Korea has an important opportunity to make a contribution to energy security and the pending negotiations for a Trans-Pacific Partnership by calling for a free energy trade chapter in the TPP.
South Korea imports 97 percent of its energy requirements, primarily in oil, coal and natural gas. In 2013, the country was the world’s second-largest importer of liquefied natural gas, the fourth-largest importer of coal, and the fifth-largest net importer of total petroleum and other liquids. It has a strong interest in removing any barriers to this energy trade, and in assuring secure and diversified supplies.
Furthermore, about 82 percent of South Korea’s gross domestic product depended on international trade in 2013. Almost two-thirds of that trade was in the Asia-Pacific region, and one-third of its imports constituted energy supplies ― the lifeblood of its economy.
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Miyeon Oh(left) and Jan H. Kalicki(right) |
As a result of revolutionary development of shale gas and tight oil, South Korea’s closest ally, the United States, has become the world’s foremost energy producer and potentially its biggest exporter ― overtaking Saudi Arabia and Russia for the No. 1 position in oil production.
This energy revolution has led many in the U.S. to call for “energy independence,” which is an illusion in a world of globalized oil trade and prices as well as globalizing trade in natural gas, with price differentials bound to diminish over time. Rather, the opportunity is at hand for greater interdependence, in which America’s new energy power can be used to reinforce the energy security of its close allies, including South Korea. U.S. energy power is reinforced, furthermore, by increases in Canadian production from its oil sands and prospective increases as a result of planned energy reforms in Mexico.
The consequence of these shifts is that the balance of power in global energy production is shifting dramatically from East to West, just as the highest global energy consumption is centered in Asia ― notably, China, Japan, India and Korea.
Rather than focus merely on the energy security benefits for the NAFTA countries ― the U.S., Canada and Mexico ― the opportunity is at hand to channel these benefits into the wider Pacific region. This can be done by making free energy trade a significant part of the pending TPP negotiations.
Naturally, such a far-reaching proposal will face challenges, though we believe these can be overcome. First, the Obama administration will need Presidential Trade Authority, which the new Congress, with its Republican majority, is likely to grant because of the party’s traditional support of free trade.
Second, the U.S. can already export liquefied natural gas to free trade agreement partners, which benefits South Korea but not Japan or China. The TPP will qualify all its members for the same natural gas benefits already accorded to Korea.
Third, the U.S. Congress has prohibited oil exports since 1975, following the Arab oil embargo earlier that decade. But this prohibition has not extended to oil products and, in an important recent development, the U.S. Commerce Department has permitted slightly modified crude shipments (as a form of product) which are already coming to South Korea’s shores, and whose quality is highly suited to its refineries.
A complete lifting of the oil export ban is sure to be high on the agenda of energy politics in the U.S. in the coming year. But even if that takes time to occur, incremental steps under administrative authority can do much to liberalize U.S. energy trade.
This is where South Korea, as a close ally and partner of the United States, can play a positive and constructive role. Just as there should be a free energy trade “push” from the American debate, there should be a free energy trade “pull” from America’s Pacific partners.
Consulting first with the Obama administration, South Korea could set forth a forward-looking initiative for free energy trade in the TPP. The trade would encompass all forms of energy, from fossil fuels to renewables. While Korea would benefit from the fossil fuel component of a free energy trade chapter, it would also have the opportunity to contribute new technical advances in renewables, such as solar and wind energy.
A further benefit of a free energy trade chapter in the TPP is that it could provide a further platform for trans-Pacific consultations on future types of energy exports. From an environmental standpoint, for example, all TPP partners could cooperate in reducing the coal component, high in CO2, to the low-CO2 natural gas component, and increasing proportions of renewables which do not contribute to greenhouse gases. The recent U.S.-Chinese agreement to limit greenhouse gas emissions is an encouraging step in the right direction.
Not least, a free energy trade chapter would complement the investment protections found in Bilateral Investment Treaties and likely to be an important TPP component as well. South Korean and U.S. companies already have significant joint ventures, for example GS Caltex, and they are looking to invest further in each other’s energy sectors, specifically the shale players in the U.S. which will offer attractive commercial opportunities in a low oil price environment. As a consequence, investment and trade will be mutually reinforcing not only bilaterally but also multilaterally in a TPP context.
Historically, the U.S. and Europe have taken the lead in trade negotiations, and OPEC countries have taken the lead in energy trade. Propelled by the energy revolution now underway, Asian countries can and should play a larger role. As one of America’s closest partners, South Korea is well placed to take the first step.
By Jan H. Kalicki and Miyeon Oh
Jan Kalicki is a public policy scholar and energy lead at the Woodrow Wilson Center and a former counselor for international strategy at Chevron, and Miyeon Oh is a predoctoral fellow at the Brookings Institution and a doctoral candidate at Johns Hopkins University’s School of Advanced International Studies, all in Washington, D.C. ― Ed.
