IEEJ e-NEWSLETTER No. 7：October 2012

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IEEJ e-NEWSLETTER
No. 7(Based on Japanese No. 109)
Published: October 19, 2012

The Institute of Energy Economics, JapanIEEJ e-Newsletter Editor: Yukari Yamashita, Director
IEEJ Newsletter Editor: Ken Koyama, Managing Director
Inui Bldg. Kachidoki, 13-1 Kachidoki 1-chome, Chuo-ku, Tokyo 104-0054
Tel: +81-3-5547-0211 Fax: +81-3-5547-0223

Contents
Summary
Energy Policy in Japan
1. Great East Japan Earthquake and the Domestic and Overseas Energy Trends: Trend of the
Optimum Energy Mix
2. Key Points of the LNG Producer-Consumer Conference

Our View of the Global Situation
3. Background and Issues of the EC-Australia Emissions Trading Systems Tie-up
4. Introduction of Renewable Energies on Islands
5. Report on the Oxford Energy Seminar
6. China Watching: Start of Emissions Trading System Experiment
7. ME Watching: Chaos Worsened by Anti-US Rallies and the Situation in Syria
8. Russia Watching: Summary of APEC in Vladivostok ― Achievements and Issues

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Summary
1. Great East Japan Earthquake and the Domestic and Overseas Energy Trends: Trend of the
Optimum Energy Mix“All policies and resources required to abolish nuclear power plant operation by the 2030s will bemobilized.” The Innovative Strategy for Energy and the Environment has now been drawn up by the
Energy and Environment Council. The zero nuclear policy, however, remains uncertain as the Cabinet
decided not to adopt the Strategy and to treat it as a reference document instead.
2. Key Points of the LNG Producer-Consumer Conference
The key points of the LNG Producer-Consumer Conference held on September 19 are that the participants
agreed on the importance of LNG, that the issue of the Asia premium and its effect on LNG prices has beenhighlighted, and that new supply sources are likely to increase significantly. The Conference played an
important role in strengthening mutually beneficial relationships in LNG trade.
3. Background and Issues of the EC-Australia Emissions Trading Systems Tie-up
EC and the Australian government agreed to strengthen ties between them in emissions trading. Thisagreement is expected to stimulate the carbon market and the future international market, but outstanding
issues include the differences in design of the two systems and their political and policy standpoints.
4. Introduction of Renewable Energies on Islands
There is growing interest in the use of renewable energies on islands, because renewable energies can be
relatively cost-competitive on islands where the cost of power generation is driven up by the high cost offuel transportation. The know-how gathered in these islands can also help the introduction of renewables in
non-electrified villages, and can also be applied to common wide-area systems.
5. Report on the Oxford Energy Seminar
About seventy participants from the world’s leading oil and gas companies, engineering firms and financial
institutions from more than 20 countries attended the 34th Oxford Energy Seminar and discussed a variety
of issues such as the outlook for energy supply and demand, oil and gas price problems, the challenges for
future oil and gas production, etc.
6. China Watching: Start of Emissions Trading System Experiment
The Chinese government launched experiments in seven regions including Beijing and Guangdong
Province for introducing an emissions trading system to help meet its emissions reduction target for 2020.
The goal is to launch full-scale emissions trading in these regions in 2013, and to set up an integrated,nationwide emissions trading market around 2020.
7. ME Watching: Chaos Worsened by Anti-US Rallies and the Situation in Syria
The Middle East is facing yet more chaos with the spread of anti-US rallies sparked by an anti-Islam film
and subsequent attacks on US diplomatic facilities. The murder of the US ambassador to Libya is now
regarded as an act of terror, with no connection to the film. With the battle intensifying in Aleppo, Syria
and affecting Iraq, and with tighter sanctions starting to bite in Iran, the situation in the Middle Eastremains tense.
8. Russia Watching: Summary of APEC in Vladivostok ― Achievements and Issues
The first-ever APEC Summit in Far East Russia was held on September 8 in Vladivostok, hosted byPresident Putin. Major achievements include the Leaders’ Declaration, the release of Annex B:
Strengthening of APEC Energy Security, and the signing by Russia and Japan of a memorandum on theconstruction of LNG facilities in Vladivostok. The focus is now on specific measures to develop Eastern
Siberia and Far East Russia.

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1. Great East Japan Earthquake and the Domestic and Overseas Energy Trends: Trend of the
Optimum Energy Mix
Shigeru Suehiro, Manager, Senior Economist
Energy Demand Supply and Forecast Analysis Group“All policies and resources required to abolish nuclear power plant operation by the 2030s will bemobilized.” On September 14, the Energy and Environment Council released its Innovative Strategy for
Energy and the Environment.
The Strategy has three pillars, which are “to rapidly achieve a society that does not rely on nuclear
power”, “to bring about a green energy revolution” and “to ensure a stable energy supply”. The Strategy
states that to achieve these three pillars bold reforms of the electricity system are essential. On the other
hand, measures against global warming are given less importance. Regarding denuclearization, threepolicies will be applied: (1) the strict limitation of plant life to 40 years, (2) requiring safety checks byregulators before restarting a plant, and (3) no new construction or expansion of nuclear plants. However,the Strategy also contains five policies including continuation of the nuclear fuel cycle policy, collaboration
with the international community and strengthening of assistance to plant-hosting municipalities.
During the 32nd Basic Energy Policy Subcommittee meeting held on September 18, the Strategy attracted
much criticism for its inconsistency. Comments included: “The shutdown of all plants by the 2030s will be
impossible if nuclear plants are allowed to restart and operate until the end of their 40-year plant life.” “Is
the METI Minister’s verbal permission to continue the ongoing construction of three nuclear plants
compliant with this policy?” “Continuing to run the nuclear energy business for the sake of thecommunities that host them is perverse logic.” “The details of the policy are too ambiguous.” Mr. Akio
Mimura, chairman of the Subcommittee, took the unusual step of stating his own views: “Nuclear energy
should not be abandoned. Abandoning what we have now while the future remains uncertain will greatly
threaten our energy security and energy diplomacy. The irreversible consequences of pursuing the zero
nuclear policy should be explained thoroughly to the public.”
In response to a comment from a committee member, METI Minister Edano said: “I am aware of theextreme difficulty of achieving zero nuclear power by the 2030s. The Strategy is ambiguous because weknow it may not be possible to achieve this goal. We are trying to be honest by keeping it ambiguous.”
IEEJ Chairman & CEO Masakazu Toyoda commented: “The zero nuclear policy could cause thehollowing-out and collapse of the Japanese economy. Economic strength is the cornerstone of Japan’s
strength. Without economic might, Japan will fade from global leadership. While there are claims thatindustry is fighting consumers, consumers are also workers. Any difference in position between industry
and consumers indicates insufficient national debate.
This Strategy was expected to set a direction for discussions on energy policy reform. However, as the
Cabinet decided not to approve the Strategy but to use it merely as a reference, the zero nuclear policy
remains unclear. While the plan is to draw up the Basic Energy Plan based on the Strategy, the schedule isstill blank.

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2. Key Points of the LNG Producer-Consumer Conference
Tetsuo Morikawa, Manager
Gas Group, Oil and Gas Unit
The LNG Producer-Consumer Conference was held on September 19 in Tokyo, gathering more than 600
participants. The conference attracted the attention of both domestic and overseas media as a unique event
attended not only by the buyers and sellers of LNG but also by ministerial-level representatives of both
exporting and importing countries. The conference consisted of six key-note speeches and four sessions.
The key points of the discussions are summarized below.
First, the participants agreed that LNG will play an increasingly important role in the energy mix
worldwide. This is attributed to its price-competitiveness, environmental superiority, progress in thedevelopment and utilization of technologies, and the abundance of natural gas reserves. There areparticularly high expectations for abundant reserves now that non-conventional natural gases have joined
the scene.
Second, importing countries including Japan have started to tackle the price and pricing of LNG. The
negative impact of rising LNG prices and higher LNG prices than in Europe and the U.S. (the so-called“Asia premium”), as well as the rationality of oil-indexed pricing of LNG, have been raised by METI
Minister Yukio Edano, Hiroshi Okuda, Governor of the Japan Bank for International Cooperation, Akihisa
Mizuno, President of Chubu Electric Power Company, Tsuyoshi Okamoto, President of Tokyo Gas, and
Ken Koyama, Managing Director of the IEEJ.
Third, new supply sources are likely to increase significantly. Asia has traditionally relied on Southeast
Asia, Australia and the Middle East to fulfill its LNG demands. As demand drops in Europe and the U.S.
and increases in Asia, new exporters such as North America and African countries are all trying to export
LNG to Asia. Supplies from North America are particularly important as it means a new pricing system
will be introduced into the Asian market to replace the current oil-indexed system. These new suppliers
could not only expand the LNG market but also improve its liquidity.
As repeatedly mentioned in this conference, the importance of mutually beneficial relationships in LNG
trade has never been greater. The conference is extremely important as it has established a stage forgenuine dialog on developing the LNG market, and should be continued to enable further dialog between
producers and consumers in the LNG market for the benefit of both parties.

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3. Background and Issues of the EC-Australia Emissions Trading Systems Tie-up
Hiroki Kudo, Assistant to Managing Director
Global Environment and Sustainable Development Unit
On August 29, the European Commission (EC) and the Australian government agreed to strengthen theties between the European Union Emissions Trading System (EUETS) and the Australian system which
was launched in July 2012. This agreement has attracted much attention for its potential to stimulate thecarbon market and expand the international carbon market in the future, especially as the carbon market
prices remain at low levels due to the slow economy since Lehman’s collapse and uncertainty about the
future of the UNFCCC framework. However, there are differences in design between the two systems
including the process of setting goals, eligibility for Kyoto credits, the amount of credits available to eachregulated party, and measures for market price adjustment. Due to these differences, and considering thepolitical and policy backgrounds of the respective parties, there are doubts as to whether this partnershipwill function smoothly during the upcoming discussions on detailed system design, and function effectively
as a system.
For example, this tie-up would allow a party regulated by the Australian emissions trading system toobtain the emission allowances (EUA) of EUETS. While the Australian system will become fully
operational in 2015 and allow the purchase of overseas emission allowances and credits, the agreement
contains a provision which temporarily allows a regulated Australian company to purchase EUAs and use
them to meet the target for 2015. Since a complete tie-up with EUETS will not be established until 2018,
this provision could create a short- to mid-term demand for EUETS and thus cause carbon prices to risefrom their low level; this is a key concern for the parties concerned. The agreement is beneficial to bothparties as it gives Australian companies an opportunity to achieve targets more efficiently in the run-up tolaunching the full-scale system.
Meanwhile, the price adjustment mechanism of the Australian system will be reviewed in time for its
tie-up with the EUETS. While the Australian system is currently designed to keep the market prices withina certain range by setting floor (lowest) and ceiling (highest) prices, the agreement will revise the systemsuch that (1) the floor price will be abolished and (2) the ceiling price will refer to the future EUETS priceinstead of the international market price as at present. Consequently, market prices in future are likely todepend not on domestic conditions in Australia but on economic trends in the EU which produces far larger
emissions. Also, the market prices in a trading system involve institutional risks such as the setting andmodification of target levels and rules on using credits. There are also differences between the positions of
the EU, whose current agenda is to modify the system to raise the carbon market price to a certain level,
and Australia, where there is a battle for power between the ruling and opposition parties and uncertainty as
to whether the country will participate in the second commitment period of the Kyoto Protocol. It is worth
monitoring whether these two parties can manage to build a mutually beneficial system, and whether thesystem can be linked with the markets of other countries.

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4. Introduction of Renewable Energies on Islands
Hisashi Hoshi, Board Member, Director
New and Renewable Energy & International Cooperation Unit
On September 6 and 7, I had the opportunity to attend the Renewables and Islands Global Summit heldin the Republic of Malta. The International Renewable Energy Agency (IRENA) has been organizing
international conferences on the introduction of renewable energies on islands in various parts of the world;
including the workshop "Accelerating renewable energy deployment in the Pacific Islands countries meeting the challenges" jointly hosted by the Japanese government during the Sixth Pacific Islands Leaders
Meeting (PALM6) in May this year. The Summit in Malta was also a high-level meeting, with theparticipation of energy and environment ministers from the Caribbean and the Pacific island states.
The introduction of renewables in remote areas, including islands, is attracting growing interest from the
IEA, too. In April this year, the Renewable Energy Technology Deployment (RETD) group of the IEA
published a report titled “Renewable Energies for Remote Areas and Islands”, presenting a set of policy
alternatives for introducing renewables in remote areas in line with the local characteristics.
There are two main reasons why IRENA and IEA are focusing on the introduction of renewables on
islands. The first is that renewables can reduce power generation costs. Unlike the large-scale powersystems of the mainland, fuel for generating electricity must be transported to islands in small quantities,
sometimes even just metal barrels. This inevitably pushes up electricity costs, making the incentives forrenewables much greater.
Another reason is that the know-how gained by using renewables on islands may help renewables beused in non-electrified villages too. Islands share much in common with inaccessible areas on land. Further,
the experience gained by bringing electricity to islands can also be used to address instabilities in wide-area
electricity systems caused by the rising ratio of renewables. Islands are an ideal laboratory for testing the
introduction of renewables.
Japan also has a keen interest in the technologies for introducing renewables on islands. Currently, theMinistry of Economy, Trade and Industry is running a micro-grid demonstration project in ten islands of
Kyushu and Okinawa. This pilot test is using batteries and existing diesel generators to stabilize theotherwise unstable output of solar and wind power, and the results will be of great value.
Renewables should start to attract attention in Japan as a way of reducing the electricity costs of islands,
which are typically double those of mainland areas and are currently added to electricity rates like all otherelectricity costs as part of the overall cost-based tariff system. According to the Basic Policy on Electricity
System Reform released last July, however, any rise in electricity costs attributed to the electrification ofislands will be added as a surcharge to electricity consumers nationwide. This will raise questions about theconventional approach of transporting fossil fuels to islands for power generation, and pave the way for the
introduction of renewables.
Japan has more than 250 inhabited islands, and so should pioneer unique approaches to the introductionof renewables, tailored to the diverse natural environments of the country.

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5. Report on the Oxford Energy Seminar
Shoichi Itoh, Manager, Senior Analyst
Global Energy Group 2, Strategic Research Unit
The 34th Oxford Energy Seminar was held at Oxford University in the United Kingdom from September
10 to 20, attended by about 70 participants including management-level representatives from the world’s
leading oil and gas companies, engineering firms and financial institutions from more than 20 countries. A
group of eminent guests including the top management of global energy companies and energy experts ofglobal fame were invited as speakers to join the discussions on diverse topics addressing the outlook forenergy supply and demand, nuclear energy, oil and gas prices, world economic trends, climate change, thepresent situation and the future of major oil and gas producing countries, and so on.
Firstly, the potential of shale gas and shale oil in the U.S., which is now the focus of global attention,
was discussed repeatedly. Most of those who are already doing business in the field of shale gas are also
optimistic about the growth of shale oil production. On the other hand, representatives of national oil
corporations (NOCs) pointed out that there are many long-term uncertainties in today’s shale gas revolution
with regard to future technological development, environmental issues, and marginal cost. Most
participants agreed that the shale gas revolution is unlikely to spread outside the U.S. in the immediate
future against the backdrop of differences in geological structures and the availability of pipelines, etc.
Secondly, it became clear that various experts are keenly watching how the role and involvement of the
U.S. in global politics will change if the production of nonconventional resources in the country expands as
anticipated. None of the participants, however, considered that the U.S.’s involvement in global politics,
including the Middle Eastern geopolitical issues, would weaken even if the U.S. achieves complete energy
independence, which has been its long-cherished goal since the oil shocks of the 1970s. The moves of the
U.S., however, are becoming one of larger unknowns affecting the stability of the future internationalenergy markets.
Thirdly, the participants had different views on the scale and pace of growth in the global demand for oil,
as well as on the response to the demand. Some, including the representatives of NOCs, stated that they
will have to curb their advance investments in production facilities to prepare for any unanticipateddevelopment in energy conservation technologies and growth in non-fossil fuel usage, while others pointed
out that a lack of investment could lead to supply shortages in the future. Regarding the future oil export
capacity of the Middle East, some pointed out that it may start to decrease earlier than expected due to thegrowth in demand in the area. Views varied on this issue, too.
Throughout this seminar, I was constantly asked by energy officials from around the world about thedirection of Japan’s nuclear policy. I was once again reminded that Japan has a responsibility to theinternational community to make sure that its new energy policy is a reasonable one, based on a thoroughunderstanding of the ever-changing global situation.

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6. China Watching: Start of Emissions Trading System Experiment
Li Zhidong, Visiting Researcher
Professor at Nagaoka University of Technology
While the European Union Emissions Trading System (EUETS) continues to struggle, China launched
an experiment for the introduction of its own emission trading system. In January 2010, the Chinese
government submitted an action target to the United Nations to reduce its per-unit GDP CO2 emissions by
40 to 45% from 2005 levels by 2020. To ensure its accomplishment, the government set a binding target inits 12th five-year plan to reduce the per-unit GDP CO2 emissions by 17% from 2010 levels by 2015, and at
the same time, announced plans to build an emissions trading market. In line with this announcement, in
October last year, the National Development and Reform Commission gave permission to hold experiments
for the introduction of the system in seven regions including Beijing and Guangdong Province. Entering
this year, Beijing, Shanghai and Guangdong Province announced the start of the experimental project on
March 28, August 16 and September 11, respectively.
According to official documents such as the “Guangdong Province Carbon Emissions Trading
Experiment Project Execution Plan”, the intraregional trading system of each area is generally designed asfollows. First, the regional government determines the total emission volume of the region based on theeconomic growth and industrial structure, in line with the emission intensity target assigned by the national
government. Then, the regional government designates those businesses with high emission volumes asregulated parties, and allocates emission allowances to them. The regulated parties then trade emission
allowances among themselves, and the regulatory authority verifies and monitors that the regulated parties
are meeting their emission allowances. Any excess emissions allowance can be carried forward to
subsequent years, but any shortage in allowance must be purchased within the current year. It is also
possible to trade any emissions reduction credits authorized by the national or regional government in themarket, although the main objects of trade are the emission allowances allocated in the region.
For Guangdong Province, the businesses in the energy-intensive industries such as electricity generationand cement, and whose emission volume equals or exceeds 20,000 tonnes (or 10,000 coal-equivalent
tonnes in energy consumption) in any one year between 2011 and 2014 are designated as regulated parties.
Based on the results of 2010, for example, 827 businesses would be designated as regulated parties, whose
collective energy consumption accounts for 63% of the region’s entire industrial sector and 42% of theregion’s total. The emission allowances for 2013–2015 will be determined considering the results for
2010–2012 and the characteristics of the industry sector, and will be allocated at one time mostly withoutcharge. Further, to new businesses whose annual energy consumption is expected to equal or exceed 10,000
coal-equivalent tons through a preliminary review, emission allowances will be allocated without charge orwith partial charge. The media reported that four cement companies which plan to expand their production
capacities purchased 1.3 million tonnes of emission allowances in total on the first day of the experiment at
60 Yuan per tonne. While the system still has uncertainties, it is the first-ever emissions trading system
based on total volume control in China aimed at achieving emission factor reduction targets.
The regions are planning to fully launch regional trading within 2013, and to improve the system by
2015. Meanwhile, since June, the National Development and Reform Commission has begun to build asystem to measure, report and verify (domestic MRV) the emission volumes of six energy-intensive
industries nationwide, including the thermal power and steel industries. The Commission plans to run
intraregional experiments and to prepare the regulatory system of each sector simultaneously, aiming toestablish the domestic trading market by around 2020. While taking these actions with an eye on thenegotiations to prevent global warming, the Commission is approaching a critical stage on whether it canbuild an emissions trading market that can achieve the regulatory targets in the most efficient way, throughtrial and error and by learning from the experience and lessons of the EUETS.
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７．ME Watching: Chaos Worsened by Anti-US Rallies and the Situation in Syria
Koichiro Tanaka, Managing Director &Head of JIME Center
The anti-U.S. rallies that started out as a protest against a film defaming the Islamic Prophet escalated
into violent attacks on U.S. diplomatic facilities in Egypt, Yemen and other states. The protests have spreadto Sudan, Pakistan and Tunisia, and the governments’ inability to control these outbursts sparked by theanti-Islamic provocation show the magnitude of each society’s dissatisfaction mounting in these countries.
It is also becoming clear that the U.S. ambassador to Libya who was murdered in the U.S. consulate inBenghazi was targeted by militant groups including Ansar al-Sharia, which is allegedly tied to the“Al-Qaeda in the Islamic Maghreb”. Tensions are rising between these terrorists, who have expanded theirinfluence amid the confusion following the Arab Spring and the fall of authoritarian regimes, and the
Libyan citizens who have launched anti-terrorist sweeps in angry reaction to these acts of violence.
In Syria, the death toll keeps rising as armed conflicts continue in Aleppo as well as the capital city
Damascus. There is little prospect of a peaceful resolution, as both President Assad and the rebels havevowed to defeat the other by force in separate talks with Amb. Lakhdar Brahimi, Joint UN-Arab League
Envoy. Neither is the situation likely to be turned around by the foreign ministerial talks between Iran,
Turkey, Saudi Arabia and Egypt held on September 17 to deal with Syria. There is little hope that all four
countries will take concerted action, as Iran supports the Assad administration while the three othercountries take completely the opposite stance; Saudi Arabia did not even attend the meeting.
The Syrian problem is now starting to involve its neighboring country, Iraq, by encouraging extremists
and the inflow of weapons from Syria into the country. Pressure against Iraq is rising as criticism against
Iraqi Prime Minister al-Maliki mounts in the U.S. Congress for allegedly allowing Iran to airlift weapons
into Syria, and Senate Foreign Relations Committee Chairman John Kerry has warned that conditions could
be imposed on U.S. financial assistance to Iraq.
The tougher sanctions imposed on Iran by Europe and the U.S. is starting to bite as thevalue of Rial plunged into its lowest rate against the U.S. dollar. While the U.S. government
decided to grant the EU and Japan another 180-day extension of the exemption from theeconomic sanctions on Iran based on the National Defense Authorization Act, Iranian oil
exports are expected to remain at one million B/D level. Iran is searching for ways to restart
the nuclear talks with the P5+1 despite the decision of the IAEA board on September 13 to
demand that Iran stop uranium enrichment. The chief negotiator of Iran joined a banquet
with the EU’s High Representative Catherine Ashton in Istanbul, but this did not progress toactual talks. Meanwhile, the U.S. State Department removed the Iranian dissident militia
MKO (MEK) from its list of foreign terrorist groups in a dangerous move that overlaps with
the U.S. support of Iraqi dissidents before the Iraq War.

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8. Russia Watching: Summary of APEC in Vladivostok ― Achievements and Issues
Toshihiro Sugiura, Chief Researcher
Global Energy Group 2, Strategic Research Unit
Vladivostok is the largest city in Far East Russia which, as the main naval base of the Soviet PacificFleet, was officially closed to foreigners during the Soviet years. The name consists of two words, “Vladi”(imperative form of the verb “to govern ”) and “Vostok” (the East), together meaning “Govern the East”.
On September 8, President Putin hosted the first APEC Summit in Far East Russia in the city ofVladivostok. Aiming to expand its presence as a Pacific state, Russia approached the Summit preparations
with national pride, spending the enormous sum of ca.1.7 trillion yen to upgrade the surrounding
infrastructure. With energy issues expected to be the focus of the Summit, Russia accelerated theconstruction of an 1800-kilometer natural gas pipeline Sakhalin – Khabarovsk - Vladivostok (SKV), which
was completed in September last year. Russia was also planning to start natural gas production in the
Sakhalin–3 gas field in time for the commencement of the APEC meeting, to start fully supplying gas to theareas surrounding the pipeline and the city of Vladivostok.

The development of Eastern Siberia and Far East Russia is of critical importance for President Putin,which is why the Ministry for Development of the Russian Far East was newly founded in May in time for
the APEC Summit. The Summit in Vladivostok was expected to jump-start the development of Eastern
Siberia and Far East Russia.
At the Summit, APEC leaders issued the declaration “Integrate to Grow, Innovate to Prosper”, and fourpriority topics, such as trade and investment liberalization and regional economic integration, andstrengthening food security, were discussed. With regard to energy, “ANNEX B - Strengthening APEC
Energy Security” was released, confirming the importance of natural gas, the potential of non-conventionalgas resources, strengthening the response to oil and gas emergencies, and ensuring the safety of nuclear
power. With Russia and President Putin’s high enthusiasm for energy issues, especially concerning gas, theAgency for Natural Resources and Energy of Japan and Gazprom of Russia signed a memorandum on
September 8 in the presence of President Putin to promote the Vladivostok LNG construction plan.
Now that the consensus documents have been issued and the memorandum on the LNG construction
plan has been signed off, the challenge is how to implement them. The development of Eastern Siberia andFar East Russia will require massive investment; to attract such investment from inside and outside thecountry, it is necessary to upgrade both the tangible elements such as the infrastructure and the intangible
elements such as the institutional aspects. Despite high hopes for the development of Eastern Russia, whichfaces North East Asia where demand for energy is expected to grow, the future remains uncertain. Even at
this early stage, the Sakhalin-3 gas field has missed its initial target of starting to produce natural gas before
the APEC Summit, and is not due to start until the second quarter of next year, far behind schedule. There
are other issues too, such as the failure to secure enough natural gas to be carried by the completed SKV
natural gas pipeline. While the success of the first APEC Summit in Far East Russia is a great achievement,
we need to watch how the Putin Administration will use energy as the basis for turning the plan to develop
Eastern Siberia and Russian Far East into action.

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