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This volume goes beyond a conventional analysis of Asia’s energy relationships and explores the premise that energy relations in Asia in the 21st century should reinforce mutual interdependence. Conventional analyses of international energy relations stress the asymmetric nature of the risks and costs of disruptions to energy flows. Energy suppliers (net exporters) are concerned with the cost of a buyer looking elsewhere; energy consumers (net importers) are preoccupied with the costs associated with an interruption of supply. This perspective reflects the current transactional nature of energy relations and is clearly observed in the energy dynamics between countries in the Gulf Cooperation Council (GCC) and the economies of Northeast Asia (NEA).

As the economies of both the GCC and NEA have enlarged there is under-recognized potential for a move away from narrow transactional relations to broader, interdependent ones. This collection of essays from leading energy, strategic, and economic policy think tanks focused on how energy relations are forming in the 21st century offers energy scholars and policy makers answers to what these increasingly close relationships mean for international politics and trade.



Chapter 1. Introduction

Aramco: The authors summarize why the book is a valuable and necessary addition to the study of energy relations between the Gulf Cooperation Council (GCC) and Northeast Asia (NEA). The chapter details the current relationship between the two regions and finds that while commercial linkages are robust, there remain areas of fragility given the concentrated role of energy in the trade. As a result, issues of price volatility and the energy supply concerns sometimes prevent the relationship from deepening further. Nonetheless, evolving dynamics in the areas of geopolitics, technological advances in clean energy and energy efficiency, and other economic factors will push the relationship between conventional hydrocarbons. Growing connectivity and mutual interdependence will define GCC-NEA relations in the twenty-first century.
Duc Huynh, Yugo Nakamura

Trade Patterns and Their Consequences for Connectivity


Chapter 2. Effects of Oil Price Volatility on Bilateral Trade Between China and the GCC

SIC: China is now the world’s second largest oil consumer and the world’s fourth largest oil producer. China and Gulf Cooperation Council (GCC) countries have maintained a stable relationship and developed closer economic ties since the 1990s. This article analyses the effects of oil price shocks on bilateral trade between China and GCC countries over the period from 1994 to 2014 under an empirical analysis framework by utilizing a dynamic generalized method of moments (GMM) estimators. The model finding is that oil price volatility rather than the absolute oil price level is the key factor to the sound development of China-GCC trade, which implies the current low and stable global oil price brings a good time window for both sides to strengthen economic and trade links.
Xiaowei Zhao, Taoya Li, Dayu Zhai

Chapter 3. Potential Impact of Methane Hydrate Development on GCC and NEA Energy Trade

MASDAR: The emergence of unconventional hydrocarbons, such as methane hydrates, may have a major future impact on bilateral trade relations between the countries of Northeast Asia (NEA) and the Gulf Cooperation Council (GCC). In this paper, the historical energy trade relationship between the two regions is examined as well as the evolution and scientific basics of methane hydrates, the methods of methane hydrate extraction, the challenges faced in extraction, and the potential pricing of this alternative fuel source. The analysis shows the viability of methane hydrates as an alternative hydrocarbon as well as the current barriers to full exploitation of this alternative energy source. Policy recommendations are proposed based on the potential for NEA methane hydrate development to become a ‘black swan’ event for GCC countries.
Ahmed Kiani, Toufic Mezher, Steven Griffiths, Sameh El Khatib

Chapter 4. GCC-NEA Oil Trade: Competition in Asian Oil Markets and the Russian ‘Pivot’ East

KAPSARC: The purpose of this paper is to assess Middle East crude oil exporter strategies to maintain or expand market share in Asian oil demand. It also analyses the impact of changing global crude oil flows on key oil exporters’ revenues and on inter-regional price differentials by utilizing the KAPSARC Global Oil Trade Model (GOTM). Oil trade between the Gulf Cooperation Council (GCC) and Northeast Asia (NEA) will be subject to new pressures as major crude oil producers from outside the region compete to place their barrels in Asia. African, Latin American, and Russian flows of crude are increasingly redirected towards Asia, challenging the traditional large exporters in the Middle East. GCC oil producers are engaged in a number of initiatives to protect market shares in Asia.
Shahad Al-Arenan, Nader AlKathiri, Yazeed Al-Rashed, Tilak K. Doshi, Ziyad Alfawzan, Sammy Six, Vitaly Yermakov

Chapter 5. Market and Hierarchical Interactions Between East and West Asian Oil Sectors: Theory and Practice

DERASAT: Interactions between companies occur along a spectrum, with spot market transactions on one end (markets), compared to complete integration of the two companies on the other end (hierarchies). Joint ventures represent an intermediate step, whereby the two companies commit resources to a new project that they co-own and co-manage. This chapter describes the incidence of joint ventures linking Gulf Cooperation Council (GCC) oil companies and companies operating in North East Asia (NEA). The existing configuration is explained by appealing to the industrial organization literature on markets versus hierarchies, as well as via interviews with oil sector experts. Two particularly salient explanations are the desire to share risk due to the size of investments, and to secure downstream outlets for GCC oil products.
Omar Al-Ubaydli

Chapter 6. From GCC-Asian Energy-Oriented Trade to Comprehensive Trade and Investment Links: A Case Study of Taiwan

CIER/CTCI: This chapter analyses the energy, trade, and investment relations between North East Asia (NEA) economies and the Gulf Cooperation Council (GCC) and uses Taiwan as a case to explore avenues for both sides to transform energy-oriented trade ties into comprehensive relations. The conclusions are as follows: Firstly, this chapter finds NEA and the GCC have strategic interests to establish trade and investment partnerships. Secondly, this chapter finds that while NEA economies’ bilateral trade with the GCC have increased over the past five years, they have trade deficits with the GCC and most of that is from energy imports, showing possible directions for mutual adjustments. Finally, this chapter provides recommendations for Taiwan and the GCC to enhance mutual links.
Chang-chen Yeh, Po-yao Kuo, Ruei-he Jheng, Chien-chou Chen, Yu-lin Liu, Chi-yuan Liang

Domestic Policies and Their Consequences for Connectivity


Chapter 7. Changes in Chinese Natural Gas Demand and Their Potential Impacts on the Relationship Between China and the GCC Countries

Fudan: Natural gas demand of China will keep growing, but great uncertainty remains which may hinder the development of natural gas market. This chapter first established the sector-based approach to forecast the medium-term (2030) natural gas demand of China in three different developed speed scenarios. The results suggest that natural gas demand by power generation and industry sector are the largest source of uncertainty. Then conducted a comprehensive analysis on the demand-and-supply relationship of Chinese natural gas, which show great transformation will happen and raise challenges for the bilateral relationship between China and the GCC countries. As last, policy suggestions aiming to establish a stable and large-scale collaboration in natural gas market between GCC regions and China in the future are given out.
Hanxiong Zhu, Kexi Pan, Zheng Chang

Chapter 8. Impacts of PV Adoption in Qatar on Natural Gas Exports to Northeast Asia and Ensuing Environmental Benefits

The chapter focuses on the impact of solar energy adoption on natural gas (NG) trade and CO2 emissions in Qatar. First, we forecast electricity production to estimate the NG needed for power generation in Qatar through the next 11 years. The ensuing NG estimates are then used with national targets of solar PV adoption to evaluate NG savings 11 years forward. We conclude with an analysis of how these NG savings could spawn additional NG trade, and estimate the resulting CO2 emission reductions in Qatar and the NG-importing countries. According to our projections, Qatar’s top PV penetration targets by 2024/2030 would yield an NG surplus of 2.13 Mtoe, and CO2 emissions reductions of 8.3 Mt in Qatar and 3.8-1.7 Mt in the importing countries.
Antonio P. Sanfilippo, Larry R. Pederson

Chapter 9. The Dynamics of Energy Geopolitics in the Gulf and Qatar’s Foreign Relations with East Asia

Five GCC countries have developed shortages of natural gas, while Qatar possesses the third largest reserves of natural gas globally, and yet no meaningful GCC-wide gas network exists. Qatar’s commercially grounded energy policy together with a reluctance to enter into an energy-dependent status with a close neighbour understandably favours high East Asian above the discounted rate demanded by GCC states. As a result, natural gas geopolitics has prompted Qatar to take on a global energy policy resulting in an increased integration with Asian states. The focus of this paper is to assess the dynamics of the regional energy market of the GCC, how existing tensions foster Qatar’s increased interconnectivity with East Asia, and the resulting impact on traditional international alliances with Europe and North America.
Remi Piet, Steven Wright

Energy Security and Its Consequences for Connectivity


Chapter 10. Evaluating the Impact of Oil Exports from GCC Countries on China’s Oil Security

Ji and Fan investigate the influence of GCC countries’ oil exports on China’s oil security. They build a new indictor system for oil import security and propose an oil import integrated impact index (O3I index) using a two-phase DEA-like model. They find that GCC countries play an increasingly important role in China’s oil import security from 1993 to 2013. Especially, interactive relationships between China and GCC countries, including availability, affordability, and trade intensity, become the decisive factors on China’s oil security. They suggest a tighter bilateral trade ties and mutual investment between GCC countries and China to ensure China’s oil supply security and GCC countries’ export stability.
Qiang Ji, Ying Fan

Chapter 11. Assessing the Impact of Political Disruptions on Crude Oil Trade

Provides an empirical evaluation of energy trade flows, focusing on crude oil trade among the top 20 crude oil exporters and top 20 crude oil importers. We assess the potential impact of cross-national political disruptions (bilateral and regional) on energy trade between the six producing countries in the GCC and four consuming economies in Northeast Asia. We econometrically measure the impact of political disruptions on total crude oil trade for economies in these two regions to systematically address the question of how much political shocks threaten energy security and the flow of trade. We pay particular attention to how domestic, regional, and international political phenomena and irregular political crises might disrupt energy trade, and under what conditions such disruption might or might not occur.
Kenneth White, Brian Efird, Sadeem Alhosain

Chapter 12. Commercial Stockpiling: An Alternative for Joint Stockpiling of Oil in North East Asia

As an alternative to strategic joint stockpiling of oil, which requires a long-term approach, this study suggests commercial joint stockpiling options that can be immediately adopted in North East Asia (NEA). More specifically, this study introduces the status quo of joint stockpiling in NEA, reviews European cases of joint stockpiling, and proposes three options for commercial joint stockpiling in NEA with the participation of Gulf Cooperation Council (GCC) countries. The options include (1) expanding the current type of joint stockpiling between an NEA country and a GCC company, (2) encouraging companies of NEA and GCC to reserve oil stock in a foreign NEA country, and (3) participating in oil hub projects of NEA.
Sang Yoon Shin

The Environment and Its Consequences for Connectivity


Chapter 13. Energy Embodiments of the GCC and NEA Countries

This chapter shows the invisible energy connections between the Gulf Cooperation Council (GCC) countries and the North East Asia (NEA) countries. A multi-region input-output model is constructed to trace the energy flows embodied in the economic network of the world. Energy balances of the GCC and NEA countries are reexamined based on the concept of embodied energy. All the concerned countries except the United Arab Emirates and Japan have larger embodied energy inputs comparing to their direct energy inputs. The exports from the GCC countries are dominated by direct energy trade, while those from the NEA countries depend mainly on indirect energy. By separating the energy inputs from different regional sources, the impacts of consumption changes of the GCC and the NEA countries are quantified.
Zhan-Ming Chen, Tianyi Li

Chapter 14. Analysis of Cooperation Potential on Low-Carbon Energy Between GCC and NEA

SJTU: To deepen and broaden the conventional fossil energy trade relationships between GCC and NEA, this chapter puts the focus on the cooperation potential of low-carbon energy. Concentrating on low-carbon energy, the chapter also summarizes the low-carbon energy endowment for GCC and NEA countries, illustrates current low-carbon energy development on both sides, and introduces low-carbon energy policies in both regions. Through existing cooperation case study between GCC and NEA, this chapter discusses the cooperation potential and challenges on low-carbon energy as well. It concludes with policy suggestions on the initiative of establishing a long-term cooperation mechanism on low-carbon energy.
Tingting Zhang

Chapter 15. An Era of Collaboration to Promote Energy Efficiency

IEEJ: This chapter focuses on how energy security, economic efficiency, and environment (3Es) are considered essential for sustainable and balanced growth. The GCC and Asia, being among the world’s biggest energy producers and consumers, are no strangers to this concept. This study will demonstrate that an era or spirit of cooperation with regard to the development of energy efficiency policies would benefit both regions. Through the adoption of similar visions and the development of common strategies and policies towards energy efficiency, new technologies and systems can be developed to the benefit of both regions. The paper makes use of analyses on energy efficiency improvement, and conservation policies as well as quantitative analyses, to investigate for 3E, can help support more mutually supportive and strategic relations.
Yukari Yamashita, Rejean Casaubon

Chapter 16. Conclusion

一带一路 (yi dai, yi lu): One Belt One Road. It has been the Chinese government’s slogan of the last few years, and it may come to dominate the middle decades of the twenty-first century as the infrastructure and investment projects now being touted are realised, and the trade links between China and the world are significantly enhanced. These may be the four words that the world most closely associates with Xi Jinping, who came to power as China’s President in late 2012.
Leo Lester


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