Report: U.S. Needs Coherent Strategy on Asia Energy Security

Report: U.S. Needs Coherent Strategy on Asia Energy Security

BY MICHAEL CINELLI
Rice News Staff
April 15, 1999

The United States should construct a coherent policy on matters of energy security
within the Asia-Pacific region and assist with the formation of regional institutions
that encourage cooperation among Asian nations to counter tendencies toward
competitive military buildups, recommend authors of a research report released
today by the James A. Baker III Institute for Public Policy of Rice University.

"Such cooperation can enhance Pacific security and the peaceful resolution
of territorial issues," the researchers added. "The United States
should take an active role in engaging China in this process."

The publication of "China and Long-Range Asian Energy Security: An Analysis
of the Political, Economic and Technological Factors Shaping Asian Energy Markets"
completes a yearlong study by researchers from Rice, Harvard University, Texas
A&M University and the Petroleum Strategic Studies Institute. The project
includes 11 papers as well as an executive summary that contains specific public
policy recommendations.

Copies of the research report will be distributed to policy makers in Washington,
D.C., and Asian nations that will be affected by the development of China’s
economy and its energy sector early in the next century.

"China is a society in flux," wrote Amy Jaffe, senior energy analyst
at Rice’s Baker Institute and research project coordinator, in the executive
summary accompanying the papers.

"The country’s political, legal and economic institutions have all undergone
major shifts over the past 25 years and are likely to see further transformation.
In particular, China’s government faces extraordinary challenges and excruciating
choices in promoting sustainable growth that is important to bolster its long-term
legitimacy," Jaffe continued. "China’s energy sector is one of the
key areas in which dramatic change can be expected in coming years."

Among the findings contained in the report:

Total primary energy consumption in China could grow from 916 million tons of
oil equivalent (mtoe) in 1995 to 1,405 mtoe to 1,774 mtoe by the year 2010 and
1,762 mtoe to 2,691 mtoe by 2020. While the bulk of China’s energy demand will
continue to come from industrial activities for the foreseeable future, the
transportation sector is beginning to represent an increasing share of total
energy use. In fact, at a per capita Gross Domestic Product (GDP) growth rate
of 5 percent, energy demand in the transportation sector is projected to triple
by 2015, fueling a sharp increase in oil and petroleum product use.

The implication of China’s shift to a world energy importer are significant.
During the next 10 to 20 years, China will have to participate in international
energy trade on a substantial and sustained basis, form energy supply and transportation
alliances, and make security and environmental choices about fulfilling its
burgeoning energy needs. These alliances and trade and policy options will be
constrained by the unwieldy organization of China’s oil and gas industry and
by the aged and inefficient refining and distribution infrastructure that exists
in China today.

China sees itself both as an emerging gas market and a land bridge for regional
gas distribution. A natural gas-oriented energy strategy could provide incentive
to China to give serious consideration on how to improve relations with neighboring
countries. But in order for joint energy linkages and large-scale, cross-border
energy projects to succeed, distrust surrounding China’s long-term geopolitical
goals will have to be overcome.

Subgroups of social groups, special interests and civil society are providing
a rich texture to China’s relations with the United States. In the longer run,
these underlying layers will have a deep influence on the development of U.S.-China
relations.

China should make development of natural gas resources a key priority of its
national energy policy. The United States should encourage and assist China
in enhancing its natural gas industry as a means to diversify away from heavy
reliance on coal. The U.S. Department of Energy should be supported strongly
in its efforts to provide information and assistance about natural gas market
regulation, operation and development. Western government and non government
agency support and trade credits should be provided to energy companies that
invest in major gas infrastructure projects in China.

"U.S. policy-making toward China should be coordinated at a high level,"
Jaffe states in the executive summary of the research report.