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Implications of Asia’s Rising Energy & Resource Nationalism

Friday, 6 May 2011, 9:20 am
Speech: US State Department

Asia’s Rising Energy and Resource Nationalism: Implications for the United States, China and the Asia Pacific

Remarks
Robert F. Cekuta
Deputy Assistant Secretary, Bureau of Economic, Energy and Business Affairs
The National Bureau of Asian Research (NBR) Energy Security Conference
Washington, DC
May 4, 2011

Good morning. Let me begin by expressing my appreciation to Meredith Miller, Bryce Wakefield, and NBR for inviting me to speak this morning about the critical issues of energy and resource security in Asia. I would also like to recognize Mikkal Herberg for giving us a strong basis for today’s conference in his paper titled Asia’s Rising Power and America’s Continued Purpose.

As Mr. Herberg’s paper notes, if Asia continues its current growth trajectory, the region will likely account for nearly ¾ of the growth in the expected growth in world oil demand between 2008 and 2030. With those countries’ oil imports from outside the region approaching 30 million barrels per day, we are looking at a figure that would account for just a bit less than the total current production of all OPEC countries.

There are similar trends when one looks at figures for Asian imports of coal, gas, ores, rare earths, and other resources. The numbers, however, represent something extremely important and positive – economic growth and expanded prosperity for hundreds of millions of people in the region. At the same time, though, they raise questions about how best to promote sustainable growth, not just for the economies of Asia, but the world as a whole.

Secretary Clinton has noted often that much of the history of the 21st century will be written in Asia. The region’s influence is growing and holds the key to our shared future. Asian countries are vital partners in a growing and more prosperous global economy. Their opinions and decisions have profound influence from Latin America to the Middle East and Africa on addressing complex and emerging transnational challenges, like energy and resource security, climate change, and transition to a low carbon economy. I doubt anyone in this room would disagree that it is essential to our long-term national interests that the United States remains true to its identity as a Pacific power.

On our economic engagement with Asia, let me highlight two significant bilateral strategic dialogues. Next week, we will hold the third round of the U.S.-China Strategic and Economic Dialogue, led by Secretary Clinton and Secretary Geithner, to continue pursuing a positive, cooperative, and comprehensive relationship with China. As Secretary Clinton has stated, “we are firmly embedding our relationship with China within a broader regional framework because it is inseparable from the Asia-Pacific’s web of security alliances, economic networks, and social connections.”

Later this year, at the third round of the U.S.-India Strategic Dialogue led by Secretary Clinton, we will continue to advance what President Obama has stated is a “defining partnership” with India – “bound by shared interests and our shared values.” The United States has also played a leading role in helping discussions move from the G8 major industrialized economies forum to the improved G20 forum, which reflects today’s global economy and recognizes the importance of the emerging Asian economies of China, the Republic of Korea, India, and Indonesia.

Within this context of a rising and prosperous Asia, one with which the United States wants and needs to be closely engaged, let me turn to the conference’s theme of Asia’s rising resource demands and the increasing nationalism by some countries to pursue needed energy and resources for energy security and economic growth. On issues of energy and resource security, the United States is pursuing a comprehensive strategy for cooperating with the Asian region – bilaterally, regionally, and multilaterally – with three key elements:

a) Energy and resource diversification,
b) Market-based solutions and increased transparency, and
c) Enhanced bilateral, regional, and multilateral cooperation.

Energy and Resource Diversification

First, there is no getting around the reality that energy and resources are vital for today’s economies. The world runs on energy – natural gas, coal, oil, nuclear, biofuels, wind, sunlight, or hydro. Energy is not a luxury; instead, as noted in the State Department’s Quadrennial Diplomacy and Development Review (QDDR), it is essential for economic growth. Energy is needed to run factories, to support agriculture, and for transportation. It is essential for human development, whether in terms of enabling a child to do her homework, to connect to the Internet and communicate, or to have a warm home and food on the table.

The growth in energy demand may slow or even decline in the developed industrialized economies, but demand for energy will likely skyrocket in China and India, just as it is expected to rise in other emerging market and developing countries – many of which are in Asia. China is expected to account for over one-third (36%) of the projected growth in global energy use, with demand rising by 75% between 2008 and 2035. Today, China accounts for 17% of global energy demand; by 2035, it will account for 22%. India is expected to account for about one-fifth (18%) of the rise in world energy consumption by 2035.

By comparison, the OECD developed industrialized economies, from which the IEA has drawn its membership, now account for less than 50% of global energy demand. When the IEA was established in 1974, these countries accounted for 75% of global energy demand. Propelled by rising populations and, perhaps more importantly, brisk economic growth in developing countries, there are those who wonder whether the increasing energy demand could outpace our capacity to produce and deliver needed energy supplies. Dire predictions have been around the energy world for decades, but the rise we are seeing in non-OECD energy consumption represents a watershed event. The developing (rather than the developed) world is expected to account for the lion’s share of global energy demand growth for the next several decades. These figures underscore an important truth – we will need to engage emerging economies, not just OPEC members, as influencing our energy security now and into the future.

To promote energy security and to be assured of access to other resources, we will all need to work with key Asian countries – traditional close allies like Japan and the Republic of Korea and the emerging powerhouses, such as China and India.

An essential aspect of promoting energy and resource security internationally as well as here in the United States is working towards greater energy and resource diversification. For the United States to lead this effort in Asia and globally, we must also lead at home. On March 30, President Obama outlined a comprehensive national energy policy called the Blueprint for a Secure Energy Future. As part of the U.S. plan, the Administration aims to cut dependence on oil imports by one third by 2025. To achieve this target, the President focused on the consumption side of oil, particularly in the transportation sector, which accounts for 70% of U.S. petroleum consumption. Steps outlined strengthened fuel efficiency standards for cars and trucks that will save 1.8 billion barrels of oil. Other steps include acting so that all purchased federal cars, one of the largest fleets in the country, will be hybrid or electric by 2015.

Moreover, the Administration has committed over $80 billion in clean energy technology through the Economic Recovery Act. However, the Government recognizes traditional fossil fuels will still be required, even as we make the transition to cleaner alternatives. The Administration looks, therefore, to boost oil supply through increased offshore drilling with appropriate safety regulations. Since access to oil alone is no longer synonymous with energy security, the Administration is supporting environmentally sound development of huge potential natural gas supplies, including through extraction from shale rock formations.

The United States is also developing stringent efficiency standards for appliances, buildings and motor vehicles, setting reduction targets over the next decade and providing incentives to help meet them. Similarly, we are making efforts to encourage energy efficiency beyond our borders, particularly with China and India, through our joint cooperation on clean energy research centers and through the International Partnership on Energy Efficiency Cooperation (IPEEC).

Like other countries, Americans cannot achieve energy security on our own. We need to engage emerging markets and developing countries, finding ways to include them in mechanisms that develop and maintain strategic petroleum stocks, foster understanding of the importance of sound investment regimes, and other aspects of market-based systems that can develop and supply needed oil and gas, and also supply new, innovative low carbon and other clean technologies. The United States is strengthening relationships with the future group of energy and resource producers. In 2009, the State Department launched the Energy Governance and Capacity Initiative (EGCI), which provides a wide range of technical assistance to the governments of some of the world’s next generation of oil and gas producers, helping them build the financial and regulatory capacity essential to manage these resources responsibly for their long term development and resource needs.

We are also taking a lead on helping to diversify energy sources through our robust clean energy cooperation. Under the President’s Global Climate Change Initiative, a wide range of U.S. government agencies are working together to accelerate the deployment of clean energy technologies and mobilize private-sector clean energy financing. This effort includes multilateral programs like the Clean Technology Fund, and dozens of regional and bilateral programs. The United States also launched and participates actively in the Clean Energy Ministerial process, an annual series of meetings devoted to accelerating the transition to clean energy technologies. To date, this process has served as a catalyst for important initiatives on carbon capture, electric vehicles, energy efficiency, smart grids, hydropower, solar, and wind.

With both India and China, our energy and climate change cooperation includes comprehensive MOUs for working together on clean energy development and deployment, and climate change mitigation. To promote cleaner energy, particularly in the developing world which relies so heavily on coal, the State Department has launched the Global Shale Gas Initiative (GSGI) to help countries assess their shale gas potential and provide regulatory guidance on its development. Under GSGI, the U.S. Geological Survey (USGS) will complete at least two additional resource assessment workshops in China and India, and release the results of the shale gas resource data analysis. State has also set up visits of technical experts from China and India as part of a U.S. Trade and Development Agency reverse trade mission. In 2010, the Department of Energy hosted the 5th U.S.-China Energy Policy Dialogue and the 10th U.S.-China Oil and Gas Industry Forum, bringing together government and private industry.

Indeed, natural gas has tremendous potential to help Asian countries and the rest of the world meet energy needs over the next 25 years. Even though China will depend heavily on coal to generate most of its electrical power, efforts are under way to increase the share of natural gas, nuclear power, and renewable energy. China is now one of the world’s fastest-growing liquefied natural gas importers, embarking on a major expansion of its gas pipeline infrastructure. As China develops policies and regulations to promote greater and more efficient use of natural gas, it can not only have a significant and beneficial impact on global energy security, but also on cleaner energy and reduction of greenhouse gas emissions goals.

We support a the continued safe expansion of nuclear energy as clean energy – including our long-running cooperation with China and incipient cooperation with India – while we all take a look at the lessons of the Japan’s nuclear emergency. Let us remember too, that cleaner energy is essential for helping us meet the challenges, not just of providing needed energy, but of mitigating greenhouse gases and climate change.

Asian countries – and the rest of the world – are looking not just at access to energy, but at questions about affordable access to metals and other commodities as well. Businesses and consumers seek secure access to these resources at a reasonable market price. Access to rare earth metals has been in the news, particularly since China’s dispute with Japan over the Senkaku Islands and China’s consolidation of its rare earths industry. While the action last fall was short-lived and had limited economic impact on the United States and other countries, it raised questions in the press about whether we could continue to take the availability of these metals, essential for computer and telecom technology and some clean energy technologies, for granted. A reduction in overall production coupled with an increase in domestic demand does not increase global energy security.

China may produce over 90, perhaps over 95% of the world’s rare earth metals, but China only has approximately half of global reserves. Therefore, progress continues to be made in bringing on-line additional mining and processing capacity in the United States as well as in Australia and Malaysia. I also have seen reports of South Africa looking to open mines and processing facilities for these metals, and it seems highly likely the new technologies coming on-line for processing will be more efficient and have reduced environmental impacts. Moreover, it is important to remember, resource diversification will also need to include new technologies and substitute materials that can provide alternative means of meeting growing market demand.

Market-based Solutions and Transparency

This brings me to the second element of the United States’ strategy on furthering energy and resource security – market-based solutions and increased transparency. In examining the drive for resources as Asian economies develop as well given continued demand in other parts of the world, it is essential to work to boost transparency in energy markets. Indeed, increased transparency will help reduce price volatility and encourage the move toward well-informed, functioning markets driven by international standards of supply diversity, moderate prices, and fair competition.

One way we have already done this is through the G20. Within the G20 framework, countries have pledged to reduce inefficient fossil fuel subsidies and to promote transparency in energy consumption and supply data. These efforts are crucial to reducing market price volatility and removing market distortions and barriers to trade. While some in the Chinese government have argued against more transparency, claiming that it aided speculators, the experience in the United States and elsewhere has repeatedly demonstrated that transparency allows market actors to make sound economic choices. With the growing demand for energy and resources to fuel economic growth and rising populations, it is critical that we work with the Chinese, Indians, and others in Asia and around the world to provide more timely and accurate production, consumption, and stock data for improving the functioning of oil markets and avoiding excessive price volatility. We are promoting global standards of data collection, analysis, and forecasting with China and India through bilateral cooperation with the U.S. Energy Information Agency. Multilaterally, we are working through the IEA and similar bodies to assist government officials with data training and opportunities to work in these organizations The U.S. is also setting the example for improving oversight of financial and energy-related markets through efforts by the U.S. Congress and the Commodity Futures Trading Commission (CFTC) and working with the International Organization of Securities Commissions (IOSCO) to harmonize approaches internationally.

As President Obama has stated, while we work towards making the transition to renewable sources of energy, we will still need traditional energy sources of oil, gas, and coal. This involves both supporting investment in existing markets and seeking to open up new markets. Most here would probably agree that global players like China and India should make safe investments for their resource demand and not invest in countries like Iran or Burma. We have discussed with their governments that their energy and resource security goals would be better served in other countries that can provide a reliable return on investment and help ensure reliability of resource supplies.

As Secretary Clinton has stated, we are encouraging the Chinese to “embrace internationally recognized standards and policies that ensure transparency and sustainability” while noting that Beijing’s activities have raised serious concerns in places such as Africa. Over the last decade, China has signed a string of multibillion-dollar deals to build highways, schools, hospitals, and other infrastructure while securing rights to African minerals and oil reserves. Sino-African bilateral trade has grown steadily at impressive rates since 2002, topping $115 billion last year. South Africa’s Standard Bank projects this trade to reach $350 billion in 2015. Chinese aid to African countries has grown so much in recent years that it has already surpassed aid provided by the World Bank. We welcome China’s commitment to development assistance, and we would like to work more closely to have common standards and approaches. For the United States, we think Africa will provide up to one-third of our total energy needs in the next decade. For China, too, Africa is an important source of oil, gas, and minerals. So it is in the interest of our mutual economic and resource security goals and of Africa’s development objectives.

Also, a key part of our message on market-based solutions is that countries, meaning both government and private sector actors, should consider making value-chain based investments in the energy sector, rather than foreign equity investments. Let me explain. In the oil sector, a value-chain investment includes putting financial resources in exploration and development, unconventional oil, refining, tankers, and pipelines. Some may argue growing equity production is essential to ensuring affordable and reliable supplies of energy; however, experience shows the international market will remain the main source of oil imports. Related to this, investments in new pipelines will also be important for the Asian region to diversify supplies, promote regional development, and realize the energy security countries in that part of the world seek.

Enhanced Bilateral, Regional, and Multilateral Cooperation

Turning to the third element for furthering energy security and cooperation with Asia, enhanced bilateral, regional, and multilateral links, let me highlight some of the key forums within the Asia region to promote resource security. Bilaterally, we have key energy and climate change dialogues with China, India, Japan, Indonesia, and other countries. These fora enable both sides to continue a dialogue on resource security issues as well as to promote tangible commitments, including with MOUs and Joint Statements. Regionally, we are striving to continue with the Five Party Energy Ministerial – originally proposed by China – and a focused discussion on energy security issues with the key economies in Asia (China, India, Japan, and the Republic of Korea). Also, as the United States hosts APEC this year, we continue our efforts in the Energy Working Group to promote mutual goals of energy security and the transition to a low carbon economy. We are also working to advance programs to enhance energy efficiency, increase water conservation and productivity, develop renewable electric power resources, and manage water-energy relationships. All of these efforts will help to reduce conflict and ensure sustainable growth.

A key part of my work has been on the efforts of the IEA to engage key non-member countries, especially China and India and increasingly other growing Asian energy-consumer countries such as Indonesia and Thailand. As we have discussed, the world’s energy markets have changed since the establishment of the IEA. To be effective in this new landscape, and to realize its mission, the IEA must be prepared to evolve, aligning strategies and priorities to reflect these new realities. With China and India having increasing influence and impact on world energy markets, we are working hard to promote their enhanced engagement with the IEA. This includes training and programs on emergency response exercises, data collection and analysis, and sharing world energy trends and policy recommendations. As part of the IEA’s outreach with Asia, this week, IEA colleagues and member country representatives are holding the first multilateral emergency response exercise with APEC countries in Bangkok. These efforts are significant in laying the groundwork to promoting an open dialogue among consumer countries towards furthering collective energy security. Equally important for furthering our energy cooperation with Asia are other international energy forums, including IRENA, IPEEC, Clean Energy Ministerial, IEF, and others.

In closing, let me stress that we see this as a time of exciting opportunities, of possibilities. The United States government is developing thoughtful, realistic, and creative policies that balance and embrace goals of economic growth, resource security, and sustainable development. We are working with a range of partners in the region on these challenges in Asia and other parts of the world. Transformation will not happen immediately; what is key is managing the transition. As the President has stated, both at home and globally, it is important to develop a comprehensive energy policy. The United States is seizing opportunities to transition to a low carbon economy by supporting technology, research, efficiency, and lower carbon technologies, while simultaneously ensuring that the international energy system remains robust.

As you engage in discussions today on the rise of energy and resource nationalism in Asia and implications for U.S. energy policies, I would stress that U.S. energy diplomacy is robust and is promoting reliable, affordable, and diverse supplies of energy and resources.

Thank you and I look forward to your questions and comments.

ENDS

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