IEEJ： January 2014ｃ IEEJ 2014
○Special Bulletin
A Japanese Perspective on the International Energy Landscape (156)January 17, 2014

Asian Oil Security
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanIn Singapore on January 16-17, I had an opportunity to join intensive discussions on theproblem of Asian oil security. As Asia has been increasing its importance substantially for theinternational oil market, the problem of oil security has become a matter of grave concern topolicymakers, industry people and experts in and outside Asia in line with the region's growing
dependence on oil imports. The significance of the problem has been greatly recognized as Asia's
increasing dependence on oil imports has been coupled with rising geopolitical risks and future
uncertainties in the Middle East, on which Asia depends heavily for oil supply.
While taking into account Asian countries' respective dependence on oil and the Middle East,
participants in the discussions proactively exchanged views on the impacts of a major disruption inoil supply from the Middle East on the Asian energy and economic situation, Asian countries'
capability to respond to the disruption, the differences in their emergency preparedness, actions to betaken against the distribution, and what should be done in preparation for emergency situations. I
here would like to analyze impressive points of the discussions.
First, participants pointed anew to the importance of information for crisis management amid
an emergency. If any major oil supply disruption occurs, it may inevitably have serious impacts on
the Asian oil market and countries. As indicated by experiences with the past oil crises, the key pointis to collect, communicate and share accurate information appropriately and timely to prevent further
deterioration of the situation and the emergence or expansion of market panics. As shown by theGreat East Japan Earthquake and the subsequent nuclear crisis at the Fukushima Daiichi nuclear
power plant, how to provide accurate, appropriate, timely information to society and markets is oneof the keys to crisis management. Who should and how to collect and provide information is also
important. It is significant for information providers to develop appropriate relations with thepress/media which plays a critical role to public communication. Considering the current situation
and reality, have concern if transparent, timely and reliable information would be sufficiently
provided when serious oil security problems emerge in the Asian market. The government andindustry sectors in Asian countries and international organizations should enhance relevant
initiatives including the development of communications capability.
Second, the discussions in Singapore indicated that Asia still has problems with preparations
and training required to enhance crisis management capabilities including the abovementioned
communication capability. As the enhancement of crisis management capabilities cannot be achieved
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○in a short term, Asian countries will need to start and continue to conduct appropriate training andexercises in normal circumstance as preparation.

Asian countries may also have to exercise

specific emergency measures (including releasing oil reserves, controlling demand and managing
prices and markets) under various scenarios, while developing crisis management arrangements andinfrastructure build-up including oil reserve systems which play critical role as a basic element ofresilience of the energy system. The importance of crisis management and relevant preparations
might have been recognized in some countries including Japan that has experienced oil crises andthe Great East Japan Earthquake. Nevertheless, daily training and exercises are indispensable. Asia
includes countries that have never experienced oil crises as major oil importers and could face
problems stemming from lack of experience in dealing with emergencies. For the abovementioned
reasons, efforts to enhance crisis management capabilities will be a major future challenge for Asia.
Third, international cooperation is expected to play an increasingly important role to address
the abovementioned two points. Efforts by individual countries and enterprises are important as amatter of course. If they conduct their actions based solely on their respective interests in anemergency in a zero-sum game manner, however, market turmoil and mutual distrust may deteriorate
the situation further. To avoid such development, international frameworks and actions forresponding to emergencies may have to be enhanced with participation expanded in theseframeworks. Since its founding in 1974, the International Energy Agency has played a key role indealing with supply disruptions in the oil market. While great expectations are still placed on theIEA, the IEA member countries' weight in or share of the international oil market is declining. Now
it is important for IEA to build and enhance cooperation with growing Asian players such as China,
India and the Association of Southeast Asian Nations. In Asia or the Asia-Pacific region, regional
cooperation has been discussed under such regional frameworks as the ASEAN+3, the East Asia
Summit and the Asia-Pacific Economic Cooperation. But most of these discussions have yet to makesufficient progress in terms of conducting concrete measures for responding to crisis collectively. As
early as possible, specific arrangements should be created to enhance emergency response
capabilities. International organizations, which can be “neutral” to the specific interests of individual
countries, industries or enterprises, are expected to contribute to stabilize market, not only bysupply-demand adjustment measures but also by providing

reliable information to markets.

Fourth, the discussions in Singapore reflected structural changes and characteristics of Asia's oil
trade and industry. Discussions on Asian oil security tend to highlight Asian countries' heavy
dependence on crude oil imports from the Middle East. While this is an important point, we must
pay attention to petroleum products trade that plays a key role in Asia. Singapore, India and South
Korea depend heavily on the Middle East for crude oil supply while exporting petroleum products,
meaning that petroleum products importers from these countries indirectly depend on the Middle
East. In this respect, discussions are important on how a major disruption in crude oil supply fromthe Middle East would affect supply security covering both crude oil and petroleum products. Each
Asian country will have to deepen discussions on the matter. Regarding the oil industry structure,
many countries in Asia have state-run oil companies that have played a central role in supply oil todomestic market. Therefore, we may have to consider advantages and disadvantages that could stemfrom such industrial structure in an emergency. The matter involves the relationship between
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○governments playing commanding roles in dealing with emergencies, and enterprises and industries
as actual market players. We may also have to consider measures required for a transition fromstate-run oil company systems to more liberalized market with diversified market players.
Regarding these points, Asian countries' conditions are very diverse and are difficult to begeneralized. But these countries, whose presence in the international oil market is growing, will berequired to make individual and cooperative efforts to overcome oil security problems andweaknesses, while taking these unique country-by-country constraints or conditions into account.
Contact: report@tky.ieej.or.jp
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