Newsletter No. 592
News-Analysis
April 29, 2007

 

The following newsletter has been contributed by Sandra R. Leavitt (Shingetsu Member No. 55) of Georgetown University.

ENERGY COOPERATION AND SECURITY IN MALAYSIA AND INDONESIA

Japan-Malaysia

Stronger ties between the Japanese and Malaysian government and business sectors have allowed the Mitsubishi Corporation to purchase a 20% stake in a Malaysian offshore oil and gas exploration and production area. Other investors include Newfield Sarawak Malaysia, Inc. from which Mitsubishi bought its shares, and Petronas Carigali, a division of Malaysia’s state oil company.

In other news, oil destined for Japan, China and South Korea from Western Asia may soon be transported across northern Malaysia, bypassing the busy Straits of Malacca further south. Malaysian officials revealed plans to start building, in August 2007, a US$14 billion oil pipeline across Kedah State. The 320-km pipeline will link ports on Malaysia’s east and west coasts, lowering transport costs and risk of piracy attacks. Malaysia also hopes to develop crude oil refineries in the area to process up to 200,000 barrels of oil per day.

Interestingly, Japan has not been identified as a foreign direct investor for the project. Those who have include China, Iran and Saudi Arabia. Land and environmental issues are still being assessed. Revenue sharing may also become contentious. Kedah State and the Malaysian central government have struggled to establish governance which each considers acceptable.

While the pipeline project would benefit Japan, its impact would be slight. According to the U.S. government’s Energy Information Administration, in 2003 Japan imported about 4.2 billion barrels of oil per day from the Persian Gulf region, or 78% of its oil imports. The pipeline will not make Straits oil transport obsolete any time soon, especially as China’s oil demands grow. Japan also must rely on transport through the Malacca Straits for non-oil imports, as well as exports.

The Malacca Straits are also becoming safer after consistent joint air and sea patrols by Indonesia, Malaysia, Thailand and Singapore. Piracy attacks in 2006 were down to 11, compared to 18 in 2005 and 38 in 2004.

Japan-Indonesia

The Indonesian state oil firm Pertamina announced plans to invest $1.54 billion in boosting production by drilling significantly more exploration wells in 2007. Japanese companies are involved in several production and exploratory projects with Pertamina. Indonesia is also seeking partners to help double its production of LNG by extracting gas from coal seams, a relatively efficient method of increasing energy production from existing sites. Other developments include a new LNG plant on Sulawesi Island to be completed by Mitsubishi by the end of 2009.

Japanese companies are also competing against Russian and French corporations to win a contract from Indonesia’s National Nuclear Energy Agency (Batan) to build four 1,500 megawatt reactors about 450 km east of Jakarta. Indonesia’s own energy demands are growing rapidly and expected to double by 2025. The first site is planned for the north coast of Java, a population-dense island.

Critics are concerned that nuclear energy is not compatible with Indonesia’s vigorous volcanic, earthquake, flooding, and landslide activity. However, the IAEA has given the Indonesian government the go-ahead.