Japan’s Role in Energy Collaboration in the Asia-Pacific region
Since the beginning of the 21st century energy problems appear before the humankind in
all their frightening variety: alternation of hazardous to secure energy supply inadequate low orhigh fuel prices; earthquakes and hurricanes, terrorists and pirates attacks, threatening thetransport facilities and infrastructure; transit failures, owing to escapes from contractual
obligations; political conflicts and military operations in major oil and gas provinces.
In spite of all this, the main questions of world energy are not moved from the agenda.
There are limited natural resources and particularly perturbing well-developed countries the
problem of uneven distribution of energy resources between the countries and territories. To the
problems of the energy sector proper the need to protect the environment from the damaging
effects of energy is added.
The Japanese political leaders and business quarters understand the existence of these andother risks and contradictions, and they jointly offer the ways to address the situation, focusing
on international cooperation. This position is based on understanding that the Japanese economy
is a part of the global economic system with one of the centres located in the Asia-Pacific region.
An important goal of energy policy of Japan is a peaceful coexistence with the other countries
which interests may be largely in conflict with the interests of Japan. This approach stems fromthe dual-faced status of Japan in the Asia-Pacific energy markets: it remains a profitablecustomer for some countries and a competitor for the others.
We ought to begin analysis the problem identified in the title of the article, with a brief
description of the situation in Japan’s energy sector.

Status and problems in the energy sphere
As one of the largest consumers of energy on the planet, Japan has a tiny domestic
production of energy resources. The energy sector is fully focused on the import of gas, coal andoil. According to the IEA data, in Japan the share of import in total primary energy supply was
81.7% in 2006. Because of the high dependence on energy imports Japanese energy sphere isvery vulnerable.
Especially with great concern the Japanese government looks at almost complete
dependence on imported crude oil, which is essential for Japan’s energy, providing about half thecountry’s energy supplies. According to the Petroleum Association of Japan, the country
depends on imports of this type of energy at 99.7%. Realities are such that now the “land of therising sun” is one of the largest importers of oil in the world and it will remain for theforeseeable future.

The significance of «black gold» for the Japanese economy is enormous. First, some
sectors of the economy (transport, fishery, agriculture, construction) can not function without
supply of oil products. This is primarily due to the lack of an alternative source of energy for
different types of internal-combustion engines. Secondly, oil is an effective feedstock for the
petrochemical industry. In the third place, the prices of other energy sources are following after
changes in oil prices. Some of these are directly tied to the oil mixtures. For example, the priceof liquefied natural gas (LNG) procured by Japan for the long-term contracts are calculated
based on the Japan Crude Cocktail (JCC) - the average cost of crude oil in Japanese ports on
terms CIF.
The dependence on oil from the Middle East is one of the factors that cause profoundconcern in Japan. A lot of problems in the Middle East, mostly non-economic, are a threat tobreak oil supply from the mentioned region.
But, despite the awareness of threats and actions taken after the “oil shocks” to reduce thelevel of risk, Japan has not solved the problem of dependence on oil from Persian Gulf: today,
nearly 90% of imported oil comes from the Middle East countries. Besides oil deliveries from
Iraq are far from the maximum possible volume, share of the region may increase.
Also a low level of Japanese companies’ involvement into the oil and gas upstream
business cause alarm in Japan. In 2007, 75.3% of consumed in Japan oil were produced bynational oil companies of exporting countries, 18.0% by so-called «majors» (the world largest
non-state oil companies) and only 5% by Japanese oil companies. The Japanese Ministry of
Economy, Trade and Industry, set a goal for domestic oil industry that by 2030 40% ofconsumed (i.e. imported) oil must be produced by companies that are independent from thegovernments of exporting countries. Under pressure of global trend towards strengthening the“resource nationalism”, for Japanese companies the task to increase supply of “black gold” to thecountry is not easy. As ill luck would have it, in recent years the largest overseas projects ofJapanese companies failed. Thus, Arabian Oil Company, capital of which has Japanese origin,under pressure from oil giant Saudi Aramco in 2000 lost the right to extract oil in the neutralzone between Saudi Arabia and Kuwait. A similar situation was observed in Iran. After winningin 2004 the tender for the development of one of the world’s largest oil fields “Azadegan”,
Japanese oil company INPEX began to work, but under pressure of NIOC (National Iranian Oil
Company), the Japanese share in the project was reduced to 10%.

Energy deficit region
Researchers who specialise in energy sphere note that in the Asia-Pacific region
competition for energy will increase. In the near future the developing countries of the region
will become the largest group of energy consumers.
Now we can see a rapid economic growth in developing countries of Asia, increased
consumption of energy in the industry and significant increase in energy demand in theresidential sector. Motorization makes a great share of increase in fuel consumption in transport.
According to the IEA, only in China car park will reach 270 million units by 2030. Increased
consumption of fuel resources causes anxiety and experts pay attention to the following
circumstances.
Rising in 1970’s oil prices created problems for the industrialized countries, throughincreased tension of their trade balances. Since then, developed countries have been forced totake measures to ensure national energy security that led to serious changes in the energy sector
and in the whole economy. In efforts to get rid of oil dependence developed countries, especiallyEuropean countries, Japan and the US made great progress in such areas as energy efficiency,
nuclear energy, alternative energy sources and “clean” technologies.
In Japan, one of the first crisis management steps was the establishment in 1976 thesystem of strategic oil stocks, and by the beginning of the “second” oil crisis in 1979 thestrategic oil reserve was equivalent to 85 days of imports.
Also, as a result of long-term measures the country has made great progress in using
energy efficient technologies in industry: from 1973 to 2006 energy consumption per unit ofproduction had been reduced by 20% in the steel industry, by 24% in the cement industry, by
29% in the chemical industry, by 52% in the pulp industry.
Observed in the middle of this decade growth in oil prices had no effect on the trajectoryof the development of Asia industrializing countries. It is connected with the fact that the low
production costs allow developing economies to buy fuel with higher prices. In addition,
developing countries, especially India and China, did not have the experience of “oil shocks” andtheir measures to protect against energy crises are disputed.
In any case, economists are predicting a deep transformation in the energy markets underpressure from the developing countries of the Asia-Pacific region. During last decade, growth inenergy consumption in the region was significant, and those countries which export coal, oil andgas, are scaling down the energy exports. In the early 1990’s China ceased to be a net oil
exporter and during short period pressed Japan from the second position in the largest oil
importers list. It is expected that in 2009 China will become a net importer of coal. Indonesia
also became a net oil importer and from 1 January, 2009 country’s membership in OPEC issuspended. The impressive growth in domestic energy consumption we can observe in Malaysia,
Thailand and Vietnam.
Demand for energy from the developing countries in the Asia-Pacific region increases
aggregate demand in the world markets and growing dependence of these countries on energy
imports is seriously affecting the distribution of energy resources. Large regional fuel importers,such as China, Japan and South Korea are forced to supply energy recourses from other countries,
and this leads to longer routes and price increase in the domestic markets. The rapture oflogistics chains becomes a real threat. Thus, the lengthening of delivery routes can lead towidespread disruptions of supply schedules. All of this puts Japan into a very difficult position.
The country is forced to seek new solutions for energy issues.

Turn of energy diplomacy
Generally, in Japan the term of “energy (resource) diplomacy” is used when describing awide spectrum of problems that Japanese government is trying to decide, acting on the worldenergy scene. From a practical point of view, energy diplomacy is an activity of the state bodies,supporting the efforts of national companies to penetrate into the extractive industries of energy
exporting countries.
Currently, we can talk about the turn of Japan’s energy diplomacy: an analysis of official
Strategy and Approaches of Japan’s Energy Diplomacy shows that Japan’s policy goes from“competition for energy” to “energy cooperation”. Partly, energy diplomacy should provide
strengthening of integration processes in the region. The Japanese government brings regional
cooperation to a focus of the national energy strategy and strives to build a long-term partnershipwith foreign countries, primarily with the Asia-Pacific countries.
In our opinion, for Japan with its problems with access to energy resources, it is a rational
measure, based on understanding that it is important to have stable partnership relations not onlywith the countries on the supply side, but also with the countries on the demand side. The
problems with energy security in a globalizing world force Japan to pay more attention toregional cooperation. A significant shift is related to the hope that the strengthening ofintegration processes on a regional scale would benefit more through efficient use of natural
resources and reducing the environmental load. Later in this paper we will call as “energy
integration” the part of regional integration, which affects the energy sector.
New Japan’s energy diplomacy in the Asia-Pacific area includes activities aimed at:− strengthening the structure of the Asia-Pacific energy sector, improving the overall
energy balance in the region;− cooperation in the fields of the environment, energy conservation and nuclear energy;

− cooperation in oil stockpiles;− sea transport safety.

Energy integration in the Asia-Pacific region: the preconditions andcharacteristics.
Vigorous flows of primary energy resources run through the Asia-Pacific region. It is not
only transit of energy resources from the Middle East to China, Japan, the Republic of Korea andTaiwan. Crude oil, coal, natural gas - all of these important resources are mined in the AsiaPacific region, and primary energy trade has a significant impact on the national economies.
Some countries of the region are recognized champions in the exploration and exporting ofprimary energy resources.
So Australia being in the fourth place in the world with suitable for the exploration coalreserves has become the world’s largest coal exporter as far back as 1984. In 2007, Australia
exported coal around 244 million tonnes, of which about half was coking coal. According to the
IEA, in Indonesia the coal production rose to 202 million tons in 2007 and was focused mainly
on export: to other countries sent nearly 90% of coal. Indonesian coal is characterised by highquality, it has high-calorie and low impurity content. Because of the excellent quality of theIndonesian energy coal, production of this type of raw material in Indonesia grew 20 times since
1990, making Indonesia the world leader in the energy coal sales.
Also appearance of new major coal producers is expected. In 2007, Vietnam took place ina first dozen of the biggest coal supplying nations. Exports from Vietnam grew rapidly: in 2005
the country exported coal about 15 million tons, in 2006 - 22 million tons and in 2007 - 30
million tons. Significant quantities of coal are supplied to the regional market from China andCanada.
We should not forget about the energy potential of the eastern regions of the RussianFederation. Until now, major oil and gas regions of Russia were Western Siberia and VolgaUrals, but it seems that they had reached a peak of extraction. It means that in the future, themain burden will fall on new oil and gas fields of yet undeveloped regions in Eastern Siberia andthe Russian Far East.
The most powerful persons of the Russian oil business declare that the development of
the Russian Far Eastern oil fields and delivery hydrocarbons to the Asia-Pacific markets are thepriorities of Russia’s present-day energy strategy. In support of these words, Russian energy
exports from the Far East areas significantly increased in recent years. According to Russiancustoms authorities, in 2007 the commodity classification group “minerals and fuels” became theleader of Russia’s exports to Japan (49.3% of all exports in terms of value). In 2007, to Japanwas delivered crude oil 8 million tons (USD 3.7 billion). Compared with 2006, an increase wasmore than 5 times, both in quantity and in value terms.
Regional energy products trade is also actively growing. In Japan for example, in contrast
to crude oil trade, petroleum products trade (over 60 Mtoe per year, or 1/3 of the country’s oil
needs) is within the ambit of the Asia-Pacific region.
If to take as a starting point the assertion of some scientists that the main principal ofenergy integration is electric power systems, and apply the history of successfully integrated
systems to the conditions existing in the Asia-Pacific region, the energy integration in AsiaPacific is impossible. Only in some cases we can speak about successful regional energy
integration: certainly the European alliances NORDEL (includes Sweden, Norway, Finland,
Denmark) and UCTE (covers most of continental Western and Central Europe), a single grid of
the former Soviet bloc, consolidated energy system in Northern America, gas supply networks in
Europe and North America. So far, the process of territorial energy integration was limited to thecreation of cross-national electricity and gas supply systems.
The countries of Asia-Pacific significantly differ in their political and socio-economic
development and, more importantly, the geographical location of the countries, isolation andseclusion of their energy systems impede energy integration by known samples. Power
interchange between the countries isn’t strong. According to “The World Factbook”, in graphs
electricity exports and imports “zero” is in the following countries: Australia, Brunei, Vietnam,
Indonesia, Korea, New Zealand, Papua New Guinea, South Korea, Singapore, Taiwan,
Philippines, Japan, which geographically is quite explainable. The energy systems provide only
the internal needs of the countries and being closed systems heavily dependent on energy
imports.
Even Japan has no a single electricity grid. In fact, transmission system is divided into
two separate frequency areas: one operates with 50 Hz, and one with 60 Hz. The interconnection
between the two areas is supported with three frequency converter stations, situated in the heartof the country. This division of power system limits the flow of electricity between the regional
networks, especially between the two major industrial areas of Kansai and Kanto. Similar is thesituation with the pipeline systems. Table 1 presents data on the extent of gas and oil pipelines insome countries in the Asia-Pacific region.
As can be seen, the length of gas and oil pipelines in a particular country is due not somuch the level of economic development, but the presence of the oil and gas extraction industry.
Thus, the pipeline network of the second world’s economy is slightly developed - the length of
the gas pipeline network in Japan is only 3939 km. Also the length of pipelines underconstruction is small: 252 km of pipelines will be built in Japan until 2013. South Korea has
short gas pipelines – 1482 km, for example the UK - 18980 km, Germany - 25084 km.

Table 1. The length of gas and oil pipelines, in some Asia-Pacific countries
Country

Gas pipelines (km)

Oil pipelines* (km)Australia

26 719

3 720

China

26 34417 240Indonesia

9 003

7 471

North Korea-

154

South Korea

1 482

-

Malaysia

5 273

1 750

New Zealand

1 896

288

-

264

565

135

3 939

170

Papua New Guinea
Philippines
Japan

Source: The World Factbook* Not including pipelines for petroleum products
Only extreme necessity compels the countries of the region to participate in joint
infrastructure projects. For example, 320 km oil pipeline will run through the northern part ofMalacca Peninsula and connect the west coast with the east. The construction of this route isplanned to reduce the risks of navigation through congested Malacca Straits, which are crucial
for the supply of hydrocarbons to Eastern Asia. This shipping lane is vulnerability for energy
supply due to the threat of international terrorism, piracy and technical failures.
Energy is one of the most capital-intensive industries. Investments in energy sector evenin a stable economic environment are considered to be unattractive because of the long payback
period and high risks. The world economic crisis squeezes energy sector: on the one hand,energy consumption is falling, while shrinking demand and falling prices for energy call into
question the return of existing projects. Difficult access to funds needed for new energy projects
is on the other hand.
To date, from the economic point of view to pattern the energy integration in Asia-Pacific(or even in one of the subregions, for example, in North-East Asia) upon traditionally integrated
energy systems in Europe and North America remains problematic.
First, there is no allusion to the harmonious architecture of the regional energy. Secondly,
high capital costs make construction of high-voltage power lines, gas and oil supply pipelines in
the region economically unjustified. And thirdly, the European and North American experienceshows that even if there are reliable and well-designed transmission systems, energy supply may
be unstable. The interruption of Russian gas transit to Europe through Ukraine and Belarus - it is
only one example.
So, energy integration in Asia-Pacific is impossible to arrange according to the wellknown models, operating in Europe and North America. Only the uniting process, built on newprinciples, can overcome geographic isolation of the Asia-Pacific countries. In modern
conditions the integration based on the “hardware”: gas and oil pipelines, high-voltage powerlines gives way to a unifying process that focuses on the maximum activity of economic agentsand the mobility of primary energy and products, technologies and “know-how”. The only optionthat is acceptable to the conditions of the region which includes countries in different stages of
economic development, with mainly isolated energy systems, is integration based on thedissemination of technological innovations and the strengthening of market principles.
Such a trajectory of regional energy integration does not indicate that the basis forbuilding closely connected energy systems in Asia-Pacific is weak. On the contrary, thescientists see in it new features of power systems acquired under the influence of globalization.
Liquefied natural gas (LNG) trade is an example of the uniting role of advanced energy
technologies. By the way, countries of the Asia-Pacific region are pioneers in the introduction of
LNG trading. LNG market does not depend on the main gas pipelines and has a uniquemanoeuvrability, i.e. gas in liquid state can be delivered to any terminal worldwide. Japan stakedon this quality of LNG market in 1969, when the country set in operation the first LNG receiving
terminal. Since then, the production of LNG turns from a venture with a questionable future into
the industry of global prevalence and significance. Currently, more than a quarter of world gas istrade as LNG. In the period between 1995 and 2005 the global LNG market has been growing
with the average rate of 7.3% per year, and as it is expected the global LNG market will growrapidly in the future.
The countries of Asia-Pacific set the tone in the industry, with the most powerful
facilities on the supply side, and on the demand side. To date, Indonesia is the world leader inliquefied gas industry with declared plant capacity of 28.3 million tons per year. Capacity of
Malaysian plants 22.7 million tons per year, Australian 15.4 million tons per year. In general, the
LNG market in the Asia-Pacific region almost two times more than the Atlantic market (89.4
million tons and 48.5 million tons respectively in 2005). Russia also became the LNG exporter,with Sakhalin-2 LNG plant started in February 2009.
It is necessary to emphasise the active role of Japan in the formation and development of
the LNG market. In an effort to reduce dependence on oil, Japan was pursuing a policy of fueldiversification, and investing significant resources in developing the LNG market, being thedriving force of the industry. Notable, that 27 of the world’s 56 LNG receiving terminals arelocated in Japan, and next to the leader the United States and Spain have five receiving terminals
each.

The development of energy markets
One of the important conditions for the energy integration in the Asia-Pacific region is
general reorganization of the energy sector. We see the potential for growth of Asian countries’
competitiveness in improving the trade system with accent on market principles.
Manifested in relation to the world economic crisis, the tendency of protectionism is aserious danger to the integration process. Cost-driven market environment would enable thecountries to solve some of the economic and environmental problems. Introduction of modern
energy technologies will help to saturation of the region’s energy demand. With escalatinginternational competition for resources this is becoming an important point which seems to beaware by all the countries.
Typically, that Japan is not imposing market reforms to the countries of the region, as
well as its own energy sector is not yet fully liberalized. However, the country can demonstratethat business competition, conducted on clear and stable rules, provides a fertile ground forenhancing the international competitiveness of sectors of the national economy. For example inJapan, tough competition followed after liberalized import of oil products had improving effecton the domestic oil market and changed the structure of foreign trade in oil products with theAsia-Pacific countries.
We would remind that in Japan the partial liberalization of the energy sector was started
in 1990 with the oil refining industry and the most important factor affecting the market was thepossibility to import final oil products. Free import of petroleum products was enabled under“cheap oil” era, and owing to attractive prices refinery products imports very quickly won asignificant share of the Japanese domestic market. In 1990, 10% of final oil products consumed
in the country were imported.
By these days, the picture of the Japanese market of oil products has changed. According
to data of the Petroleum Association of Japan, in 2007 the share of imports slightly exceeded 1%.
Japan’s refineries have won back from foreign competitors a large share in the segment of the
final products: the aviation fuel, diesel fuel, gasoline. In 2007, Japan imported petroleum
products 32.1 million litres, mainly from Indonesia, Malaysia and the Republic of Korea. Lightproducts imports were slight, and 81.7% of total imports accounted for naphtha. Simultaneously,
exports of oil products from Japan have grown markedly since 2005, largely driven by demand
from the coastal areas of China. In 2007, Japan exported refinery product 29 million litres, ofwhich aviation kerosene 9.3 million litres (32.0%), diesel fuel 9.0 million litres (31.1%) andheavy oil 9.5 million litres (32.8%). Diesel fuel was exported mostly to Singapore, the UnitedStates, Australia, China; heavy oil to China, Singapore, and kerosene to the Republic of Korea,
China.
What led to such a positive change? In 1990, restrictions on import of finished petroleum
products were cancelled and increased competition led the Japanese oil refining companies
began to use all available means to increase economic efficiency. Market participants started a
corporate strategy aimed at enlarging the business. In the 1990’s and early 2000’s companies ofthis sector have been particularly active in mergers. As well some alliances were formed to takeadvantages of positive effect, called “economy of scale”.
As a result, if the production capacity of oil refinery decreased slightly, the organizational
structure has undergone significant changes. The number of employees in industry decreased
almost twice from 36 thousand at the end of FY 1995 down to 20 thousand people at the end of
FY 2008. Tank fleet in distribution has also been optimized. At the end of FY 1993 Japan has
about 600 terminals for the storage of oil products, and at the end of FY 2004 there were about
190 bases. Acute competition has forced operators of oil refineries to carry out the modernizationof production facilities and increase the capacity of equipment. As a result, the Japanese oil
refineries produce high value-added products (gasoline, diesel, aviation kerosene), which satisfy
the demand within the internal market and successfully exported to the Asia-Pacific countries.
This illustrates that the development of markets provides for the regional economies anopportunity to strengthen international competitiveness.
Thus, the expansion of spot trading in LNG will help procuring natural gas countries to
get rid of tying gas price to the price of oil, because now the price of LNG directly depends on
the price of oil mixtures. In other words, it would mean the elimination the discriminatory“Asian premium”, because the spot rates is evaluated on the basis of market principles as theequilibrium price of supply and demand, and do not depend on the buyer country or region.

Energy Efficiency and Technologies Market
We see that the markets of primary energy and final products offer a mechanism, whichclosely connects national economies of the Asia-Pacific region. According to the Japaneseposition, it is necessary to supplement the primary energy markets with the developed market forenergy technologies that will facilitate the efficient use of energy. In the Asia-Pacific region,
there are great opportunities to increase energy efficiency, taking into account existing
technologies and ways of energy saving.

We set much hopes on the scientific and technological progress. It is expected thattechnological achievements on the one hand lead to the appearance of new sources of energy, on
the other hand to increase the efficiency of extraction and use of traditional energy resources.
From the economic point, saving energy is equivalent to production, and often energy saving ismore economical way to fill the demand for energy. The transition to mass energy saving canreduce the load on the infrastructure and contributes to healthier environment. Among thetechnologies under development may be claimed as follows:− superconductive electrical grids;− “clean” coal technologies;− new generation of oil-refinery equipment;− use of electric or hybrid power in vehicles (in densely populated areas and cities).
Countries in the region have a favourable climate for cultivation of plants, processed into
liquid biofuels, but the existence of the food problem severely limits the prospects in thisdirection.
In Japan, the proportion of funds allocated to R&D relative to the nation’s GDP is thehighest not only in the region, but among developed countries. In 2006, the research budget in
the energy sector was about USD 3.6 billion, and this figure is only the government spending.
On the nuclear energy research has gone 62% of the amount, on energy conservation 12%,
renewable energy 7%.
Basing on these achievements and offering programs that take into account thepeculiarities of the region, Japan has a claim on the role of moderator for regional cooperation in
the energy field.
Watching the mechanisms of the Kyoto Protocol (which were expected to stimulate thelargest emitters of greenhouse gases to accelerate the development of new technologies) standidle Japan diversified its activities in this direction. An important initiative was the establishment
in January 2006 the Asia-Pacific Partnership on Clean Development and Climate Technologies(APP), which include Australia, India, Canada, China, South Korea, USA, Japan. The
partnership is aimed at cooperation in the dissemination of energy-efficient and “clean”
technologies, and operates in eight areas:− fossil fuels;− renewable energy;− electricity generation and transmission;− steel production;− aluminium production;− cement production;

− coal mining;− building construction and appliances.
To date, APP launched 165 different projects.
Japan also participates in bilateral technology exchanges with such countries as Vietnam,
India, Indonesia, China, Malaysia, Myanmar, Thailand. For example, advanced coke dry
quenching technology was transferred to the Chinese steel industry for test. Furthermore Japan is
accepting trainees from East Asian countries. Japan sends to Vietnam coal mining specialists,
whose experience is not in demand at home due to the liquidation of Japan’s coal industry.
Construction of nuclear power stations is expected in Indonesia and Vietnam. Indonesia,
for example, plans to construct four nuclear reactors up to 2025, in Vietnam is scheduled to build
two reactors until 2020. These projects are aimed to meet the growing demand for electricity.
The Japanese government funded the costs associated with dispatching the nuclear power experts
from Japan overseas. The Japanese company will be directly involved in the construction andassembly stations. Japanese industry has already begun to prepare for increased demand forequipment for nuclear power plants.
In January 2008, at the Economic Forum in Davos, Japan presented the new “Cool Earth”
initiative to develop the UN Framework Convention on Climate Change. In accordance with theprogram, the government is ready to spend USD 30 billion to create technologies that can reducegreenhouse gas emissions, and USD 10 billion for the dissemination these technologies, mainlyin the Asia-Pacific region.
But we assume, that the Japanese government has no intention endlessly to allocate
significant resources from the treasury to the distribution energy technology in the countries ofAsia-Pacific and expects that the formation of the technologies market in Asia-Pacific will bringfull dividends for Japanese industry through the increased presence of Japanese companies on
the power equipment market. According to the international specialization, Japan is a leading
supplier of high-tech energy engineering solutions and electrical industry products. In thedeveloped market of technologies and “know-how”, Japan has the opportunity to benefit thenational economy on the basis of technological advance, which has been acquired throughcontinues and extensive funding for R&D in the energy field.

Oil stockpiling cooperation
Japan has well-developed reserve system of oil and petroleum products, with stocks thatare able to ensure the running of the economy (with the usual level of consumption) within 184
days. This is the highest level of man-made oil stocks in the world.

Gas conflict broke out in Europe in January 2009, reminded that the reserves of energy
resources (oil, oil products and gas) are an important element of energy security, both at thenational level and internationally. In light of this, the Japanese government looks hopefully at
creating a collective energy security in Asia-Pacific region. For this purpose, it is important forregional energy collaboration to establish coordinated system of oil stocks, with participation of
the growing consumption nations, including India and China. Nevertheless, by this time so far
such cooperation has succeeded only with OECD nations. Thus, the November 5, 2007 Japansigned a bilateral agreement with New Zealand on the issue of cooperation in strategic oil
reserves. Under the terms of the agreement, New Zealand, with its commitment to the IEA tomaintain 90-day reserves of oil, may conclude oil storage contracts with Japanese companies.
According such contacts, New Zealand’s oil reserves will be deployed on the territory of Japan.
For obvious reasons Japan is interested in disseminating this experience in the Asia-Pacificregion.
Creating a coordinated system of oil stocks in Asia-Pacific is hailed by OECD countries,
but from the Russia’s position this direction of regional cooperation has never been considered
as a priority. Incidentally, to participate in energy integration in the Asia-Pacific region Russia
has the most important, its energy potential. According to the experts, despite the fact that the
study of the prospects for energy cooperation in Asia continues during the second decade, Russia
does not always take advantages of the collaboration in the energy sphere, because there is noclear understanding neither self-interest, no benefits and horizons of cooperation.
Though, in Russia the initiative to create strategic oil stockpiles has powerful supporters
in the government. For example Igor Sechin, the vice-premier of the Russia’s government,
repeatedly focused an attention on the need for oil stockpiles, and even have instructed theMinistry of Energy to elaborate this issue.
Sechin’s idea was criticized in the press. The first question was for what to establish theoil reserve system in the country-exporter. The world’s largest oil reserves held by theimporting nations (the United States, Japan and in Western Europe) serve as a source of energy
in the event of disruptions in energy supply due to unforeseen circumstances. By the plan of
Russia’s vice-premier, the purpose of strategic oil reserves in Russia is commodity intervention,
which means accumulation of oil when the price is low, and off-loading from the reserves when
the price is at the peak. Secondly, it is not clear, will commodity interventions be on the world
market or domestic? If on the world, Russia is unlikely to be able to address the market, becauseof the need for large amounts of reserves. If on the domestic, the question is how the mechanism
would work and whether it would not prejudice the interests of consumers? Then there is the
problem with tank fleet. Only few bases are ready to take oil to storage, and it is obvious thatwithout massive capital investment in the construction of special storage facilities the idea
become falderal.
In our view, despite many problems, the idea to create the oil stockpiles in the Russian
Far East not only makes sense, but must be realized in the near future. Of course, large and wellestimated government investments as well as the creation of a special agency required. Exactly
in the Russia’s Far East the concept of oil reserves with an emphasis on commodity intervention,
proposed by Igor Sechin, will fit organically into the mixed Asia energy market. Such a move isconsistent with the objectives of regional energy integration and enables Russia to extract
economic and political benefits. The establishment of oil stockpiles will be a significant Russia’scontribution to strengthening of regional energy security. Russia will show that it can not only
rely on oil prices following after OPEC’s policy, but also can share the important beginnings ofthe oil importing nations.

Summary
Economic globalization is expanding throughout the world, accompanied by the tightrace for access to natural resources. Seems that the world markets of natural resources can notreach Pareto equilibrium. Breakthrough in economic development in the Asian countries makes
the Asia-Pacific region very sensitive to the scarce of energy. Active fuel consumption in themost of Asian countries is not accompanied by adequate measures to reduce dangerous
emissions and the risk of a full-scale environmental disaster increases.
With the tightening of conditions on world energy markets we see awakening goodwill of
the political establishment and business elites of Asia-Pacific countries, aimed at jointly solving
the energy and environmental problems.
Particular countries have their own objectives in the energy sphere. At the same time it isnecessary to emphasise that countries can effectively solve their energy problems only being
coordinated within multilateral framework. Energy security problem has the global features not
only because of the interdependence between energy producing countries, countries of transit
and energy consuming countries, but also because of overall responsibility for environment
protection and prevention of climate change.
In regards to Japan, to date it is one of the largest world economies. Simultaneously thecountry has nearly complete reliance on import for its energy needs. This makes the island
country rank energy issues at the top of its national priorities. The main question is where thishuge amount of energy resources is going to come from. Also, a great attention is paid to the
problem of sustainable development and influence of the ecological factors on the energy
policies. Modern energy policies of Japan balance between the trifecta of economic growth,environmental sustainability and energy security. The Japanese government’s increased interestin the energy sphere has important implications for the whole Asia-Pacific energy market. And
the country itself is very active in this field and offered several programs for cooperation.
In recent years the concept of energy integration in the Asia-Pacific region continues to
evolve. Because of the economic and geographical features of the region “hardware” integration,
which took place in Europe and North America, has no future in Asia-Pacific. To pattern energy
integration in the Asia-Pacific region or even in one of its subregions upon European and North
American integrated energy systems remains problematic. In well-developed Japan, for example,
electricity grid is divided into two separate zones, interconnected with only three frequency
conversion stations in the centre of the country.
Energy collaboration in the Asia-Pacific region assumes a special character. We can see
the maintaining role of mobility of resources, equipment and technologies. LNG industry has
made a path from the undertaking with unclear economic perspective to the business of theworld’s importance and scale. Now a strong focus is put on the conducting the model projects forincreasing the effective use of energy resources. This strategy also meets responsibility forenvironment protection. In accordance with the general direction on innovation in the energy
sphere, in the process of integration in Asia-Pacific the emphasis should be made on the mobilityof modern technologies and the increasing role of the market regulation. There is no doubt that in
the Asia-Pacific region we will see such integration process.
Japan is interested in regional integration, not less than other countries.
Japan’s experience in the implementation of advanced technologies that reduce energy
consumption in industry makes the country a leading power of regional energy integration. The
model of energy cooperation, proposed by Japan, can reduce the energy problem in the region. Itshould be understood that the effect of integration process, especially in context of the deep
global economic crisis will not be immediate. Any regional energy integration is a long anddifficult way. A balanced energy development in Asia-Pacific requires overcoming the inertia of
the fast industrial development of the leading countries in the region. Japan demonstrates to theneighbours in the region the example of self-restriction and efficacy, and these two virtues are
the keys to the problem of finding a balance between economic growth, environment protectionand energy security.