Energy Security Challenges in the Indo-Pacific Region

Energy Security

Two key points

1. The best guarantor of energy security are open and transparent energy markets
2. Without open sea lanes there can be no energy security

• Want to discuss how these two pre-conditions are tracking in the Indo-Pacific

• Will do so from the perspective of one of the world's major energy suppliers
  • on track to be the world's largest exporter of LNG within a decade
  • second largest coal exporter/third largest uranium exporter
    • and a country which has been a key provider of energy security to Japan, China and ROK and hopes to become so with India

• The broader story of the Asia-Pacific is one of growing trade and economic integration and of trade liberalisation
  • and, by and large, the same trends apply to energy markets in the region

• Of course energy- like food- tends to be seen as more than a commodity
  • countries worry about energy security from a geo political point of view
  • it is a "life blood" commodity
  • there are historical examples of countries being cut off from energy supplies
  • and examples of others turning off the tap to make a geo political point

  these "psychological" factors need to be taken into account

• Overall energy markets in internationally traded goods in Asia have worked reasonably well
  • domestic markets are a different story, here distorted price signals, lack of transparency, sectoral impediments, behind the border barriers are all issues which need attention
  • well-functioning domestic markets are important for energy security
    • one element of the larger economic reform agenda which faces all of us
    • and which talk of the opportunities of the Asian Century sometimes masks

• There are also some signs that state interventions in the energy market may be on the rise
  • expansion of state-owned energy companies
  • domestic laws enabling governments to take control of energy assets in a crisis
  • new ASEAN arrangements where states agree to supply each other first in a crisis

• These are all understandable in their own term
  • but they do move to constrain open markets

• For the Indo-Pacific, as for other regions, the biggest risk to energy security is at the intersection of markets and geo politics
  • and this is an important point to bear in mind when we talk about the South China Sea

• The South China Sea is a crucial sea lane for energy security
  • almost 1⁄3 of global crude oil/over 1⁄2 of global LNG
  • China depends on South China Sea for 80% of crude oil imports

• Clearly, anything which interrupts sea borne trade through the South China Sea could have large implications for energy security

• Not suggesting we are anywhere near that point now
  • no one has an interest in blocking sea lanes
  • all of us are dependent on open sea lanes

• But it is precisely because the consequences are so large if sea lanes are blocked that we must ensure we never get even close to the point where any country would consider such a step

• In short if we want energy security in the Indo-Pacific we must reduce geo political risk
  • that is why it is important that we embed into the strategic culture of the region certain key principles
    • the respect for international law
    • refraining from coercive behaviour or unilateral steps which could escalate tensions
    • in short the very principles which are set out in the Declaration on the Code of Conduct in the South China Sea

• It is also important to explore ways of addressing resource exploitation even if sovereignty claims remain unresolved
  • we live in a resource hungry time and the South China Sea is potentially resource rich
    • by some estimates 2.5 billion barrels of oil and 25 trillion cubic feet of gas

• This is not uncharted territory
  • there are precedents for joint development which is not contingent on resolving sovereignty claims (Australia has done this with Indonesia and then East Timor)
  • and the Antarctic Treaty is another fine example of setting aside sovereignty claims to focus on cooperation- although not mining

Conclusion

• The Asian economic success story has been built on two pillars
  • economic policies which look outward, value integration and take advantage of global trade flows
  • strategic stability which has given countries with the right policies the breathing space to grow

• We are as dependent on these two pillars now as in the past

• Energy security sits at the intersection of the economic and the geo political
  • it is best served by open energy markets and a strategic culture and practices built around ensuring stability at a time of great churn