Growing Asian demand presents a golden opportunity for Russia to diversify away from its primarily European export market, writes Nobuo Tanaka. Read the World Economic Forum’s report: Scenarios for the Russian Federation.
Russia and Asia could be an energy partnership made in heaven. Two thirds of future energy demand growth will come from Asia, while Russia is now the biggest gas and oil producer in the world.
China is growing so fast that it will certainly need to import oil and gas to feed its ravenous economy. This is despite its ambitious efforts in the fields of energy conservation, renewables, and nuclear energy, and notwithstanding future production of shale gas and coal bed methane.
According to the World Economic Forum’s Energy for Economic Growth: Energy Vision Update 2012, China accounts for about 20% of global energy demand. Its oil consumption has increased by about 7% per year over the past decade, leading to a dependence on foreign oil that is forecast to grow by 2% to 3% each year. About 55% of the oil China consumes already comes from foreign markets and this could reach 70% by 2015. Dependence on foreign gas and coal is also likely to rise.
If India continues on its economic growth path its coal consumption will undoubtedly increase.
The South-East Asian region is now a net exporter of gas, but rising domestic demand is likely to diminish this economic opportunity. And Japan’s decision to turn its back on nuclear energy, following the 2011 tsunami and subsequent disaster at Fukushima, means it will need more gas to plug the energy gap.
So who else could supply this energy need? Although North America is now practically energy independent thanks to its new discoveries of shale gas, export volumes are likely to remain low.
Australia has potential but rising production costs could make it an unreliable partner. The Middle East continues to present geopolitical risks, and Africa needs more infrastructure investment.
So the spotlight falls back on the Russian Federation, which remains a titanic “energy empire”. According to the World Economic Forum’s Russia Competitiveness Report 2011, Russia has about 6% of the world’s proven oil reserves, and about 24% of the world’s proven gas reserves. It is the world’s biggest exporter of natural gas and in 2012 even overtook Saudi Arabia as the world’s largest oil producer, providing 12% of global oil production.
But it needs huge investment from cash-rich Asia to maintain its oil and gas revenues. While West Siberian oil and gas will be depleted, the focus moves to East Siberia and the Far East where demand is growing.
This growing Asian demand presents a golden opportunity for Russia to diversify away from its primarily European export market, at a time when the EU is desperately trying to reduce its own dependence on Russia. New energy supply agreements with Norway bear this out.
Diversification is good for both Asian importers and Russian exporters – it is a win-win situation. New pipelines will connect and integrate Russia with its eastern neighbours.
The EU’s interconnected power grids and pipelines increase its energy security and sustainability, with Russia still as the major supplier.
So could Asian countries create their own interconnected grids and pipelines and also have Russia as a reliable supplier? There’s absolutely no reason why not.
About the author: Nobuo Tanaka is Global Associate for Energy Security and Sustainability, The Institute of Energy Economics Japan (IEEJ), and Executive Director, International Energy Agency (2007-11). He is a member of the World Economic Forum’s Global Agenda Council on Energy Security.
Photo: Energy-intensive industries, like this steel factory in Dalian, China, will increase demand for foreign imports of oil, gas and coal throughout Asia. (China Daily China Daily Information Corp/ Reuters)