INDONESIA: IMF predicts economy to grow 6% this year, down from 6.5% in 2011, but inflation to rise

(EnergyAsia, September 28 2012, Friday) — Indonesia’s economy will grow at a slower rate of 6% this year from 6.5% in 2011, but inflation will rise to 5% on account of stronger domestic demand and the effects of a moderate fiscal stimulus, said the International Monetary Fund (IMF).

The fund recently issued this report following a study visit to Southeast Asia’s largest economy by a team of senior officials led by Sanjaya Panth in June.

Its report said Indonesia faces growing risks from a possible larger-than envisaged slow down in external demand as well as global risk aversion spikes.

“Their combined impact could be amplified by policy missteps,” it said.

The government’s response through a moderate fiscal stimulus in the 2012 budget has been described as “appropriate given weaker external demand.”

“Reducing excess liquidity would improve the effectiveness and credibility of monetary policy. Increased flexibility of the exchange rate, combined with judicious use of reserves when warranted, would address market tensions during bouts of heightened risk aversion.”

The IMF has urged the government to replace costly and inefficient energy subsidies with targeted cash transfers so as to create room for critically needed increased infrastructure and social spending. Further steps to strengthen financial sector oversight and the systemic crisis response framework would help safeguard financial stability.

Noting Indonesia’s young population and rising inequality, the IMF said the government should focus efforts on achieving economic growth “whose fruits are shared more broadly.”

“This requires better investment and improvements to the business environment. Maintaining an open trade and investment regime would ensure that Indonesia remains an attractive destination for foreign investors,” it said.




QATAR: Japan’s Kansai signs 15-year contract for LNG imports

(EnergyAsia, September 28 2012, Friday) — From next January, Qatargas, the world’s leading liquefied natural gas (LNG) producer, will supply Japanese utility Kansai Electric Power Co (KEPCO) 500,000 tonnes of the fuel a year for 15 years.

In separate statements, the two companies announced the conclusion of the new agreement to add to an existing contract for 290,000 tonnes/year for 23 years from 1999 to 2021.

This is the first agreement signed between subsidiary Qatargas 3 and Japan’s second largest utility.

The contract was signed in Doha by Mohammed Bin Saleh Al-Sada, Qatar’s Minister of Energy and Industry and chairman of Qatargas 3, and Yoichi Mukae, KEPCO’s executive director.

Khalid Bin Khalifa Al-Thani, Qatargas CEO, said:

“We have achieved a significant milestone in our excellent partnership with KEPCO, which started in 1994 when we signed an agreement with a consortium of Japanese buyers including KEPCO. This agreement is further testimony of our long-term commitment to Japan and reinforces Qatargas’ global reputation as a safe and reliable supplier of LNG. We remain committed to supporting Japan’s continuous requirement for stable energy supplies.”

Mr Mukae said:

“In this memorable year of the 40th anniversary of diplomatic relationship between the state of Qatar and Japan, we are pleased to execute the new contract with Qatargas, the world’s largest LNG supplier. We strongly expect this agreement to reinforce the partnership between Qatargas and Kansai Electric and to lead to our stable LNG procurement.”

In June this year, Qatargas 1 executed a similar long-term deal with Tokyo Electric Power Company (TEPCO).


SINGAPORE: TOTAL Lubmarine launched three new barges

(EnergyAsia, September 28 2012, Friday) — International marine lubricant supplier TOTAL Lubmarine has launched three new barges at the port of Singapore, strengthening its global service offering to the shipping industry.

The 700 dwt double-hulled barges – Marine Champion, Marine Prosper, and Marine Talent – have a cargo load capacity of 860 cubic metres for bulk and packaged lubricants, and are fitted with state-of-the-art firefighting equipment.

They will be operated by Lubmarine’s logistics partner, Singapore-based Ocean Tankers, which already manages a diverse fleet of support vessels and is a specialist in ship-to-ship transfers.

Serge DAL FARRA, Lubmarine’s head of marketing, said:

“The investment in these barges confirms Lubmarine’s commitment to the very highest standards of safety and excellence in the best interests of its customers. It also underlines our determination to provide the highest level of responsive service, and access to our innovative range of products, in one of the world’s busiest and most strategically located ports.

“We are delighted to be working in Singapore with Ocean Tankers, which shares our commitment to safety and excellence. Lubmarine has a very strong presence in Asia through its network of supply and service centres. This will become even stronger following the introduction of the new barges in Singapore.”



US: Shale gas as an energy policy issue in Presidential election

(EnergyAsia, September 28 2012, Friday) — US President Obama faces a shale gas dilemma that threatens to damage his bid to secure a second term in the White House, according to the latest report from natural resources experts GBI Research. The US is currently endowed with a wealth of natural gas following years of overproduction,…

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UPSTREAM: DNV offers Recommended Practice code to assess and manage risk of shale gas extraction

(EnergyAsia, September 27 2012, Thursday) — Norway’s DNV said it has launched a code of Recommended Practice (RP) to assess and manage risks involved in the entire life cycle of shale gas extraction.

It said the code provides an independent reference document that hopefully could become the basis for a globally recognised standard for safe and sustainable shale gas extraction.

The DNV Recommended Practice code focuses on management systems, safety, health and environmental issues, well integrity, management of water and energy, infrastructure and logistics, public engagement, stakeholder communication, and permits. The company said it developed the practices in consultation with European and US authorities, oil and gas companies, industry bodies and non-governmental organisations.

“The overall objective of this Recommended Practice is to establish guidelines and recommendations for the processes required to protect the safety of people and the environment during all phases of shale gas field development and operations,” said Remi Eriksen, CEO of DNV Maritime and Oil & Gas.

The company further recommends that shale gas operations are monitored and publicly reported. This will establish proper points of reference and consistent monitoring prior to, during and after operations.

The information gathered should be openly disclosed to all stakeholders, including the general public.

“There is great public concern about the consequences of shale gas operations. Our recommended practice will contribute to increase the trust and confidence among the general public by implementing operational best practices and making the industry document how its activities are being executed in a safe and responsible manner,” said Mr Eriksen.

Shale gas is a potential game changer in the global energy market. The North American shale gas revolution has made shale gas an increasingly important source of natural gas and awoken other potential shale gas nations across the globe, including the UK, Poland and China.

At the same time, the industry is confronted with challenges in managing safety, health and environmental risks associated with shale gas extraction, necessitating the establishment of a global standard for safe and sustainable practices.

While several stakeholders have developed documents and guidelines covering parts of the activities involved, DNV said a complete risk management framework has been lacking until now.

DNV is inviting representatives from industry and regulators to provide feedback and discussion on the first version of the Recommended Practice code with the aim of transforming it into a new international standard.


SRI LANKA: Port expects to start up Hambantota fuel depot complex in October

(EnergyAsia, September 27 2012, Thursday) — Sri Lanka Ports Authority (SLPA) expects to start up a new 80,000-cubic metre fuel depot complex at its Hambantota Magampura harbour from next month. According to SLPA chairman Priyath Bandu Wickrema, construction of the US$76 million complex on a 60-hectare site is now near completion. Hambantota is undergoing a…

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MALAYSIA: Petronas to invest RM10 billion in building floating LNG (FLNG) terminal in Bintulu

(EnergyAsia, September 27 2012, Thursday) — Malaysian state oil and gas company Petronas said it will invest RM10 billion to build a floating terminal with an annual capacity to produce 1.2 million tonnes of liquefied natural gas (LNG). (US$1=RM3.05). Known as the Train 9 project, the terminal will be located at the Petronas LNG Complex…

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CHINA: Schlumberger opens China Petroleum Institute in Beijing

(EnergyAsia, September 27 2012, Thursday) — Schlumberger, the US-based supplier of technology, integrated project management and information solutions to the oil and gas industry, has opened its China Petroleum Institute in Beijing.

Located in Schlumberger’s China headquarters office building in the city’s Chaoyang district, the institute provides “best-in-class” petro-technical services and will undertake joint R&D initiatives to address technical challenges specific to China’s oil and gas industry.

The institute has more than 100 petro-technical experts, with most of them working on the same floor of the office building in Beijing and others distributed across the country.

Schlumberger said the Data Services and the Geoscience & Petroleum Engineering (GPE) teams form the core of the institute to serve the country’s state-owned oil and gas companies as well as international oil companies working in China.

Schlumberger said the institute will also be a hub to jointly conduct R&D projects with Chinese state oil companies and universities.

Cheng Xu, President of Schlumberger China, said:

“The establishment of the Schlumberger China Petroleum Institute is a milestone in Schlumberger’s 30-year history in China. The institute leverages Schlumberger’s expertise in reservoir evaluation. It shows our long-term commitment to our customers in China.

Bernard Montaron, the institute’s director, said:

“Schlumberger is well known for its ability to invent and develop new technologies. We are excited at SCPI to propose joint R&D initiatives to our clients to develop and test technologies to address technical challenges specific to China oil and gas fields. This could be very important for the future, especially for unconventional resources.”


SINGAPORE: Singapore Power to invest S$2 billion in cross-island tunnels for electrical cables

(EnergyAsia, September 26 2012, Wednesday) — Singapore Power said it is investing S$2 billion to build two tunnels to hold and protect cross-island extra-high voltage transmission cables to ensure the supply of reliable, secure and quality power to 1.3 million consumers. (US$1=S$1.23).

To be constructed between 2012 and 2018, the North-South and East-West cable tunnels will be located 60 metres underground to facilitate continuous upgrading, renewal and maintenance of the country’s power cable grid infrastructure.

In a statement, Singapore Power said the tunnels measuring a total length of 35 km are designed to overcome existing congestion of underground space and utility services in Singapore.

“They will facilitate faster and more efficient maintenance and replacement of cables, thereby reducing the frequency of road-digging works and thus minimising inconvenience to the public in the long run,” it said.

The tunnels will be located under major public roads and will not encroach into any private properties.

As part of the project, 14 utility buildings built to house ventilation facilities and equipment, and provide access to the tunnels.

Singapore Power has promised to will work closely with government agencies and community partners to minimise inconvenience to the public with steps taken to control noise, minimise dust, dirt and congestion, and to maintain environmental safety.

Singapore Power said it awarded six contracts to five companies — Hyundai Engineering, a joint venture between Nishimatsu Construction & KTC Civil Engineering and Construction, Obayashi Corp, Samsung C & T Corp and SK Engineering & Construction — for what will be its largest project to date.

Wong Kim Yin, Singapore Power’s Group CEO, said:

“Singapore’s power supply is among the most reliable in the world. With the city’s rapid growth and the corresponding increase in power demand, we are challenged to sustain this level of reliability and cost-effectiveness in achieving this performance.

“The deep cable tunnels will form the backbone of Singapore’s power supply, serving future generations effectively, securely and with minimum inconvenience. It will translate to improved standards of living and performance for our residential, industrial and commercial consumers.”

Singapore Power Limited, a leading energy utility company in the Asia Pacific region, owns and operates electricity and gas transmission and distribution businesses in Singapore and Australia.

CHINA: Sinopec and Airbus team up to develop bio-aviation fuel

(EnergyAsia, September 26 2012, Wednesday) — China Petroleum and Chemical Corporation (Sinopec), one of China’s biggest energy companies, and Europe’s Airbus said they are jointly developing and producing renewable aviation fuel for regular commercial use in China.

Sinopec is helping the central government to establish a Chinese airworthiness certification for the new bio-aviation fuels that will be produced from locally grown feedstock.

Using its proprietary technology installed at its new refinery in Hangzhou near Shanghai, Sinopec expects to soon begin producing the certified fuel known as “1# bio-jetfuel”.

According to Airbus, the refinery is one of the few in the world with the capacity to produce aviation fuel from biomass in large-scale.

Airbus said it is supporting the development of the Chinese standard with technical expertise gained in past certification processes with the European Union and US fuels standards bodies and in the selection of sustainable feedstocks.

Dai Houliang, a Sinopec senior vice president, said:

“Bio-jetfuel is becoming increasingly important in aviation and the energy market. It will help aviation grow sustainably and demand for fuel increase. Sinopec has developed its own technology for producing aviation fuel from biomass and waste oil and has already produced aviation fuel meeting international standards.

“Sinopec is assisting the Civil Aviation Administration of China (CAAC) in the airworthiness certification process and is proud to be collaborating with Airbus and other partners in the push for alternative aviation fuels.”

In addition to fuel certification, the partners are also establishing a sustainable alternative fuel value chain in China, to help speed up its commercialisation, fully using domestic resources and refining capabilities.

Laurence Barron, President of Airbus China, said: “Bio-fuels are a crucial part of the roadmap to meet aviation ambitious carbon dioxide (CO2) targets. We are privileged to be working with our Chinese partners to establish a domestic value chain in China which is 100% Chinese.”

Airbus said it is working on programmes to support the development of alternative fuel value chains in Australia, Latin America, Europe and the Middle East.

UPSTREAM: ExxonMobil acquires Bakken oil shale assets in swap and cash deal

(EnergyAsia, September 26 2012, Wednesday) — ExxonMobil Corp said it has reached an agreement that will significantly increase its production acreage in the prolific Bakken oil shale region in the US states of North Dakota and Montana. ExxonMobil and its subsidiary, XTO Energy, signed an exchange agreement with Denbury Onshore LLC, a subsidiary of Denbury…

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CHINA: Longwei Petroleum expect to complete purchase of fuel storage depot in Shanxi province

(EnergyAsia, September 26 2012, Wednesday) — Longwei Petroleum Investment Holding Ltd, a specialist in storing and distributing petroleum products in China, said it expects to complete the purchase of a 100,000-metri-ton fuel storage depot in northern Shanxi province by the end of this month.

Longwei said it has agreed to pay Huajie Petroleum Co Ltd a total of RMB700 million for the depot, comprising RMB550 million as deposit and the final instalment of RMB150 million by September 30.

Located in Xingyuan Township in Shanxi’s Fanshi county, the assets include fuel storage tanks supported by accessory facilities and equipment, delivery and distribution platforms comprising a dedicated rail spur and a vehicle loading and unloading station. The purchase also includes a 3,000-sq-m office building and land use rights for 98 acres of land adjacent to the main regional rail line.

The new facility is sited in a growing industrial and mining region, approximately 200 km to the north of Taiyuan.

Cai Yongjun, Longwei’s chairman and CEO, said:

“We are pleased to close on the Huajie asset purchase without dilution to our shareholders. We have chosen to move forward at this time to use our own cash to close on the purchase and put our capital to work now at the new facility.

“This acquisition nearly doubles our storage capacity to a total of 220,000 metric tons and extends our reach into the fast-growing industrial area of northern Shanxi province. With the addition of the Huajie facility, we have strengthened our lead as the largest non-state-owned fuel storage and distribution business in the province and are better positioned to capitalise on the demand for petroleum products in our regional market.”

Michael Toups, Longwei’s chief financial officer, said:

“We have been balancing our working capital to take advantage of petroleum pricing opportunities in the market, as well as balancing the funding required to complete the Huajie purchase.

“Based on our inventory management and first fiscal quarter 2013 cash flow, we are confident to close the Huajie asset purchase at this time. We were exploring financing options available to us, but decided the economics were not right at this time.

“Shanxi’s growing industrial and vehicle market demand, combined with our proven ramp-up performance of our Gujiao facility since 2010, which has now grown to account for approximately 48% of our total product sales, or US$233.8 million, strengthens our confidence that we can quickly ramp up sales at the Huajie facility.”

ASIA: LNG importers step up campaign for pricing reforms away from oil linkage

(EnergyAsia, September 25 2012, Tuesday) — Led by Japan, Asian natural gas importers have begun aggressively pushing producers to de-link the fuel from more expensively-priced oil to cheaper Henry Hub prices in the US. With US prices stuck at 10-year lows of between US$2 and US$3 per million Btu, Asia has been paying between five…

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INDIA: ADB approves facility to mobilise finance for massive infrastructure development

(EnergyAsia, September 25 2012, Tuesday) — The Asian Development Bank (ADB) said it has approved a facility to help kick-start the Indian infrastructure bond market and ultimately channel substantial amounts of domestic and international pension and insurance funds into critically needed energy, railways, roads, water, and other infrastructure and utilities. The guarantee facility, a first…

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CHINA: Oil demand down 1.5% in August, second drop this year, says Platts

(EnergyAsia, September 25 2012, Tuesday) — China’s apparent oil demand fell 1.5% year-on-year in August to 37.87 million metric tons (mt), or 8.95 million b/d, the second monthly contraction this year, said US energy media Platts.

According to an analysis of recent Chinese government data, Platts said the August decline follows a 1.9% dip in June to 9 million b/d, although demand returned to positive growth of 2.4% at 9.2 million b/d in July.

Platts said China’s apparent demand in August was the lowest since September 2011 which was also at 8.95 million b/d.

The McGraw-Hill unit said the country’s apparent demand was likely dragged down by lower oil product imports, which fell 34.3% year on year to 2.24 million mt. With exports at 2.11 million mt for the month, net product imports were 130,000 mt in August, down nearly 90% year on year and the lowest since January 2010, when China was a net exporter of products.

“There is still an argument to be made that government incentives for growth are going to kick-in and we’ll see a rise in China’s consumption in the remaining months of the year,” said Song Yen Ling, Platts senior writer for China.

“With refineries coming out of maintenance and prices rising, we’re likely to see some improved refinery throughput rates due to higher refining margins.”

August refinery runs rose 1.5% year on year to 8.92 million b/d, according to data released by China’s National Bureau of Statistics on September 9. This was a slight uptick from July volumes of 8.89 million b/d and June levels of 8.79 million b/d.

The National Development and Reform Commission raised the retail price of gasoline by roughly 6.6% and diesel by 7.2% on September 11 – the second hike in two months and the fourth so far this year.

In China’s individual oil products markets, Platts said gasoil remains the weak link, with the apparent demand for the fuel contracting for the third month in a row.

“Gasoil consumption is the country’s biggest drag on total oil use, a manifestation of the slowing economy and the overall drop-off in industrial activity,” said Ms Song.

China consumes more gasoil than any other oil product.

Apparent demand for gasoil in August fell 1.4% year on year to 13.67 million mt, or 3.31 million b/d. In July, demand had fallen 1.3% year on year to 3.32 million b/d and 2.8% to 3.34 million b/d in June, demonstrating the weakened industrial sector.

Gasoil imports fell 68% year on year to 80,000 mt in August; exports fell 28.6% to 150,000 mt. Domestic gasoil production in refineries declined less than 1% year on year to 13.74 million mt.

Apparent demand for gasoline in August rose 8.1% year on year to 7.31 million mt (2 million b/d), driven by domestic output, which rose 5.8% to 2.05 million b/d. China is a net exporter of gasoline although total exports last month fell 46.7% year on year to 160,000 mt.

Platts said jet fuel/kerosene demand in August fell 8% year on year to 1.55 million mt, or 389,627 b/d. Exports surged 14% to 650,000 mt, while imports plunged 34% to 350,000 mt. Output rose 7.2% on year to 465,111 b/d.



SAUDI ARABIA: IMF says strong economy advances social agenda, helps region

(EnergyAsia, September 25 2012, Tuesday) — The following is an edited version of an International Monetary Fund (IMF) annual economic survey of Saudi Arabia. The outlook for the Saudi economy, which grew by 7.1% last year, remains buoyant, said the IMF. The oil sector continues to dominate the economy, but strengthened budgetary institutions have reduced…

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ASIA: Principles of Pax Pacifica — Building the East Asia Security Order, by Kevin Rudd, former Prime Minister of Australia

(EnergyAsia, September 24 2012, Monday) — The following is an edited version of the keynote address delivered by Kevin Rudd, a former Prime Minister of Australia, at last Friday’s Singapore Global Dialogue.

The core objective of the Asian hemisphere in the first half of the 21st century is to avoid instability, conflict or war between China and the US while preserving and enhancing the integrity of the current regional and global rules-based order.

In the history of international relations, the alternative to order is anarchy.

We must preserve the peace because of the extraordinary human cost of war, but equally because strategic stability has been essential for the spectacular economic growth and significant rise in prosperity in our region over the last half century.

We now owe it to the world at large. What happens in Asia matters to the US, Europe, Africa and Latin America. Our region is no longer on the margins of the global growth equation. We have become its central organising principle.

If Asian security and prosperity falters, so too will the world’s.

As Kishore Mahbubani recently reminded us, we are returning to a time when the principal economies of the world are Asian given this has been the case for 1800 of the last 2,000 years.

What is occurring is more profound than a technical shift in the centre of strategic gravity from the Atlantic to the Pacific, from the West to the East. There are civilisational dimensions to this transformation as well.

The responsibilities that rest on the shoulders of this generation of Asian leaders are great. They will demonstrate that they’ve either learnt the lessons of the bloody history of modern Europe, or will simply repeat them.

Many would find it extraordinary that we could be having a conversation about the possibility of future conflict in Asia. Surely, given globalisation’s extraordinary benefits to Asia, the prospects of inter-state based conflict in the 21st century is unthinkable.

Regrettably, that is what the nations of Europe said to one another a hundred years ago in the decade leading up to Sarajevo, when economic globalisation was even more comprehensive than is the case today.

Economics does not solve politics. Politics still matters.

In Asia, we live in the vortex of two formidable yet fundamentally conflicting forces: economic globalisation and political nationalism.

The forces of globalisation draws us closer together through our economies, trade, investment and the technologies that now radically reduce the time and space of economic and social transactions.

At the same time, we have the forces of ethno-centric nationalism, invariably driven by a toxic combination of competing territorial claims and long-standing cultural animosities. Will the globalists or the nationalists win the race?

And the core point is this: the mindset that we bring to these challenges.

Mindsets matter.

The security challenges we face can be managed or even overcome by creatively applying the positive principles of common security.

Or is this idealism doomed to failure while the real-politic proceeds in fear that our neighbours are probably planning for the next crisis, conflict or even war.

Australia sees itself as a middle power with both regional and global interests, animated by universal values of open politics, open economies and open societies. We are optimistic about our country’s and the region’s future.

We have seen how far our region has come over the last half century after Asia emerged from the ashes of the Second World War. We have it within our collective wit and wisdom to craft a common future for us all, China and America included.

Australians feel relaxed and comfortable with our region just as we believe the region is increasingly relaxed and comfortable with Australia. We recognise and respect the region’s deep diversity.

Just as we recognise and respect the fact that much of the region suffered for centuries under European colonial rule. We have strong bilateral relationships with practically every country in the region, deep economic engagement, large-scale development assistance relationships and rapidly expanding people-to-people contact.

We are also founding members of most of Asia’s principal regional institutions. We have an active regional and global diplomatic network in seeking to be as constructive, innovative and as forward-leaning as possible in dealing with some of the region’s great challenges.

It is with this mindset that we in Australia have approached the challenge of how best to preserve the peace, security and therefore prosperity of Asia.

Across our region is a series of flashpoints each capable of triggering one form of conflict or another.

Historically we have been preoccupied with the big three: the Korean Peninsula, the Taiwan Straits and India-Pakistan and the question of Kashmir.

In Korea we wait to see what unfolds with the new leadership, but remain deeply concerned about North Korea’s continued nuclear weapons programme.

Across the Taiwan Straits, these are the best of times since 1949 due to sound policies in Taipei and Beijing, but always capable of political crisis and policy reversal.

With India and Pakistan, the world lives in continuing anxiety as to the consequences of any future Islamist terrorist attacks on the sub-continent.

All three involve nuclear weapons states and in some cases, states with highly uncertain nuclear doctrines.

Apart from Iran’s nuclear weapons programme, we are also seeing new instabilities arising from what was long regarded as the region’s lesser disputes – namely the conflicting territorial claims of a number of regional states to various islands and surrounding seas in the South China Sea, the East China Sea and the Sea of Japan.

These disputes are now more volatile in more than a quarter of a century, with the concentration of naval, air and other maritime assets increasing and the attendant nationalisms in many countries fuelling the fire.

So how then should the region proceed? Not just China, Japan, Korea, Vietnam, the Philippines, Indonesia, Malaysia or Brunei.

The South and East China Sea

If we include Taiwan, there are six separate claimant states over the Nansha (Spratlys), the Xisha (the Paracels) the Zhongsha (Macclesfield) and the Dongsha (Pratas) and their surrounding seas and sub-sea resources.

The map of these conflicting claims makes the early 20th century maps of the Balkans look simple by comparison.

The overlapping claims are most intense between China, Vietnam and the Philippines, resulting in incidents and conflicts over the decades, most recently between China and Vietnam in 1972 and 1988.

The US government has declared that it is neutral on conflicting territorial disputes on the South China Sea, but it has an overriding interest in maintaining freedom of navigation as a generic principle of international maritime law underlined by the significance of these seas to global maritime trade.

In the East China Sea, the dispute between China and Japan over Diaoyudao / Senkaku goes back to the late Qing Dynasty when the Japanese government annexed these islands from the Chinese after the Sino-Japanese war of 1895.

After World War Two, the islands came under US control and were returned to Japan with the Okinawa Reversion Agreement of 1971. In the last 15 years, Japanese and Chinese activists have been undertaking nationalist campaigns through landings and incidents at sea.

Unlike in the South China Sea, the US recognises Japanese sovereignty over these islands and has stated publicly that they are covered by the terms of the Japan-US Defence Treaty of 1951.

Separately, Japan and Korea have been making competing for islands in the Sea of Japan.

These disputes exhibit a volatile combination of populist nationalism, historical animosities exacerbated by domestic political transition, oil and gas resources, and, most acutely, competition for scarce fisheries in a protein-deficient region.

The large-scale presence of state-owned and registered fishing vessels, coastal surveillance vessels and naval ships has raised the risk of incidents at sea.

There’s also growing risk of incidents given the large number of government agencies involved from various countries.

In the most recent series at the Scarborough Shoal, one report cited more than 100 vessels of different types in highly constrained waters. The number and intensity of incidents arising from these disputes is unprecedented.

What regional diplomatic efforts exist to deal with these challenges?

In the South China Sea, China agreed upon a so called Declaration of Conduct (DoC) in 2002. In 2011 agreement was reached on the DoC guidelines that are broad civil commitments to resolve disputes peacefully.

The substantive diplomacy has been directed towards drafting a comprehensive Code of Conduct to provide a regional diplomatic mechanism to resolve disputes.

In July this year, ASEAN foreign ministers adopted the key elements of the draft Code of Conduct for negotiation with China. The draft offers mediation and conciliation services by the ministerial-level ASEAN High Council.

If that fails, a second mechanism is offered whereby the disputants may “resort to dispute settlement mechanism provided under international law, including UNCLOS”.

China has indicated that it is willing to begin a dialogue on the code prior to the Foreign Ministers ASEAN Summit.

The most spectacular outcome on the recent ASEAN Foreign Ministers Meeting in July was its failure, for the first time in 40 years, to produce an agreed communique. This was due to ASEAN’s inability to achieve consensus on a reference in the communique to Vietnamese and Philippines concerns about recent incidents in the South China Sea.

In turn, this has thrown the spotlight on ASEAN’s future cohesion in dealing with the most sensitive security policy challenges on its agenda.

Finally, on the Diaoyudao / Senkaku dispute, there are no regional diplomatic mechanisms to be drawn on at all in what has become an exclusively bilateral dispute. This has triggered the worst anti-Japanese protests in China, the worst since Sino-Japanese diplomatic normalisation 40 years ago.

Our region hopes common sense will prevail in the management of all these disputes. But as someone who has watched this region closely over 35 years, I have begun to become concerned about the trajectory we are on.

None of the leaders of the region whom I have met over the last five years have the slightest interest in intentionally seeing any of these disputes degenerate into armed conflict. The stakes are high, and we urge restraint and reason on behalf of all parties to these disputes.

The Principles of a new Pax Pacifica

All this is occurring in the context of a wider region in the midst of profound geostrategic and economic change.

China became Asia’s largest economy in 2010, and could become the world’s largest economy by 2010. China’s military modernisation is profound including rapid increases in its defence expenditure and its acquisition of force projection capabilities.

Since the Asian Financial Crisis 15 years ago, China’s foreign policy has also become more assertive in pursuit of its national interests.

The US has declared that it will remain a Pacific power, maintaining it naval presence by committing 60% of its global naval forces to the region. Diplomatically, the US has also radically re-engaged the region under Secretary of State Clinton, who has spent more time in Asia than any of her predecessors in US history.

For the first time, the US has become multilaterally engaged in Asia’s security policy deliberations. While the US had been a long-standing member of the ASEAN Regional Forum, it is generally accepted that the ARF is limited in scope.

That has changed, however, in the last two years. In 2010 the US became a member of the ASEAN Defence Ministers +8 (ADMM +8), and in 2011 a full member of the East Asia Summit.

It is critical to remind the Americans, the Chinese and the rest of the world, that the region’s future will not be exclusively shaped by Washington and Beijing.

The rest of the region have profound interests at stake as well. We have significant diplomatic and strategic assets to deploy in pursuit of our combined interests and values.

Nonetheless, my overall point remains that the overall strategic environment of our Asian hemisphere remains brittle.

In the absence of effective pan-regional institutions with a political and security mandate and with norms and procedures underpinning a predictable regional security order, there is little regional buffer to soften the blow, or regional ballast to steady the ship, when individual security incidents arise like those we now see in the South China Sea and the East China Sea.

In 2008, Australia launched its vision for an Asia-Pacific community which caused considerable controversy in Asia, particularly in ASEAN and Singapore.

We did this because our region did not possess a single institution of sufficiently broad membership and mandate to embrace the range of political, security and economic challenges facing the region.

The ARF was too broad and its membership did not meet at summit level. APEC, while a clear cut economic success, had no political or security mandate and from the outset excluded India.

The East Asia Summit (EAS), formed in 2005, possessed the right mandate but excluded the US. We therefore had to build a new institution or change the mandate of an existing institution.

We worked closely with ASEAN to ensure that the US and Russia were invited to join the EAS. We then worked closely with the US to make sure they accepted the invitation. Today, the US and Russia are full members.

Australia regards this as the development of the Asia Pacific community by another name. It is a long-term project to fashion the concept and the reality of common security and an open regional economy.

For this vision to become a reality, ASEAN must remain at the core of the East Asia Summit, not just because ASEAN has interests at stake or that it carries significant political, economic and strategic weight.

Despite recent challenges, ASEAN is Asia’s single most successful regional institution. Over 45 years, enemies have been turned in to friends; competitors into partners, and internal conflict has largely been avoided.

Given Southeast Asia’s ideological and cultural diversity, these are remarkable achievements and a testament to ASEAN regional diplomacy.

These are the reasons why the rest of Asia needs ASEAN to be the vibrant core of the East Asia Summit, the East Asian community and the Asia Pacific community.

As the next step, we need to use this new platform of an expanded East Asia Summit to create a regional rules-based order for Asia that will change the mindset of our region from conflict, to incident management, to strategic cooperation.

We need to learn the lessons of Europe within a condensed timeframe, and without mindlessly repeating Europe’s mistakes over the centuries.

Early this year, in an address to the Asia Society in New York as Australia’s Foreign Minister, I outlined a concept of what I described then as a new Pax Pacifica. It is distinct from a Pax Americana, and also from any concept of a Pax Sinica.

For a Pax Pacifica, we will consciously build the habits, customs and norms of security and strategic cooperation from the ground up.

As I said back then, this concept does not ignore the underlying strategic realities of the region – the rise of China, continuing military and diplomatic engagement of the US the region’s future. Rather it accepts these realities.

But it also seeks to create new possibilities based these realities.

Remember in the darkest days of the Cold War, the Americans, the Soviets and the Europeans managed to conclude the Helsinki Accords.

They developed a Conference on Security Cooperation in Europe, they began to build basic confidence and security building measures to reduce the risk of unintended or accidental conflict.

In Asia, we have embraced very few confidence and security building measures of any description. That is in part why our security policy environment is so brittle.

Here are what could be the principles of a new Pax Pacifica:

First, it must be anchored in conceptual approaches which China, the US and the rest bring to the future shape of the region.

The Chinese encapsulate their foreign policy vision as one of “a harmonious world” (hexie shijie). Harmony is a profound concept in Chinese philosophy. It contains within it the concept of the balance of contending forces, the concept of finding the Golden Mean (Zhong Yong). It also contains within it classical Chinese virtues or what we would describe as values, or daode.

There is considerable exploratory work under Professor Yan Xuetong at Tsinghua University on how this might be articulated into the debate on the future of the regional and global order in his book “Ancient Chinese Thought, Modern Chinese Power”.

For a non-Chinese audience this may seem entirely academic and abstract.

But in China’s political tradition, philosophy matters. Concepts matter.

Not just for reasons of historical continuity. But also for the practical reason that with a Communist Party of 86 million members, policy directions have to be explained in concepts which are also comprehensible within Chinese political elites.

The creative challenge lies in how such concepts (and the language associated with those concepts) is translated and interpolated into non-Chinese conceptual frameworks, which are in turn comprehensible to the rest of us.

For example, for any international relations scholars, the paradigm debates within the international relations discipline in the West (realism, neo-realism, liberalism, neo-liberalism, idealism, structuralism, post-structuralism, communitarianism) are by and large alien to China’s domestic debate.

While there are obvious commonalities (for example the ‘Art of War’ by Xun Zi on the one hand, and Machiavelli on the other) closer analysis also reveals deep differences between traditional Chinese and Western statecraft, including diplomacy.

On the question, however, of a “harmonious world”, China’s current foreign policy mantra, there is a clear conceptual overlap with the idea of a multilateral rules-based order.

Multilateralism seeks to harmonise conflicting positions, and seeks to find a middle way.

Multilateralism is also potentially capable of incorporating values that may be universal in nature, but values which may go by different names in different cultures.

Therefore at a conceptual level, one practical recommendation I would make is that important intuitions such as RSIS and their counterparts in China, Australia and elsewhere in Asia, should embrace a common research project on producing a conceptual framework on a multilateral rules-based order for East Asia that draws on a range of philosophical traditions.

In China as elsewhere in Asia, this would be a mark of respect. It would not constitute the abandonment of core principles. Rather it would avoid the risk of these core principles simply being lost in cultural or even linguistic translation.

Such a concept paper might be presented to officials and ministers in the lead-up to the 2013 East Asia Summit.

A second area of concrete work to embrace this new Pax Pacifica concept is to be clear about some basic principles.

One, China’s peaceful rise should be accommodated by the US and the region, and that China has legitimate national security interests.

Two, China must accept US’s continuing strategic presence in the region as normal and that US alliances are to be respected.

Three, China and the US must accept that the region’s other member states also have major stakes in its future, and hence an equitable voice in the region’s management.

Four, all states should collectively develop, agree and accept the basic norms of behaviour for our regional rules-based order.

Five, this should include the non-use of force in dispute resolution.

Six, region-wide dispute resolution mechanisms along the lines outlined in the TAC and the ASEAN Code of Conduct.

Seven, the freezing of all existing interstate territorial claims, and the development of protocols for joint development commissions for the common extraction of resources from disputed territories.

Furthermore, the EAS and the ADMM +8 should enhance a programme of practical action to create a set of confidence building measures to enhance regional security cooperation:

First, hotlines between the relevant national security agencies within all member states to deal with incident management. RSIS has already done valuable work on this subject;

Second, detailed protocols for managing incidents at sea;

Third, regular high-level meetings between all the region’s militaries so that networks and relationships are developed over time;

Fourth, joint exercises in search and rescue and counter disaster, counter-terrorism and counter-organised crime;

Fifth, in time, transparency of military budgets and national military exercises.

The basic reality is that our armed forces are trained to fight and win wars. If at the same time we have a number of them engaged in a complex network of confidence and security building measures, including joint exercises and joint operations in counter-disaster, they will have a remarkable impact on our collective security policy mindset over time.

For example, for most Asians consider natural disasters as the number one physical security threat facing them today. Why not respond to their stated needs, consistent with the Australian and Indonesian paper agreed to at the last EAS Summit – and turn this vision into a reality.

A fourth and final practical recommendation in developing a Pax Pacifica (or what perhaps might one day be called the Organisation for Security Cooperation in Asia – OSCA) is it must be inclusive of both the EAS and the ADMM +8, both of which have an identical membership, the former with heads of government and foreign ministers, the latter with defence ministers.

On one level, an EAS at Summit level can help agree on the broad directions for security policy cooperation.

At a different, practical level, the ADMM +8 could be given specific responsibility to develop the raft of Confidence and Security Building Measures referred to above.

Fifth and finally, the EAS over time will need a dedicated secretariat. For various reasons, the analogy with Brussels does not work. The EAS is not an alliance nor an economic union.

But Brussels as an institution (both NATO and the EU) has had a remarkable and positive impact over the decades in taming the passions of rabid nationalism in Europe.

In time, ASEAN should give consideration to the hosting of an expanded EAS secretariat function.

None of the above will happen by magic, or by permanently rotating chairs. We will need to start to think together as a region – as we shape together the region’s future.


I remain an optimist about Asia’s future. As a practitioner, I am conscious of all the complexities and difficulties associated with the proposals that I have put forward to craft this Pax Pacifica.

But I am equally determined that our region should not simply drift into conflict by default. I have never accepted the proposition that human conflict is inevitable.

I do not accept the position that conflict between China and the US is inevitable.

Nor do I accept the banal position that somehow the region must “choose” between China and the US.

Hillary Clinton said recently there is enough room in the Pacific for both the US and China. Hillary is right.

I would add there is also plenty of room for the rest of us with our individual and collective voices as well.

Together with creative diplomacy and active statesmanship, despite all the complexity, we can craft together an Asian hemisphere grounded in the principles of the common security of us all.


IRAN: NIOOC to raise crude oil storage capacity to 8.1 million barrels by next September

(EnergyAsia, September 24 2012, Monday) — National Iranian Offshore Oil Company (NIOOC) plans to raise its crude oil storage capacity to 8.1 million barrels by next September. The company’s managing director, Mahmoud Zirakchianzadeh, told local reporters that it will complete the expansion in two phases, with six million barrels to be ready by next March,…

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INDIA: Government under pressure to back down on diesel price hike

(EnergyAsia, September 24 2012, Monday) — Indian oil companies are holding on to their hard won battle to raise diesel prices by an unprecedented 12% on September 13. Strikes and street protests have erupted in cities across the country over the past week in a repeat of the angry mass protests against last May’s 10%…

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AUSTRALIA: China welcomed to take role in Browse LNG project

(EnergyAsia, September 24 2012, Monday) — In sharp contrast to Canada’s uncertain attitude, Australia is eager for China to take on increased equity and role in developing the country’s natural gas reserves. Negotiations, supported by Australian officials and industry executives, are underway for Chinese companies to acquire a part of the Browse liquefied natural gas…

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SINGAPORE: Lubricants trade expected to hit record of more than S$9 billion in 2012

(EnergyAsia, September 21 2012, Friday) — Singapore’s lubricants trade is expected to reach a record of more than S$9 billion this year, double the value of three years ago. (US$1=S$1.2) According to official trade data, Singapore handled nearly 2.5 million tonnes of lubricant feedstock, oils and grease worth more than S$4.58 billion for the first…

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CHINA: Shareholders of Canada’s Nexen overwhelmingly approve C$15.1-billion takeover by CNOOC

(EnergyAsia, September 21 2012, Friday) — Shareholders of stagnated Canadian upstream company Nexen Inc have voted overwhelmingly in favour of a proposed C$15.1 billion takeover by state-owned China National Offshore Oil Company (CNOOC).

Of the votes cast, 99% of Nexen’s common shareholders and 87% of preferred shareholders accepted CNOOC’s offer of C$27.50 a share, representing a 60% premium to the last traded price before the takeover bid was announced in July.

The company said it does not have the capital to implement some of its more ambitious projects to find and produce oil and gas around the world while shareholders are tired of holding onto its shares which have been underperforming for years.

Various polls have revealed that most Canadians are deeply opposed to CNOOC acquiring Nexen out of fear that the Chinese government could be managing the company to the detriment of their interest.

The proposed takeover must now clear the approval of the Canadian government under the Investment Canada Act. Even senior members of the government of Prime Minister Stephen Harper are wary of increased Chinese investment despite his repeated policy statements that Canada is open to business and wants to expand trade ties with China.

MARKETS: IEA lifts forecasts for world oil demand as Japan’s 2Q consumption surges 10%

(EnergyAsia, September 21 2012, Friday) — The International Energy Agency (IEA) has raised its forecasts for world oil demand to grow by 800,000 b/d for both 2012 and 2013. In its latest monthly oil report, the Paris-based agency said it now expects world oil demand to grow to 89.8 million b/d in 2012 and 90.6…

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THAILAND: Oil companies reprieved from boosting stockpiles for now

(EnergyAsia, September 20 2012, Thursday) — Thailand’s oil companies have been spared for now the burden of having to boost their stockpiles from 36 days of consumption to 43 days as set out by the Energy Ministry. The Thai government has set out a target for the industry to raise their mandatory crude and products…

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MARKETS: ESAI sees short-term surge in diesel prices followed by a plunge in early 2013

(EnergyAsia, September 20 2012, Thursday) — Latin American demand will push ultra low-sulphur diesel premiums against North Sea Brent crude to a four-year-high of US$30 mark in the fourth quarter, but, “the party will not last,” predicts US-based consultant ESAI.

In its latest Global Transport Fuels Outlook report, ESAI said the region’s diesel deficit will exceed 720,000 b/d in the second half of the year, up 200,000 b/d from the first half, on growing domestic demand and limited refining capacity.

ESAI principal Andrew Reed noted that while the US maintains a strong diesel surplus, Latin America’s import requirement will strain Gulf Coast exporters’ ability to supply both markets and Europe at the same time.

“Volumes typically earmarked for Europe will instead move south, driving Rotterdam diesel prices high enough to attract arbitrage barrels and entice European refiners to provide more marginal barrels.

“ESAI expects that stronger diesel fundamentals in the remainder of the year will lead to an even bigger spike in the spread than last year. ESAI forecasts that this spread will test the US$30 level in the fourth quarter, and that it will remain above the US$20 mark into the first quarter of 2013.”

But he cautioned this high-margin trade will not last as US productive capacity will expand and Latin American and European demand will start to soften by early next year.

In the Gulf Coast, refiner Motiva is expected to start up its expanded CDU capacity while Motiva and Valero will add a combined 175,000 b/d of hydrocracking capacity, beefing up their ability to boost exports.

ESAI expects Latin American and European fuel demand to weaken seasonally in early 2013 with the end of Northern Hemisphere’s winter heating season, causing margins to plunge back into the teens.