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Keith W. Rabin serves as President at KWR International, Inc., a consulting firm specializing in the delivery of Asia-focused trade, business and investment development, research…

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The Need for a Comprehensive Asian Energy Security Framework

Interview with Nobuo Tanaka, President, Sasakawa Peace Foundation

Nobuo Tanaka

Nobuo Tanaka currently serves as President of the Sasakawa Peace Foundation in Japan. Previously served as Global Associate for Energy Security and Sustainability at the Institute of Energy Economics, Japan and prior to that as Executive Director of the International Energy Agency (IEA) Earlier in his career, Mr. Tanaka served as Director for Science, Technology and Industry at the Paris-based Organization for Economic Co-operation and Development (OECD). He began his career in 1973 in the Ministry of Economy, Trade and Industry (METI) in Tokyo. Mr. Tanaka first joined the OECD in 1989 as Deputy Director of the Directorate for Science, Technology and Industry, and was promoted to Director in 1992. In 1995, he returned to METI and served in a number of high-ranking positions, the most recent being Director-General, Multilateral Trade System Department, Trade Policy Bureau. In the energy field, Mr. Tanaka was responsible for Japan's involvement with the IEA and the G7 Energy Ministers' Meeting during the second oil crisis. In the late 1980s, he helped to establish the comprehensive energy policy of Japan and oversaw the implementation of Japan's international nuclear energy policy and negotiation of bilateral nuclear agreements. Mr. Tanaka worked on formulating international strategy as well as coordinating domestic environment policy and energy policy in the Kyoto COP3 negotiation. He was Minister for Industry, Trade and Energy at the Embassy of Japan, Washington DC from 1998-2000. Mr. Tanaka, has a degree in Economics from the University of Tokyo and an MBA from Case Western Reserve University, Cleveland, Ohio.

Hello Tanaka-san. It is good to speak with you again. Recently you assumed a new position as President of the Sasakawa Peace Foundation (SPF). Can you tell us about your work and the mission of SPF, and what you hope to achieve?

The SPF merged together with the Ocean Policy Research Foundation on April 1, 2015, and I was invited to serve as its President. It is now the largest foundation in Japan and it has become more focused on global security and geopolitics. Energy is a large part of this and one of my goals is to initiate more work on energy security including the issue of nuclear power in Japan.

Since the Fukushima disaster, there have been no nuclear reactors running in Japan and we were spending up to an extra $40 billion a year on importing oil, gas and coal, which also has important environmental consequences. Recent price declines have helped though the extra cost is still large. Relying more heavily on imports also makes us very dependent on supply from the Middle East - a region that is troubled with political tension and security problems. This is not a stable and sustainable situation or an effective way to manage our energy supply in a safe and secure manner.

It is, however, simply not possible in the current environment to restart our current nuclear reactors and declare them safe. This is clear given the consequences of the Fukushima disaster including the mistakes made, problems concerning waste disposal and the ramifications of how the cleanup was managed. Quite simply we have lost the public trust and that must be regained.

At the same time, while countries such as the US have the luxury of relying more on oil and gas, given amply supply that is forecast to last for decades or centuries to come, most other countries don't. So nuclear will remain an important component for countries such as Japan and Korea. It is urgent we take steps to recover the public confidence.

New approaches must, therefore, be explored. That is one of my main priorities, and we will work to review Japan's current as well as future energy needs and infrastructure, and to investigate and research new technologies and approaches that can satisfy public concerns as well as our energy needs.

In addition to concerns over safety, plants in Japan and elsewhere are aging and approaching the end of their lifespan. At the same time replacement will be very costly. What is your current view on nuclear and how it needs to develop if it is to be a viable fuel source, both in Japan as well as in other economies moving forward?

It is true that light-water reactors are coming of age and will need to be replaced. Some are more than 40 years. This is their anticipated life span and while there are facilities that have the potential for extensions - maybe to 60 years - sooner or latter they must be decommissioned. The IEA says 40% of all reactors in the world must be decommissioned by 2040. How will this be achieved and what will replace this supply in the future?

I believe nuclear will continue to play an important role and am proposing movement toward sustainable nuclear power that reduces the Co2 emissions which are mandated in an effort to alleviate climate change. Sustainable nuclear power, however, needs to pass more severe tests than Co2 reduction alone. First, safety concerns are paramount. Second, provisions need to be made for better waste disposal. Third, proliferation concerns must be addressed.

Fortunately, there is a technology available that will meet those conditions and that is the Integral Fast Reactor (IFR). This is an improved reactor technology developed at the Argonne National Laboratory in the US. The reactor is fueled in a manner that allows improved safety and waste disposal. Safety tests were conducted in 1986. Accidents were simulated and even when the normal shutdown systems were disabled the reactor shut down without overheating. This is the problem that made the situation in Fukushima so troubling.

Improvements in waste disposal are also a major concern and this new technology would bring major improvements in this regard. The IEA notes that 350,000 tons of spent nuclear fuel has been accumulated to date and this will increase to 700,000 tons by 2040. The IFR reactor promises to reduce the toxicity of spent fuel from 100,000 years at present to 300 years. This is still a long time but a vast improvement. This will also reduce the need to transport these toxic byproducts long distances, which increase hazards and allow more localized disposal.

Japan, Korea and the US all have this problem and we can use this technology to resolve some of the problems related to Fukushima and the disposal of toxic waste there as melt-down debris is basically the same as spent fuel.

This is not to suggest we have all the solutions. Decommissioning old plants will be costly and problematic as will be gaining approvals and financing plants using IFR or other technologies. At the same time we cannot forget that the world remains highly reliant on nuclear as a fuel source. If we need to develop new and better systems we need to start now. That way in 10 years time we will have a clearer idea of where we are going, if this technology does the job, and what other steps and improvements are necessary.

Only a few years ago there was strong concern about "peak oil" giving rise to exhausting oil supply. When combined with increased demand in emerging markets and inadequate exploration many believed we would face continuing price increases. Events of the last year, however, have led to a very different scenario. What happened and was concern about peak oil, demand in emerging markets and inadequate exploration misplaced?

Nobuo Tanaka

Peak oil still stands at the level of individual wells, but there are also other important developments worth noting. In addition to Middle East and other large long-standing oil fields, we now have the addition of shale oil, which is peculiar as production can be stepped up quickly but then declines equally as fast. In addition there are plenty of resources in difficult area, such as the Canadian oil sands and off shore properties in Brazil and other markets.

These require higher-prices to be viable and are also hampered by issues such as resource nationalism and geopolitical risk, which constrains investment into these new properties. That creates possible shortage of supply. The IEA understands the need for increased supply from different regions such as that produced by US shale, Canada Oil Sands and Brazil off-shore exploration but the world continues to be reliant on from Middle East production.

Iraq is particularly important, but the situation is fragile there and it is unclear whether the production can be sustained. Even if it can continue, it is unsure whether it will prove a reliable supply source in the future and if enough investment to maintain supply generation can be maintained given security developments there.

The current low price initiated by OPEC's decision of not reducing production is interesting as the IEA says that now after that pricing has moved into shale production - which as I said rises very fast when prices go up and alternatively declines rapidly when prices come down-- it can act as a built in stabilizer in the market and play an important roll in that regard.

I think the Saudi's are watching this very closely as to how current pricing will effect shale production and how this will effect market pricing. Within OPEC there are also discrepancies - while underground there may be abundant supply - that is not the only determinant in pricing given the uncertainties that exist. For example, if sanctions against Iran are lifted, this will also have an effect and make prices lower in short term.

In recent years substantial attention has been focused on the rise of fracking and shale oil production and before that oil sand production and other unconventional technologies, which require higher than present pricing levels. Will the large investments made into these technologies prove sustainable given current pricing and dynamics?

Shale investment is currently showing a rapid decline. This means production will decline quickly as well. Depending on the price level companies will not invest, but there are low cost producers and pipelines that will remain viable. While investment will continue, it will be much less than with a $100 price. Current speculation is with lower prices there will be restructuring of oil companies. Investment into Greenfield properties is likely to go down and there will be more M&A and consolidation.

The shale complex is composed of many small properties individually - but as a whole they are becoming increasingly important and substantial. Much depends on how long current low pricing will be sustained. Some, however, will survive, and while not as many as with $100 oil, shale and other unconventional technologies will remain a force and as I noted above will constitute a built-in stabilizer, which will trigger greater production as prices rise. This will therefore act as a brake on long-term price increases.

Until recently developed economies were the primary drivers of energy demand, though developing countries are now increasingly important. This will have profound consequences in terms of demand and supply, climate change, energy efficiency and infrastructure development. What is the impact of this shift toward the growing importance of demand in emerging and developing economies particularly as these markets move to strengthen the consumer side of their economies?

Nobuo Tanaka

The consumption center for energy is clearly moving away from Europe and the USA toward Asia and also the Middle East. The market is changing its structure due to increased consumption in these regions. How these regions sustain their supply is a security issue that will affect us all. Cleaner technology is important, as is efficiency and the need to avoid triggering large increases in carbon emissions. Price elasticity of demand is low in the emerging economies, while supply side elasticity is high. That means more volatility in pricing. We also need additional supply of shale gas in emerging countries, like China and Argentina. To reduce wasteful consumption it is also vital to phase out fossil fuel consumption subsidies.

Long-term off-take agreements which have helped us to manage pricing and our supply chains will become harder to find and might not continue - it is likely we will see more reliance on market pricing. China and other countries are also keen to invest in the infrastructure of energy as well as gas pipelines. This will result in Asian economies being increasingly interconnected with each other. That is important and what Europe did. Asia is becoming increasingly aware of the need for collective energy security framework and sustainability. A bigger market is more efficient and sustainable. So the issue is how can we coordinate as well as ensure stable supply in a collective way.

This is creating a need for an Asian Energy Security Forum. The IEA has traditionally been a global forum - but now with growing demand shifting to Asia and other developing economies we need additional regional frameworks eventually aiming at initiating European-style Energy Unions.

For decades we have been talking about the promise of alternative energy and in recent years technology has been improving and we are now seeing large reductions in the pricing and feasibility of solar and some other renewable technologies. Is this finally beginning to have a larger effect on energy production and how do you view the prospects for alternative energy development over the short, medium and long term?

Renewable technology is definitely seeing price declines, which are making them increasingly viable and worthy of consideration. Solar and wind, however, are still volatile in terms of their ability to ensure stable energy supply and to make it work - better storage and battery technology is essential.

A system to more effectively realize their promise is essential - and quite frankly feed-in tariffs are not enough. Improving connectivity to the grid must be achieved and Japan is now conducting power market reform to help that process.

Currently in Japan, only 20% of investment plans for renewable projects which are approved by the Ministry of Economy, Trade and Industry (METI) that would rely on feed-in tariffs actually materialize and progress to the point where they generate electricity. The reason for this poor ratio is ultimately the utilities reject and are unable to purchase the power that is to be provided, as there is no adequate grid connection. This problem is even more significant in developing and larger countries which lack a grid infrastructure as developed as Japan.

Market design must therefore be improved to allow production in a more decentralized manner. Renewables need local management, not centralized and the utility model, which focuses centralized supply from larger plants. This must be rethought for this technology and the promise of renewables to be realized. How can use of these desirable technologies be balanced with the present grid into a remodeled structure that provides a stable supply network in an efficient and stable manner. That is a major challenge and integral to ensure adequate energy security moving forward.

Tanaka Group

As you know we have been very active in Myanmar and recently completed a multi-year study on Myanmar Integrated Energy Development and Rural Electrification there. Earlier this year you visited Myanmar to meet with key officials and to participate in a workshop that helped mid-level government and other officials from numerous ministries and other bodies in their efforts to develop needed policies and regulatory structures. What was your impression and any thoughts or comments on the electrification development now underway in Myanmar?

Myanmar is now opening to foreign investors and I felt sincere and open desire by Ministers and other officials I met with to upgrade and deal with their energy and electrification challenges. This was very impressive. We are also seeing increased participation by ADB WB, JICA, JBIC and other donors, who are rushing in to assist in developing necessary energy infrastructure plans.

The problem though is capacity as well as coordination between these different players. Different ministries have different roles. This results in different responsibilities as well as overlap and inefficiencies. Communication and coordination needs to be improved. A coordinating National Energy Management Committee and National Energy Development Committee has been formed to facilitate this process but more work needs to be done on this and to allow investment into needed infrastructure. This is essential if Myanmar is to develop and energy supply is to become adequate to allow the economic transformation now underway. This includes important consideration of rural electrification needs and ways to encourage electrification in remote areas, which is often not viable when considered on market terms.

So the question is how can we make Myanmar's energy infrastructure and generation and distribution systems more stable and inviting for both investors and consumers so that they will have incentive to work on this and to design new energy market. This will include incentives for efficiency, work on reforming tariffs, as well as regulatory coherency and effectiveness and creating a competitive industry.

This will be a challenge. It will not be easy and it is unlikely to progress in linear fashion. I think though everyone understand this and when I talk with Ministers and other leaders in Myanmar as well as the mid-level officials who participated in the training program you mention I see their strong commitment and determination and am therefore highly optimistic about Myanmar's prospects and its ability to overcome the challenges before it.

Thank you Tanaka-san for your time and attention. On behalf of our readers we really appreciate your taking time to speak with us today.

 

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