Post 9/11, the traditional concept of safety of maritime transportation system has changed. The threats at sea arising from terrorism and piracy have assumed significance in view of the determined bids by Jihaditerrorists to engage both military and civil targets by using suicide terrorist tactics. In terms of maritime security, attacks on U.S.S. Coleand French tankerM.V. Limburghave exposed the vulnerability of both warships and merchant shipping. Importantly, the latter attack has highlighted the possibility of terrorists engaging in such attacks to create a long-term slowdown of maritime commerce leading to economic disasters.

There are fears that an LNG (liquefied natural gas) tanker exploding in a seaport could be as devastating as the 9/11 attack in the United States. A VLCC (Very Large Crude Carrier) or a LNG tanker could be rammed into a major port or a large bomb could be set off by a suicide bomber or via remote control on board a large cruise ship. Terrorism experts believe that terrorist groups are obtaining specific maritime skills, thereby increasing their capability of launching more complex operations. Such fears about the attacks have forced the states to initiate several initiatives to provide greater protection to maritime infrastructure and maritime supply chains.

Energy infrastructure is an attractive target that can be devastated or destroyed with relative ease.

The regional group in the Bay of Bengal known as BIMSTEC initially selected nine major areas, for example, trade, investment and industry, technology, transport and communication, energy, tourism, agriculture, fisheries and human resources development for sub-regional cooperation. However at the Second Ministerial Meeting of BIMSTEC in Dhaka in 1998, six priority areas were identified. The energy sector was among the six areas, and as a result of the developments that took place, Myanmar was designated the lead country and the chair country for the energy sector. Two projects are identified for cooperation.

The projects are:

1. The Energy Infrastructure Development (natural gas) Project, and

2. The Development of New and Renewable Sources of Energy Project

Following this identification, Thailand and India were designated coordinating countries respectively for the two projects.

Overview of the Energy Situation in the Sub-region/Bay of Bengal

The BIMSTEC region has a very large population; over 21 per cent of the total world population live in this region. The region has a very low per capita energy consumption with the main energy source provided for by traditional sources such as wood fuel and agriculture wastes. The sub-region — Bay of Bengal — has good prospects for economic growth and industrial expansion. However, it is currently experiencing high population growth and urbanization, increasing substitution of traditional fuels by commercial fuels and is under heavy stress from high commercial energy demand growth.

Although some of the member countries of the sub-regional group in the Bay of Bengal are endowed with primary energy resources such as coal, oil and natural gas and sharing of resources has already been in progress, the region as a whole is currently a net importer of commercial energy. Supply of electricity for population in most member countries still leaves much to be desired. Moreover, a large part of the population in the member countries live in remote areas where the availability of commercial energy is quite limited even for social purpose, let alone income generation.

Against this energy scenario, there is a dire need for the region to increase its efforts to develop the energy sector to the extent possible.

The Bay of Bengal region is extremely diverse in its energy resource endowment. At one extreme there is Singapore, an island city state with no hydrocarbon or hydropower resources whatsoever. At the other extreme are India, Myanmar and Bangladesh with considerable hydrocarbon and hydropower resources.

This chapter summarizes the current energy situation — production, consumption, imports and exports — within the Bay of Bengal region and discusses the outlook over the next twenty-five years. Most of the data is for 2004, the latest available at the time of writing from the Energy Information Administration (EIA) and International Energy Agency (IEA). Though fragments of later data were coming available, for the sake of comparability, the author opted generally to employ 2004 data throughout.

Total Energy Consumption and Economic Growth

The greatly different geographical scale and resource endowment of these countries, in combination with historical and political factors, have meant that they differ considerably in terms of economic development. Several are pre-industrial. For example, in Myanmar, Nepal and Bhutan, the agricultural sector accounts for over a third of GDP (see Table 2.1). On the other hand, in Singapore, Sri Lanka, Bangladesh and India, the service sector accounts for over half of GDP. It must be noted, however, that these are merely generalizations because most of these economies have large informal sectors which are not captured in national data.

Over time, it can be expected that the agricultural sector in all of these economies will reduce in size while the manufacturing and service sectors will expand. Fewer people will live in rural areas and grow crops. Many of the young people from the existing rural households will seek in the urban areas of their countries higher paying and less physically demanding employment, as well as better schooling and facilities, in turn, for their children. This is related to Engel's Law, that is, as income increases, the proportion spent on food decreases. As this occurs, there is a trend towards greater provision of services. People living in urban areas need to create employment, tend to earn more money and can afford to spend it on an increasingly wide variety of services ranging from healthcare to travel.

Renewables represent less than 2 per cent of the global power generation capacity — excluding large hydro, also known as “new renewables” — and are projected to reach a 6 per cent capacity by year 2030.

With average growth rates per year of more than 30 per cent for solar photovoltaic (PV) and over 20 per cent for wind power over the last five years, the renewable energy industry has come of age. As for bio-fuels, a recent report from McKinsey and Company concludes that much of the projected growth in industrial biotechnology — a US$77 billion industry in value within the chemical sector, counting products made from bio-based feed stocks or through fermentation or enzymatic conversion — is attributable to bio-fuels (ethanol and bio-diesel) as production is rapidly increasing to meet demand.

Conservative estimates show that, at the current rate of growth, the total renewables output (combined with biomass and bio-fuels) equivalent to only 2 per cent of the primary energy mix worldwide today, will at least double in the next twenty-five years.

Why is this Important to Us?

At the turn of the century, energy security has become the number one priority around the world. Every country is attempting to mitigate its reliance on limited and unstable primary energy sources. Due to the rapid economic growth of its two developing giants — China and India — and with a combined growth of more than 3.2 per cent per year — twice the world's average — the Asia-Pacific region surpasses the rest of the world in terms of energy demand. With half the projected global demand by year 2030, Asia- Pacific is central to this energy debate (source: Exxon Mobil tomorrow's energy report February 2006).

Will renewable energy shape the twenty-first century just like oil shaped the twentieth century world? The short answer is … not quite: to meet this formidable energy challenge, conventional energy sources, including large hydro and nuclear power will continue occupying a large share of our near-term landscape. Despite its rapid start, new renewable energy alternatives have a long way to go before reaching mainstream and making a significant contribution to our global energy mix. Fossil fuels (coal, oil and gas) will remain the dominant source of energy of the century.

INTRODUCTION

The Indian Ocean with average depths of 3,900 metres is the third largest ocean in the world, covering an area of more than 69 million square kilometres, or about 20 per cent of the Earth's water surface. It is bounded on the north by southern Asia; on the west by the Arabian Peninsula and Africa; on the east by the Malay Peninsula, the Sunda Islands, and Australia. The ocean is nearly 10,000-kilometre wide at the southern tips of Africa and Australia, but it spans 5,500 kilometres between Africa and Indonesia at the equator. Indonesia borders it on the east, but in the south, it opens wide facing Antarctica. The largest depths of the Indian Ocean floor are found in Java Trench and in Wharton Basin that exceeds 7,250 metres and 6,000 metres, respectively.

The ocean floor of the Indian Ocean is dominated by the Mid-Indian Ocean Ridge consisting of the Southeast Indian Ocean Ridge, Southwest Indian Ocean Ridge, and Ninety East Ridge. It reflects a long and complex history of plate dynamic since the Mesozoic. Plate interaction in the eastern boundary, namely Indo-Australian plate, Eurasian plate and Pacific plate, has produced numerous sedimentary basins in the area presently known as Indonesia. Some of these basins are proven to contain coal and hydrocarbon. In addition, tectonic plate interactions in the eastern boundaries have produced chain of volcanoes along the active margin involving magmatic and hydrothermal processes that potentially can be tapped as non-conventional energy resources.

At present and probably in the years to come, hydrocarbon and coal still are prime sources for energy in the world since the contribution of other energy types to the energy mix is still low. Large reserves of hydrocarbons are being tapped in the offshore areas of Saudi Arabia, Iran, India, Indonesia and Western Australia. An estimated 40 per cent of the world's offshore oil production comes from the Indian Ocean. However, the price of oil keeps increasing, and it seems that the era of low oil price is over. As energy demand increases due to better economic conditions, an unstable supply of energy resources due to security and political reasons in producing economies has to be considered as potential problems in the near future.

INTRODUCTION

For the last few years the Bay of Bengal region has come under focus for reasons of energy, trading, security and regional cooperation in general among the countries around the rim of the Bay.

The conference on the subject of “Energy in Bay of Bengal Region” held at the Institute of Southeast Asian Studies on 28–29 September 2006 was therefore an important milestone in that direction which needs to be carried forward.

This issue is addressed in its global perspective since there are many issues that link and affect the various countries of the region in multiple ways. Therefore any discussion on energy must be viewed as part of the overall picture.

The Bay of Bengal region comprises an area of more than 2.2 million square kilometres and 3.0 million, if we add the Andaman Sea and the Malacca Straits. It borders Sri Lanka, India, Bangladesh, Myanmar, Thailand, Malaysia, Singapore and Indonesia. In addition, if we were to also include the land-locked Bhutan and Nepal for whom the nearest sea exit is the Bay of Bengal, then the area and the issues involved become even more important.

Common Heritage

The area has historically been bound together for thousands of years for various reasons given the physical proximity in the first instance. It is a little known fact that Pu Breush Island in Sumatra is only 90 nautical miles or 170 kilometres or Phuket, Thailand is only 275 nautical miles both from Indira Point in Andamans and Nicobars, India. India alone shares maritime boundaries with Sri Lanka, Bangladesh, Myanmar, Thailand and Indonesia.

Not so long ago, Sanskrit was the common and dominant language in the region and the Hindu thought and later Buddhist philosophy created a common cultural thread among all the countries. Indeed, even the spread of Islam in certain countries of the area was from India. Extensive and well established trade between the countries of the region is well documented. Travelling across all these countries, from India to Indonesia, a common heritage is clearly inbuilt even though today each country has its own interests and agenda.

Given these historical ties, the question therefore arises where the region is today.

This book about Japan's efforts on energy efficiency is part of the ISEAS Energy Series. The issue of energy efficiency has become one of the most important aspects in the global energy outlook today. The depletion of fossil fuels as energy resources as well as global warming as factors in global socio-economic development make it imperative for us to consider energy efficiency policies and measures as one of the most important priorities for policy-makers and every responsible global citizen.

Japan has been a leading country in the area of energy efficiency. Since the 1970s when the oil crisis hit, Japan, which depends almost wholly on imported energy supplies from abroad, has been conducting various efforts on energy conservation and diversification of energy sources. As a result, Japan has achieved the lowest primary energy consumption per GDP in the world. Asian countries should learn from Japan's success in this area, especially since their economic growth is predicted to be one of the primary drivers for growth in global energy demand.

The chapters in this book are based on presentations on Japan's energy efficiency and conservation at ISEAS Energy Forums on two separate occasions. Professor Makoto Nishimura, former Executive Vice-President of the Mitsui Global Strategic Studies Institute Japan, and now an economics professor at the Nagoya University, presented a paper on energy efficiency and new technology from the private business perspective, at the ISEAS Energy Forum on 7 March 2007. Together with Dr Ram Giri, Project Manager of the Mitsui Global Strategic Studies Institute (MGSSI), he addressed the challenges and problems on exporting Japanese energy saving technologies. Mr Yasushi Akahoshi, Executive Director of the Japanese External Trade Organization (JETRO) Singapore, which is the Japanese government agency dealing with cooperation in foreign trade, also wrote a chapter on the policy aspects of Japanese energy efficiency and conservation. This was based on his presentation at the ISEAS Energy Forum on 14 March 2007.

Introduction

In previous years, the situation regarding regional economic cooperation and integration has been developing actively. One tangible development was the East Asia Summit (EAS), a 16 member-country cooperation. Two EASs or leaders’ meetings have been held, in Kuala Lumpur in 2005, and in Cebu, Philippine in early 2007. The Third EAS leaders’ meeting will take place in November 2007 in Singapore. There are several issues that the leaders have decided as possible fields for cooperation. Energy issues have been regarded as the most important, as shown in the EAS leaders declaration entitled “Cebu Declaration on East Asian Energy Security”. Singapore has been one of the most active countries for energy cooperation, and has proposed to host the First East Asia Energy Ministers Meeting, a move welcomed by the other leaders.

This paper discusses the policy side of Japanese energy efficiency and conservation. Chapter 1 by Makoto Nishimura, Executive Vice-President of the Mitsui Global Strategic Studies Institute, Japan, is on energy efficiency from a private business perspective.

This paper is divided into three parts. The first part examines the situation on energy consumption in Japan as a brief background. The second part discusses energy conservation policies and measures. International cooperation for energy efficiency is discussed in the final part.

The material for this chapter was mainly contributed by colleagues in Tokyo. Therefore, credits go to the Agency for Natural Resources and Energy of the Ministry of Economy, Trade and Industry (METI).

The Present Energy Consumption in Japan

Figure 2.1 compares energy consumption in three sectors from 1973 onwards, when the first oil shock took place. The figures in the second column indicate the amount of energy consumption in each sector, with the amount in 1973 taken as 100. The figure shows that the energy consumption in the commercial and residential sector and the transportation sector has been steadily increasing, as indicated by the number 247 and 212 respectively. Meanwhile, the industrial sector's indicator has been almost flat.

At the Second East Asia Summit held in Cebu, Philippines on 14–15 January 2007, Japanese Prime Minister Shinzo Abe announced Japan's intention to provide Japanese energy saving technologies to help Asian nations achieve efficiency in energy use and to reduce greenhouse gas emissions. The Prime Minister announced a US$2 billion aid package to help Asian nations develop energy saving technologies that can help to decrease the region's dependence on oil. He also invited researchers and Japanese experts to come on board. These commitments from the Prime Minister himself show that Japan has highly efficient energy saving technologies and is commited to spread such technologies to other parts of the world.

Before the “Oil Shock” hit Japan in 1973, the general view is that energy resources, especially oil, will not run out of supply. In that year, a brief but serious panic occurred in Japan. The manufacturing of detergent and toilet paper had to be halted, and about half of the elevators in buildings had to be stopped to reduce energy usage. Television stations ceased their broadcasting at midnight, and car usage had to be decreased to save petrol.

The year 1973 saw the dawn of energy conservation in Japan. Since then, many products, especially automobiles and household appliances, could only be sold if they have been proven to be energy saving (shoo-ene). Energy saving features are not restricted to general consumer products only but also to manufacturing facilities, transportation machines, houses, and buildings. Many Japanese products are now considered as a small package of energy saving technologies. Energy efficiency in Japan has improved by more than 37 per cent in the last thirty years (see Figure 1.1), and it has become the most energy-efficient country in the world. The Japanese Government has targeted a further energy conservation by 30 per cent in the next ten years (see Figure 1.2). Energy efficiency in the United States is half that of Japan, and in China it is is only one-ninth that of Japan (see Figure 1.3).

In its quest to reduce dependence on oil and gain energy security, China is trying a high-tech solution by turning coal into transport fuel. This is not a quixotic search. The South African energy company, Sasol, makes 30 per cent of South Africa's transport fuel from coal and says it can do so profitably without government support while the price of crude oil remains above $US35 per barrel. In early August 2006, the world market price was over twice this level. Sasol is just one of several global leaders in coal-to-liquids (CTL) technology that are working with China to build new plants there that will be among the biggest and most advanced in the world.

Coal liquefaction has been given high priority by China's leaders for both environmental and strategic reasons. First, they want to want to use coal — which is by far the most important energy source available in China — in “cleaner”, or less polluting, ways. This can be done by producing liquid fuel from coal, a process that emits fewer harmful emissions into the atmosphere than burning coal for industry or in power plants to generate electricity, or using petrol, diesel, aviation fuel and other oil-derived products for transportation.

Second, China's government wants to ease reliance on imported oil, particularly supplies carried by sea from politically volatile producing states in the Persian Gulf and Africa. This oil is ferried in tankers, almost of all of which pass through the narrow and increasingly congested Straits of Malacca and Singapore in Southeast Asia on their way to Chinese ports. The straits — which funnel energy to the economic giants of Northeast Asia, China, Japan and South Korea — are seen as vulnerable to pirate and terrorist attack. Since 2003, China has also been concerned that this vital energy artery — which it does not yet have the military reach or power to protect — could be cut, at least temporarily, by a hostile blockade.

INTRODUCTION

India is emerging as a significant economic presence in the world, and is also quickly becoming a force to contend with in world oil demand, given its needs both in terms of volumes and import dependence. The country is not self sufficient in energy, and while it has large coal resources, difficulties in access to coal reserves and low productivity have increasingly led it to import coal in recent times. Its oil dependence and the high oil prices over the last year have increasingly put energy security issues at the top of the policy agenda. This domestic priority has also tended to spill over into the foreign policy domain as it is increasingly becoming clear that securing energy requires a greater engagement with both producers and consumers of energy if energy supplies are to be augmented and an overtly competitive environment is to be avoided.

This chapter briefly analyses the current and future energy situation in India, the perceptions of risk and competition that are linked to its high hydrocarbon dependence, the strategies followed to manage risks and competition, and the author's strong recommendation that collaboration is the only way forward to create a greater global energy security. Section 2 of the chapter reviews the energy situation in India. Section 3 discusses the perception of risks and competition. Section 4 looks at the management of risks and competition, and Section 5 discusses energy collaborations as the way forward.

INDIA'S ENERGY SITUATION

India's energy situation can be characterized as one with a high energy- GDP elasticity, a low average per capita energy consumption relative to that of the world (one fifth), a high dependence on traditional energy resources in rural areas (up to 75 per cent), whilst in urban areas, it is lower, at 22 per cent. This dependence carries with it both environmental and health implications of using these sources. Moreover, one fifth of its population is still unserved by electricity resulting in difficulties in creating jobs, access to schooling, and low productivity.

Resource-poor Japan is barrelling ahead to rev up its energy security, driven by the specter of another oil crisis, the global rush for energy resources and a simmering gas dispute with China.

Japan's Ministry of Economy, Trade and Industry (METI) released publicly the New National Energy Strategy at the end of May 2006, which calls for, among other things, reduction in the oil-dependency rate to 40 per cent or less by 2030 from the current 50 per cent, promotion of nuclear energy, and securing of energy resources abroad through the fostering of more powerful energy companies.

Apparently in tandem with the new government energy-security policy, the nation's controversial nuclear fuel cycle policy has entered a new phase. The government unveiled a plan to construct a new one trillion yen (US$8.7 billion) fast-breeder reactor, and domestic power firms also announced their plutonium utilization plans in January, ahead of the start in March of a key test operation to extract plutonium at a spent-nuclear-fuel reprocessing facility. In another important development, Inpex Corp and Teikoku Oil Co, Japan's Number One and Number Three oil developers, integrated their operations under a joint holding company in April in a bid to survive cut-throat competition on the global scene.

The New National Energy Strategy also emphasizes the importance of stepped-up assistance to help Asian neighbours with energy-saving efforts and strengthened relations with resource-rich countries through such steps as concluding a free trade agreement, or FTA.

These Japanese moves toward greater energy security come amid growing concerns about whether the nation will be able to ensure stable oil and other energy supplies to fuel its economy, the world's second largest. Crude oil prices are stuck at near record levels of around US$70 per barrel in world markets.

Amid the stubbornly high oil prices, the global competition for oil reserves is intensifying.

INTRODUCTION

Asia, which is understood to mean Central Asia, Northeast Asia, South Asia and Southeast Asia, is as a whole, set for a period of economic, population and urban expansion and this will mean higher regional energy consumption in the years to come, especially in China and India. The International Energy Agency's World Energy Outlook for 2004 through to 2030, indicates that energy consumption in North East Asia is expected to amount to 3.5 billion tonnes of oil equivalent by 2030, a rise of around 1.5 billion tonnes over the next twenty-five years. China is mainly responsible for this projected increase in energy consumption. East Asia's consumption — excluding China, Japan and South Korea — is projected to increase to 1.4 billion tonnes in 2030. Over the same period, India's appetite for energy is also notably increasing. It is expected to consume as much energy as Japan and Korea combined by 2030. The following figure (Figure 15.1) shows the growing consumption of oil equivalent within Asia in comparison with North America, the European Union and Russia.

While the supply and demand of energy resources in Asia has a direct impact on the economic and political development of the region as a whole, energy cooperation among Asian countries has thus far been limited and far from ideal. Energy security is an issue of great importance in Asia and it is increasingly influencing the behaviour of Asian governments. In Asia, the role of the governments in addressing the energy issue is especially important since governments in the region retain considerable influence over their respective energy sectors through policies, regulation, ownership or investment. As a result, energy security decisions have not been left to market forces alone; instead, it requires a high and concerted level of political engagement by the respective governments. Energy security is in fact lodged within a larger framework of inter-state relations.

The Energy Programme of the Institute of Southeast Asian Studies represents one of ISEAS’ latest initiatives. The rise of oil prices in 2005 and 2006, combined with the continuing impact of 9/11 and the search for energy security by rising powers China and India, has stimulated both scholarly and lay interest in an issue that is of not only economic but strategic importance. Although the programme began in the 1980s, it was revived in June 2004 and has been well received, with thirty-five talks or seminars organized till the end of June 2006.

This book is based on a selection of the talks presented at the ISEAS Energy Forum. They range from energy conservation to oil rig manufacturing and the energy needs of India and China. While scholarly and reflective of the data and ideas presented at the forum, it is written in an accessible way so as to stimulate public awareness of key energy issues facing Singapore and the region. The writers bring to bear on the subject not just their expertise but also their ability to explain complex issues in an easily understandable manner. The Institute of Southeast Asian Studies would like to express its appreciation to the Konrad Adenauer Stiftung for its financial support.

I am particularly appreciative of Mr Mark Hong who conceived and developed the energy studies programme at ISEAS. I also appreciate his help, together with that of Mr Teo Kah Beng, in editing this book. Hopefully, this book will add to the growing knowledge on a subject which is going to be of critical importance in the twenty-first century.

In the five years since the turn of the millennium, the world has grown to realize that the defining rivalry of the twenty-first century may not be overtly religious or ideological, but overtly economic. It now seems that the definitive competition of the next 100 years will not be between Christianity and Islam, as many had thought in the post Cold War era of the late twentieth century. It will not likely be between communism and capitalism, at least not as ideologies. The rivalry that will shape the world will likely be between the world's lone super power, the United States of America, and the only nation- state capable of challenging its economic and political supremacy within the next generation, China.

This growing awareness is evident in the popular media, where generous amounts of space in broadcast, print and online media have been devoted to answering the question, “Does The Future Belong To China?” as Newsweek recently put it. There are many different ways to answer that question, most of which are beyond the scope of this chapter. But one way is to look more closely at the consequences of China's growth for the global energy industry, and in particular on the global oil and gas markets. Since the 1880s, the oil market has acted as a crucible where international relationships have been forged and broken. By examining the international oil markets, it is possible to gain a better understanding of the relationships between the leading actors on its stage — and a better feel for the rise and fall of nations.

Since the end of World War I, when industrialized nations shifted from coal to oil as a key transportation fuel in military use, the drive to control oil as a strategic commodity has defined the ambitions of nations.