IEEJ: 2011 September All Rights Reserved

Special Bulletin
A Japanese Perspective on the International Energy Landscape (57)

September 2, 2011

An International Gas Conference in Mongolia
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe 12th conference of the Northeast Asian Gas & Pipeline Forum (NAGPF) took place in
the Mongolian capital of Ulan Bator on August 29 and 30. The NAGPF is an international forum ofpolicymakers, industry people and experts interested in natural gas and pipeline problems in Japan,China, South Korea, Mongolia and Russia. The five countries host the forum’s conference every twoyears in rotation. The Petroleum Authority of Mongolia sponsored the latest conference where nearly
100 people from the five countries vigorously discussed the present status and future prospects ofnatural and pipeline problems in Northeast Asia under the recent international situation. In
commenting on discussions at the conference, I would like to make four impressive points asfollows:First, the discussions indicated a growing recognition that natural gas will increase its
significance further in energy supply portfolio in Northeast Asia. At the conference, each country’s
medium to long-term energy demand outlook was reported, projecting or expecting a steady increasein gas demand. These reports can be interpreted to demonstrate the Northeast Asian version of theInternational Energy Agency’s “golden age of gas” scenario. At the same time, participants in theconference interestingly noted that the problem was how to respond to the growing demand andsecure stable gas supply.
The country-by-country reports, while projecting rising natural gas demand in the whole ofNortheast Asia, pointed to different factors behind the increase. Under the impacts of the Great East
Japan Earthquake and the Fukushima Daiichi Nuclear Power Plant accident, Japan is shifting tonatural gas/LNG from nuclear energy. China plans to substantially expand demand for gas as a clean
energy for high economic growth under the 12th five-year development plan. South Korea expects toincrease gas demand as its state-run Kogas proactively explores domestic and overseas gas supply
sources including pipelines from Russia. Mongolia, though having yet to use natural gas, isconsidering introducing gas through the development of its rich unconventional gas resources
including coal-bed methane. In order to allow natural gas to play the expected roles throughout thewhole of Northeast Asia beyond these country-by-country conditions, these countries will have todevelop adequate natural gas utilization infrastructure, supply gas at competitive prices and step up

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IEEJ: 2011 September All Rights Reserved

their relevant regional cooperation.
Second, we cannot ignore geopolitical problems in considering natural gas problems inNortheast Asia. Among natural gas infrastructure development projects in the region, theconstruction of long distant trunk pipelines attracts attention. Regarding pending projects for large
pipelines including those for Russia’s direct gas supply to China, for its supply to South Korea via
North Korea and for its supply to China via Mongolia, however, we have to consider not only suchbasic important points as how to secure the economic feasibility of their construction and operation
but also complicated political and national security problems between these countries. A typical such
pipeline project was taken up at a Russia-North Korea summit on August 24.
Russia’s relations with Central Asian and European countries (which imports Russian gas
through existing pipelines) may also influence these pipeline construction projects. Northeast Asia
thus features a typical energy geopolitics scene where economic factors are closely entangled withcomplex, multilayered problems regarding international politics and national security. Under suchsituation, countries are taking advantage of various negotiations and discussions to maximize theirrespective national interests. It is important for us to directly face the realities.
Third, the conference provided me with an opportunity to strongly feel the growing
importance and presence of Mongolia that hosted the meeting. Backed by the potential of its richmineral resources including coal, uranium and rare earth metals, Mongolia has accelerated its
economic growth since 2010. Paying attention to mineral resources development and economic
growth in Mongolia, not only its neighbors like China, Russia and South Korea but also Europe, theUnited States and Japan have enhanced their attitude of promoting economic cooperation and direct
investment in Mongolia. The Mongolian government has understood the situation and is seeking tofurther develop its country. Its economic development may naturally lead to an increase in its energy
demand, an energy policy to introduce gas and other cleaner energy sources to improve its
coal-dominated energy supply, and large-scale investment in relevant infrastructure development.
Such resources and energy development problems are interestingly linked to Mongolia’s geopoliticalposition. Given Mongolia’s historical, political and economic relations with China and Russia, andits geographical position sandwiched between the two big powers, the Mongolian government’s
future external resources and energy policies may attract much attention from not only China andRussia but also from Japan, South Korea and the United States.
Fourth, the conference led me to feel that the Great East Japan Earthquake and theFukushima nuclear plant accident have prompted other Northeast Asian countries to grow moreinterested in the future course of Japan, particularly the fate of its energy market and policies.
Japan’s energy policies under the new administration led by Yoshihiko Noda and their implications
and impacts on the region and the other Northeast Asian countries may become matters of concern to2

IEEJ: 2011 September All Rights Reservedthese countries. As their interests in Japan are very great, Japan is required to make and implement
an international energy strategy giving considerations to their interests. Future policy discussions
may focus on domestic problems and measures regarding nuclear, renewable energies and energy
conservation. This may be natural. Domestic policy discussions must be promoted firmly. At thesame time, however, Japan must discuss an international energy strategy reflecting the globalsituation.

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