Expert Speak Terra Nova
Published on Feb 21, 2017
The power of power: Energy complexities in Asia  Introduction National quests for energy require potential power at every turn. Certainly this is true in 21st century Asia, where competition among buyers is fuelling a power transition which is transforming the region and beyond. This paper explains how Asian nations have made modest attempts to establish regional and sub-regional energy infrastructure and frameworks to (1) ensure they have stable supply of primary energy sources, especially oil and natural gas, and (2) distribute electricity through inter-state and regional grids or even via an Asia-wide super grid as a collective good. Yet, this paper argues, these supply networks and grid plans have so far been largely weak and ineffective. ‘Energy’ in Asia is still seen largely through the prism of national interest and resource nationalism, giving rise to intense rivalry rather than productive cooperation. Energy issues are shaped by, and themselves shape, historic animosities, inter-state territorial and maritime disputes, and a national race for regional and global leadership inherent in the great power transition reshaping the world. The challenge before these key actors, especially China, Japan, and India, is to manage their external energy needs effectively while pursuing political and strategic ambitions, but not disrupting the prevailing world order that has hitherto served their national interests. This discussion unfolds in four parts. The first two offer contextual overviews of the energy scenario in Asia and of some of the major cooperative frameworks and infrastructure developments. The third discusses energy geopolitics—inter-state rivalry and competition for resources in the context of greater militarisation and pipeline politics. The fourth part concludes with a discussion of difficulties current and future. Energy scenario in Asia Annual updates from international and regional agencies present somewhat different scenarios of global energy demand and supply, but all broadly agree that Asia will remain a site of rising demand over the next two decades as the continent appears set to remain the centre of gravity of global economic activity in terms of production, distribution, consumption, trade, investment, and infrastructure development.<1> Asia is of course not one single entity in any sense—political, economic, cultural or societal. For energy purposes, Central and West Asia (the Middle East) are net energy exporters while most countries in South, Southeast and Northeast Asia are net energy importers. Even among the importers, some, like China and India, have domestic energy sources, but which are insufficient to meet present and near-term demands. Others like Japan are almost totally dependent on imports. Among the net importers, level of demand varies considerably between ‘developed’ or OECD Asia, such as Japan and South Korea and ‘developing’ or non-OECD Asia, such as India, China and most Southeast Asian nations. Demand in developed Asia is steady and projected to rise only marginally because the economies of these nations show signs of low to moderate growth, while demand in developing Asia has risen exponentially and is set to grow substantially. While Asia is unmistakably a site of supply as well as of huge demand, the primary concern of the key players has been with meeting their energy demands. Therefore, buyer nations are the main focus of discussion here. According to BP’s Energy Outlook 2014, by 2035 Asia’s share of interregional energy imports will be 70 percent. Asia will then account for all growth in energy trade and India will have overtaken China as the world’s largest energy importer. Energy demands in industrialised countries in Europe and North America as well as in Japan will stagnate or even decrease through relatively reduced consumption and efficiencies. China, the report speculates, will take over from the United States as the world’s largest oil consumer by the 2030s, to be then taken over by India, which will become the largest energy consumer with the largest population and possibly the biggest economy. The 2016 Enerdata statistics already confirm China and India as number one and number three primary energy consumers, with the United States ranking second and Japan in fifth place with Russia fourth.<2> Thus, China and India appear to be positioned as the main Asian players in the global energy market for a long time to come. Overall energy demand in Asia will also come from other developing Asian nations, alongside stable demand from resource-poor developed Asian nations such as Japan and South Korea. The mix of energy sources in each nation’s total requirements or preferences will vary in the next decade and beyond, depending particularly upon national policy on climate change and development of nuclear and renewable energies. Even so, dependence on fossil fuels (oil, gas and coal) will remain substantial. Asia’s dependence on the Middle East/ Persian Gulf region will remain high for both oil and natural gas. Demand for fossil fuel energy is rising not only in China and India but also in Japan, especially since the March 2011 Fukushima nuclear disaster forced closure of the nuclear power plants on which Japan depended for 30 percent of its electricity requirements, highlighting the vulnerability of reliance on nuclear energy. Cooperative mechanisms Global agencies such as the International Energy Agency (IEA) have set norms and principles that member states follow. They maintain what they understand to be sufficient oil reserves to combat any crisis from energy shortage. However, such institutions are Western-centric. Until South Korea was admitted in 2001, Japan was the IEA’s only Asian member. Norms and principles of these Western institutions have not found traction in Asia-led regional institutions, as rule-based legalistic frameworks are usually not the preferred choice for Asian institutional designs. Instead, soft-rule institutional structures and the ‘Asian/ASEAN Way’ with non-binding commitments and respect for state sovereignty define institutional designs. Institutionalisation of energy cooperation has been slow to materialise, in particular because of the intensity of geostrategic competition between the major players as discussed below.<3> The main Asian institutional frameworks, such as the Association of South East Asian Nations (ASEAN), ASEAN plus three (APT), East Asia Summit (EAS), South Asian Association of Regional Cooperation (SAARC) and, more recently, the Trilateral (China, Japan and South Korea) Cooperation Secretariat (TCS) have dialogued on cooperation for sourcing and distribution of energy. But such dialogues make minimal headway. The Shanghai Cooperation Organisation (SCO), comprising China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan, has considered an “energy club” that Russia first proposed at the SCO’s foundation in 2001. Yet divergence among members’ strategic interests has prevented or at least stalled establishment of this cooperative intra-regional energy framework. Typical of virtually all attempts by regional institutions to establish some form of energy cooperation, each of the members pursues national interest and sovereignty-bound outcomes. This narrow focus makes reconciling their differences on energy matters, which are both intrinsically important to national economy and therefore to national security, unfeasible. Members find it virtually impossible to identify regional or subregional interests as the basis for multilateral action. It is bilateralism which usually defines energy-related agreements, but which also reduces members’ concern with identifying collective interests, and curbs their appetite for multilateral frameworks or sharing energy infrastructure projects. A regional power grid or even an Asia super grid could offer shared benefits to those connected to it, through assured supply and perhaps lower costs. But proposals for such a grid do not advance; all aspects of supplying and distributing power across the region concern issues of regulatory power that prospective national members find difficult to resolve. For example, ASEAN members have continued to pursue shared ideas and interests through ASEAN as a cohesive regional framework for the past 50 years and are also co-members of many other institutions. Yet even for them, progress on a transnational or an ASEAN-wide grid still remains limited, despite adopting a five-year plan for energy cooperation two decades ago. Similarly, in South Asia, SAARC member states signed a Framework Agreement for Energy Cooperation in the electricity sector at the 2014 SAARC summit, but tense interstate relations and disagreements on a range of divisive issues hosed down expectations of meaningful cooperation.<4> In Northeast Asia, in the aftermath of the Fukushima nuclear disaster, an Asian super grid to maximise use of renewable energy was proposed by a Japanese corporate leader in 2011 but the concept has barely developed since. Some question the need and have dubbed it “political fantasy.”<5> The Asian super grid plan was mainly proposed and intended to be funded by private capital, but such a project is unlikely to take off without political support of China, Japan and South Korea, countries whose relations are soured by ongoing historical distrust, current territorial disputes, and other tensions arising from power shifts through the regional/global power transition now under way. In these circumstances, it is highly unlikely that a rule-based Asia-wide energy institution will be formed anytime soon. At present, softer institutions subsumed under broader regional bodies, such as ASEAN, APT, SAARC and the TCS or even G-20, may be more appropriate forums for energy cooperation dialogue. As long as strategic rivalry and competition for energy remain the dominant features of interaction among Asian states, joint funding for sharing infrastructure and available resources seems like a pipe dream. Establishing energy infrastructure requires financial capacity as well as political will and vision. Most of the current proposals for energy pipelines, together with new roads and high-speed railway networks in the region, are led by China, through its One Belt, One Road (OBOR) initiative and strategic vision, supported by massive financial injections through the Beijing-led Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund. While China takes the lead in building regional infrastructure projects involving a large number of countries around its proposed overland belt and maritime road, it is not obvious how other countries will benefit from these projects. Clearly such projects give China access to vital resources including energy, as well as regional influence and prestige. Strategic competitors such as India and Japan are unlikely to endorse initiatives under OBOR as these don’t necessarily serve their respective interests, and in some cases even go directly against them. This is certainly the case of the economic corridor currently under construction that passes the disputed Kashmir area. On nuclear energy, another vital and emerging energy resource for electricity in Asia, it makes sense for nuclear nations to collaborate and share at least information and knowledge to advance the safety and security of both nuclear power plants and citizens. All regional members, nuclear-powered or not, have a vested interest in ensuring the safety of such plants, given the danger of nuclear fallout from any disaster. However, there are as yet no formal or informal arrangements in place, despite the obvious benefits of regional cooperation in this policy area. The complexity of national interests, needs, capacities and strategic perspectives, of the influence of domestic politics, and of the power dynamics and strategic manoeuvring that accompany them all, have both curbed and generally thwarted attempts at multilateral energy arrangements, let alone institutions, however informally they may be organised. Most energy-related deals are therefore conducted bilaterally. Each major player in Asia is trying to carve out, bolster, or retain its own sphere of influence in pursuing its energy security, whether in Africa, Central Asia, or, where Asian nations have traditionally secured their energy needs, the Middle East and Russia. Geopolitics of energy Energy as a commodity is by its very nature quintessentially political. Its vital role as a key enabler of national economic capacity gives it a deeply strategic edge, particularly through accessibility—supply and transportation/passage—and cost, making energy a hotly contested issue among all nations. Inevitably then, while Asia’s national energy players discuss multilateral cooperation in multiple fora and frameworks, in practice the Asian energy scene is marked by intense competition and geopolitical rivalry, particularly among the biggest buyers. Japan recognises it is strategically beholden to its alliance relationship with the United States; it thus follows its alliance partner even in pursuing punitive actions, including previously against Iran and most recently against Russia—actions that diminish its bargaining power with these crucial energy suppliers. China and India, the two major energy importers in Asia, do not have such constraints. China is largely unburdened by any alliance or ideational constraints and roams freely in the global market in pursuit of its needs, bolstered by its sphere of political influence and mostly positive reception to its moves to expand its economic sphere in some energy-rich parts of the world, such as in some African countries. In some isolated examples, Indian and Chinese companies have formed partnerships in their quest for energy in Sudan, Syria and Colombia, but the two nations generally compete. Tensions from competition in energy pursuits sometimes add fuel to more complex disputes around territory and political leadership. One such example is the escalating conflict in sovereignty claims over two long-disputed island groups in northeast Asian waters—between Japan and South Korea over the Takeshima/Dokdo islands, and between Japan and China over the Senkaku/Diaoyu islands in the East China Sea. Similarly, the South China Sea remains a volatile site of interstate disputes among a number of Asian nations. Strategic alliances, concerns about China’s ever stronger diplomatic muscle, and other geostrategic intrusions upon the international energy trade complicate energy diplomacy and have given rise to greater militarisation as energy importers seek secure supplies. For Asian nations today, energy security is intrinsic to national security: a threat to energy is a threat to the state. It is therefore not surprising that Asian powers are pivoting their defense resources towards naval strength. The continent’s dependence on the Middle East, and now increasingly also on Africa, for energy resources means that most of Asia’s trade in energy is still sea-borne. For instance, roughly three-quarters of Middle East oil exports are transported by sea to Asia through the Persian Gulf into the Indian Ocean, and then through the Malacca Strait into the Western Pacific to reach northeastern Asian shores. With political volatility of the region and chokepoints at both the Strait of Hormuz in the Persian Gulf and the Strait of Malacca in Southeast Asia, India and China are competing for influence in both the Indian Ocean and the South China Sea to guard against both traditional threats (the classic security dilemma) and non-traditional threats (terrorism and piracy). Some cooperative arrangements aim to secure safe passage of ships multilaterally, although increasingly the response to protecting against such threats has been militaristic in nature, leading to increased militarisation of the region. For instance, India aims to maintain its edge in the Indian Ocean as a vital trade route, especially for energy from the Middle East. China’s naval capacity is numerically superior to that of India’s; however, in the Indian Ocean, this superiority is negated by India’s geographic advantage. Indeed, India’s military modernisation is continuing to project power beyond its shores in the Indian Ocean and in its neighborhood—such as Sri Lanka and Pakistan, where China is now building ports and other facilities to secure energy resources. China has pursued its energy security objectives through a “string of pearls” strategy, establishing footprints in littoral and maritime states around the Indian Ocean and the Indian subcontinent, and more recently through the OBOR initiative. India’s answer to China’s Gwadar port in Pakistan is its collaboration with Teheran in developing the Chabahar port in Iran, effectively a pushback against China’s expansionist activity in the Indian Ocean. Djibouti, a small country on the northeastern coast of Africa, also exemplifies the growth of geopolitical and strategic competition through a greater military presence of a number of states. It has a deepwater port and its geostrategic position relative to the Middle East makes it an important location for global trade. It is estimated that some 20,000 ships, comprising 20 percent of world trade, pass through the port annually en route to their destinations in Europe, the United States and Asia. Given Djibouti’s strategic significance, Japan and China, as well as Western powers, are increasing their naval presence in and around the country. Japan has established a naval base in Djibouti and deployed long-range maritime patrol aircraft, enabling it to more effectively monitor not only the sea lines of communication (SLOC) to the Gulf of Aden that carry energy supplies, but also China’s deployment of warships to anti-piracy operations off the coast of Somalia. Japan has effectively used piracy against ships transporting its energy supplies to justify expanding the role of its Maritime Self-Defense Force and introduced a major reinterpretation in its constitution that expands the scope of its defence forces. Although constitutionally, it is still under military constraints, Japan is becoming increasingly active under pressure from the United States to take on a greater share of the burden. It is also driven by national interest to meet energy supplies, particularly since the 2011 Fukushima nuclear disaster increased national demand for fossil fuels China has recently announced it will establish in Djibouti a permanent military base that Beijing terms a support and logistic facility. Given China-Japan rivalry, it is likely that Japan will also increase its presence there to secure its interests. India, traditionally a strong player in Africa, now plays a smaller role, leaving New Delhi to essentially depend on the Japanese and US contributions to maritime security. Without cooperative frameworks for safe passage, including responses to piracy threats, Asian nations compete with each other to protect their interests, which propels greater military presence along the sea routes, especially in the Indian Ocean. This competition and rivalry to secure SLOCs and access to energy resources is likely to remain a feature of the region. The advent of the incoming Trump Administration in Washington from 20 January 2017 presents an element of uncertainty, and makes more intense strategic competition instead of greater cooperation a distinct possibility.Pipeline Politics Secure transport of imported energy resources is essential, and shipping is only one means. Another is overland and undersea pipelines. Most gas and oil from Central Asia is exported via such pipelines. Like shipping, reliance on pipelines is fraught with danger. Many pipelines have to transit through third countries, where the transit country may seek terms unattractive to the supplier and/or buyer. This leaves both sides vulnerable, particularly the buyer. So, too, does distrust among states, and the prospects of terrorism, sabotage and deliberate attacks on pipelines. Should these possibilities eventuate, they can cause enormous economic damage to both supplier and consumer countries through the disruption of flow of fuel and emphasising vulnerabilities. In Northeast Asia, the Japan-China rivalry, Japan’s vexed relations with South Korea, and lingering distrust between Japan and Russia in the absence of a peace treaty at the end of World War II have resulted in slow progress on oil and gas pipeline projects from Eastern Russia to Northeast Asia. Russia is also wary of China’s fast-growing economy and rising political assertiveness in the region, changes that could disadvantage Moscow’s relations with Eastern Russia and Central Asian states. Similar difficulties have arisen in building pipelines to China from energy-rich Central Asian states with which China has assiduously been building bilateral and multilateral relationships, particularly through the SCO. After years of negotiations, China now has pipelines transporting fuels from Turkmenistan and Kazakhstan. The China-Central Asia gas pipeline is under construction, though often hits snags because of the difficult geopolitics of a region in which Russia holds great influence. India’s efforts to bring oil and gas from Iran, Myanmar and Turkmenistan through overland or undersea pipeline projects have suffered similar setbacks, also because of interstate political distrust and historical rivalries. Distrust between India and Pakistan, and between India and Bangladesh has also stalled or halted pipeline projects or caused them to fail. Both China and India compete fiercely in seeking gas pipelines from Myanmar. India has a geographical disadvantage in accessing Central Asian resources as pipelines have to pass through Pakistan, India’s arch-rival. Friction between India and China in competing against each other to access resources from Myanmar has slowed progress on the Trans-ASEAN Gas Pipeline project. But so, too, has the lack of internal cohesion among ASEAN members. Although the Trans-ASEAN Pipeline was conceived in 1999 and is still under development, ASEAN members have repeatedly placed national interests before collective interest. Some pipelines have made significant progress as a result of interstate cooperation and convergence of agendas of other actors, such as multinational oil companies, banks and international agencies, but examples of successful cooperation are relatively rare.  Looking to the future Today self-interest and resource nationalism drive the geopolitics of Asia’s evolving energy landscape. There is little appetite for cooperative frameworks or for sharing resources—even technology (for example, in nuclear power generation), an area where all Asian nations could benefit from each other. Rivalry, suspicion, inter-state boundary disputes, trust deficits and mutual threat perception make it unlikely that Asian states will either want to or be able to create an institutional environment that looks at the question of energy outside the current zero-sum game. While large-scale conflict is considered unlikely in Asia, energy security is one area where tensions could increase, with far reaching consequences for international energy diplomacy and broader political relations. With its OBOR strategy and a leading role in the AIIB, China is set to significantly expand its influence in the region. China’s lead role could be a welcome development, as no other nation in the region has the money, capacity and wherewithal that China has today. But the problem is that the United States—still a critical actor in the region—and the other major powers in Asia continue to view China with suspicion. They recognise Beijing’s actions as essentially based on narrow self-interest without regard for other players, a problem which is made more complex by Beijing’s swiftly increasing clout. Until Beijing becomes more sensitive to the concerns of other Asian powers, or these other powers otherwise change their attitude towards China, strategic rivalry will define the regional political landscape and will unfold in a more aggressive form in securing and protecting the SLOCs so vital for energy trade in Asia and beyond. Meanwhile, dialogue and limited cooperative initiatives in such regional forums as ASEAN, APT, SCO and SAARC will continue, contributing to a confidence-building environment. But there is need for dialogue between and among major energy players in the region. Some observers have suggested a Shangri-La type energy dialogue, but it is unclear who will take the leadership role in creating a concert among energy players in Asia.<6>  Perhaps it is time to initiate an Asia-wide dialogue on energy. This article was originally published in ‘Raisina Files: Debating the world in the Asian Century
<1> US Energy Information Administrations, “Chapter 1 World Energy Demand and Economic Outlook,” in International Energy Outlook, 2016; International Energy Agency, Key World Energy Statistics, 2016. <2> Global Energy Statistical Yearbook 2016, Enerdata, <3> Purnendra Jain and Takamichi Mito, “The Institutionalization of Energy Cooperation in Asia,” in Asian Designs: Governance in the Contemporary World Order, ed. Saadia M. Pekkanen (Ithaca: Cornell University Press, 2016), 135-158. <4> The 2016 SAARC summit was cancelled in view of inter-state tensions. <5> Walt Patterson, “Why an Asian Super Grid is a Political Fantasy,” The Third Pole, May 31, 2016, <6> Mikkal E. Herberg, “U.S., Japanese, and Asian Energy Security in a New Energy Era,” NBR Special Report 51, 2015, 13,
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.