketing enterprises in Asia and the Pacific. Such joint investments have created equity partnerships that foster reliable flows of oil, enhancing energy security for Asian and Pacific consumers and revenue security for producers.

Joint projects could be expanded to include construction or expansion of oil-storage facilities in the Asia Pacific region. Middle Eastern companies possess substantial oil-storage facilities in Europe and the Caribbean but little in Asia or the Pacific, despite the high volume of oil exported to the region. Atlantic Basin oil producers might find regional storage facilities particularly beneficial to save on transport costs through economies of scale.

Joint ventures could be especially effective in four areas: exploration and production projects;

refineries and retail operations in the Asia Pacific region in cooperation with key oil producers; shared storage facilities; and joint infrastructure, such as pipelines, ports, and terminals. While government support is crucial, each investment project has to make economic sense to survive.