Seminar on EU Russia Energy Relations
Aleksanteri Institute, University of Helsinki
Energy Outlook of Northeast Asia
and
Regional Energy Cooperation
June 9, 2006
Kensuke Kanekiyo
Managing Director
The Institute of Energy Economics, Japan
The Institute of Energy Economics, Japan 財団法人日本エネルギー経済研究所
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1.1 Oil Price Skyrocketing
1. Strong demand surge
US plus Emerging economies(China, India, Brazil)
2. Shrinkage of surplus supply capacity in upstream,
downstream and US gas & power market.
3. Speculation by money funds.
$/Bbl
80
70
60
Iraqi War
50
Hurricane
"Katorina"
General Strike
in Venezuela
Nigerian tumult
9-11 New York
Terrorist Attack
Yukos supply thretened
The Institute of Energy Economics, Japan 財団法人日本能源経済研究所
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May-06
Mar-06
Jan-06
Nov-05
Sep-05
Jul-05
May-05
Mar-05
Jan-05
Nov-04
Sep-04
Jul-04
Nov-03
Sep-03
Jul-03
May-03
Mar-03
Jan-03
Nov-02
Sep-02
Jul-02
May-02
Mar-02
Jan-02
Nov-01
Sep-01
10
May-04
Deterioration of Iraqi sequrity
20
Mar-04
30
Terroist attack on
Saudi oil sector
Jan-04
40
Iranian Crisis
Hurricane "Ivan"
WTI Futures at NYMEX
1
1.2 Energy Outlook of Asia
1. Japan: Leveling off while fossil energy consumption
decreases.
2. Developing Asia: More than double by 2030 as China’s
presence and import dependence greatly increase.
6000
Million toe
Actual <= => Forecast
Increase from 2003 to 2030
5000
1.5
Bill.toe
1.1
plus 3.1bill.toe
4000
0.0
Japan
Other Asia
13%
India
44%
China
6%
9%
Korea
Japan
0.4
0.1
Korea
28%
China
India
Others
3000
21%
2000
13%
38%
1000
8%
20%
0
1971
1980
1990
2003
2010
2020
The Institute of Energy Economics, Japan 財団法人日本能源経済研究所
2030
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April 2006, IEEJ
2
1.3 Energy Import Dependence
1. Coal is imported only by Japan & Korea. China is self-sufficient
on coal consumption and would not affect the world market,
though deteriorates environment seriously.
2. Oil and gas import dependence is high in Northeast Asia. China’s
oil import is expanding rapidly, casting serious security concern.
1200
MMTOE
NEA Total: 2.14 B toe (2004)
Hydro: 4.6%
Nucler: 4.9%
1000
Gas
6.1%
800
74%
600
400
Coal
53.1%
Oil
31.3%
Import Ratio
13%
70%
200
0
Coal
Oil
Production
Consumption
Gas
Net Import
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2.1 Petroleum Outlook of NE Asia
1. Oil consumption of Northeast Asia (13 MMBD in 2005)
will increase more than 5 MMBD by 2020.
2. Since China’ s domestic production would be more or less
leveling off, oil import will also increase by 5 MMBD.
MMBD
25
Total Oil Demand
20
Oil Import of Northeast Asia
20.4
18.1
18.1
15.4
15
16.4
China: Import
12.8
14.1
10
China: Production
9.4
China 4.0
IEA 2.2
Korea
5
Japan
0
1990
2002
2010
2020
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2.2 Middle East Dependency of Oil
1. Northeast Asia depends on the Middle East 3/4 of oil Import
2. This causes vulnerability of supply and other issues such as
the Asian Premium of the Middle East crude oils.
300
Million KL
Total Northeast Asia
Others:17.0%
250
SE Asia:8.9%
200
2004
8.9MMBD
ME:74.1%
ME Ratio
88.9%
150
100
ME Ratio
78.1%
50
ME Ratio
45.4%
0
2002
2003
Japan
2004
2002
2003
2004
2002
Korea
2003
2004
China
Source: National statistics
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2.3 Natural Gas Outlook of NE Asia
1. China’s gas demand was expected to grow fast to double natural
gas import of NE Asia by 2020, while
a. East-West gas pipeline has spurred natural gas consumption.
b. Switching to natural gas is expected to improve environment.
2. About 20 LNG terminal projects have been listed in China.
However, skyrocketing gas price may cause substantial delay.
450
400
350
300
LNG Equiv. Million ton
Natural Gas Import
2000 2020 2030
Low 73
114 143
High 73
190 240
High
Medium
IEA
250
China
200
150
100
Regional
Production
Korea
50
Japan
0
1990
2000
2010
2020
2030
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3.1 Status of Energy Cooperation
1. Institutions discussing on energy cooperation
APEC, ASEAN+3, SOM, Asia Pacific Partnership, etc
2. Active Projects only for Information Exchange
1) APERC (Energy Outlook and other research work)
2) JODI (Joint Oil Data Initiative)
3) RTEIS (Real-Time Emergency Information Sharing)
3. Candidate Energy Projects for Regional Cooperation
1) Joint Oil Stock Piling
2) Siberian Oil/Gas Pipelines
3) New Asian Oil Market
4) Rationalization of Energy Use / Energy Conservation
5) CDM/JI/ETS
6) Nuclear Power Development
No specific institution to talk
on Northeast Asian Energy Cooperation, yet !!
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3.2 Russia and Northeast Asia
Stranded oil & gas resources in eastern Russia will be
an important answer to energy security of Northeast Asia.
6000km
4000km
For Northeast Asia
2000 - 3000km
3000km
2000km
East Siberian Fields
For Europe
Over 6000km
West Siberian Fields
Caspian oil fields
(Major competitor for Russia)
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3.3 Potential Energy Flow
from Eastern Russia
East Siberian Oil & Gas Fields
(For Development)
Phase-2: Skovorodino - Perevoznaya
Distance: 2000km
Capacity: 1.6MMBD (Whole line)
Investments: $6 Billion
Completion: 2012?
Offshore Sakhalin Fields
(Under Development)
Mohe
Hydro Power
Branch Line ??
Phase-1:Taishet – Skovorodino
Distance: 2400km
Capacity: 0.6 MMBD
Investment:$ 8 Billion
Completion: End of 2008
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3.4 Petroleum Resources of Eastern Russia
Oil and gas reserves located in eastern Russia are yet
to be developed except those in Sakhalin.
Probable
Possible
Total
Billion Barrels
Billion Barrels
Billion Barrels
6.1
15.3
21.4
Krasnoyarsk & Irkutsk
4.1
14.8
18.9
Sakha Republic
2.0
0.5
2.5
4.3
5.6
9.9
10.4
20.9
31.3
Tcf
106.2
Tcf
91.6
Tcf
197.8
Krasnoyarsk Krai
22.2
23.0
45.2
Irkutsk Oblast
41.0
31.0
72.0
Sakha Republic
42.9
37.6
80.5
21.1
8.4
29.5
127.3
100.1
227.4
Oil
East Siberia
Sakhalin
Eastern Russia
Natural Gas
East Siberia
Sakhalin
Eastern Russia
Source: IEEJ World Bank Report “Northeast Asia Natural Gas Trade”
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3.5 Geology of Siberia
Geology of east Siberia is old, peculiar and difficult to interpret.
West-Siberian Basin
Siberian Platform
Siberian Trap
↑
↑
200 Ma – Present
Mesozoic – Cenozoic
clastics
250 Ma
Triassic basaltic Lava
↑
↑
540 - 440 Ma
Paleozoic clastics
Carbonate, salt
Lava flew out
Early Mesozoic
Siberian Platform
West-Siberian Basin
640 – 540 Ma
Vendi an carbonate,
Salt beds
Upper Proterozoic
1650 – 640 Ma
Rephean carbonate,
shale
Proterozoic
2000 –1650 Ma
Rephean basal sand,
Eroded/ weathered
basement surface
3000 – 2000 Ma
Archaen crystalline
Basement rocks
Bazhenov Fm.
Oil & Gas Fields
Present
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3.6 Implication of Russian Resources
Expected benefits of introducing Russian resources are
huge.
Russian Oil Export
Siberia
1.6MMBD
Sakhalin 0.4
Total
2.0 (12.5%)
NEA Oil Import
(2020): 16MMBD
1. Improving Demand/Supply Security
a. Diversify oil import source for NE Asia
b. Diversify oil market for Russia
c. New Asian oil market at Nakhodka
2. Introduction of Natural Gas
a. Life line for eastern Russia
b. Environment improvement for NEA
3. Improving regional security
through economic development
a. Develop east Russian Economy
b. Substantially increase trade
among Northeast Asian countries
c. Activate mutual investment
Russian Export to Northeast Asia
2003
2 0 XX
$44 Billion
2000MBD
50Bcm
$11.8 Billioon
130MBD
$1.4 Billion
ZERO
Natural Gas
The Institute of Energy Economics, Japan 財団法人日本エネルギー経済研究所
Oil
2003 Total
Export
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Oil & Gas
Export
12
4.1 Simple Principles to Apply
1. Role of public sector: Externality to improve 3E and 3S
1) Government role to realize huge social benefit
2) Various policy measures are available
2. Factor of Scale
1) Power of Scale: Demand security for suppliers
2) Economics of Scale: Lower cost for construction
300
Million KL
Power of Scale
Total Northeast Asia
Others:17.0%
250
SE Asia:8.9%
200
2004
8.9MMBD
ME:74.1%
ME Ratio
88.9%
150
100
ME Ratio
78.1%
50
ME Ratio
45.4%
0
2002
2003
Japan
2004
2002
2003
Korea
2004
2002
2003
Japan
Korea
China
Total
Crude Oil Ratio against
Import
1.6MMBD
MMBD
4.19
38.1%
2.26
70.7%
2.47
64.9%
8.92
17.9%
2004
China
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4.2 Pipeline Economics
1. Economics of Scale works greatly in long distance pipeline.
2. Pipeline tariff can be lowered by policy consideration,
such as long term credit, lower tax, or subsidy.
$/Bbl
Economics of Scale
Pipeline Economics
12.0
Pipeline Tariff: $/Bbl
12.00
Commercial Tariff
(ROE=12%)
10.0
10.00
8.0
ROE=7%
8.00
6.00
4.00
6.0
Profit
4.0
Tax 35%
5.3
Technical
Cost
Interest
2.00
OPEX
2.0
CAPEX
0.00
0.8
1.2
1.6
Pipeline Capacity:MMBD
1.9
0.0
10
15
20
25
30
Project Period
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4.3 East-West Dialogue
1. Supplier/Consumer Dialogue
x Energy development and transaction with Russia, CIS and
Middle East countries
x International cooperation and rational order in energy development
x Technology development, energy transit issues, etc.
2. Consumer/Consumer Dialogue
x Energy conservation and rational use
x Rational market design and government role
x Technology development
3. Global Energy-Environment System: Post Kyoto Protocol
x Participation of every stakeholders
 Integration of KP(Top-down) and APP(Bottom-up) approaches
x Harmonizing interests of developed and developing countries.
Thank You
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