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Analyst points to security post political deb -

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Analyst points to security post political debate

Eleanor Hall reported this story on Monday, November 23, 2009 12:18:00

ELEANOR HALL: As politicians in Canberra debate the politics of climate change, an energy security
analyst is warning governments not to drop the ball on the security dangers of energy policy in the
region.

Professor Mikkal Herberg is the research director of the Energy Security Program at the US Bureau
of Asian Research and he also advises governments and industry on energy politics.

He says world leaders are right to be working on clean energy deals but that competition for energy
sources in the Asian region in particular will intensify in coming years regardless and that the
security implications are serious.

Professor Herberg is in Australia as a guest of the Lowy Institute and he joined me in the World
Today studio this morning. He began by outlining just how dominant China and India have become in
the global energy market.

MIKKAL HERBERG: If you go back over the last decade let's say, China has accounted for probably 40
per cent of the entire increase in world oil demand. Probably another 10 per cent for India
together so as well so you are about 50 per cent of the total growth in oil demand.

As you go forward, China is probably going to count for two-thirds of the oil demand growth in the
next five years so the two together are a formidable force in oil markets.

ELEANOR HALL: So what impact is this likely to have on security issues in the region? Is there real
potential for conflict between India and China and between either or both of them and the United
States?

MIKKAL HERBERG: The prospects for real conflict, you know, is shooting, hot conflict I think is
very low but I think the sense, the perception of each that they are competing with one another is
deeply aggravating their strategic, their already existing strategic rivalry.

Frankly India worries about encirclement by China strategically so it is aggravating the bilateral
relationship and creating new tensions that they simply don't need in what is a critically
important strategic relationship for the next 20 years.

ELEANOR HALL: You have called for more creative leadership on energy policy from the United States.
What do you recommend the Obama administration do?

MIKKAL HERBERG: Well, I think you know, the first thing they need to do is there is a thing called
the International Energy Agency where the industrial countries all set aside strategic petroleum
reserves and in the case of a disruption, you get together and coordinate a release of supplies
which can bring down prices globally. This is a collaborative collective effort.

India and China need to be brought into the IEA. This kind of thing is extremely important in
reassuring them about the availability of oil supplies in case of a severe disruption.

ELEANOR HALL: But why would say China be interested in a multilateral approach when it can secure
its energy needs faster and perhaps more easily with bilateral deals? I mean, what is in it for
China?

MIKKAL HERBERG: Well, I think they believe they can secure these supplies bilaterally and on their
own but the fact is that oil companies are out buying oil fields and trying to secure kind of
privileged access to their own supplies.

But the fact is demand is increasing too fast so ultimately, they are going to rely, they already
do rely for two-thirds of their supplies on the market place and I think gradually the Chinese
leadership is going to come to this conclusion but it is going to take some time and in the
meantime it is creating a lot of extra tensions.

ELEANOR HALL: Well, China is investing and India is too in places like Sudan and Iran. What sort of
problems is that creating for the United States?

MIKKAL HERBERG: Well, it is creating a whole other layer of tensions in the, particularly the
US-China relationship where China is involved in Sudan, Myanmar, Iran. So this is creating new
tensions in the relationship between US and China which is arguably the most important bilateral
relationship that we will see over the next 30 years globally.

So it is important that the US and China begin to come to terms over those issues but it is
creating real problems. India is doing some of the same things. They are a partner in Sudan with
China. They are a partner in Iran but because relations are improving gradually between the US and
India, it has had less impact on the US-India bilateral relationship but the US-China one, this is
a very significant problem.

ELEANOR HALL: What is the worst case scenario? I mean how dangerous could this be for security in
the Asian region if the United States doesn't manage to get the policy on these things right?

MIKKAL HERBERG: Well, I think the most dangerous potential area would be a looming competition in
the sea lanes. China's navy, naval modernisations proceeding very rapidly. It is beginning to
develop its blue water capability into the South China Sea and ultimately, over the long term, into
the Indian Ocean so you have this whole new element in sea lanes.

Energy is going to be a critical element there. The flow of oil through the Indian Ocean is going
to double over the next 15, 20 years.

So there is a real risk that disagreements over who controls the sea lanes, collaborative efforts
versus competitive efforts. I think that is where the actual, the hottest potential for problems
could be.

ELEANOR HALL: How do you think the Obama administration is going? Does it recognise the importance
of these issues?

MIKKAL HERBERG: I think the Obama administration recognises it. I know many of the people in the
administration. I think the problem might be that they are so focussed on clean energy, climate
change efficiency but I think in some ways that focus has overtaken the energy security set of
issues which were more prominent in the previous Bush administration.

If we see oil prices rise again which I think we will in the next several years as demand recovers,
as the economy recovers, I think this will re-emerge as a very important issue and I think the
Obama people will begin to focus on that.

But I think there is something of a risk that there is a lack of realism that in the next 20 years
there is going to be still a tremendous dependence on oil and most importantly, a tremendous
dependence on coal in China and India particularly.

So I think some of the leaderships, I'm not sure they appreciate the need to develop things like
natural gas and other fossil fuels because it is 20 years before these renewables can really begin
to take over any sizeable role in the global energy mix.

So in the meantime we are liable to make supplies tighter and aggravate our energy security
concerns while we are trying to address our climate concerns.

ELEANOR HALL: How do you see Australia's role in this whole energy security in the region? I mean
we are a resource-rich country. We've got, you know, major reserves, including uranium.

MIKKAL HERBERG: I think for the most part I think it is in a sense a boon for Australia. You know
Australia is a huge exporter of liquefied natural gas, a huge exporter of coal.

The only caveat I would have is what you are already seeing, is that a growing move by the Chinese
and others to acquire Australian resources for their own sense of supply security but obviously
that creates real issues for Australian people and the government about control of those resources
by a foreign companies and in the case of China and India and many others, these are companies
either owned by the government or with a strong influence by those governments.

So it raises I think a bunch of very difficult issues for Australia.

ELEANOR HALL: Should the Australian Government be allowing that investment or being more concerned
about it?

MIKKAL HERBERG: I think the Australian Government has a right to have policies which limit the
scale of this as long as it doesn't become simply, you know, we are just keeping foreign investment
out completely. I think that would be a mistake.

ELEANOR HALL: Well, is that going to become a point of conflict in terms of the security issues
that you have been raising?

MIKKAL HERBERG: I think very much so and you have already seen it is a factor in Australian-China
relations. I mean that is, I think we have got a very challenging process coming where everybody is
going to have to do a lot of work with the Chinese and not have it become a major problem.

ELEANOR HALL: And that's Professor Mikkal Herberg. He is the research director at the Energy
Security Program at the US Bureau of Asian Research and he will be speaking at the Lowey Institute
in Sydney this evening.

And you can listen to a longer version of that conversation on our website where Professor Herberg
talks also about peak oil and the impact of the global financial crisis on energy politics.