"Economic Development and the Environment"
on the Sakhalin Offshore Oil and Gas Fields II

Copyright (C) 1999 by Slavic Research Center, Hokkaido University.
All rights reserved

The Russian Far East and Northeast Asia:
Aspects of Energy Demand and Supply Cooperation

Victor D. Kalashnikov


An Overview of Energy Demand and Supply for Northeast Asia
Northeast Asia (NEA), which in this report covers China, Japan, South Korea, North Korea and the Russian Far East, is one of Asia's most dynamic sub regions. With the exceptions of North Korea and the Russian Far East, the region has demonstrated spectacular economic growth at various times for over four decades. As a consequence, the region's economic growth was accompanied by explosive growth in energy demand despite energy consumption's low GDP elasticity.
NEA's economic development over the past 15 years has been accompanied by a constant increase in the region's share of global energy consumption. In 1985, NEA's share of global energy consumption slightly exceeded 14%; in 1997 it almost reached 20%.
Global and Northeast Asian energy supplies are heavily dependent on commercial non-renewable fossil energy sources (hard and brown coal, crude oil, condensate, natural and liquefied natural gas). Fossil fuel consumption continues to increase despite periodic oil price shocks, government energy efficiency policies, and debate on the environmental problems associated with carbon/nitrogen/sulfur/solid waste-related fuel combustion.
Table 1 shows commercial energy consumption figures for NEA and the rest of the world. In the figures for global energy sources, oil remains prominent at nearly 40 percent - down more than 5 percent from its 1970 share while natural gas' share rose from 18 percent in 1970 to more than 23% in 1997.
Table 1. Energy Consumption in Northeast Asia and the World, 1997* (Unit: million tonnes of oil)

* 1997 figures from BP World Energy Statistics, 1998, (except for North Korea and the RFE). 1996 North Korea figures from D. Von Hippel, and P. Hayes, 1997. Demand for and Supply of Electricity and other Fuels in the DPRK: Results and Ramifications for 1990 through 2005. Nautilus Institute for Security and Sustainable Development, Berkley, California, USA. 1997 RFE figures from Khabarovsk Economic Research Institute (ERI).
** including biomass and charcoal.
Coal, with a 27 percent share, remained the second-largest energy source. Nuclear power rose spectacularly from 0.4 percent in 1970 to 7.3 percent in 1997, combining with hydro to account for 10 percent of global energy consumption.
The NEA region, in contrast, has been heavily dependent on coal for many years. At present, coal accounts for nearly 51.5 percent of the region's total energy consumption, followed by oil at 34.5 percent and natural gas and LNG at only 5.5 percent, while nuclear power and hydroelectricity constitute 6.5 percent and 1.5 percent respectively. It should be noted that the high percent of coal use in Northeast Asia is due to China, which accounts for 55 percent of the region's energy consumption and 80 percent of the region's coal use.
Within Northeast Asia, each country's energy demand and supply situation is unique. Oil accounts for more than half the total commercial energy consumption in Japan and South Korea. Oil and natural gas*1  resources exceed 65 percent of total energy consumption in Japan and South Korea. However, both countries have a near total dependence on imported fossil fuel energy (Table 2). North Korea produces and consumes a relatively large percent of coal, and also a sizable portion of non-commercial fuels such as biomass and charcoal, but the country is completely dependent on imported oil. The country also needs to import a certain amount of coal for its steel industry. North Korea is the only country in the region which does not use natural gas at all.
There are substantial differences between the amounts and patterns of energy consumption among the Northeast Asian countries. Picture 1 shows that the region's members' energy consumption levels vary substantially. The countries with relatively high levels of per capita energy consumption, in contrast, have low GDP energy intensity parameters.
The amount of energy reserves each country possesses differs strongly. As shown in Table 3, North Korea, and especially Japan and South Korea, lack primary fuel reserves, having only substantial confirmed coal reserves. In fact, no substantial oil and natural gas reserves have been discovered in these countries. If the Russian Far East is not taken into account, China is the only energy resource-rich country in the region. China is the region's only country that has a relatively balanced energy consumption/production structure, although its energy consumption is heavily dependent on coal. Since 1993, China has been a net oil importer, and experts predict that the country will soon join the ranks of Japan and South Korea as one of Northeast Asia's major oil importers.
Table 2. Actual Imports (+) and Exports (-) of Energy by NE Asian Countries in 1995 (Unit: Million Tonnes of Oil)

* Estimates for 1996.
Source: North Korea figures from D. Von Hippel, and P. Hayes, 1997. Demand for and Supply of Electricity and other Fuels in the DPRK: Results and Ramifications for 1990 through 2005. Nautilus Institute for Security and Sustainable Development, Berkley, California, USA. Other figures from K. Fujime, "The Long-Term Energy Outlook for Northeast Asia" in Russia's Eastern Energy Policy and Integration Problems in the Energy Sector of the Asia-Pacific Region. Conference Proceedings, Irkutsk, Russia, 1998.
Table 3. Confirmed Energy Reserves in Northeast Asia (For the end of 1997)

* Data for the end of 1994.
Source: BP Statistical Review of World Energy; ERI.
Table 4 provides an overview of projected scenarios for future energy use among several different countries. For each prediction, the table shows the average annual growth rate of commercial energy consumption from the early 1990s (base years vary among the groups) projected until 2010.
The results of various national and international scenarios for regional energy development vary somewhat, however, the overall pattern of stable growth in energy use is uniform. The region's predicted energy consumption growth rates are lower when compared to actual rates from the past period.
Table 4. Projections for Commercial Energy Consumption in Northeast Asian Countries (Annual average growth rates from early 1990s projected until 2010, %)
Source of Projection China Japan South Korea North Korea
Institute of Energy Economics, Japan
East-West Center, USA
RAINS-Asia
3.5
3.6
4.5
1.8
1.7
1.8
3.4
3.4
5.0
5.3
Source: P. Hayes, and D. Von Hippel. 1997. "Regional Approaches for the Cooperative Development of a Clean, Efficient Electric Power System" in Regional Economic Cooperation in Northeast Asia. Proceedings of the Seventh Meeting of the Northeast Asia Economic Forum. Edited by Mark J. Valencia. Hawaii Asia-Pacific Institute. K. Fujime, 1998. "The Long- Term Energy Outlook for Northeast Asia" in Russia's Eastern Energy Policy and Integration Problems in the Energy Sector of the Asia-Pacific Region. Conference Proceedings, Irkutsk, Russia, 1998. F. Fesharaki, S. Banazak, and Wu Kang. 1998. "The Outlook for Energy Supply and Demand in Northeast Asia" in Energy and Security in Northeast Asia: Supply and Demand; Conflict and Cooperation. Policy Paper # 36, February 1998. IGCC. University of California.
It is obvious that each country's energy policy and energy demand-supply outlook is influenced by a variety of factors and national priorities. In NEA countries as a whole, most energy consumption will continue to be derived from fossil fuels. In structural terms, the leading NEA energy consumers (Japan, China and South Korea) intend to diversify their energy sources, although coal and oil will remain their primary energy sources. According to a forecast by the Institute of Energy Economics of Japan (IEEJ), these countries share a similar policy of increasing their atomic energy*2  use (Table 5). For example, in Japan, the IEEJ predicts the amount of energy supplied by nuclear energy will increase from 15.5 percent in 1995 to 19 percent in 2010; in South Korea, from 12 percent to 17.5 percent, respectively for the same period. Within these countries, however, increased reliance on nuclear power faces obstacles over the issue of appropriate locations for nuclear reactors and opposition among the general public.
Table 5. Energy Supply Projections in Key Northeast Asian Countries (Energy supplies and annual average growth rates from 1995 through 2010, %)
  Coal Oil Natural Gas Hydro Nuclear Total
China
1995
2010
AAGR

75.5
65.6

18.9
24.0

1.8
3.9

2.0
2.7

0.4
2.3

100
100
2.6 5.2 8.9 5.7 16.1 3.5
Japan
1995
2010
AAGR

17
17.5

53.9
44.8

10.6
14.7

1.5
1.7

15.4
19.0

100
100
2.0 0.5 4.0 2.9 3.2 1.8
South Korea
1995
2010
AAGR

20.2
21.5

61.8
49.2

5.7
11.5

0.3
0.2

11.9
17.6

100
100
3.8 1.8 8.4 -1.4 6.1 3.4
Source: IEEJ.
According to estimates by a number of national and international research groups, in the 21st century NEA energy consumption patterns will be affected by an increase in natural gas use. As noted by Fesharaki, Banzak, and Wu Kang*3, Fujime*4, Hirata*5, Sui Shuo Bao*6, natural gas will account for a larger share of the region's energy consumption. According to their estimates, between 1995 and 2010, natural gas consumption will increase as follows:
in China - by 705%
in South Korea - by 330-360%
in Japan - by 180-215%.
For the entire NEA region (taking into account the Russian Far East) natural gas consumption will rise spectacularly, with usage doubling in 2010 to more than 250 billion m3 (compared to 104 billion m3 in 1997).
Another key aspect of the region's projected growth in energy use is the shift in energy import patterns. The key NEA countries' dependence on energy imports will persist in the future and even grow (Table 6). Despite the increase in the use of atomic and hydro energy in the region, as well as increases in the production of coal, oil and natural gas in China, the "total energy production/consumption" balance in Japan, South Korea and China is predicted to be negative. Of particular concern is China's projected shift over the first decade of the 21st century from being a fairly small net importer of oil in 1995-1997 to being a rather large net importer, second only to Japan. Also, Chinese experts predict that China's natural gas imports will rise to South Korean levels in 2010.

Table 6. Import (+) and Export (-) Projections of Primary Energy by Key NE Asian Countries in 2010
Source: K. Fujime, 1998. Institute of Energy Economics of Japan. "Long term Energy Outlook for Northeast Asia. In: Eastern Energy Policy of Russia and Problems of Integration into the Energy Space of the Asia-Pacific Region." Proceedings of Conference. Irkutsk, Russia. M. Hirata, 1998. Asian Pipeline Research Society of Japan. Prospects of Natural Gas Demand in Asia Based on Advanced Power Generation Technologies to Reduce CO2 Emissions. In: Eastern Energy Policy of Russia and Problems of Integration into the Energy Space of the Asia-Pacific Region. Proceedings of Conference. Irkutsk, Russia. Sui Shuo Bao, 1998. National Petroleum Company of China. Perspective Plan of the Chinese Gas Industry Development. In: Eastern Energy Policy of Russia and Problems of Integration into the Energy Space of the Asia-Pacific Region. Proceedings of Conference. Irkutsk, Russia.
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