Asian Energy Markets over a 20-Year Period and Regional Cooperation Prospects

28.11.2017

The ability to connect energy markets in Asia will determine the future of the region’s energy sector in the next twenty years, say participants of the third session of the eighth Asian conference of the Valdai Discussion Club.

Speaking about the main trends in the Asian energy market, Taisuke Abiru, Senior Representative of the Representative Office of Japan Bank for International Cooperation in Moscow, noted that the main trend that we will observe in the next 20 years is a shift from long-term to spot contracts which will make the energy market more flexible. Another distinct trend for the next twenty years is a steep increase in demand for LNG in Asia, not only in China but also across ASEAN. According to Mr Abiru, Russia is looking at the lucrative Asian energy market, including in ASEAN, with the view of expanding the network of importers of its LNG. Russia is set to become number one LNG supplier in the region given its investment in a number of projects, including Yamal and Sakhalin plants by Gazprom and Novatek.

However, Vasily Kashin, Senior research fellow at the Center for Comprehensive European and International Studies at the National Research University - Higher School of Economics, believes  that we cannot identify the direction in which the Asian energy market will go. The structure of demand is rapidly changing, while the development of renewables and electric vehicles could oust traditional Asia suppliers from the market. Mr Kashin argued that security of supply will be an outstanding issue in the energy market. The demand in China will be so vast that the country will need to hedge its options by diversifying suppliers so that it wouldn’t be hurt if one large supplier falls through.

Mr Kashin agreed with Abiru in that LNG production expansion in Russia is an added benefit of its energy industry that will allow Russia to take its share of the Asian energy market. He noted, that Russia’s planning is currently based on the assumption that its traditional energy sources will last for decades. Restricted access to modern technology also means that the country will have to make up for it by ramping up production on existing oil and gas fields. Mr Kashin concluded that Russia’s ability to create a network of oil and gas pipelines could be a factor connecting Asian markets and could ultimately link Russia to South Korea and Japan.

Lee Jae-Seung, Professor and Associate Dean of GSIS at Korea University, spoke about a new energy normal that is likely to emerge in the next twenty years. According to him, Middle East and Russia, traditional suppliers for Asia, need to compete with North America and not with each other. He believes that the importance of OPEC suppliers will decrease in Asia over time, with local markets playing a bigger role in crude price formation. According to Mr Lee, South Korea is yet to be integrated in Russia’s energy equation. The idea of a land energy link between South Korea and Russia that has been floating for a while is still relevant but it will only become possible once there is a political consensus on the issue of North Korea.

Nandan Unnikrishnan, Vice President and Senior Fellow at the Observer Research Foundation in New Delhi, dwelled on the transformation of the Indian energy market with its booming energy demand that is set to grow by 50% in the next twenty years. He noted that the country’s energy sector is heavily dependent on fossils, indulging coal, which is the foremost obstacle towards the use of more efficient energy technologies. A notable trend in its energy policy is an ambition to de-risk its energy supply by hedging from the Gulf energy to supplies from North America. India is looking to increase its energy cooperation with Russia that has seen a remarkable increase in recent years. Russia, according to Mr Unnikrishnan, could satisfy the country’s power needs by further introducing nuclear energy to the country. He also believes that the Soviet-Indian mechanism of swaps through Iraq could be again employed to boost energy cooperation.

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