NBR Reports (Sep 2011)
Asia’s Rising Energy and Resource Nationalism: Implications for the United States, China, and the Asia-Pacific Region
Gabe Collins, Andrew S. Erickson, Yufan Hao, Mikkal E. Herberg, Llewelyn Hughes, Weihua Liu and Jane Nakano
Table of Contents
Resource Nationalism in the Asia-Pacific: Why Does It Matter?
Energy Nationalism Goes to Sea in Asia
Gabe Collins and Andrew S. Erickson
Asia’s National Oil Companies and the Competitive Landscape of the International Oil Industry
Mikkal E. Herberg
Rare Earth Minerals and Commodity Resource Nationalism
Yufan Hao and Weihua Liu
Rare Earth Trade Challenges and Sino-Japanese Relations: A Rise of Resource Nationalism
Introduction: Asia’s Rising Energy and Resource Nationalism
Mikkal E. Herberg
Over the past decade, Asia has become the center of global energy and commodity markets as demand for these resources has mirrored the region’s rapid economic growth. This trend is most pronounced in the case of energy, in which rapid industrialization, massive urbanization, rising per capita incomes, and the expansion of transportation
and motorization have all boosted demand for oil, natural gas, coal, and electricity. This boom in energy has been centered in China, but regional demand for other commodities, including rare earth elements (REE), has also risen sharply. At the same time, a relatively limited resource base means that Asia’s import dependence on critical energy and industrial inputs is growing rapidly. Given the uneven distribution of these resources globally, an increasingly rising share of Asia’s petroleum will need to be imported from the Persian Gulf and Africa, both historically unstable regions of the world.
Not surprisingly, therefore, a powerful sense of insecurity about the reliability of future energy supplies has spread across the region, including fears that shortages or disruptions could undermine continued economic growth and job creation and thus threaten the bedrock of political stability in Asia. Similar anxieties are emerging in markets for other key raw materials. For example, recent declines in Chinese exports of REEs have provoked regional anxieties over potential shortages of supplies essential to manufacturing high-tech clean energy products while heightening national security concerns over the availability of REEs necessary for critical military applications. Consequently, energy security and access to key raw materials have become a matter of the “high politics” of national security rather than merely the “low politics” of domestic energy and economic policy.
Energy and national resource security are now critical strategic and economic agenda items for all the major Asia-Pacific powers. Today’s anxieties have been aggravated by a substantial rise in energy and industrial commodity prices that culminated in 2008 and by what many have called a “super-cycle” of long-term secular commodity price increases. In the wake of the Western recession, rising prices and supply insecurity have re-emerged as major economic concerns, as the global recovery—led by Asia and, in particular, China—drives a resumption of the super- cycle. As major regional powers seek to ensure access to key commodity supplies, energy and resource nationalism and a zero-sum atmosphere surrounding the control of future oil, energy, and commodity supplies have become sources of regional rivalry, tensions, and potential conflict. Competition and national suspicion over control of energy and other resources are spilling over and affecting the tenor of the region’s most important strategic rivalries—most importantly, the rivalry between the United States and China. Although there have been some efforts to improve regional and multilateral cooperation in order to maintain open markets and access to supplies, for the most part cooperation has been in relatively short supply.
The United States has been the traditional hub and guarantor of stability in Asia and the key energy-exporting regions of the world. Political stability and economic prosperity in Asia are vital to long-term U.S. interests in the region. Therefore, the United States has a major stake in how Asia responds to energy and resource insecurities. Competition over access to and control of energy supplies, transportation routes, and critical materials such as REEs has the potential to stoke political tensions, aggravate existing strategic rivalries, and even provoke outright confrontations. Given that Asia lacks an overall regional security architecture and that the existing institutions for managing conflict are limited, such competition could prove to be deeply destabilizing. Thus, reducing the potential for conflicts driven by energy competition and resource insecurity has become an important new dimension of the United States’ regional strategy.
To address these issues, the National Bureau of Asian Research (NBR) and the Woodrow Wilson International Center for Scholars co-hosted NBR’s seventh annual Energy Security Conference in Washington, D.C., on May 4, 2011. Building on NBR’s ongoing initiative to bring together policymakers, industry leaders, and other stakeholders concerned with Asia’s energy demand, the annual conference convenes senior analysts and policy experts for high-level discussions on the future of Asian energy markets. This year’s conference, entitled “Asia’s Rising Energy and Resource Nationalism,” focused on the implications of Asia’s resource security challenges and their impact on U.S. geopolitical and energy security interests. The conference was supported by generous contributions from Chevron; ConocoPhillips; ExxonMobil; the Henry M. Jackson Foundation; and the Japan Oil, Gas and Metals National Corporation.
NBR commissioned five essays for the conference to provide a basis for analysis and discussions. These essays addressed the major concerns arising from government responses to national energy insecurity, including the role that energy and resource insecurity are playing in driving naval competition in Southeast Asia and the Indian Ocean, the impact of Asia’s state-sponsored national oil companies (NOC) on the competitive landscape of the global oil industry, and both Chinese and Japanese perspectives on the geopolitical dimensions of the controversy over China’s exports of REEs. This report includes all five essays along with a conclusion drawing implications from the conference about the impact of rising energy and resource nationalism in Asia on U.S. energy security and strategic interests.
Llewelyn Hughes from George Washington University provides an informative overview of energy and resource nationalism in Asia to offer a broader perspective on the concerns about energy competition and markets. He suggests that the expanding effort by Asia’s rising powers, particularly China and India, to secure future energy resources is adding to an atmosphere of distrust among the key powers in the region. But he also argues that the industry reality is that it is not possible to “lock up” oil supplies, given the global nature of today’s market. Moreover, the efforts of these states to do so are not unlike the earlier efforts of Japan and Korea following the global oil shocks in the 1970s or the European powers in the past. In fact, although energy nationalism is rising in Asia, it is declining among the industrialized Western countries affected by previous oil shocks. Moreover, state support for NOCs seeking resources abroad is not especially surprising, because it mirrors support for these countries’ major industries and national firms in other industrial sectors. However, Hughes does point to two collateral risks. First, the rising diplomatic influence of large oil-importing states in Asia that are not formal U.S. allies, namely China and India, runs the risk of weakening U.S. influence in key oil-producing regions. Second, resource competition could aggravate regional maritime tensions over control of offshore resources and sea lanes.
Andrew S. Erickson from the U.S. Naval War College and Gabe Collins from China SignPost provide an excellent discussion of the growth in maritime oil and gas transit flows from the Persian Gulf and Africa through the sea lanes of Southeast Asia and the Indian Ocean to China and the rest of Asia. They highlight how energy demand and transit have become important new drivers for naval expansion and rivalry in the region’s sea lanes. Energy security has two important impacts on the South China Sea region. The first is that the potential for large oil and gas resources under the sea bed is adding fuel to already serious disagreements over competing sovereignty claims in the South China Sea. The second issue is that as China’s dependence on oil imports rises dramatically, Beijing is increasingly uncomfortable with the U.S. Navy controlling regional sea lanes. Evidence suggests that this discomfort is a key factor in motivating China’s naval modernization and growing capabilities, which are in turn driving naval expansion by other regional powers and presenting new challenges for U.S. naval strategy.
The essay I authored for the conference and this report provides an analysis of the rise of Asia’s NOCs and assesses their growing impact on the competitive landscape of the global oil industry. Asia’s major oil- and gas-importing states have promoted their NOCs in the belief that ownership of oil production enhances their national energy security. At the same time, these NOCs are increasingly investing abroad for straightforward commercial reasons, such as access to larger resource opportunities, and strengthening their competitiveness. Especially in the past three to four years, China’s NOCs have become important competitors to the big international oil companies (IOC), who are already facing more limited global opportunities due to competition from the oil-producing NOCs and the large oil service companies that partner with both producer and importer NOCs. Recently, many IOCs have responded by finding ways to partner with the Asian NOCs in large projects, most prominently in Iraq but also in China and India.
Yufan Hao and Weihua Liu from the University of Macau and Jane Nakano from the Center for Strategic and International Studies provide an excellent pair of papers on the growing geopolitical impact of REEs. Hao and Liu present a cogent view from China’s perspective that emphasizes the roots of China’s recent moves to reduce REE production and limit exports in domestic environmental programs and industry consolidation. Rather than a Chinese effort to assert control over the global REE market and drive up prices, as some fear, they suggest that the moves were necessary to reduce the massive environmental damage caused by unauthorized REE production and create a more rational REE industry structure in China. Nakano then presents the issue from Japan’s perspective, focusing on what Tokyo saw as a sudden reduction of Chinese exports, rapidly rising prices, and an apparent effort by Beijing to control the market. Japanese concerns were deepened when China cut off REE exports to Japan during the controversy over the arrest of a Chinese fishing boat captain who had ventured into disputed waters. Japan has responded with a range of policies to source REEs from elsewhere, find substitutes, and recycle existing supplies.
The conference papers, presentations, and discussions presented a broad picture of the major risks emanating from Asia’s growing energy and resource insecurity. They collectively suggest that energy and resource insecurity among the key powers in Asia is affecting existing political and strategic rivalries in both predictable and unpredictable ways. Beijing, Tokyo, Seoul, and New Delhi are promoting their NOCs’ efforts to secure oil and gas fields abroad and construct regional pipeline routes, which in turn is worsening fears over access to vital future resources. The atmosphere of competition to control supply routes is also increasingly “going to sea,” as Asia’s, and specifically China’s, dependence on maritime tanker supplies accounts for a growing share of oil and gas imports, which is stimulating naval development and potentially a regional arms race. China’s NOCs are also becoming key players in the global oil industry and beginning to serve as the catalysts for important competitive shifts. Other potential resource conflicts, in particular over REEs, are increasingly being drawn into the same atmosphere of national and strategic competition. The conference reinforced how important it is for the United States and other Asian governments to begin working to address their common resource challenges in collaborative rather than competitive ways. This will require strong and visionary leadership, most importantly from Washington and Beijing.
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