UNCLAS SECTION 01 OF 03 TOKYO 001406

SIPDIS

SIPDIS

PLEASE PASS TO EB/ESC/IEC/ENR FOR JOHN WECKER AND EAP/J FOR
LORI SHOEMAKER. PLEASE PASS TO DOE/PI FOR BARBERT/PUMPHREY
AND TO DOE/EIA FOR CARUSO/SWEETNAM. PLEASE PASS TO
NNSA/BROOKS/PAUL/AOKI/BAK
ER/BLACK/CARLSON.

E.O. 12958: N/A
TAGS: ECON ENRG JA
SUBJECT: APERC CONFERENCE HIGHLIGHTS ENERGY SECURITY,
EFFICIENCY AND COAL

TOKYO 00001406 001.2 OF 003


1.(SBU) Summary. At the Asia Pacific Energy Research Centre
(APERC) annual conference on energy in the APEC countries,
presenters agreed that APEC nations face similar energy
security issues that stem from income growth, increased
industrialization, and urbanization. Given current prices
for oil and natural gas, experts also agreed that coal is the
most economical and efficient means of power generation, but
that clean-coal technology must continue to be improved to
make coal an environmentally attractive, zero-emissions
energy solution. End summary.

2.(SBU) The Asia Pacific Energy Research Centre (APERC), part
of the Institute of Energy Economics, Japan (IEEJ), held its
annual conference on energy in the APEC countries. During
the conference, APERC presented its proposed research areas
for 2006-07 and invited experts to present papers on regional
energy supply and demand as well as the energy markets in
Russia, China, and the US.

3.(SBU) APERC Vice President Yonghun Jung presented an APEC
energy supply outlook which predicted an increased demand for
coal of 1.9 percent versus 1.8 percent for oil and 1.7
percent for natural gas by 2030. He argued that the key
drivers of this energy demand would be income growth of 3.5
percent, urbanization of 68 percent (versus 52 percent in
2003) and increased industrial growth of 4.8 percent, versus
GDP growth of only 4.1 percent per year. Jung highlighted
the expected growth and fast pace of motorization over the
next 25 years, coupled with urbanization growth of between 61
percent (China) and 87 percent (North America). Energy use
in the electricity sector is likely to grow at the quickest
pace, followed by the commercial and transportation sectors.
Despite current efforts to break global dependence on oil,
imports are expected to increase over the next 25 years with
the largest growth occurring in Southeast Asia, due to
depletion of the area's own natural resources. (By APERC's

calculations, even Indonesia will be a net importer of oil in
10 years time. Furthermore, Thailand, which has seemingly
sufficient supplies of natural gas, is expected to import 50%
of its domestic supply by 2020.) Jung also noted that the
growing need for energy infrastructure and the looming
shortage of human resources to manage the sector pose
additional concerns for energy security. This sentiment was
echoed in other presentations.

4.(SBU) IEEJ's Senior Research Fellow Yoshimitsu Mimuroto
described renewed global interest in coal. The Asia Pacific
region in 2004 relied on coal for nearly half of its energy
compared to the rest of the world, which averaged a little
over one quarter. In the 1980s coal and natural gas were
used as substitutes for oil and that phenomenon returned
around 2000. Currently Japan imports the largest amount of
coal in the world (approximately 20%), primarily from
Australia; South Korea is a distant second. Mimuroto
demonstrated that coal demand had substantially surpassed IEA
projections since 2000 and likely would remain the
predominant fuel in power generation over the next two
decades, necessitating further development of clean coal
technology for reduced emissions. (Mimuroto also noted that
US exports of coal have declined relative to the 1980s and
early 1990s, and expressed hope that US exports would
increase to meet growing world demand.) Already, dust
removal technology has produced dramatic emission reductions
and the goal is to develop zero-emission technology using
combined cycle turbines (CCT). Mimuroto argued that a
combination of reasonable prices, competitive CCTs and the
Kyoto mechanism for emissions trading produced the best
energy mix based on energy security, economic, and
environmental considerations. Finally, Mimuroto noted that
in Japan METI's current plan is to deploy zero-emission coal
plants from around 2030.

5.(SBU) Glen Sweetnam of the Department of Energy's Energy
Information Administration (EIA) contended that the effect of
high oil prices meant a drop in natural gas consumption and
an increase in coal use because the price of natural gas
continues to be linked to oil. OPEC appears unwilling to
increase production and despite two years of high oil prices,
impediments to increased investment in oil production

TOKYO 00001406 002.2 OF 003


persist. Over the past 25 years, GDP in the US has been very
resilient despite increases in oil prices, an indication that
oil prices play a less influential role in the US economy.
The EIA has based its 2006 energy projections in large part
on this statistic. Sweetnam did note, however, that
unconventional fuel supplies are attractive at current prices
-- these sources include oil sands, coal-to-liquids, and
ethanol. He also expressed the EIA's view that "peak oil" is
not a concern although the EIA continues to follow the issue
closely.

6.(SBU) In the context of the 2006 G8 Summit's Russian
presidency, presenter Vladimir Ivanov from the Energy
Research Institute of Northeast Asia (ERINA) gave details of
oil and natural gas projects throughout Russia. He discussed
Russia's concern over its dependence on Europe as the
dominant destination for oil exports and the transit fees and
port charges it must pay to reach western ports. He valued
at close to $230-$240 billion dollars the new delivery
infrastructure Russia must build over the next 15-20 years.
Ivanov referred to the Eastern Siberia Pacific Ocean pipeline
as the infrastructural backbone of Russia's oil strategy. He
also noted that unlike oil and liquid natural gas (LNG)
exports, pipeline gas exports depend on the policies and
energy choices made by neighboring countries such as China,
the Koreas, and Japan. Russia's challenge will be to balance
investment against unpredictable energy prices. He suggested
that improving energy efficiency in Russia should be seen as
an opportunity to improve productivity and spur innovation.
The challenge of energy security, rising energy prices and
climate change all pointed toward increased emphasis on
energy efficiency and de-carbonization of energy sources.

7.(SBU) China's energy resources and environmental
constraints were detailed by Zhou Fengqi of the Energy
Research Institute of China's National Development and Reform
Commission (NDRC). He highlighted China's rapidly increasing
energy demand, production, and infrastructure development and
noted the imbalance in supply that persists. Zhou described
China's economic growth as lacking a refined developing model
and of poor quality based on per capita GDP. Despite China's
ranking as the world's second largest energy consumer, its
per capita energy consumption is less than 10 percent of the
United States. China has an excessive dependence on coal for
energy production -- 69 percent versus a world average of
27.2 percent. In addition to poor energy efficiency, the air
quality of 60 percent of China's cities did not meet the
national environmental standard in 2004.

8.(SBU) APERC's Gusti Sidemen highlighted the importance of
governments' roles in environmental regulation and research
and development. He noted the challenge APEC countries face
in creating attractive conditions for investors and he ranked
several international companies on their proven environmental
friendliness, safety, vision and other criteria. Sidemen
also pointed to the lack of emergency preparedness of
developing member economies. He called for an improved
investment climate in the energy sector and a more
transparent energy market through data exchange.

9.(SBU) Allan Hoffman from the US Department of Energy
presented an assessment of the implications of increased
world energy demand. He observed that energy is not in short
supply. What is in short supply is inexpensive energy that
people can afford to buy. Regarding Sweetnam's discussion of
"peak oil", Hoffman countered that price volatility is the
concern. With limited spare capacity, serious ramifications
could result if refinery production is disrupted. Hoffman
also noted that consumption of all primary energy sources is
expected to increase through 2025 and that increase will
likely equal more than half of current demand. Fossil fuels
will remain dominant and account for most of the increase in
energy use. Oil will still be the largest individual fuel
source, with supplies increasingly concentrated in the Middle
East. Annual global emissions of CO2 will grow more rapidly
than the primary energy supply. Hoffman expressed concern
that reliance on fossil fuels leaves the world vulnerable to
oil and natural gas supply disruptions and the associated
price instability. However, greater attention is now being

TOKYO 00001406 003.2 OF 003


paid to more efficient use of energy and the development of
indigenous renewable fuels (solar, wind, biomass, ocean
energy), and there is renewed interest in nuclear power and
in carbon capture and sequestration.

10.(SBU) For fiscal 2006-07 APERC proposed studies in the
areas of (1) urban development and transportation energy
demand, (2) inter-fuel competition for road transport, (3)
coal power generation in the 21st century, (4) electricity
sector deregulation in APEC, (5) water for energy production
in APEC, and (6) human resources for the energy sector.
Significantly, APERC proposed examining the possible use of
natural gas in the transportation sector to evaluate the
potential positive impact on stranded gas. There was also
discussion on studying existing international
negotiations/collaborations, such as APEC Energy Working
Group Initiatives, to analyze the current situation and
future prospects.
SCHIEFFER