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Will oil woes lead to Asian EU?

WHAT are the chances of China, Japan and other Asian countries banding together to form a political and economic entity much like the European Union (EU)?

Near zero, many would say. Such is the antipathy between the Chinese, Koreans and Japanese that it is hard to imagine that happening.

But something which they all need but do not have enough of may yet draw them closer - oil and gas.

As the world's known deposits of fossil fuel are being run down, not least because of the growing demand of economies such as China's, the day may come when the big consuming countries will have to fight - literally, in the worst case scenario - for supplies.

But it does not have to turn out that way if the far-sighted in Asia can persuade their countrymen to put aside the past and work together to ensure energy security for all.

History has, in fact, shown just how this can be done.

Up till the end of World War II, France and Germany had fought each other periodically for centuries, often over access to resources like coal.

It took a French visionary, the economist Jean Monnet, to come up with an idea to make future wars between the two unnecessary, if not impossible: pool the production of coal and steel in Western Europe, the vital raw material for heavy industries and weapon-making, under common institutions and so eliminate the need to fight for them.

His foreign minister, Mr Robert Schuman, accepted it. So did German Chancellor Konrad Adenauer. Thus was born the Schuman Plan in 1950, which led to the formation of the European Coal and Steel Community a year later.

Comprising the two countries as well as Italy, Belgium, the Netherlands and Luxembourg, the group evolved over the next four decades into the present-day EU.

Can something similar be worked out among China, Japan and South Korea, the second, third and seventh largest oil consuming countries in the world respectively?

It must because the alternative is increasing friction among them as they scramble for depleting supplies to power their economies.

Indeed the tussle between China and Japan has already begun - and may yet turn ugly.

In the summer of 2002, when Japanese Foreign Minister Junko Kawaguchi was in Russia on a visit, she lobbied against the proposed building of a 2,400km pipeline that will transport 400,000 barrels of oil a day from Angarsk in Siberia to Daqing in China's north-east. Moscow should, instead, build a 4,000km one to its Far Eastern port of Nadkhodka, from which oil can be shipped to Japan and elsewhere, she proposed.

Tokyo would undertake to buy a million barrels a day from the Russians through this pipeline, which is close to the upper limit of their Siberian oil production capacity, as well as contribute US$10 billion (S$16.8 billion) to construction and other costs.

The Russians seem receptive. All indications, including the latest from President Vladimir Putin during his recent visit to China, are that Japan's intervention as good as killed the Angarsk-Daqing project, for which negotiations have been going on for close to a decade.

Many Chinese are incensed and see the Japanese move as a stab in the back. There has been clamouring, in Internet chatrooms and elsewhere, for retaliation.

Doubtless Japan is acting in its own interest. However much it wants to lessen its dependence on oil - all its 22 nuclear power stations are back in operation after a shutdown caused by an environmental scare - it cannot do without the commodity, almost all of which is imported.

Last year, it consumed 5.43 million barrels a day, compared with China's 5.46 million and South Korea's 2.2 million.

Together these three account easily for more than half of the oil imported by the region from the Middle East, which sends roughly 65 per cent of total production.

With Chinese consumption growing by at least 11 per cent a year and projections that over 50 per cent of demand will have to be met by imports within the next decade, the global competition for supplies can only get more acute by the month.

Asian countries can better enhance their energy security by being members of a group - the Asian Energy Development Organisation (Aedo), as a Chinese scholar called it - to reap the benefits of economy of scale, share risks and ensure equitable allocation.

As probably the largest single buyer, Aedo will be in a position to acquire oil and gas at cheaper prices - Asian countries now pay an average of US$1 to US$2 a barrel more than European and North American ones for Middle Eastern crude - and have them shipped, stored and refined at lower rates.

An Aedo with China, Japan and South Korea in will have very considerable resources at its disposal.

Take shipping, for example. Latest available figures show that Japan owns 1,350 supertankers with a total deadweight tonnage of 39.6 million.

China has 337 (7.8 million tonnes) and South Korea, 319 (8.4 million tonnes). Together they add up to more than a third of the world's total supertanker fleet.

There can also be much sharing to save costs. At the moment, China has strategic oil reserves to last only about two weeks.

It wants to raise that to 70-75 days, which will cost billions, and has started work on one of four coastal areas chosen to store the reserves.

But why spend the money when Japan has facilities to store reserves enough to last for over 160 days, well above the accepted international standard of 90 days?

Under Aedo auspices, Japan can scale down to, say, 100 days and lease the surplus facilities to China, which will save the latter a fortune.

Singapore, with a refining capacity of 1.36 million barrels a day, which puts it among the top three in the world, can play a useful role in Aedo.

Given its geographical position, astride the Strait of Malacca through which all oil for east Asia is shipped, and ultra-modern infrastructure, it might be just the place to locate the headquarters of Aedo - especially if China, Japan and South Korea prefer that it not be in any of the three capitals.

While the numbers argue for the formation of an entity like Aedo, all hinges on political will.

All that can be said at this stage is that the very idea of win-win cooperation over energy has been raised before, off and on, in informal discussions among economists and other experts.

Only recently, at Nagano prefecture in Japan, Chinese and Japanese scholars belonging to a group called the 21st Century Committee ended their second annual meeting with a call to both Tokyo and Beijing to abandon the zero-sum game mindset and start cooperating over energy security in earnest.

But it was a noted Japanologist in China, Professor Wu Jinan, who argued most cogently for the formation of a regional body. The very name, Aedo, came from him.

Now, if he is a latter-day Monnet, is there a Schuman or an Adenauer in the corridors of power in Beijing, Tokyo and Seoul?

What do you think? Leave a comment below.

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