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The quest for energy security

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    Students display placards as they picket the entrance to the office of oil giant Shell on Friday at suburban Makati City east of Manila in protest of another round of oil price increase, the ninth such increase since the Middle East crisis began.

  • of Manila in protest of another round of oil price increase

With oil prices spiking again and global supplies destined for long-term tightness, energy security has once again taken a front seat on the world stage, and nowhere are these issues more critical than in Asia and the Pacific.

In November, the leaders of 21 Asia-Pacific economies will meet in Honolulu for the annual Asia Pacific Economic Cooperation summit. Leading up to the meeting, the Star-Advertiser presents a monthly column of analysis on major issues in the region from experts at the East-West Center.

Asia Pacific countries already consume around three times as much oil as they produce, and consumption is increasing twice as fast in the region as in the world as a whole. With less than 4 percent of the world’s proven oil reserves, the region has few options for domestic production, and efforts to diversify to other types of energy have achieved only limited success.

East-West Center researchers Kang Wu and Fereidun Fesharaki, in a policy brief co-authored with editor Sidney Westley and Indonesian business executive Widhyawan Prawiraatmadja, recommend six measures that governments could take to make a significant contribution to energy security in the region:

» Initiate joint ventures with oil producers.

Joint ventures could be especially effective in four areas: exploration and production projects, refineries and retail operations in cooperation with key oil producers, shared storage facilities and joint infrastructure, such as pipelines, ports and terminals.

» Improve the efficiency of domestic oil markets.

Policymakers in the Asia Pacific region are coming to realize that energy security can best be achieved through the efficient operation of market forces. Yet many countries have interfered with the market to protect domestic suppliers or to help a local interest group. In such situations, the researchers say, administrative barriers should be replaced as soon as possible by long-term policies that allow market forces to determine the price of energy.

» Build up strategic oil stocks.

Japan, South Korea, Australia, New Zealand, Taiwan and Singapore already maintain reasonably good oil reserves in case of a sudden disruption in supply, and strategic storage programs are under way in China and India.

Policymakers in the rest of the Asia Pacific region need to move toward the international standard of reserves equivalent to 90 days of oil imports, the researchers write. International assistance or cooperation among neighboring countries could help with the high cost of constructing and maintaining oil storage facilities, they say.

» Strengthen regional cooperation.

Two steps toward regional cooperation should receive immediate priority, the researchers write: developing joint oil stocks with financial assistance from Western nations, and harmonizing quality standards for petroleum products to facilitate inter-regional trade.

» Reduce transportation bottlenecks.

The Malacca Strait between Indonesia and Malaysia is the Achilles heel of oil supply to East Asia and the Pacific, vulnerable to piracy and military blockade. However, the potential for transporting oil by pipeline is extremely limited because oil resources are distributed so unevenly across the region. To address this dilemma, the researchers recommend the creation of a multinational task force to study sea routes and ways to improve security in the Strait, as well as potential pipeline routes.

» Establish a regional oil futures market.

Buyers and sellers in Asia and the Pacific cannot easily use the oil futures markets in the United States or Europe because each region bases its market on a different type of crude oil. At times, this disconnect allows sellers to charge higher prices to customers in the Asia Pacific region.

In recent years, new energy futures exchanges have opened in the Middle East. It is not yet certain whether these new initiatives will succeed, the authors write, but they merit strong support from consumers in the Asia Pacific region.

Finally, the authors suggest that energy conservation and efficiency be given a top priority in managing energy demand, and efforts should also be made to use cleaner, more indigenous forms of energy such as nuclear, hydro, solar, wind, renewables and natural gas, which has been underdeveloped in the region.

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