Fueling Asia's Recovery

WILL ENERGY SPOIL IT?

The financial contagion sweeping through Asia is forcing a reassessment of the continent's future, including assumptions about energy-the lifeblood of economics and a critical factor in the geopolitics of the region. In recent decades, Asia's rapid economic growth has meant even more rapid increases in the consumption of energy. A failure to satisfy its enormous needs, it was thought, would undermine the Asian economic miracle. But now that miracle is on hold, further complicating the already tangled interaction between energy, economics, and politics. While the recent economic downturn may alleviate some of these demand pressures for now, an inability to satisfy Asia's hunger for energy over the longer term will raise new risks and even dangers. But the solution to its potential energy insecurity is not simply a matter of applying the traditional government-based solutions-resource management and diplomacy. This problem can only be solved by accelerating the trend toward market-based energy strategies.

Supplying energy to Asia has never been a simple task. Indeed, the phenomenal economic growth most East and Southeast Asian countries experienced over the recent decades has been doubly miraculous since it occurred despite severely limited energy resources in some of the fastest-growing economies. Japan, South Korea, Taiwan, and Hong Kong all built powerful, dynamic economies without much domestic oil or natural gas. Though some countries in Asia-Indonesia and China, for example-blessed with an abundance of natural resources, have thus far avoided dependence on foreign energy supplies, in the coming years virtually all Asian countries will become net importers of oil. In fact, in 1993 China moved from being a net exporter of oil to a net importer, representing a fundamental change in Asia's energy balance. Even if the current economic crisis reduces growth in Asia's oil demand to just one percent in each of the next three years, compared with an average 5.2 percent from 1990 to 1995, demand would still be 9 million barrels of oil per day higher in 2010 than in 1996-an increase greater than the entire current output of Saudi Arabia. Demand for electric power-supported by rural electrification programs, increasing urbanization, and the rapid growth of the independent power industry in the past decade-will more than double by 2010, despite the current crisis.