The Hormuz Implications for Energy Policymaking: Japan and South Korea

Thank you for joining CSIS energy programs webinar mini webinar series that will look at the implications of the hormones energy crisis for energy policym particularly in Asia you know it's about 6 months since the war started and there have been a number of uh work that's been done to look at different reactions and responses from affected governments but what we're trying to do today through a series of webinars is to really look at the longer term implications. How does this crisis affect the way in which the policy makers and industry leaders and scholars start thinking about energy policym whether it's energy security u balancing or navigating the uh balance between energy security and energy transition I think there are a lot that we can start thinking about at this moment now even you know when we say Asia there's a diverse uh group of uh countries countries, sort of sub regions, if you will. And so what we're trying to do is to really break them down by different groupings. Today I'm very pleased to kick off this mini uh webinar series with two experts, one from Japan, one from South Korea. And Japan and South Korea are two countries that are almost entirely dependent on maritime trade to access the hydrocarbons that the countries need. And for that reason, I think there are a couple similarities. They're both very robust democracies with dynamic policym. So um what uh so I'm very pleased to start with uh Mr. uh Tatsuya Terzawa. He's the chairman of the um EJ Institute of Energy Economics Japan. And let me uh start with you uh Terzawasan. So you know uh when we look at the you know Asia and and particularly Japan and Korea's power mix you know hydrocarbons are still you know fairly important um source for electricity generation and particularly natural gas that's been really the main uh resource for Japanese power generation. And I'd like to hear your views on how this crisis may affect the long-term viability of fossil fuels, but particularly natural gas. You know, what does this crisis mean for Japan's use of natural gas as the hormones closure has really affected you know volume of uh natural gas coming not just directly to Japan but by elevating natural gas LNG uh fuel prices around the world. it has you know uh potential for changing the outlook. So let me start with you. >> Well actually um the role for fossil fuels including natural gas uh was relatively uh negative uh following our pledge to realize carbon neutrality by 2050. Uh it was pledged by then prime minister Suga in in 2020. uh the strategic energy plan, the sixth Australian energy plan which was decided in October of 2020 um was basically focusing um sort of a transition away from fossil fuel at the time. But after that uh Russia's invasion into Ukraine took place in 2022 and energy security uh was elevated uh to a higher level following Russia's invasion into Ukraine. Um and as a result, Japan's energy policy turned much more to pragmatic course uh which resulted in the decision for the seventh strategic energy plan which was decided in February of of last year. In that seventh strategic energy plan while Japan kept on energy transition but also recognized the important role for fossil fuel. So the role for fossil fuel was elevated already last year before this Iran crisis. Um so this Iran crisis itself will not change further uh the role for LNG. Um as a result having said so we have uh recognized the potential vulnerabilities for LG. Uh just for your reference since Japan's dependence upon LNG coming through the trade reforms was is just 6% at the time of attack on Iran uh LNG fortunately has not been an issue for Japan in the past several months but as I said uh there are potential uh vulnerabilities associated with LG. So now the policy discussion in Japan is gearing towards not necessarily changing the role of LG but trying to take measures to enhance the resilience for LG. That would include uh the need to push for long-term contracts. uh Japan has been fortunate uh to have had sufficient long-term uh contracts for LNG which has insulated Japan from the volatile uh price movement in the spot market and we need to push for long-term contracts which is becoming more difficult because the future is much more uncertain and Japanese players are more reluctant to engage in long-term contracts. So this is an area in which we have to provide policy push to ensure that we have sufficient level of long-term contracts for LG and also uh the second thing is that uh the reason why um we were not hit badly for LNG as a result of the SAN crisis was that we were successful in diversifying the source of LG for Japan. um we would have to continue doing so because the existing contracts just expires years after years. So we have to find alternative sources of LG. So long-term contracts and diversification which have helped Japan in the current crisis for LG this area which we are determined to take further measures to enhance. >> Let me uh now thank you. Let me now turn to Dr. uh Jason Lee. He's the director of the Ilvine International Relations Institute as well as the director of John Monet uh EU center of excellence at Korea University. Um please you know share with us you know how Korea is looking at this power generation uh fuel mix and the role of fossil fuels particularly with the with LNG to start with. >> All right. Uh thank you Jane and uh it is always a great pleasure to to have a discussion with with with Terasan. Uh my short answer uh on on on on the first question is that the crisis changes the way the Korea will use natural gas and coal but it does not reverse the long-term direction of the power mix. Uh currently uh the well in in in power mix Korea depends especially on on on nuclear powers and LNG uh followed by LNG and coal and renewable energies. Renewable energies is roughly around 11% at this moment. But the 11th basic plan for long-term electricity supply and demand what what what we called the basic plan for for electricity this this provide the guideline uh for 2030 you project nuclear power at uh 31.8% 8% slightly almost the same uh to the portion uh at energy slightly uh reduce it to 25.1% and new and renewable energy will will increase to up to uh 21% while core uh will decrease to to 17% roughly. So and the by 2038 the broader carbon free share is intended to rise the carbon free share that include both renewable and and nuclear will rise from 53% at in 2030 to uh se to higher than 70% in in 2038. Of course, this is a projection and plan, but I do not think the hormos crisis has invalidated that trajectory. Still, we we are making the the next uh the 12's plan. But if anything, it has strengthened the argument for a power system that that depends less on continuous maritime import of fossil fuels. We uh the Korea once again recognize that uh the fossil fuel is important definitely in terms of energy security at this moment but in the long run there is no reason to reverse the direction toward the the the toward the broader carbon free share that Korea can uh better control well has better control at it for natural gas However, uh my answer would be a little bit uh neos LNG would remain necessary because Korea need uh thisable uh generation for peak demand and winter consumption period of of low renewable output and nuclear maintenance if possible or grid balancing. So uh the natural gas is very uh flexible and important kind of the uh the bridging fuel. Uh the relevant question is not whether Korea retains gas fired the capacity it is how frequently that capacity operates. If energy supply becomes stable and price return to a predictable range, Korea may uh may use some gas plant for more continuously. But if but this is conditional. If supply insecurity, war risk insurance, price volatility, if those kind of risk uh remain high, it is difficult to justify a major expansion of gas fire generation because Korea would retain the capacity for flexibility but reduce its average utilization. Cal is different. The crisis has temporarily increased the value of existing core plant. It's like a defense player in the in the soccer game. So, uh well, it is safer uh to have the core capacity, but I did not see the the long-term trend that Korea will increase or or will return to the corebased power generation. So, the crisis does not uh produce a simple fossil fuel revival. It makes natural gas more conditional and core more visibly temporary. So if the fossil fuel risk remains elevated, the likely long-term beneficiaries in my opinions are nuclear power, renewables, storage, stronger grid and and most likely a demand side flexibility. >> That's fantastic. Actually, let me come back to you about nuclear in a bit, but let me turn to chair chairman Terrazawa as well because you uh you know, professor Lee just you know mentioned the role of coal and both the Japanese government and the Korean government have you know lifted the sort of temporarily at least from what I understand the use of coal fire generation to uh navigate the current you know crisis associated with oil and gas supplies and in your view, you know, is coal um could I mean, well, could coal be coming back? I mean, you know, it's six months into this energy crisis and at least to me um the end seems kind of elusive. So, could the coal be having a longer term sort of a usage um or is this just a truly meant to be a temporary uh measure? Well, um, as you pointed out, uh, during the past several months, uh, coal played an important role, uh, because while our dependence upon, uh, LG coming through the straight was just 6%. But 6% is still significant. So in order to deal with the potential loss of that supply uh we had to save uh the consumption of for LG and uh the only thing we could do at the time was to use coal. So I think the role of coal has been reaffirmed as professor Lee said uh it is defensible and it's useful and I think the usefulness has been uh reaffirmed. Um but will this change uh the the long-term picture? Uh would it lead to a comeback for coal? Um I don't think so. In the long term um the coal especially for power generation our dependence will be going down. Uh but compared with several years ago when everyone was talking about carbon neutrality I think people were talking was about an acceleration of phase out of coal at that point at that point. Now we are seeing phasing away from coal for sure and that direction will not change but we are not expecting an acceleration of that phasing away of coal fire power plants. I'm not saying that we will have a resurgence of coal but because of the importance of coal for safety or defense as being recognized uh we will have a stable um u reduction um in our dependence for for coal. And if I may add one information which may not be known uh well outside of Japan is that compared with the US or European countries where the coal fire power plants are very old uh it's relatively easy to have them retire at that time because they are old but unfortunately for Japan we do have a significant number of very young coire power plants the reason is that after the fuka nuclear power plant accident we had to shut down all the existing nuclear power plants for several years. So the power companies had to uh scramble to build new gas fire power plants and new coal fire power plants and because of the lead time um several uh brand new coal fire power plants came uh online in the past few years. Uh so I think that is the reason which may be diff different from Korea that well we do have older co fire power fire power fire power fire power fire power fire power fire power fire power fire power fire power fire plants but we also have uh younger co firep power plants and uh you cannot tell someone who are very young to retire uh you can ask someone like myself to retire because I'm old enough but for young uh coal fire power plant it's will be much more difficult so the direction for phasing away from coal will be not be changed But the process will be steady and long. It will not be the same as several years ago when people were talking about shut the coal fire power plants as soon as possible. I think that has changed but that was in place even before this crisis as I said after Russia's invasion in Ukraine. I think the discussion towards that was already in place and the Iranian crisis just reconfirmed that. I have a a sort of nuclear related quick follow-up to you before we move on to nonpar generation uh you know implication and I'm glad that both of you have you know brought up co and then also nuclear so uh sitting you know where I am it seems to me that the hormous energy crisis is sort of giving sort of tailwind to nuclear power generation in many countries including you know the two your two countries um So perhaps you know let me actually start with Tazasan quickly and this is really meant to be a follow quick followup you know how is this translating into Japan's momentum for nuclear which has been um you know uh starting to rise um you know since before the homeless you know crisis seems to me you know uh since you know certainly beginning of uh your you know career in cabinet cabinet of prime minister Takai and then and then after Terzas and uh you know professor Lee I'm also very much interested in you know this very robust two-party system uh you know presidential you know political system that South Korea has and sometimes depending on the presidency I think you know the um priority energy resources uh or the focus sort of changes and nuclear in the past seemed to be one of those energy resources and I'm very curious that you know going forward does this crisis sort of a make certain energy resources lot less of sort of a um I wouldn't say politicize but you know may there be um sort of a uh the difference between partyline um energy resource preference be altered Could could the change be more narrower? So let me start with uh chairman Terzawa and then come to you professor Lee. >> All right. Well um the nuclear accident took place in 2011 uh March 11th. Uh naturally the general public's opinion towards nuclear was very very very much negative uh in the years following the push of nuclear accident. uh that basically changed not as a result of this current Iranian crisis but once again um resulting from Russia's invasion Ukraine uh people uh sort of discovered so to speak uh the the importance of having nuclear because people were struggling with the increasing cost of energy and for the general public even for general public it was easier to understand in order to contain the cost increase why not just move the um sort of stopped nuclear power plants and restart them because you will not need to mean you not have to have any new construction or you didn't have any need for any fuel. So even for the general public uh it was understandable that nuclear can bring um uh lower cost for the energy which was increasingly uh an issue and also people were concerned at the time of the Russia's invasion about the potential lack of supply of LG because we were dependent upon u Russia's LNG for 9% of our energy which was higher than this uh Middle East uh LG uh dependence time. So for security reason uh people also understood the importance of nuclear at the time and after more than 10 years uh the newly created um safety uh agency called NRA established trust among the public that people started to trust the judgment by NRA for safety. So for cost issue, security issue and also for this safety issue, I think the general public became more receptive to the idea of restarting nuclear power plants after Russia's invasion Ukraine. And every poll shows that the the vast the vast majority of the general public in Japan supported restart of nuclear. that was even before this Iranian crisis and I think this Iranian crisis is just reconfirming um that change and now it's be going beyond uh the just restarting um we will be putting into place extension of the um lifespans of the nuclear power plants beyond 60 years and also we'll be engaging in restart means basically constructing new nuclear power plants so the direction is not has not changed because of the uranian crisis but it has been confirmed that we will have a solid uh introduction of nuclear um because of all the constraints it will not be like representing 50% of a problem mix uh our goal is to have 20% up from less than 10% today um it is a modest goal but it is still a significant goal and still a challenge goal to be achieved so nuclear is back but it is not like before the future nuclear accident but we are having a solid comeback of nuclear in that regard. >> Thank youan. Um how about South Korea professe? Uh well uh Jane uh well you you have rightfully uh to mention uh that the Korean nuclear policy had had some sort of pendulum between the progressive government and and conservative government and those two parties are not identical on on that issue. Conservatives generally fa favor faster expansion and export of nuclear power plant uh and nuclear energy while progressives gives more weight to renewables, greed, safety, waste and local consent issues. However, uh in uh at this time I observed support for nuclear power in Korea uh be more durable than in in earlier political cycle. Although the scale and timing may remain contested and uh I see uh roughly uh I I see generally three forces are uh driving the convergence on on on the necessity of nuclear energy at this moment in Korea. Uh the first is is uh in times of this homeless crisis existing reactors uh re certainly reduced the exposure to imported LNG and maritime disruption. So Korea did not have have that much concern or the huge price the hike uh in in electricity. the other price terms uh during the crisis and and so the people uh feel relaxed a bit or the industry felt more confident uh of having in in having nuclear energy as a safe source and the second nuclear also supplies no low carbon stable power as Korea reduce coal and gas and third I And I think this is a very interesting point because uh AI data centers and semiconductor fabrication and electrification are raising demand much faster than many previous forecast assume and uh there is a growing consensus in Korea that uh nuclear energy uh may be necessary and will be necessary uh to back up this rapidly growing AI data centers and and semiconductor business. So the the strongest political evidence is that the progressive DJ administration retained two large reactors and one SMR project in the 11th basic plan which was prepared under the previous conservative government. SMRs may require some uh caution. Korea is investing in R&D and manufacturing and target commercial deployment of of SMRs around 2035. But uh SMRs are not an answer to the prison uh crisis. Maybe it will be the long-term uh solution. Uh maybe my last point will be the pol the nuclear politics will increasingly be distributional where reactors and transmission lines are located which which regions receive associated industrial investment and how host communities share the benefit especially now this semiconductor business in industry in Korea is is really booming and Samsung and SK Heinix. Um the the recently announced the big investment plan and nuclear energy nuclear reactor the location of this kind of the nuclear reactors may follow that sort of well that sort of big investment in AI and and new IT industry. So uh is is a new dimension of the nuclear politics in Korea. >> Thank you. That's actually very uh good. And then also as you said an interesting point I think in three of our countries you know South Korea in your case you know Japan and the United States the the synergy or the nexus between AI and some of the advanced manufacturing and uh nuclear uh is getting a lot of attention and also really starting to change the way in which that the policy makers and investors and also manufacturers can approach uh the you know the sort of energy you know planning as well as sort of innovation and and manufacturing as well. And that's actually great segue to my next um question which is you know both of your countries are well known for you know en um technology you know innovation and including you know energy technologies and I'm very curious to hear you know hear your perspective as to how this the current crisis may be uh you know um highlighting certain types of energy technologies or you know could it be reshaping some energy technology innovation uh priorities. Um uh let me start with chairman Tazawa on this one. >> Well, actually um I received this question in advance. I thought about that, but um this crisis has not really changed uh the fundamental direction of our innovation. Um because most of our innovation was geared toward uh energy transition. In Japan's term, we call it GX or green green transformation. So that general direction is unchanged regardless of this Iranian crisis. But if there could be one um change in emphasis potentially is that uh energy security has been um elevated in its importance. Um but u when we look at the conventional energy security it's about uh our energy dependence upon Middle East. um that uh energy security does not necessarily change the direction of innovation but we are now uh increasingly being um concerned about the emerging new type of energy security um it's not about the dependence upon middle east for for crude oil it's about dependence upon various clean energy technology and also critical minerals on one dominant supplier uh So uh we don't intend to replace our current energy security concern our dependence upon Middle East for for foss fuel uh with another type of dependence uh in clean energy technology and critical minerals for one dominant supplier. Uh so uh with this kind of thinking um I think uh energy transition will certainly be the core of our innovation. But if there are policies or innovation that would um improve our resilience towards this new type of energy security um areas which those two viewpoints u overlap would would get uh much more um uh highlighting um and uh that is uh reflected in PM Prime Minister Takai's uh growth strategy. uh she picked seven areas for for for priority for for the growth strategy. Uh she emphasized it's not just about growth, it's also about security. So uh once again innovation that would help energy transition plus uh innovation that would help our uh resilience uh towards clean energy technologies and also critical minerals would certainly get a stronger push so to speak and that would include uh technologies such as um a new type of paroskite uh PV which is a new type of light flexible type of solar PV And also uh for for offshore wind power generation uh we'll be looking into floating type offshore wind power generation. Uh most offshore wind power generation today are bottom fixed but since Japan is surrounded by deep sea uh we are seeking floating type offshore wind power generation as well. And also uh we'll be looking into advanced geothermal as a country of volcanoes and on hot springs. Uh it's natural to think about geothermal but uh with advanced geothermal we believe it could be expanded and also we'll be interested in next generation uh nuclear including SMR and so on. And as for critical minerals, uh we'll be focusing on areas such as to be more efficient in the use of uh critical minerals or developing alternative materials so that we will not be dependent by some critical minerals uh which is is dominated by some player and also we'll be investing in innovation to strengthen recycling. So once again, yes, we'll be focusing on energy security and that's the focus of of of innovation, but it will be a very new a different type of energy security uh that we'll be focusing on. Um your comment about uh sort of a you know innovative approach to critical minerals reminds me that Japan is reportedly undertaking the effort to recover rare earth from the deep sea mud and I think a lot of researchers are quite you know uh interested in following the development. It's something that I that you know came up during uh the US Japan summit uh earlier this year if I'm not mistaken as potentially uh something that you know the researchers from the two countries may look into. Um so there are lot of innovation priorities uh I think that you know um are of interest to probably you know for all you know three of our countries. But let me turn to you um uh professor Lee. So how about you know innovation energy innovation uh priority for South Korea? How has that been reshaped? >> Well the the energy technology run well innovation well has been a key word in in in Korea's energy policy for for many years. So this is nothing new and uh quite interestingly I would like to note that uh the period of hormous crisis uh somewhat over overlapped with the unprecedented stock market booming in Korea quite quite ironically and and and and the uh a lot of the innovation semiconductors and and and that kind of the the technology related issue got uh in a sense reaffirmed that uh the Korea definitely need need should be well need to be more technologybased uh to build the resilience toward any sort of of energy or economic crisis uh and I think the crisis will shift but well if I uh would be more specific then I I would say the crisis will shift Korea's innovation a policy from an emphasis on technology development alone toward a stronger emphasis on deployability, system resilience and time to impact because Korea is very very capable in research, engineering and manufacturing. But an an energy security technology uh is useful only if it can be deployed at scale well [clears throat] connected to the grid and maintained through a crisis and supported by a resilient supply chain. So here the key policy question should uh be uh can this technology uh materially reduce Korea's exposure within a certain uh the foreseeable future. So uh among the energy uh technologies I I may highlight just a few uh one is power grid. Korea uh needs AI based grid operation advanced distribution management and high voltage transmission cyber security and demand res uh demand response. So nowadays the the power grid uh is is one of the most important uh uh energy technology agenda that will be important not only for for Korea's domestic market but also Korea's export market and second priority is storage and flexibility and this is important because storage uh like ESS or the add storage or storage can um conserve ad energy, integrate more renewable energy generation and provide reserved much faster than a new reactor or major transmission corridor can be completed. So uh storage and flexibility will certainly uh the strengthen the resilience energy resilience. And the third priority is is is firm and low carbon generation. uh Korea will continue research and supply chain investment in SMS and advanced manufacturing uh the agenda and uh I would say also the industrial decarbonization like the hydrogen clean ammonium and CCUs uh remain very important uh for steel chemical ship building and other sectors that cannot be fully uh electric funded. Right. But uh I would say uh there is is a different horizon time horizon because uh some agendas are very should be completed in in a relatively short period of time some are mediumterm and some are long-term agenda. So for example uh deploy grid uh storage efficiency and and demand response is very immediate uh energy technology and and low carbon power industrial technologies will be the medium uh medium-term uh and which is more well definitely more scale mature and maybe long-term option may include SMRs and hydrogen and advanced CCU US and and and the nuclear fusion issues. And uh lastly but not leastly important is innovation policy uh including critical minerals and manufacturing resilience the batteries, power, electronics, transformers, solar equipment and wind turbines. Well, definitely they can reduce fossil fuel exposure while creating uh new dependencies on concentrated mineral processing and component supply chains. So, Korea is also very keen on this kind of supply chain issues that uh will determine the the the scale and the speed of of energy technologies using those critical materials. >> That's fantastic. I mean really really informative to hear both of your views on where the you know the emphases and directions uh you know may be in the coming years and even decades. These things don't happen overnight. Um so but let me um we have about uh little less than 20 minutes left. So let me switch the gear and talk a little little more about uh both you know Japan and South Korea's sort of external energy uh policym or more of a sort of energy diplomacy issues. So you know I think among you know many you know lessons thus far I think this energy crisis has highlighted how you know the Middle East you know it has been associated with the geopolitical risks but you know even you know some unlikely not necessarily unthinkable but unlikely event of the hormones closure actually has happened and etc. I'm very much interested in hearing your uh observations on how your governments are now, you know, um thinking about this, you know, the engagement with Middle Eastern suppliers, you know, do you think this may um you how how if any does this crisis sort of alter the way that Japan and Korea approach things like investments into uh upstream you know oil gas fields in Middle East or you know more investment in um refineries as well as trade. So both the energy investment and energy trade could we expect some change? Um and related to that you know the US oil gas uh you know uh supplies have you know really uh increased since the beginning of the war and lot of supply has gone to both you know Japan and South Korea in the especially the first uh three months of the war. So, you know, overall, you know, how do your governments also, you know, look at, you know, sort of energy resource diplomacy with Middle Eastern suppliers as well as non- Middle Eastern uh suppliers such as the United States? >> It's a big question, but um uh chairman Taza, would you like to take a crack? >> Yeah. Um just because we had a problem uh in Middle East does not mean that we should move away from the Middle East. Mhm. >> Uh Middle East continues to be the largest source of conventional energy. Um so uh our approach is much more to reduce our dependence upon the straightable formulas not necessarily reducing the dependence upon Middle East. So uh we will be working together with our friends uh like Saudi Arabia and UAE because they are determined to develop alternative routes not depending upon the state of Hormuz. So they will be strengthening uh the bypass routes uh they have already in place and expanded and the Japanese government is willing to participate in that strengthening of those bypass roots for Saudi Arabia UAE. um so that we will continue to have a relationship with Saudi Arabia and UAE uh with much more resilient supply through less dependence upon the straight of form. Um and uh we also are are looking forward to working with those countries like Saudi Arabia and UAE. Uh we have already had a joint stockpiling system. Um this is I believe you have that in Korea as well. Uh basically uh we have been working with Saudi Arabia, UA and also Kuwait to have a stockpiling uh of their oil uh within Japan. Uh but in normal times, Saudi Arabia or UA could use them for marketing purpose in normal times. But in terms of urgency, emergency uh the Japanese would have a priority uh to use that uh collective uh stockpile. And actually after this uh uh Iran Iranian crisis uh we have already released six days worth of this collective uh stockpiling uh with our uh uh the Gulf uh uh Gulf Coast uh uh countries. I I believe that this could be expanded um so that we would have a much more strengthened resilience uh together with Saudi Arabia, UAE and also quick. So once again uh we will be continue to be working with Middle East countries but trying to enhance uh the energy security by those by pass roots and also by joint stockpile. Having said so um Middle East does have its own uh risk. Uh so uh we cannot just depend upon this bypass route or just joint stockpiling. Uh we will be actively seeking other measures as well. One measure is to ensure that we have domestic refining capacity. Without refining capacity we will face a trouble of not having the oil products. Our poor friends in Australia came to this problem because of the shortage of refineries within Australia. uh so one of the safeguard is to continue having a refining capacity within Japan and also with the capability to refine non middle east oil as well. So maintenance of refinery making them more flexible is one uh area that we'll be focusing on and also we will be looking to other sources of energy uh other than Middle East that would include USA already during this crisis uh the USA uh provided uh more than 30% of the loss supply of crude oil and also 30% of of probably um meth uh NAFTA as well. So the US was crucial in filling in this gap caused by this crisis. Um so at least for the emergency measure, US has a very great role. Uh but your question was to what extent this heightened role of US would continue in normal time. um that may be more more uh nuanced for LNG. We're already seeing an expansion massive expansion of US LNG produce even before this crisis. Um in 2025 um our import of LG from US was just 7% of our total demand. But with the expansion of LNG projects with the US even before this crisis uh we were expecting by 2030 uh the US share would reach 22%. In LG so even without the crisis for LG there will be a significant expansion of US rule to be our second largest exporter of LNC Japan following Australia. As for crude oil or NAFTA, this is something more difficult. Uh but uh from the lessons we've learned through this crisis, um our 94% dependence upon crude oil uh from Middle East was too high. Um and so I think we'll be looking for uh reduction of this high dependence and the US would be the natural candidate uh to to make this happen. So the role of the US especially for crude oil in NAFTA will not be great as it is today under this crisis but it will be larger than this pre crisis. LG already a large expansion already built in that will be the picture for the US and US will play playing a very important role for Japan's energy supply in the coming years. Thank you. and and I it would be really interesting to see how Japan and and perhaps South Korea but I do not want to get ahead of uh professor Lee but we'll try to manage how you know the US as you mentioned tazan you know the light tight the tight you know US tight crude is very different in you know qualities grades from the Middle Eastern dominant supplies and to what extent Japan's refinery can take that in in any additional you know long-term manner manner especially when you know you you know your population is extremely mature it's not like you have a huge massive um you know sort of a uh demand I mean obviously in the electricity uh sector yes but so to what extent you might want to invest and reinvest in you know perhaps modifying or upgrading refining capacity will be something interesting to to uh I think watch for some of us outsiders in in the coming years. Um right >> now let me turn to Professor Lee. So in you know South Korea's case um how does the resource diplomacy uh looking like in in the coming years with both Middle East and and perhaps especially with the United States? >> Well well the Korean situation is not that different from from the Japanese situation and I do not expect Korea in in any case uh to withdraw from the Middle East. The Middle East remains indispensable to Korea. The Gulf producers cannot be replaced quickly and longstanding relations with with Saudi Arabia, Qatar and and and the Arab Emirates still have strategic value. But crisis has shown that ownership of a certain field or long-term purchase contract does not automatically provide energy security. Uh the the ctor damage and repeated force measure declaration illustrate why a purchase contract alone is insufficient when the production trains, loading terminals or the routes are unavailable. Uh and and also the key question is is in the future is not is is whether um is Korea has an equally lifting rights or whether the cargos can be redirected and whether the loading terminals is operational and whether the supply can reach Korea when Hormus uh is is restricted. So uh the Korea is seeking and ha and has to seek for the the deeper ties with uh with the Middle Eastern countries. Previously uh well especially of during the cold war period and for a long time the United States also provided some sort of like security umbrella together with energy umbrella to to Japan and and South Korea because because United States had a huge stake in securing the middle uh procurement from the Middle East but nowadays well Middle East is still important. important to the United States but not necessarily in energy terms. The United States is is quite energy independent. So the Korea uh cannot no longer rely just uh the uh naively on on that kind of the the security umbrella, energy umbrella of the United States. So the the Korea is looking seeking the the renewed ties with with those uh major uh the import sources in the Middle East and and such as Korea and ATNO agreement uh well- which can be useful modeled. It covers stable crude supply, emergency coordination and joint stock filing and and uh the and and the emirates commitment to make uh the well in in in document 24 million bars available to Korea in an emergency. uh and uh what Korea is looking at uh those the the Middle Eastern country is not just upstream and import side because a lot of the energy infrastructure quite a significant portion of of energy infrastructure in in in the Gulf uh regions got got damaged uh during this crisis and and that will uh open that will requires a quick recovery and Korean construction companies and and energy infrastructure companies which are quite competitive. So it can provide a new opportunity for uh another layer of industrial coordination between Korea and uh these GCC countries. So uh that will so it's not simply going back to the uh the procurement side but also well maybe in the next generation uh the energy diplomacy with with the Middle East for Korea is uh will include both this energy infrastructure recovery side United States in in in while while the Qatar for example Qatari is is a the uh the the import source for for Korea. But uh well the the significant significant portion of of energy import from from the Middle East got blocked and and the United States once again emerged as a major uh supplier major uh the the energy uh the energy supplier for for for Korea and Korea. So the United States, Australia became a lot more important. But I would highlight a few condition. One is uh the US uh export capabilities. Of course the um the US began to increase the the supplies uh the capacity and uh the like golden pass shift is first cargo in April uh with further addition from corpus Christi stage three and port author and Rio Grande. So uh we well what we are seeing we are watching uh carefully how much United States can uh can provide uh LNG to to it is first to its allied countries and second condition is the the largest uncertain well I and I think the largest uncertainty is Europe um uh the Europe is trying to really cut off the the energy import from from is even gas import for from Russia by next year. So and and and the US LNG at least at this moment will be more critical for for to also to many European countries in that sense. uh the balancing the balancing uh the the the export portion from the United States to Europe and Asia will be another the the key condition we have to closely observe and uh yes well and and Korea is is also well recently Korea promised to to build uh some like like the gasbased power plant in in the United States And well, we will discuss well this energy the Alaska energy issue later possibly but uh well there are certainly a new agenda uh that can be discussed with the United States uh combining energy security, economic security, investment and and other the commercial the trade issues. >> Thank you professor Lee. Maybe Alaska LNG could be for another session and invite both of you back. But um maybe um you know the one last question and then if I may request like a minute and a half long >> uh response from each of you but since I have both of you um >> I'd love to hear your thoughts on how Japan and South Korea could cooperate to really strengthen sort of a post hormuse uh energy resilience not just for each other or the two countries but for Asia because I mean some examples that I can think of are things like uh you know strategic stock swapping or maybe even greater you know uh you know information um you know sharing capacity for commercial maritime security. I mean there are many you know very concrete areas. If you are to choose one concrete idea for the you know your two countries energy security cooperation what would you uh what would that be? Uh let me start with chairman Tazawa. >> Well uh the current international uh energy system is now managed by IEA international energy agency uh which has been very helpful. Uh this was uh created back in 1974 by Dr. Henry Kissinger. Uh it is great but it is run by the US and European countries and it is a club. So it assumes that each country can do everything on its own. But this current crisis is a global crisis but much more of a Asian energy crisis and the safety net provided by IIA is not exactly helping the current crisis of Asia because of this the decision making not Asian uh Asian countries need help for for uh stockpiling. So these are lacking and I think it is time for Japan and South Korea to lead the Asian initiative to enhance energy security for Asia. Uh complementing IIA not replacing compliment IIA. But it is time uh that Asian countries uh led by Japan and South Korea stand up to support the enhanced energy security for Asia because Asia is important as a market for Japan and Korea and also uh Asia is very important as a supply chain for Japan and Korea and Asia is a great friend of us. uh I think with this crisis I think it is time that we would elevate we need to elevate uh the energy security architecture for Asia uh under the leadership of Japan and South Korea. >> Thank you Tazan. Professor Lee. Uh well yeah uh for for Korea and Japan I would propose uh the my priority the other the uh proposal is a pre-negotiated emergency energy swap protocol uh covering crude oil and select se selected petroleum product and LNG and the two countries have very similar industrial structures overlapping import route and major strategic uh stock but similarity does not automatically produce corporation. The coal gas and Japanese utilities and Korean refineries and Japanese buyers often competed in the same market for long. So during a crisis uh government cannot simply tell these com companies to cooperate and expect commercial incentive to disappear. So government should therefore establish the rule before the next emergency and it will include an an kind of annual tabletop exercise and periodic live commercial test so that a swap can be executed within days rather than negotiated from the beginning under pressure. And I think that this is not ground zero. In March uh past March uh Kas and Jira uh signed an operation cooperation arrangement and at the sum May summit meeting in Andong uh the two government leaders agreed to expand cooperation on crude oil and LNG including stockpiling and mutual swap agreement arrangement. Of course this uh it need to be uh modified. you need to be redefined in many technical and implementable uh terms but uh well it is quite evident that Korea and Japan should do together more in the much more in the future and I I'm I'm just reemphasizing uh the Korea and Japanese like coordination in in IEA or any other kind of regional level multilateral setting Thank you. Thank you both. Thank you audience for joining the CSIS webinar series. And just quickly uh we're expecting three additional um focus uh you know f uh sessions focusing on different sub regions and I could not have been more grateful to both chairman Terzawa and professor Lee for very strong uh initial the inaugural uh session uh under this series uh focusing on Japan and South Korea uh some you know similar challenges but also you know each has its own unique ique you know political economy system decision making also you know different strengths concerns and um you know thank you so much again uh Mr. Terzawa and professor Lee and thank you again to the audience for tuning in and please uh keep following our work. Thank you so much. Bye bye. >> Thank you. Byebye. >> Thank you Jane. Thank you. [music]