Natural Gas in Asia:

- 24 June 2008
Book Review written by Nicholas Newman

The Challenges of Growth in China, India, Japan, and Korea. Edited by Jonathan Stern Oxford Institute of Energy Studies

There are crucial issues and problems that face the Asian Natural Gas industry today, which have been dangerously ignored by the West.

The rapid economic growth in economic development being experienced by the major economies in Asia is creating new challenges for industry decision makers and investors to solve.

The authors in this new edition of ‘Natural Gas in Asia: The Challenges of Growth in China, India, Japan, and Korea’ seek to explain the factors hindering development, examines possible solutions and the likely prospects for the industry in Asia into the 2020s.
What are the issues, challenges and problems the Asian gas industry faces?

This book outlines and analyses the problems and challenges that face the Asian gas industry in a time of rapid economic development. Such growth is facing such countries with problems meeting existing and future demand for gas from domestic sources. In addition, added pressure for gas supplies is due to policy decisions to switch from coal power, in order to improve the environment. For example, such environmental concerns have been forced on Beijing in order to make the local environment suitable for the 2008 Olympic participants.

Domestically, various governments are trying to reduce subsidies on gas prices, despite stiff political opposition, in order to cut growth in demand. Other states, including India, are encouraging the search and development of new domestic gas fields and expansion of the existing gas pipeline networks.

In addition, some governments are seeking to import additional new supplies from abroad, either via trans-border pipeline networks or Liquid Natural Gas (LNG) tankers from gas fields elsewhere, including the Middle East, Australia and Atlantic gas producing regions.

There have been long-term plans for over a decade to develop new pipelines to link gas fields in Siberia with markets in Japan, China and South Korea. The main obstacle to such plans has not been economic, but overcoming deep-rooted historical political problems and energy security concerns that consuming countries have with Russia.

Amongst, the primary problem that has hindered construction of new pipelines in the region, is the inherent historic lack of trust between the countries concerned.

In the case of China, construction of a new pipeline to Siberia has been delayed for a variety of reasons. Beijing has energy security fears that it might become too dependent on Russian energy. Also Russia's Gazprom and China's CNPC have failed to resolve their differences over gas prices.

Similar failures to resolve past political issues are the main obstacle to Japan being linked directly by pipeline in Siberia. The Kremlin and Tokyo have still failed to normalize post Second World War political relations and resolve the ongoing territorial disputes over the Kuril Islands. Also, the LNG option enables Japan to shop around for its gas supplies and not be tied down to one particular supplier, which would be the case if a pipeline was built linking Japan with Siberia.

As for South Korea, current political tensions with its neighbour North Korea, put on indefinite hold any likelihood of a direct pipeline to Siberia via North Korean territory. Whilst more feasible proposals of a gas pipeline via China to Russia, will only come to fruition, if and when, both the Kremlin and Beijing come to there own deal about gas supplies.

However for India, the prospects of gaining access to Iranian gas supplies will depend on Delhi gaining permission from Islamabad for permission to construct a pipeline through its territory. In the past India has not enjoyed good relationships with its neighbour Pakistan, also there is an ongoing territorial dispute between the two countries.

At present proposals for such pipelines seem to be in a permanent state of negotiations, with the prospect of construction never getting any closer. Comparable projects elsewhere in the region have faced similar concerns, which have so far failed to be resolved.

For the European reader of this book, it is reassuring that the EU is not the only major purchaser of Russian gas having problems in dealings with Russia. In fact both China and Japan have similar reservations about becoming too dependent on Russian energy. Furthermore, Jonathan Stern the book’s editor makes the telling observation that “there is no credible China or Asia ‘card’ that Russia can play with European gas customers, by suggesting that current or future supplies can be ‘switched to Asia.” Currently, there is not the gas infrastructure in place to enable Russia to deliver gas in the same volumes as it does to Europe. Jonathan Stern suggests it will be years, perhaps decades before this is the case. In fact it is wrong to assume both the EU and Asia will be supplied from the same gas fields. It makes more economic sense for Russia to supply such markets from gas fields near to such markets in distinctly different geographic locations, concludes Jonathan Stern.

Asian gas companies have realised that though construction of many of the proposed trans-national pipelines is unlikely to be realised for some time. They must seek an alternative, which are both economically and politically feasible. LNG is the option that China, South Korea, India and Japan have opted for. They are importing natural gas via LNG tankers from countries as far a field as the Atlantic, Middle East and Australia. For many importing Asian countries, Australia seems to be a very attractive option as a supplier, since it does not have the political problems that are faced with dealing with Russia or Iran. In Australia, the problem is how fast the Australian gas industry can take to develop the giant natural gas fields it has discovered off its coasts, in often difficult and remote locations. Though of more concern for Asian importers is the increased competition for Australian gas from North America and Europe, who are prepared to pay higher prices.

Conditions in the Asian gas markets have changed out of all recognition since the first edition of this book came out in 2002 and will continue to change very rapidly, making forecasts about the future of the Asian gas industry is very difficult to predict.

Economic imperatives are beginning to bring a transformation in overcoming the long standing political historical problems that face the countries in the region, in the very same manner that the creation of the European Union has transformed political and social relations in the EU?
Who is this book for?

Unlike many an Oxford University Press publication of this standard, this book is aimed at the key decision makers and investors concerned with the business of the Asian natural gas industry. Business journalists will find this book an invaluable aid for briefing on the issues and challenges that concern the gas industry in the region.

Would I recommend this book?

This publication provides a vital tool that should be read by every decision maker, professional commentator and investor concerned with the business of the Asian natural gas industry. It is a well thought out readable analysis of the situations in the Asian gas markets.

409 pages | May 2008 978-0-19-954141-6 |Hardback £45.00 inc. p& p ($90.00, €60.00)

A book review by Nicholas Newman - 24 June 2008


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