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Offshore petroleum in Northeast Asia : a case study of international regime theory Cook, Catherine 2000

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OFFSHORE PETROLEUM rN NORTHEAST ASIA: A CASE STUDY OF INTERNATIONAL REGIME THEORY by CATHERINE COOK B.A., Royal Roads Military College, 1995 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in THE FACULTY OF GRADUATE STUDIES (Department of Political Science) We acc^prtrisvthesis as conforming to me required stapdard THE UNIVERSITY OF BRITISH COLUMBIA December 1999 © Catherine Cook, 1999 In presenting t h i s thesis i n p a r t i a l f u l f i l l m e n t of the requirements for an advanced degree at the Un i v e r s i t y of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y a v a i l a b l e for reference and study. I further agree that permission for extensive copying of t h i s thesis for s c h o l a r l y purposes may be granted by the head of my department or by his or her representatives. I t i s understood that copying or p u b l i c a t i o n of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of Pol/TIC^L $c/£A/c£ The U n i v e r s i t y of B r i t i s h Columbia Vancouver, Canada D a t e n£cense*> <?/J /999 11 A B S T R A C T This thesis is a case study application o f international regime theory to offshore petroleum in Northeast Asia. The five states examined in the study include Russia, China, Japan, North Korea and South Korea. The Northeast Asian offshore petroleum reserves discussed in this thesis are located in the Sea o f Okhotsk, the Sea of Japan, the Ye l low Sea and the East China Sea. Realist, cognitivist and liberal regime theory is employed to analyze the offshore petroleum regime in Northeast Asia. Each of these three theoretical perspectives is the subject o f an individual chapter focusing respectively on power, knowledge and interest. The final chapter evaluates and compares the Northeast Asian offshore petroleum regime to other regional regimes such as the Organization for Petroleum Exporting Countries (OPEC) . The study concludes with a frank appraisal o f the current Northeast Asian offshore petroleum regime and suggests areas for future international regime research. T A B L E O F C O N T E N T S Abstract i i List of Figures and Tables v List o f Abbreviations vi Acknowledgements v i i C H A P T E R I Introduction 1 C H A P T E R II Theoretical Background 10 2.1 Power-Based Theory 13 2.2 Knowledge-Based Theory 14 2.3 Interest-Based Theory 16 2.4 Indicators of Regime Performance 20 C H A P T E R IH The Power-Based Approach 26 3.1 Regional Supply and Demand 27 3.2 Status o f Overlapping Offshore Claims 31 3.3 Role o f Non-Regional Actors 33 3.4 China 35 3.5 Russia 40 3.6 Japan 47 3.7 South Korea 52 3.8 North Korea 55 C H A P T E R I V The Knowledge-Based Approach 60 4.1 U N C L O S 61 4.2 I M O 64 4.3 Regional IGOs 67 4.4 Regional N G O s 74 4.5 Comparison o f N E A Regime to other Maritime Knowledge-Based Regimes 83 C H A P T E R V The Interest-Based Approach 89 5.1 Joint Exploration and Production - Sakhalin Island 90 5.2 Joint Development - The Japan-South Korea Continental Shelf 97 5.3 Transportation 101 5.4 Storage 108 CHAPTER VI Regime Evaluation Bibliography V F I G U R E S A N D T A B L E S Figures 1 Map o f Maritime N E A 3 2 Map of Disputed Areas with Petroleum Potential in Maritime N E A 32 3 Map o f Proposed Transnational Pipeline Networks in N E A 106 Tables 1 Country Membership in N E A IGOs 68 List of Abbreviations A N R E Agency for Natural Resources and Energy C N C P China National Petroleum Corporation C N O O C China National Offshore O i l Corporation E E Z Exclusive Economic Zone F o E - J Friends o f the Earth - Japan FTVAS High-Value-Added Ships IGO Intergovernmental Organization f M O International Maritime Organization J G A Japan Gas Association J N O C Japan National O i l Company K N O C (South) Korea National O i l Corporation K O G A S Korean Gas Corporation L N G Liquefied Natural Gas L P G Liquefied Piped Gas M A R P O L International Convention for the Prevention of Pollution from Ships M e d Plan Mediterranean Action Plan M E R Ministry o f Energy and Resources (South Korea) M I T I Ministry of International Trade and Industry (Japan) M O U Memorandum of Understanding N E A Northeast Asia N E A R - G O O S Northeast Asian Regional - Global Ocean Observing System N G O Non-governmental Organization N O W P A P North-West Pacific Region Action Plan N P R A National Petrochemical and Refiners Association O P E C Organization for Petroleum Exporting Countries P I C E S North Pacific Marine Science Organization P O S C Petrotechnical Open Software Corporation P S A Production Sharing Agreement R F E Russian Far East Seapex Southeast As ia Petroleum Exploration Society S L A M Single Anchor Leg Mooring U N C E O S United Nations Convention on the Law of Sea U N E P United Nations Environment Program V L C C Very Large Crude Carrier W E S T P A C Working Group for the Western Pacific W P C World Petroleum Congress W W F World Wildlife Fund Vll A C K N O W L E D G E M E N T S I am grateful to my family and colleagues for their invaluable support and encouragement during the research and writing stages of this thesis. In particular I would like to thank Brendan, Sandra and my parents, I dedicate this thesis to them. 1 C H A P T E R 1 - I N T R O D U C T I O N During the past two decades much thought and effort has been devoted to the study o f international regimes. Several theories explaining international regime formation, persistence and transformation have been developed, extensively debated and modified. N o longer considered a fad, international regime theory is gaining increased acceptance and regard within the international relations community. The purpose of international regime theory is to understand international cooperation in a competitive global system lacking formal rules. States and other international actors are frequently engaged in purposeful cooperative behaviour that benefits all o f the participants. Indeed, a sizable portion o f international activity is devoted to creating and maintaining international regimes. The aim of this study is to contribute to the existing scholarship on international regime theory by exploring one particular regime in greater detail. This thesis is the first comprehensive study to examine the Northeast Asian offshore petroleum industry as an international regime. The study proceeds in three parts. First, a set of criteria is developed to evaluate international regimes in general. Second, the existing components of the regime in Northeast Asia (hereafter N E A ) are identified and analyzed by realist, cognitivist and liberal approaches. Third, the N E A offshore petroleum regime is evaluated by applying the criteria developed in step one to the regime elements uncovered by the realist, cognitivist and liberal approaches. B y using this three-part process to examine the N E A offshore petroleum regime I hope to achieve a greater understanding o f why actors willingly participate in rule-based cooperative ventures. 2 W H A T IS C O N S I D E R E D M A R I T I M E N E A ? Politically, five states border the maritime region: Russia, North Korea, South Korea, Japan and China. 1 Geographically, the maritime regime o f N E A is composed of: the Sea o f Okhotsk, the Sea o f Japan, the Yel low Sea and the East China Sea. Significantly, each o f the four seas is semi-enclosed by two or more N E A states, (please refer to Figure 1) This study concentrates on the manner in which the interaction between actors located in Russia, China, North Korea, South Korea and Japan affect the regional offshore petroleum industry, for this reason the term N E A is used to describe the geographical and political boundaries o f the study rather than other possible designations such as East As ia or the North Pacific. Bound by Russia and Japan, the Sea o f Okhotsk is the largest of the four regional seas covering an area of 1,528,100 square km. The far eastern coast of the Russian mainland and Sakhalin Island enclose the Sea to the west and southwest respectively. To the east is Kamchatka Peninsula. Lastly, the Japanese island of Hokkaido lies to the southwest. Next in size, the Sea o f Japan or East Sea 2 is approximately 1,012,945 square km. The sea lies between Japan on the east and the Asian mainland on the west. To the north, L a Perouse Strait and Proliv Kruzenshterna act as links to the Sea of Okhotsk. Similarly, the Tsugaru and Bungo Straits provide access to the Pacific Ocean, and the Korean and Tsushuima Straits open to the East China Sea. Over half the size o f the Sea of Japan, the East China Sea encompasses an area o f over 752,000 square km and is situated off the eastern coast o f China. Japan's Kyushu and Ryukyu Islands form the eastern boundary, with Taiwan and the Taiwan Strait to the south and the Ye l low Sea to the northwest. The boundary between the 1 For the purpose of this study Taiwan will be regarded as part of China. 2 Please note that although commonly referred to as the "Sea of Japan", both North and South Korea refer to the region as the "East Sea". For ease of discussion, I will employ the more universally accepted title "Sea of Japan". However, this in no way implies that "Sea of Japan" is the more correct or deserving title. Yel low and East China Seas is determined by a line running from the mouth of the Yangtze River to Cheju Island. Smallest in size, the Yel low Sea is approximately 400,000 square km and is bordered on the west by North and South Korea, and on the east and north by China. Figure 1. Map of Maritime NEA, " A s i a , " P C L M a p Collect ion Online, University of Texas, 1999. 4 W H Y F O C U S O N A N E N E R G Y R E G I M E I N N E A ? In the current international system no state can afford to ignore the importance o f energy. Throughout the globe sizable political, economic and military resources are devoted to ensuring national energy security.3 This pattern is particularly true o f N E A , as energy resources are not equally distributed in the region. In general, states fall into one o f four energy categories. Category 1 states represent the ideal, possessing both abundant petroleum resources and sufficient capital to develop these oil and natural gas reserves. At present, no state in N E A may be considered as a category 1. However, China and Russia qualify for category 2, those states having extensive energy resources but insufficient capital. Japan and South Korea are category 3 states, possessing limited natural resources yet having the necessary funds to promote exploration and development. Lastly, North Korea is an excellent example of a category 4 country, with extremely limited resources and a strained economy. Due to the uneven distribution of resources, unless N E A states work cooperatively, future energy demands wi l l not be met from within the region. Currently, the Middle East provides over three-quarters of the region's energy supplies, and this number is projected to increase in the coming decades. A s category 3 states Japan and South Korea are highly dependent on imported Middle Eastern energy. N E A ' s two richest states are vulnerable to supply disruptions and fluctuating market prices. Restriction or termination of Middle Eastern supplies would have an incredibly damaging effect on the Japanese and South Korean economies. However, i f Japan and South Korea invest in Chinese and Russian 3 Ken Wilkening and Jason Hunter, "Nautilus Framework Paper: US-Japan Policy Initiatives on Energy Related Marine Issues in the Sea of Japan," ESNA Workshop: Energy-Related Marine Issues in the Sea of Japan 11-12 July 1998, Tokyo, Japan, 3. 5 energy ventures, non-regional dependence on Middle Eastern suppliers would be reduced. Given the political and economic resources devoted to ensuring adequate supply, energy ventures must be considered a critical component o f continued N E A development. Lastly, as devotees of realpolitik note, as energy becomes increasingly "securitized" in the region, so too wil l the potential for conflict. A t the same time the incentives for cooperation likewise increase. Considering that no state in N E A qualifies as a category 1, all five countries stand to benefit from participating in an energy regime. Indeed, category 2 and 3 states are mutually dependent on one another. A s a result, the possibility for cooperative regime-based behaviour may be as likely ( i f not greater) than hostile conflict-based relations. W H Y F O C U S O N O F F S H O R E P E T R O L E U M ? The exploration, production and development of offshore petroleum is an expensive, highly technical and risky venture. Nonetheless, N E A ' s mix o f category 2, 3 and 4 states make it a prime candidate for offshore joint development projects. For example, South Korean investment in China's Bay o f Bohai allows both states to further exploit the offshore oil reserves. On the one hand, the South Koreans enjoy the double benefit o f securing a regional oi l source and selling and installing high tech offshore equipment in China. On the other hand, the Chinese enjoy a profit from increased oil sales and gain useful technical knowledge of the offshore industry. As well, joint development projects, as opposed to unilateral development projects allow the high investment costs associated with offshore development to be more easily absorbed when two or more actors are involved. And at the same time the level o f risk to individual actors is reduced when expenses are shared with other investors. For example, exploration costs in regions that prove resource poor and unprofitable are split among several investors, as opposed to one company bearing the entire 6 expense. The overall result is that compared to independent development, co-development of offshore resources is a more financially secure venture. W H A T A R E T H E E S S E N T I A L E L E M E N T S O F T H E O F F S H O R E P E T R O L E U M R E G I M E I N N E A ? In order to be considered an international regime the offshore petroleum industry in N E A should display a basic capability for regional petroleum self-sufficiency. At present, regional producers do not satisfy N E A ' s petroleum consumption needs and as a result N E A is dependent on petroleum imports from the Middle East and Southeast Asia. In view o f N E A ' s dependency on non-regional actors it would appear that N E A does not possess the basic capability of regional petroleum self-sufficiency that is required of an international regime. However, it is important to recognize that the potential for an increased level o f regional petroleum self-sufficiency does exist is N E A . N E A is composed o f both petroleum exporters (Russia and China) and petroleum importers (Japan, South Korea and North Korea). Thus, it is as a result of this regional potential for a complementary relationship between petroleum producers and petroleum consumers that the N E A offshore petroleum regime fulfills the basic level of petroleum self-sufficiency necessary for an international regime. The key actors in the N E A offshore petroleum regime include: state energy ministries, national petroleum corporations, private upstream4 and downstream 5 petroleum companies, as well as global and regional intergovernmental organizations and non-governmental organizations involved in the offshore petroleum industry. The contribution of 4 The term "upstream" refers to petroleum exploration (locating possible reserves), development (delineation of resources) and production (the physical removal of the petroleum from reservoirs). 5 "Downstream" refers to transporting, refining, and marketing petroleum resources in either the crude or processed form. 7 each of these actors to the formation and maintenance o f the N E A offshore petroleum regime wi l l be examined in further detail in the subsequent chapters. W H A T IS M E A N T B Y " P E T R O L E U M " I N THIS P A P E R ? B y strict scientific definition, petroleum is simply a naturally occurring bituminous liquid. It is found in a variety of forms, from thin and easily pourable to thick and viscous-like. Composed mainly o f hydrocarbons, petroleum also contains small amounts (up to 5%) of sulfur and oxygen compounds. This is hardly surprising, considering that petroleum is formed by the decomposition o f marine organisms. A s marine organisms and sediment pile up on the ocean floor, the bottom of the pile is subjected to an enormous increase in pressure, which in turn leads to a corresponding rise in temperature. Under these conditions the sediment hardens into shale, sandstone and limestone, and the dead marine organisms form petroleum deposits. Gaseous compounds may be dissolved in the liquid petroleum; larger quantities o f gaseous compounds w i l l result in a natural gas deposit, whereas smaller amounts are generally associated with crude oil deposits. Possessing a lower density than the earth's crust, oil and natural gas deposits flow upward towards the surface. In the unlikely event that the petroleum does not encounter any obstacles it w i l l flow freely to the surface of the earth or ocean floor, and is referred to as "escaping" or "seeping" petroleum. 6 However, when a layer of impermeable rock or shale traps the rising petroleum, a reservoir is created. Significantly, most oil fields are not composed of a single reservoir, but, rather, contain several reservoirs, which are stacked one upon another and are divided by impermeable rock. Because of this natural tendency, it 6 Indeed the presence of "seeping" petroleum has been used by geologists and wildcatters alike to identify deposits. 8 follows that the discovery of one reservoir is good cause to expect more petroleum deposits in the surrounding area. The naturally occurring distribution of petroleum deposits in concentrated in layers is particularly advantageous for offshore drilling. The cost of building and operating an offshore drilling platform is far greater than for land-based operations. Nonetheless, once the offshore platform has been built, modifying the drilling derrick and drill string to access greater depths is comparatively inexpensive. In basic terms, greater depths are achieved by the addition o f extra lengths of drill pipe onto the drill string. The added weight also provides sufficient force for the drill bit to bore deeper into the earth's crust. In this manner, a single offshore platform may be modified to access petroleum deposits at various levels below the earth's crust. Despite high investment costs, offshore drilling platforms have proven to provide substantial returns and be operative for a number of years. Considering the increase in N E A petroleum consumption, offshore drilling becomes an attractive proposition. F R A M E W O R K O F A N A L Y S I S The threefold purpose o f this study is reflected in the framework of analysis. The analysis w i l l first develop a set of criteria to evaluate international regimes. Second, it w i l l determine the nature of the offshore petroleum regime in N E A by analyzing the individual components from realist, cognitivist and liberal perspectives. And third it w i l l apply the evaluation criteria developed earlier in the study to the offshore petroleum regime in N E A . The first objective is fulfilled by the following chapter, which examines international regime theory in more detail and outlines the analytical method to be employed in the paper. The study's second objective is achieved in the subsequent three chapters, devoted to uncovering the elements of the N E A regime from power-, knowledge- and interest-based 9 perspectives. The power-based, or realist perspective, focuses on regional geopolitical issues and the energy capabilities o f each state. The knowledge-based, or cognitivist perspective centres on policies and agreements designed to support the regional petroleum industry, and intergovernmental and non-governmental organizations that promote the cross-national sharing of offshore knowledge. The interest-based, or liberal perspective, examines joint ventures that encourage regional investment, and programs aimed at increasing the exploration, production and development of N E A offshore reserves. The third objective of the study, determining the nature o f the regime in N E A , is accomplished in the final chapter by combining evidence provided by the power, knowledge and interest chapters, and by applying the regime evaluation criteria developed in the earlier theory chapter. 10 CHAPTER 2 - THEORETICAL BACKGROUND The purpose of this chapter is to establish a theoretical foundation for the study o f Northeast Asia 's offshore petroleum regime. To this end, the opening remarks are devoted defining the term "international regime". The chapter then proceeds to a discussion o f the three dominant methodological approaches o f regime analysis. Subsequently, a hybrid approach combining elements from each o f the three traditional approaches is developed. The final section is concerned with determining indicators that identify and evaluate regime performance with particular regard to N E A and offshore petroleum. Increasingly, non-state actors are playing a greater role in international relations. The traditional state-centric model is unable to provide an adequate explanation for this trend. A s a result, during the late 1970s and early 1980s the term "international regime" was used to describe the interaction of state and non-state actors. However, the perception of what constituted an international regime was vague and potentially misleading. In 1982, Stephen Krasner developed the most widely accepted definition of international regimes, which he describes as, implicit or explicit principles, norms, rules and decision-making procedures around which actors' expectations converge in a given area of international relations. Principles are beliefs o f fact, causation, and rectitude. Norms are standards of behavior defined in terms of rights and obligations. Rules are specific prescriptions or proscriptions for action. Decision-making procedures are prevailing practices for making and implementing collective choice. The strength o f Krasner's definition is that it identifies the fundamental components of regimes: principles, norms, rules and decision-making procedures. According to Krasner, international regimes may be recognized by norm-bound interaction of state and non-state 7 Stephen Krasner, ed, "Structural Causes and Regime Consequences: Regimes as Intervening Variables," International Regimes (Ithaca: Cornell UP, 1983) 2. 11 actors that adheres to a particular set of rules and procedures designed to focus on a specific issue or program of action. In N E A , Krasner's definition may be applied to the development and enforcement o f the rules, procedures, principles and norms particular to offshore petroleum. For example, in December 1993, both A S E A N and N E A 8 states signed the Tokyo Memorandum o f Understanding ( M O U ) on Port State Control aimed at restricting oi l tanker marine pollution. 9 Applying Krasner's definition of an international regime, the "principle" o f the Tokyo M O U is that oil-tanker pollution must be controlled as it is harmful to the environment, sea-life, and, ultimately, human beings. The "norm" is that M O U signees are expected to honour the agreement by monitoring their own ships as well as other As ia Pacific vessels visiting their seaports. Compliance with M O U 1 0 safety standards are ensured by "rules" which grant state port officials the right to inspect ships, seize oil-related record books, and verify crew certification. Finally, the Tokyo M O U and its subsequent amendments which develop from the collective input of state organizations, and non-state actors, 1 1 may be considered to be the regime's "decision-making" procedure. Krasner's definition provides a broad and comprehensive understanding o f international regimes. It is for this very reason that it is open to charges of ambiguity and vagueness. B y way o f illustration, according to Krasner's definition the Tokyo M O U example cited above contains all the elements of an international regime. Is this an accurate 8 North Korea lias yet to sign the MOU. 9 Recent studies suggest that oil-tanker pollution may account for up to 10% of the region's maritime pollutants. In addition, oil-tanker pollution is typically the result of leakage, wasliing and collisions, all of which are preventable. For more information on tanker pollution please see, Chia Lin Sien, "Marine Carriage of Petroleum with Special Reference to Northeast Asia," Institute on Global Conflict and Cooperation Policy Paper #33 (1998): 15. 1 0 The Tokyo MOU on Port State Control went into force on 1 April 1994. 1 1 For example, the Federation of ASEAN Shipowner's Association and the International Maritime Organization have been involved in the amendment process. 12 description? Perhaps the Tokyo M O U is merely a regional agreement rather than an international regime. In light o f such classification difficulties, it is hardly surprising that regime theory critics such as Susan Strange charge that Krasner's so-called "consensus definition" is riddled with "imprecision" and "woolliness". Even supporters of regime theory reluctantly admit that, "the whole enterprise o f regime analysis continues to rest on a shaky foundation". 1 2 B y way o f illustration, regime theorists Fredrich Kratochwil and John Ruggie criticize Kranser for his implied "formalism." According to Krasner a regime is identified on the basis of explicit principles, norms, rules and decision-making procedures. Kratochwil and Ruggie argue that regimes are identified on the basis of observed behaviour from which principles, rules, norms and decision-making procedures may be inferred13 Thus, even among international regime scholars no consensus has been reached regarding basic methodology. More troubling however, is the assumption a priori that "actors' expectations converge in a given area o f international relations". Krasner fails to examine why actors choose to become involved in a particular international regime and not in others. Without first understanding the basis of the actors' choices, the process of regime formation cannot be explained. N o r is it possible to explain regime members continued participation, or the termination o f regimes. These issues are best resolved by using one o f the theoretical approaches of international regime theory. In Theories of International Regimes Andreas Hasenclever, Peter Mayer and Volker Rittberger match realism, liberalism and cognitivism with three approaches of international 1 2 Oran Young, International Cooperation: Building Regimes for Natural Resources and the Environment (Ithaca: Cornell UP, 1989) 9. 1 3 Robert Keohane, "The Analysis of International Regimes," Regime Theory and International Relations, ed. Volker Rittberger and Peter Mayer (New York: Oxford UP, 1993) 26-27. 13 regime theory which they label as: power-based, knowledge-based and interest-based, respectively. Theories of International Regimes provides an excellent conceptual framework for the study o f international regime theory, which I have adopted for use in this thesis. Consequently, this study wi l l examine the offshore petroleum regime in N E A from power-, knowledge- and interest-based approaches. P O W E R - B A S E D T H E O R Y I wi l l turn first to an examination of the power-based approach typically associated with the realist school. Reflecting its realist origins, the power-based approach focuses on the two key issues of relative power capabilities and the distribution o f resources. Within this framework the crucial actors are states and their leaders. (Neo)realist scholars such as Joseph Grieco, do not deny that regimes exist, however, they remain skeptical o f their significance to international relations in a state-based system. Realist regime theorists assume that the influence o f international regimes on international politics is limited. The cooperative aspects of regime theory must take a secondary role to the primary objective of state interaction, which is the pursuit o f power. If applied to N E A offshore petroleum, the power-based approach to regime analysis would centre on N E A energy geopolitics. For example, the region may be divided with those states that produce and/or export petroleum in one camp, and those states that are dependent on petroleum imports in another. Related to the issue o f the quantity o f domestic petroleum reserves is a state's ability to develop these resources. Interestingly, in N E A the resource-rich states, China and Russia, are economically and technologically weak when compared with their neighbours. Conversely, South Korea and Japan, two o f the wealthiest nations in N E A , are heavy petroleum importers. The imbalance o f resources and wealth in the region 14 has resulted in the following three trends. First, resource-rich China and Russia look to South Korea and Japan for financial and technological aid in offshore petroleum development. Second, South Korea and Japan, as highly industrialized nations, are dependent on foreign (mainly Middle Eastern) petroleum suppliers. Following the G u l f War threat of oil shortage and the earlier O P E C crises, both South Korea and Japan have strong incentives to develop regional petroleum resources. Third, no N E A state has both sufficient wealth and resources to meet its domestic energy needs; consequently, petroleum has become "securitized". The following chapter entitled "Power-Based Approach" examines these issues in further detail. K N O W L E D G E - B A S E D T H E O R Y In contrast to the realist focus on power, cognitivists maintain that the key element of international regimes is shared knowledge. According to cognitivists, the great weakness of realist, and to an extent liberal, perspectives is their reliance on rationalist theories of international relations. In particular, cognitivists criticize the other two schools for assuming states' identities and interests as already given. Knowledge-based theories attempt to identify and understand the initial conditions required for states (and other significant non-state actors) to develop their unique identities and interests. Furthermore, cognitivists note that the development o f a state's self-identity and self-interest are influenced by the normative and causal beliefs o f individual decision-makers, and accordingly, changes of their belief systems may result in policy changes. 1 4 Thus, actors' causal and normative knowledge is the foundation on which the perception of states identities and interests are constructed. 1 4 Andreas Hasenclever, Peter Mayer and Volker Rittberger, Theories of International Regimes (Cambridge: Cambridge UP, 1997) 136. 15 The extent to which cognitivists question the rationalist basis of the other two schools varies. Thus, the knowledge-based approach may be divided into strong and weak cognitivists. Strong cognitivists completely reject the rationalist model of international relations and assert that it should be replaced with a "knowledge" model existing within an "international society of states". In simple terms, strong cognitivists maintain that knowledge plays a far more fundamental role in international politics than is currently recognized by either the power-based or interest-based regime theorists. While strong cognitivists want to replace the rationalist model with a knowledge model, weak cognitivists are content to supplement the model with a knowledge-based perspective. With regard to international regime theory, weak cognitivism provides an understanding of interest change dependant on the knowledge of individual actors. Thus, weak cognitivism supplements rationalist models by demonstrating the fundamental role played by knowledge in international regimes. To determine the significant knowledge-based elements of the NEA offshore petroleum regime I will apply a weak cognitivist approach. Weak cognitivism emphasizes the role of organizations that promote the sharing of knowledge; in maritime NEA this would include the International Maritime Organization and the United Nations Environment Program's (UNEP) Regional Seas Program. These organizations encourage scientists, environmentalists, government officials, industry workers and others to pool their knowledge in an effort to achieve cross-national maritime objectives. In NEA the UNEP Regional Seas Program is referred to as the North-West Pacific Region Action Plan (NOWPAP). Additional multilateral knowledge-based programs include the Working Group for the Western Pacific (WESTPAC) and the North Pacific Marine Science Organization (PICES). 16 Although organizations such as N O W P A P , W E S T P A C and PICES provide a formal forum for cross-national knowledge sharing, grassroots or local environmental organizations have also proven effective as knowledge disseminators. One example is the strong influence of environmental groups in demanding "cleaner" energy sources. Traditionally, much of N E A ' s energy was provided by coal. And it has been the environmental organizations that have increased awareness of the dangers and numerous health hazards associated with coal combustion. More detail on the impact of knowledge-based organizations such as N O W P A P and informal environmental groups on N E A ' s offshore petroleum regime will be provided in the subsequent chapters. I N T E R E S T - B A S E D T H E O R Y The final category developed by Hasenclever, Mayer and Rittberger is the interest-based approach, which is popular with (neo)liberals. This approach assumes the existence of rational actors that are able to identify common interests that may be achieved through cooperation. Liberals regard states as atomistic actors; as a consequence interaction and cooperation do not affect the actors' identities. 1 5 According to the liberal perspective, these individualistic, rational actors do not exist in an "international society" as cognitivists maintain. Thus, the formation and duration of a regime is the result of rational detached actors who recognize the need for cooperation to achieve common interests. Supporters of the interest-based approach do not deny the realist proposal that power affects cooperation. For liberals, interests and the expectations generated by common interests, play a more significant role than power relationships do in regime creation, maintenance and demise. The importance of relative power is an additional difference 1 5 Hasenclever, Mayer, Rittberger, 25. 17 between the interest-based and power-based perspectives. A s noted earlier, the power-based approach emphasizes that differences in relative power wi l l affect the willingness o f a state to enter into, remain involved in, or leave a regime. In contrast, the interest-based approach is based on rational actors influenced solely by their own losses and gains. The interest-based perspective dominates much of the current writing and research on international regime theory. There are several "sub-approaches" within this camp. One such "sub-approach" is the contractual!st theory of regimes developed by Robert Keohane. Central to the contractualist approach is the precondition that members o f a regime must share common interests in an issue-area, which can only be realized through cooperation. 1 6 This precondition may appear trivial at first glance. However, Keohane makes the acute observation that the existence of common interests does not inevitably lead to cooperation or the creation o f a regime. A further implication o f Keohane's theory is that a regime's members must share "common" but not necessarily "identical" interests. Keohane is suggesting that a state's interests need not change in order to join a regime, but rather that state policy may be modified. Thus the form of cooperation necessary to create and maintain a regime is the result of a mutual process of policy coordination. 1 7 A second "sub-approach" o f the interest-based perspective is Oran Young's model of institutional bargaining. Young rejects the liberal premise that "actors are always fully aware o f their interests and that preference formation is a process that is prior and exogenous to inter-state bargaining". 1 8 L ike Keohane, Young believes that common interests do not necessarily lead to cooperation. Cooperation is a vital condition but not a sufficient cause in Hasenclever, Mayer, Rittberger, 30. 1 7 Hasenclever, Mayer, Rittberger, 32. 1 8 Hasenclever, Mayer, Rittberger, 27. 18 and of itself, to form a regime. Young parts with Keohane over the need for mutual recognition of common interests. According to Young, in the real world, actors seldom have the luxury of knowing one another's interests. Nonetheless, uncertainty is important as it may lead to behaviour that encourages negotiation, and even, potentially, the signing of agreements. In Keohane's theory, actors formed and remained members of regimes in order to reduce uncertainty. For Young, uncertainty is a condition that advances regime creation, without automatically decreasing or disappearing once a regime is formed. According to the institutional bargaining model, the purpose of regimes is not to reduce uncertainty but to achieve joint gains. Young's model of institutional bargaining is easily applied to offshore petroleum in NEA. Perhaps the best illustration in NEA of Young's model is joint development projects. For example, in 1969 a geological report predicted extensive petroleum reservoirs on the continental shelf located between South Korea, Japan and Taiwan. All three states immediately lodged overlapping claims for the territory, and in a further complication China also claimed the area. At this point, using Young's model, each of the four actors is uncertain of how the others will behave. Several possible scenarios arise from this example. China may act independently and sell concessions to foreign petroleum companies as it has done in other disputed areas. Or Japan may strike a deal with South Korea. Or Taiwan could defy China and enter into an agreement with Japan, and/or South Korea. What eventually occurred was that uncertainty regarding one another's interests led to tri-state (China represented Taiwan) talks regarding the future of the continental shelf. Regrettably, China was unwillingly to modify its claim and subsequently refused to be involved in further negotiations. Then in 1970 South Korea and Japan and agreed to set aside their boundary 19 claims and jointly develop the overlapping area. The Japanese-South Korean agreement is in force for 50 years or until such time as the resources are depleted to a level considered by the two states as too low to continue drilling. Despite joint Japanese-South Korean activity in the region, China w i l l not honour the agreement. Hence, although an agreement exists, uncertainty remains high. We do not know how the "China card" play out, or what wi l l happen to the Japanese-South Korean agreement in fifty years. If the expected petroleum reserves fail to deliver both states may or may not stop drilling. Notwithstanding the uncertainty of the joint-development program's future, it has achieved its primary objective of potentially providing petroleum to South Korea and Japan. The Japanese-South Korean program conforms closely to Young's model in which regimes do not necessarily decrease uncertainty, but do achieve joint gains. A further benefit o f the "sub-approaches" provided by Keohane and Young is the demonstration that neorealist and neoliberal theories of international regimes may be complementary. Keohane notes that "within a modified neo-realist framework, international regimes can affect both the capabilities [realism] and the interests [neoliberalism] of states".19 Elsewhere, he urges that "students of international regimes need not discount the roles of interests and power in world poli t ics". 2 0 Yet despite his acceptance o f the realist framework, Keohane maintains that analysis o f the "observable consequences" o f international regimes should not be restricted to the level o f the international system. Indeed, he argues that a more meaningful unit o f analysis is the regime itself. 2 1 I agree with Keohane that the optimum unit o f analysis is the regime. However, I 1 9 Keohane, 29. 2 0 Keohane, 30. 2 1 Keohane, 30. 20 would add that neither an interest- nor a power-based perspective alone is adequate for the study of the N E A offshore petroleum regime. As demonstrated by the prior discussion of the three perspectives, the N E A offshore petroleum regime reflects elements from each approach. Consequently, this study will examine the regime from all three approaches. The use of a synthesized framework abides by the tradition set by regime theorists such as Andreas Hasenclever, Peter Mayer, Volker Rittberger, Robert Keohane and Oran Young. Although each of these scholars encourages a more pluralistic form of regime theory, they likewise caution that there is no guarantee that the three perspectives will combine to form a coherent whole. 2 2 Therefore any scholar attempting to incorporate interest-, knowledge- and power-based theories in a practical manner must recognize the effect of ontological and epistemological differences between the three perspectives. The following chapter will be devoted to applying the power-based approach to the regime in N E A . The subsequent chapter will use the knowledge-based approach to determine the impact of shared knowledge in the creation and maintenance of the offshore regime. Lastly, the interest-based approach will be employed to study joint ventures operating in N E A ' s regional seas. I N D I C A T O R S O F R E G I M E P E R F O R M A N C E The discussion thus far has focused on the three theoretical approaches designed to explain regime formation, maintenance and demise. The following section is concerned with determining indicators that identify and evaluate regime performance with particular regard to offshore petroleum in N E A . Robert Keohane has distinguished six indicators to assess the impact of a regime. Keohane's first three regime indicators are the comparison of behaviour Hasenclever, Mayer and Rittberger, 212., 21 pre and post regime formation, the observation of actors adherence to rules and procedures and the detection o f changes in actors conceptions o f self-interest. His remaining three indicators include the ability o f the regime to endure in the face of poor internal relations, the regime's continuance despite the emergence of new practices and the compliance to regime rules even when it runs counter to an actor's interests. The presence of one indicator is not necessarily sufficient evidence that a given regime exists. The greater the number of indicators present, the greater the likelihood that a regime exists and exerts influence on international relations. The first indicator requires the researcher to compare observed behaviour before and after the institution of the regime. 2 3 Certainly, this approach is open to the criticism that other factors may account for changes in behaviour. Nevertheless, it remains a good starting point for regime analysis. In N E A , the joint development of offshore petroleum by regional actors is a relatively new phenomenon, dating from the early 1980s. Prior to the advent o f regional joint development projects the accepted practice was bilateral development between a N E A state and a non-regional company. Typically, the foreign partner was a Middle Eastern or American company. Today, joint development projects such as those located offshore of Sakhalin Island are more regional in character. For example, the Sakhalin-1 project is a consortium o f Russian, Japanese and American companies. Russian interests represent 40% of the program (Roseneft at 17% and Sakhalinmorneftegaz at 23%), Japan's Sodeco has 30% and the U S giant Exxon composes the remaining 30%. Thus regional actors control 70% of the Sakhalin-1 project. Moreover, other regional actors want to get involved. Recently the Korean Gas Corporation ( K O G A S ) has been lobbying for an equity position in Keohane, 32. 22 the joint US-Japanese Sakhalin Energy Investment Company heading the Sakhalin 2 program. Joint development of Sakhalin's offshore petroleum commenced in the early 1990s. Preliminary plans have already been developed for Sakhalin 5 and Sakhalin 6. Incredibly, Japan and Russia have chosen, over the last decade, to shelve their territory dispute over the islands in favour o f joint development projects. Plainly the observed behaviour of Japan, Russia and even South Korea is markedly different pre and post the Sakhalin joint development projects. Keohane's second indicator is the extent to which actors abide by the regime's rules and procedures. With regard to offshore petroleum in N E A , the key international agreement is the United Nations Convention on the Law of Sea, U N C L O S , (1982, 1994). U N C L O S (1982) was "to provide increased coastal State rights over the resources o f adjacent waters while also introducing a code of conduct for exploiting marine resources and preserving and protecting the marine environment" 2 4 Considering that U N C L O S outlines the limits of maritime jurisdiction, one expects that it would regulate offshore development in N E A . Chapter 4 of this thesis wi l l examine the effectiveness of U N C L O S when confronted with N E A ' s unique combination of nationalism, militarism and fierce competitiveness. Keohane's third indicator is establishing that a change has occurred in the actors' "conceptions of self-interest through mutual persuasion and the accumulation of scientific 25 knowledge." In N E A knowledge-based scientific organizations such as N O W P A P , W E S T P A C and P I C E S play a key role in developing a regional sense o f self-interest. The impact of knowledge on the N E A offshore petroleum regime w i l l be discussed in greater " Sam Bateman, "East Asia's Marine Resources and Regional Security," Workshop on East Asia Security July 1996, Wilton Park, UK, 2. 2 5 Keohane, 32. 23 detail in Chapter 5. Considering the focus o f this study, Keohane's fourth indicator is particularly significant. It concentrates on the ability o f a regime to endure despite poor or strained relations among the members. 2 6 Note that each of the joint projects discussed in this study continue despite "strained relations" among the actors involved. A n example of Keohane's fourth indicator is that Japan and Russia have set aside political and territorial differences in order to proceed with the joint development o f Sakhalin petroleum. Similarly, Japan and South Korea have suspended their island dispute in favour o f developing the petroleum resources of their shared continental shelf. Lastly, South Korea and China are cooperatively involved in a project in the Yel low Sea despite their unresolved political differences. The fifth indicator considers whether the regime continues to be honoured despite an alteration o f circumstances in which such practices are no longer required. B y way o f illustration, i f South Korea discovered sizable domestic offshore petroleum reserves it could reconsider its commitment to developing fields in Russia and China. Lastly, and most significantly, it is "only where compliance is inconvenient - that is, where regime rules conflict with governments' perceptions of what their self-interests would be, i f there were no such institutions - is the impact of the regime tested". 2 7 Thus, it is only when a regime runs counter to a state's self-interest that its impact is felt. The final three indicators provided by Keohane resemble the criteria of regime "effectiveness" and "robustness" popular with other regime scholars. A regime is said to be effective i f it conforms to the following two criteria that "its members abide by its norms and Keohane, 33. Keohane, 33. 24 rules, [and that], it achieves certain objectives or fulfills certain purposes". 2 8 In comparison, regime robustness is defined as the ability to withstand exogenous challenges and to maintain resilience during periods of change. 2 9 In short, in an effective and robust regime, the members recognize that the benefits of participating far outweigh the costs of not living up to their responsibilities; moreover, commitment to the regime is high and enduring. Conversely, a regime that is robust but not effective is much like the examples outlined in Keohane's fourth and fifth indicators where the regime continues to be honoured despite exogenous challenges and changes. Finally, as noted in Keohane's sixth indicator, a regime may be effective but not robust. In such a situation, regime compliance may run counter to a state's perception of self-interest, nevertheless the objectives of the regime are deemed as more important. However it is unlikely that the regime wi l l endure once the objectives have been realized. Keohane's six indicators provide a logical and systematic method for determining regime identity and capability. Nevertheless it is my intention to replace Keohane's fourth indicator with the more inclusive traditional term "effectiveness." A s well, I combine his fifth and sixth indicators, and refer to this new indicator as "robustness". Thus, in summary, the five indicators that wi l l be employed to identify and evaluate the performance of the offshore petroleum regime in N E A are: (i) comparison of behaviour pre and post regime establishment, (ii) level o f compliance to rules and procedures, (iii) impact of knowledge on perceptions o f self-interest, (iv) regime effectiveness, and Hasenclever, Mayer and Rittberger, 2. Hasenclever, Mayer and Rittberger, 2. 25 (v) regime robustness. These five indicators wi l l be revisited in the final chapter devoted to evaluating the offshore petroleurri regime in N E A . 26 C H A P T E R 3 - T H E P O W E R - B A S E D A P P R O A C H The power-based approach of regime analysis reflects the realist theoretical perspective and its concern with relative power capabilities and the distribution of resources. According to the realist perspective, states are the most significant actors in the international system. Unlike their liberal and cognitivist colleagues, realists believe that creating and maintaining a "rule-based" regime is extremely difficult in an anarchical system composed of uneven powers. According to realism, this pattern of unequal power distribution promotes inter-state fear and envy rather than cooperation as liberal, and cognitivist regime theorists maintain. Realism also challenges the liberal theory that international institutions stimulate the formation of international regimes. Realists point out that international institutions are not independent actors promoting cooperation, but merely extensions of states. Ironically, the realist position is often criticized as not recognizing the importance of international institutions. This criticism, however, is inaccurate. Realists admit that international institutions are significant, but only as a means of achieving state objectives and of increasing relative power capabilities. In addition, exclusion from international institutions can be used an effective tool for punishing non-compliant regime members (or aspiring members). The NEA offshore petroleum regime possesses several of the characteristics of the realist perspective. In international relations circles, petroleum is considered "high politics," and is one of the few resources that states are willing to go to war over. The guaranteed supply of petroleum is considered a necessary ingredient of modern state power. States lacking adequate domestic petroleum reserves are dependent on supplier states, and, consequently, are seen as less powerful in relative terms. Yet, by participating in a 27 cooperative offshore petroleum regime, resource-poor states have the ability to reduce their dependency, and, consequently, increase their relative capabilities. The aim o f this chapter is to study the power-based elements o f the offshore petroleum regime in N E A . In broad terms this realist approach examines regional energy geopolitics as well as the offshore petroleum capabilities o f each N E A state. More specifically, the regional geopolitical discussion focuses on the following three areas: (i) regional supply and demand for offshore petroleum, (ii) current status of overlapping offshore claims in N E A , and (iii) the role of non-regional actors in the offshore regime. The remainder o f the chapter is devoted to investigating state petroleum capabilities by considering: (i) national energy policies, (ii) availability o f offshore resources, capital and technical expertise, and (iii) incentives to participate in the regional offshore regime. Prior to proceeding with the power-based discussion, it is important to recognize that regional offshore petroleum activities between N E A actors only began in the early 1980s. Thus, for the purpose of this study, the " N E A offshore petroleum regime" refers to the regime which was established in 1980 and which continues to the present day. R E G I O N A L S U P P L Y A N D D E M A N D N E A ' s current energy needs have dramatically increased over the last two decades, and the growth of energy needs is predicted to continue well into the next century. For example, from 1980 to 1995 the consumption o f fossil fuels (coal, o i l , and natural gas) grew 28 at an average annual rate of 9.4% in South Korea, 5.2% in China and 2.5% in Japan. 3 0 And during the next twenty years fuel demand growth in China is expected to substantially increase, while during the same period growth rates in South Korea and Japan are predicted to remain moderately high. This means that overall regional fossil fuel consumption w i l l be significantly larger in 2005 and greater still in 2015. 3 1 Not only is the future demand for these fuels predicted to grow, it must be further recognized that fossil fuels compose the primary energy source in N E A . B y way o f illustrating this point, Kang cites that fossil fuels provide 98% of Chinese energy, 97% in North Korea, 88% in South Korea and 83% in Japan. 3 2 Petroleum products alone account for nearly half (48%) o f the energy consumed on a regional level. O f the current commercial energy needs, coal provides 45%, oil 39%, natural gas 9%, nuclear 5% and hydro 2 % 3 3 I f China, with its heavy reliance on coal, is excluded from the calculation, the region's commercial energy consumption would see coal composing only 27%, oil rising to 50%, natural gas increasing to 13%, nuclear power growing to 8% and hydro remaining steady at 2 % 3 4 . In the above example, petroleum would account for 63% o f N E A ' s energy demands. Clearly, a secure supply o f petroleum is vital to N E A . A further factor contributing to an increased regional demand for petroleum is the growing awareness of the environmental and economic drawbacks associated with the consumption of coal. Coal combustion results in hazardous levels o f CO2, SO x , and N O x 3 5 M Wu Kang, "Fossil Energy Consumption and Supply Security in Northeast Asia," Institute on Global Conflict and Cooperation Policy Paper #36 (1998): 1. 3 1 WuKang, 1. 3 2 Wu Kang, 2. 3 3 WuKang, 4. 3 4 Wu Kang, 4. 3 5 Respectively, carbon dioxide, sulfur oxides and nitrogen oxides. 29 emissions, placing both plant and animal life at risk.36 Moreover, in the absence of proper cleaning technologies (such as scrubbers) coal combustion has been linked to high levels of acid rain. For example, "according to a recent study conducted by the Chinese Research Academy o f Environmental Sciences, 40% of China is effected by acid rain causing US$1.6 bil l ion worth o f damage to crops, forests and property annually." 3 7 Due to environmental, economic and health concerns, natural gas is increasingly cited as a "clean" alternative for domestic and commercial power generation. Unfortunately, natural gas requires expensive specialized production and distribution facilities, whereas upgrading coal-burning plants to oil-burning plants requires far less investment. Also the price of oil remains significantly cheaper than natural gas. Consequently, the process of replacing coal-powered plants with cleaner natural gas is often prefaced with a transition o f coal to oil . Thus, the demand for oil and, to a lesser extent, its "clean alternative," natural gas, is expected to remain high in N E A . A final factor effecting regional reliance on petroleum is the lack o f alternative energy sources. Nuclear power, hydroelectric power, wind generation, solar power, ocean thermal and other alternative sources comprise a very small segment o f the region's current energy production. The high costs of research, implementation and upkeep have served to limit the use o f alternative sources in N E A . Because o f these factors fossil fuels w i l l remain the prime energy in N E A source for the foreseeable future. Having established that oil and natural gas are important to the region, the power-based approach is next concerned with how the vital petroleum supply is affected by regional economic insecurities. The recent regional economic crisis has marginally affected the j t >WuKang,3. 3 7 Gregory R. Carmichael and Richard Arndt, "Baseline Assessment of Acid Deposition in Northeast Asia," ESNA Project Forum 3 23 June 1999<http://www.naudlus.org.rjapers/energy/camuchaelESNAYl.html>. 30 demand for oil and natural gas. From 1990 to 1995, Asia 's imported oil demand experienced an average increase of 5.2%. In view of the region's financial crisis in 1997-98 it is reasonable to predict a future oil demand increase at a conservative 1% per annum. 3 8 Even with this modest estimate, the overall increase would still be a staggering 9 mil l ion b/d (barrels per day) higher in 2010 than in 1996. 3 9 Which translates to the region importing over 3 billion barrels of oil annually. It appears that the current economic problems of the region wi l l not significantly reduce oil imports. The following section wi l l examine how the crisis affected the regional demand for natural gas. Traditionally, natural gas consumption in the region grows by approximately 8% per annum. 4 0 Experts predict that this figure wi l l continue to rise due to environmental and health benefits, as well as to the superior energy efficiency of natural gas. Natural gas is slowly replacing coal and oi l as the preferred fuel for power generation. Unfortunately, as noted earlier, the cost o f transporting natural gas to both domestic and regional markets is high. Natural gas requires an extensive infrastructure of specialized tankers, pipelines, and liquefaction plants. Due to these high infrastructure costs, the future o f natural gas exploration and production is tied to N E A ' s overall economic recovery, and thus, to its ability to fund the required infrastructure. It is reasonable to expect that as higher levels o f economic growth and security return to the region the natural gas industry w i l l also enjoy a similar growth pattern. John V. Mitchell and Christiaan Vrolijk, "Closing Asia's Energy Gaps," The Royal Institute of International Affairs: Briefing Paper 41 (1998), 26 July 1999 <http://www.riaorg/briefingpapers/bp41.html>. 3 9 Daniel Yergin, Dennis Eklof and Jefferson Edwards, "Fueling Asia's Recovery," Foreign Affairs 77.2 (1998): 35. 4 0 Yergin, Eklof, and Edwards, 40. 31 S T A T U S OF O V E R L A P P I N G O F F S H O R E C L A I M S From the power-based standpoint, disputes involving overlapping maritime claims pose a serious threat to N E A ' s offshore petroleum regime. A s N E A states recognize the supply potential o f offshore petroleum reserves, disputed regions with proven or potential petroleum reserves gain significance and value at a national level. A t present, disputed claims are located in the following maritime regions (please refer to Figure 2): (i) the northern Sea of Japan, overlapping Russian and Japanese claims, (ii) the southern Sea of Japan, overlapping claims made by North Korea, South Korea and Japan, (iii) the western Central Ye l low Sea, overlapping South Korean and Chinese claims, and (iv) the northern portion of the East China Sea, where South Korea, Japan and China (and Taiwan) have overlapping claims. In the South China Sea, disputes of a similar nature have been the target of military action, however the same is not true o f maritime N E A . Perhaps this is because fewer states are involved in the N E A disputes than those located in the South China Sea. In the so-called "Dangerous Ground" region o f the South China Sea, China (and Taiwan), the Philippines, Brunei, Vietnam and Malaysia have all lodged claims. In contrast to the South China Sea, o f the four overlapping offshore claims in N E A , only two involve three states and the remaining disputes are limited to two claimants. It is reasonable to expect that as the number of states involved in an overlapping claim decreases the ability o f claimants to reach an agreement or understanding correspondingly increases. 32 Figure 2. Map of Disputed Areas with Petroleum Potential in Maritime N E A , "Asia," PCL Map Collection Online, University of Texas, 1999. Mark Valencia, "Energy and Insecurity in Asia," Survival 39.3 (1997): 93. 33 A further factor contributing to the relatively peaceful nature of N E A ' s overlapping offshore claims is that during the heyday of the Soviet empire the region was strictly divided into communist and non-communist blocs. Despite internal differences, China, Russia and North Korea presented a united front against Japanese and South Korean initiatives. During the Soviet period a pattern o f non-interference regarding maritime matters developed that to a large extent still remains today. Although all five N E A states have outstanding claims to one or more disputed maritime areas it appears unlikely that any are wil l ing to resort to war to defend these claims. 4 1 Limited naval skirmishes have been the extent of petroleum-based conflict in the regional seas, and it is unlikely that this trend wi l l alter significantly in the near future. R O L E OF N O N - R E G I O N A L A C T O R S Incredibly, over half o f the petroleum used in N E A is imported from outside the region, and, "as demand rises, this ratio could climb to two thirds by 2000". 4 2 The Middle East currently provides 87% of all East Asian oi l imports and by 2010 it may rise as high as 95% 4 3 A t the same time, two o f the wealthiest states in N E A , Japan and South Korea, rely almost exclusively on Middle Eastern suppliers of petroleum. A s a result, both states are extremely vulnerable to disruptions in the delivery o f petroleum. Plainly, the dependence o f N E A on foreign petroleum suppliers has grave security implications. In the short term, this dependence on Middle Eastern suppliers had translated to policies o f stockpiling reserves and of pursuing friendly relations with petroleum producing 4 1 South and North Korea are an exception to this pattern, although current maritime disputes tend to focus on fishing rights as opposed to petroleum rights. 4 2 Kent E. Calder, "Energy and Security in Northeast Asia's Arc of Crisis," Institute on Global Conflict and Cooperation Policy Paper #35: Fueling Northeast Asian Security (1998): 7. 4 3 Calder, 7. 34 states. Japan and South Korea, who are both petroleum poor have extensive stockpiling programs. However, stockpiling alone is not a sufficient method with which to meet national petroleum demands, and as a result, states are forced to maintain favorable relations with oi l and gas exporting states. A n example has been the notable absence of South Korean and Japanese condemnation o f Indonesia's recent military activities in East Timor. In large part this lack o f protest may be the result of their over-reliance on Indonesian liquefied natural gas ( L N G ) . A t present both South Korea and Japan purchase well over 50% o f their L N G needs from Indonesia. In the long term, dependence on foreign petroleum suppliers stimulates the desire to discover and exploit domestic sources of oil and natural gas. This can be seen in that South Korea continues to invest heavily in domestic petroleum exploration despite a record of poor results. Similarly, Japanese offshore companies have spent millions o f dollars on seismic surveys o f coastal Honshu in search o f petroleum reserves. It is due to the region's current dependence on foreign suppliers that both existing and potential offshore oil and natural gas fields have received more attention from state and non-state actors alike. A s noted in the introduction to this chapter, a power-based analysis of N E A ' s offshore petroleum regime includes a discussion of both regional energy geopolitics as well as state petroleum capabilities. Y o u may recall that state capabilities are determined by investigating national energy policies, the availability o f offshore resources, capital and technical expertise, and incentives as well as disincentives to participating in the offshore industry. A s category 2 states, and the only N E A states possessing sufficient domestic reserves to be considered petroleum producers, China and Russia are the first countries which I wi l l 35 be examining. Then the focus wi l l shift to the two category 3 states, Japan and South Korea, which despite the lack of indigenous petroleum reserves are the region's two largest per capita petroleum consumers. Lastly, the unique role o f North Korea wi l l be discussed. As a category 4 state, North Korea is both a non-producer and a minimal petroleum consumer. C H I N A China's petroleum industry, as in most N E A states, is primarily state-controlled. In China the state controls the petroleum industry through the China National Petroleum Corporation (CNCP) . In the past the C N P C had traditionally directed all upstream and downstream petroleum ventures both onshore and offshore. However, it was in 1982, that the C N C P established a sub-division called the China National Offshore O i l Corporation ( C N O O C ) with the primary purpose of exploring China's offshore petroleum resources, and with the secondary purpose o f stimulating foreign investment in offshore projects. 4 4 Although Soviet-style central planning of the energy sector has decreased since the early 1980s, allowing the provinces greater control of resources, the central government remains the ultimate authority. 4 5 In comparison to other sectors, the process o f reform and decentralization o f the energy industry has been slow. The government is convinced that only by strict state regulation wi l l the energy objectives o f the Ninth Five-Year Plan be achieved. According to the Plan, electric power generated by coal combustion is to be the cornerstone of China's energy industry. At the same time, the government hopes to increase oil and gas exploration and production. The Plan places equal emphasis on increasing both the oil and gas industries. The often quoted phrase "stabilize the East and develop the West", Zhu Dazhi, Director International Liaison Department CNOOC, "Re: Future Direction of CNOOC," e-mail to author, 27 Aug. 1999. 4 5 Zhu Dazhi. 36 reflects the dual importance o f oil and gas. 4 6 This strategy recognizes that eastern oil fields such as Daqing and Shengli have reached a mature stage, and despite the potential for new deposits in these regions the exploration for natural gas has been very limited in scope. Thus the phrase "stabilize the East" refers to exploiting already producing oi l reserves for their natural gas potential rather than exploring for new reserves. The policy o f "developing the West" ensures continued growth of the oil sector and a steady supply o f petroleum. In this manner, China's central planners hope to prevent oil production from decreasing while simultaneously increasing natural gas production. Offshore petroleum represents approximately 10% of China's overall petroleum production within the larger energy picture. 4 7 Nonetheless, offshore petroleum is increasing in significance for China. From 1985 to 1990 (the Seventh Five-Year Plan) China's offshore oil production grew approximately 500,000 tons per annum. During the Eighth Five-Year Plan (1991-1995) offshore production reached an annual increase of nearly 2 mill ion tons. And from 1982 to 1996, under the direction of the C N O O C , the country's offshore production totaled 46.4 mill ion tons o f crude oil and 3.7 bil l ion meters3(cubic meters) o f natural gas. Today the C N O O C is active in the Bay o f Bohai, the East China Sea, Nanhai East and Nanhai West. The functions of the C N O O C include: (i) exploring and discovering potential offshore oi l and gas reservoirs, (ii) developing proven and potential offshore oil and gas reserves, (iii) processing and selling petroleum products by itself or jointly with foreign companies, (iv) funding petroleum research centers and institutes, and 4 6ZhuDazhi. 4 7 United States Energy Information Administration, China Country Analysis Brief 28 July 1999 <http://www.eia.doe.gov/emeu/cabs/china.html>. 37 (v) coordinating and overseeing the activities o f its subordinate companies the Bohai Sea Petroleum Corporation, the South China Sea Petroleum Corporation, the West Petroleum Corporation, and the East China Sea Petroleum Corporation. 4 8 The C N O O C has signed 119 oil contracts with 65 foreign companies from 18 countries. In excess of 400 offshore oil wells have been drilled and more than 40 gas reservoirs have been discovered. The C N O O C has control of proven offshore oil reserves amounting to 1.3 billion tons and proven offshore gas reserves of 300 bill ion m 3 . 4 9 It is therefore with regard to the availability of supply that China, unlike much of N E A , has considerable petroleum reserves. A s for reserves onshore the Daqing field alone yields over 1 mill ion b/d and the potential o f the Tarim Basin is impressive. Offshore, the Bay o f Bohai has proven oil reserves o f 600 million tons. 5 0 A t present, China's total domestic crude oil production 5 1 is estimated at 3.35 mill ion b/d and in 1995, 17.6 bill ion m 3 of natural gas 5 2 were indigenously produced and consumed. Despite these large domestic reserves, China's consumption was so high that it became a net importer of oil in 1993. Furthermore, projected oil imports are predicted to rise as to high as 2 mill ion b/d in 2005 and to 3.1 mill ion b/d in 2010. 5 3 B y 2010-20 oil imports may reach 5.5 mill ion b/d or higher. 5 4 It is highly doubtful that domestic oil reserves could meet this demand. 4*ZhuDazhu. 4 9 CNOOC Website 29 Aug. 1999 <http://www.CTooc.com.cn/cn^^ 5 0 CNOOC Website. 5 1 Center for Strategic and International Studies, "The Geopolitics of Energy in Asia," Draft Strategic Energy Intiative (1999): 8. 5 2 Fereidun Fesharaki, Sara Banaszak, and Wu Kang, "The Outlook for Energy Supply and Demand in Northeast Asia," Institute on Global Conflict and Cooperation Policy Paper #36: Energy and Security in Northeast Asia (1998): 8. 5 3 Fesharaki, Banaszak, and Kang, 8. 5 4 Fesharaki, Banaszak, and Kang, 8. 38 The scenario for natural gas is somewhat more promising. China's proven natural gas reserves are estimated at 1.7 trillion m 3 , although they may be as high as 38 trillion m 3 . 5 5 From 1995 to 2020 the demand for natural gas is expected to grow 9.2% annually, thereby increasing its share in the total primary commercial energy consumption from 1.9% in 1995 to 7% in 2020. 5 6 Specialists in the natural gas field predict that domestic production wi l l meet Chinese natural gas needs until 2005, at which time imports w i l l become necessary to make up the shortfall. Indeed, as soon as 2000 China's overall petroleum consumption is estimated to have reached 4.1 mill ion b/d and by 2010 an incredible 6.5 b/d. This translates into an annual growth rate of 4 .9%. 5 7 Superimposed over these impressive statistics is the country's current low level o f per capita energy consumption. As Kent Calder aptly notes, one of the most striking aspects o f Chinese energy consumption "is how little energy each Chinese actually consumes". 5 8 China has a population o f 1.2 billion; this is 10 times greater than that o f Japan and 28 times greater than that of South Korea. Significantly, China's energy consumption per capita is little more than one-sixth o f Japan's and one-third o f South Korea ' s . 5 9 However, considering China's rapid economic and consumer growth it is unlikely that per capita consumption w i l l remain so low. To illustrate this point, note that should China reach the same level o f per capita energy consumption as the average Latin American country, China's total oi l consumption would be greater than all o f the O C E D states in Europe combined. 6 0 Furthermore, should 5 5 Fesharaki, Banaszak, and Kang, 8. 5 6 Fesharaki, Banaszak, and Kang, 8. 5 7 Wu Kang, 6. 5 8 Calder, 3. 5 9 Calder, 3. 6 0 Calder, 4. 39 China match South Korea's current consumption levels, it would consume twice as much oil as the U S today. 6 1 Plainly, the potential petroleum demands o f China are intimidating. Considering the overwhelming nature o f the country's future petroleum requirements, how China ensures that these demands be met is an issue o f national importance. One possible solution to the shortfall is the importation of petroleum. This policy would, however, leave China in an unenviable position o f dependency. A second possibility is to increase domestic coal production. This tactic would have grave environmental drawbacks. The most attractive solution, therefore, is to further exploit known and potential domestic reserves, along the lines o f the present "stabilize the East and develop the West" strategy. Offshore deposits meet this imperative particularly well for four reasons. First, proven offshore petroleum reserves already exist. Second, the newly created China Offshore O i l Company 6 2 demonstrates industry and the government's resolve in tapping the offshore potential. Third, foreign companies have displayed a high level o f interest in investing in the Chinese offshore ventures. Fourth, China lacks the capital, appropriate technology, and the trained personnel to fully develop its own offshore reserves, thus joint ventures with foreign companies make good economic sense. Certainly from a foreign investor standpoint, Chinese offshore petroleum is attractive due to its high drilling success rate (particularly in the newly developed Bay o f Bohai), the existence o f several undeveloped offshore fields with proven resources, and the opportunity to gain a portion of China's sizable petroleum market. From a realist perspective, it may appear at first glance that China is best served by 6 1 Calder, 4. 6 2 The China Offshore Oil Co. is China's first joint-stock petroleum company and is financed by the CNOOC and its subsidiaries. 40 following a policy o f unilateral development. After all, China possesses extensive proven offshore reserves as well as high potential for more commercial fields. It is on closer inspection, however, that a mixture of domestic as well as joint development is seen to be a more sound policy. There are several incentives for Chinese participation in joint offshore ventures. The C N O O C has been involved in the offshore industry for less than twenty years and remains reliant on foreign technology, and although hundreds o f offshore platforms are in use in Chinese waters, to date only three rigs have been designed and built by Chinese companies. 6 3 Moreover, as a member o f joint ventures the C N O O C has the added advantage of access to foreign technology and expertise. A further incentive for joint programs is that compared to land-based petroleum projects, the C N O O C has a small budget and subsequently welcomes the injection o f foreign capital into the offshore industry. Lastly, from a security perspective, joint offshore projects provide a means o f resolving overlapping maritime claim issues. In view of these favourable conditions, it is likely that China w i l l continue to participate in the N E A offshore petroleum regime. R U S S I A The Russian energy sector enjoys a greater degree of freedom from government control when compared to the Chinese system. In Russia, the promotion, maintenance and expansion o f upstream and downstream energy remain the responsibility o f the Ministry o f Fuel and Energy. Although the privatization process started in 1993 has resulted in the formation o f powerful vertically-integrated companies and smaller regional independent producers, 6 4 the government still retains shares in Russia's two petroleum giants, O A O 6 3 Yang Hua, Vice-Director Overseas Development Department CNOOC, "Re: CNOOC Operations," e-mail to author, 27 Aug. 1999. 6 4 United States Energy Information Admimstradoa Russia Country Analysis Brief 28 July 1998 <http://www.eia.doe.gov/emeu/cabs/nissia.html>. 41 Gazprom and LUKoil. The Russian Federation owns 40% of OAO Gazprom the global energy company that controls over 95% of Russia's major gas fields. Headquartered in Moscow, OAO Gazprom accounts for about 25% of world gas production and represents about 8% of Russia's GNP. The Russian government maintains some control in the oil industry through a company share as well as a seat on LUKoil's board of directors.65 As the country's largest oil company, LUKoil produces 20% of Russia's oil (460 million barrels). Notably, neither OAO Gazprom nor LUKoil are significantly involved in the Russian Far East (RFE). As a result, the pattern of exploitation in the RFE is one of smaller regional Russian companies in partnerships with foreign firms. The main foreign players are American and Japanese, with the South Koreans showing an increased interest in RFE projects. Exxon, Mobil and Texaco represent US interests in the region. The Sakhalin Energy Investments Company Ltd. (formerly called MMMMS for its members Marathon, McDermott, Mitsui, Mitsubishi, and Shell) is composed of both American and Japanese companies. Lastly, the Sakhalin Oil Development Corporation contains Sodeco, a Japanese consortium built around the Japan National Oil Company, and the Russian companies Sakhalinmorneftegaz and Rosneft66. From a NEA perspective, the single most important feature in RFE offshore petroleum is Sakhalin Island. The island's on-shore petroleum production began as early as 1921, and, today, over 4,000 wells have been drilled. Sakhalin's on-shore industry accounts 6 5 Established in 1991, LUKoil united three oil and gas production enterprises -Langepasneftegaz, Uraineftegaz and Kogalymneftegaz (hence the acronym "LUK"). In 1993 the company was officially titled "Oil Company Lukoil" and soon took over Permnefteorgsyntez and Volgogradneftepererabotka, the two largest refining facilities in Russia Finally, in 1995 nine new enterprises joined the LUKoil consortium including Permneft, Nizhnevolzkskneft, Astrakhanneft and Kaliningradmorneftegaz. 6 6 Rosneft is the largest oil company still controlled entirely by the central government. Recently Russia's State Property Committee approved the privatization of Rosneft. At present, the government has been unable to find buyers for the $1.6 billion sale of Rosneft. 42 for 75% of the R F E ' s total oil production. 6 7 Interest in developing Sakhalin's offshore potential, specifically on the island's northeastern shelf, bordering on the Sea o f Okhotsk dates from the mid 1970s. Current development projects stretch 160 miles from the coastal shelf o f the Okha district in the north, to below Lunskii G u l f in the south 6 8 The majority of the petroleum fields are located relatively close to the coastline, at approximately ten kilometers offshore. Regrettably for the actors interested in developing this area these waters are prone to severe ice flow and seismic activity. 6 9 Sakhalin Island provides an excellent example of the infrastructure problems associated with the energy sector in Russia. Perhaps the greatest obstacle to Sakhalin Island development is difficulty with production sharing agreements (PSAs). PSAs are used to govern the revenue split between domestic and foreign investors. In December o f 1995, Russian President Boris Yelstin approved a P S A law to regulate foreign investment in the petroleum sector. Unfortunately, foreign companies were not satisfied that the Russian P S A provided adequate legal assurances for foreign investors. As a result, according to the recent "On Amendments to the Federal Law on Production Sharing", no more than 10% of Russian's total oil and gas reserves may be eligible for PSAs . In addition, for fields of "national significance" a separate P S A must be passed for each field. B y restricting the scope and limiting the number of P S A s the Russian government hopes to retain greater control o f the petroleum industry and at the same time reassure foreign companies that their investments are secure. H o w effective this modified P S A strategy is in attracting foreign investors remains to be seen. 6 7 Emma Wilson and Eichiro Noguchi, "Oil Exploration on the Northeastern Sakhalin Shelf - Environmental and Social Impacts," Sakhalin Oil Development Watch (Tokyo: Friends of the Earth Japan, 1995) 3. 6 8 Wilson and Noguchi, 3. 43 In the case of Sakhalin Island, P S A s have been signed and approved at the federal level for Sakhalin projects 1, 2 and 3. On June 15, 1995 PSAs were passed by the Russian State Duma for Sakhalin 1 and 2. However, the Sakhalin 3 P S A is still awaiting Duma approval. Although Sakhalin 3's foreign investors are frustrated by the Duma's tardiness, a modified P S A may prove more valuable to the Russian government. The existing P S A s for Sakhalin 1 and 2 suffer from two drawbacks. The first o f which is the problem o f "gold-plating", in which a foreign partner artificially increases his investment costs. B y inflating investment costs, the overall profit levels are smaller. In this manner, the foreign company is able to reduce the profit base from which the Russian government's share is calculated. It is then extremely difficult to determine whether high investment costs are legitimate costs or the result o f gold-plating. The second drawback of the Sakhalin P S A s is that the longer a project takes to complete, the lower the profit share payable to the Russian government. Thus, the longer investors delay, the smaller the Russian profit. Under the terms of the current Sakhalin 1 and 2 P S A s it is possible for foreign companies to reap financial gains by delaying projects. Again, much like gold-plating, purposeful delay for profit is difficult to detect or counter. The problems associated with foreign partner P S A s are not restricted to Sakhalin Island. Recently the Ministry o f Fuel and Energy o f the Russian Federation has adopted P S A s for use on the domestic level. A n y company in which the state owns shares must agree to a 2 year P S A with the Ministry. According to the P S A s each company must fulfill financial, economic and industry targets set by the Ministry. In return the Ministry guarantees the companies' right to export petroleum. The terms for domestic P S A s are more 6 9 Dinty Miller, Elena Sabirova andRachael Farber, "Sakhalin Oil and Gas: Status and Prospects, Oct 1, 1998," US & Foreign Commercial Service and US Department of State (1998): 1. 44 severe and restrictive than for foreign investors, with domestic companies complaining that joint Russian-foreign firms have an unfair advantage. Yet, despite these P S A difficulties, and serious infrastructure problems, Russia continues to be considered an attractive investment venue for both domestic and foreign petroleum companies. The following section wi l l illustrate the incentives for involvement in the Russia petroleum industry. The simple fact is that Russia contains the world's largest natural gas reserves, 7 0 and the world's eighth largest oil reserves. 7 1 Russia is also the current world leader in natural gas exports, and the second largest exporter of energy and petroleum. 7 2 As such, Russia is the obvious regional player with the potential to satisfy N E A ' s energy demands. Unfortunately, in the R F E much o f this petroleum wealth is located in geographically remote and environmentally harsh sites. This is particularly true of the region's most productive fields; those found offshore Sakhalin Island. The Sakhalin area is ice-free for a mere four months of the year, from mid-June to mid-October. During the rest o f the year sea ice can form anywhere from 2 to 25 meters in thickness. 7 3 In order to work year-round in this hostile environment specialized and extremely costly equipment is required. One example o f such equipment is the Molikpaq drilling unit presently employed in the Sakhalin 2 project. 7 4 The Molikpaq is a Canadian-built platform designed to withstand the Arctic conditions o f the Beaufort Sea. Molikpaq is one of only a handful of drilling platforms built to Arctic specifications. Due to their limited number, it is difficult to purchase drilling platforms capable o f operating in Arctic conditions. Most likely, the platforms for Sakhalin 3,4,5 and 6 Natural gas reserves are estimated at 1,700 trillion cubic feet. Proven oil reserves are estimated at a minimum of 50 billion barrels. United States Energy Information Administration, Russia. Miller, Sabirova, and Farber, 3. Sakhalin 2 is located 15 kilometers off the coast in the Piltun-Astokhskoe and Lunskoe fields. 45 wi l l have to be designed and built specifically for each project, which translates to high priced equipment and start-up costs. A n additional drawback of the remote nature of R F E fields is the absence o f a dependable transport network. Transportation requirements in Sakhalin are substantial and include "sub-sea pipelines, on-shore handling and production facilities, two trans-island pipelines, export terminals in the ice free southern portion of the island, and the potential construction of refineries and liquefied natural gas facilities". 7 5 The upgrade and/or construction of a transportation network significantly increases the cost of conveying petroleum to both domestic and foreign markets. In an attempt to reduce transportation costs, there have been suggestions to replace Sakhalin's pipeline system with a single anchor leg mooring system or S L A M . Typically a S L A M is located in one o f the "legs" o f the drilling unit and allows the platform to act as a "floating gas station," filling o i l and natural gas tankers directly. On the face o f it, the S L A M method appears cheaper than constructing and maintaining a pipeline network. That said, it is useful to recall that for nearly eight months the shipping routes in the Northern Sea o f Japan and the Sea o f Okhotsk are prone to natural navigation hazards such as sea ice, inclement weather and strong winds. During such periods o f severe weather tankers would have no way o f accessing the platform's S L A M system, and would be unable to transport oil and natural gas to markets. Consequently, although a S L A M system is cheaper than installing a pipeline network, only the costly pipelines are able to withstand the harsh weather conditions in Sakhalin. Thus, while the R F E has massive natural gas and oil reserves, limits to accessibility, transportation and maintenance costs are critical issues when considering the future o f the offshore industry. Miller, Sabirova, andFarber, 1. 46 In order to exploit indigenous reserves, the Russian petroleum sector requires a significant investment o f capital. The great irony o f the Russian petroleum industry is that, notwithstanding an abundance o f resources, the country is dependent on foreign capital for development. Forcing a situation in Russia in which energy security is not concerned with ensuring a stable petroleum supply, but, rather with encouraging and maintaining sufficient foreign investment in the domestic industry. Regrettably, the country's current political uncertainty and poor economic condition decrease the likelihood o f further foreign investment. In addition to domestic problems, Russia's neighbours have the potential to threaten resource security. For instance, Russia's southern neighbour North Korea, is noted for its poor relations with the rest of the region. Plans for a trans-Asian pipeline such as the Energy Community Plan and the Vostok Plan that would transport L N G from Russian to Japanese and South Korean markets envisage routing through North Korea. In order for the proposed pipelines to succeed, a detente between North Korea and the rest of N E A would be necessary. 7 6 Some analysts venture that a pipeline may require outright Korean unification, which is unlikely in the foreseeable future 7 7 Japan also has the potential to threaten Russia's resource security. A s Mark Valencia notes " i f Japan focuses only on secure supply for itself, say from Sakhalin, then multilateral energy cooperation wi l l be delayed or by-passed". 7 8 In this scenario, Japan promotes bilateral energy projects over regional programs. In terms o f the R F E this might translate into a pipeline that connects Japan and Sakhalin, but little else'Consequently other potential Mark J. Valencia, "Energy and Insecurity in Asia," Survival 39.3 (1997): 87. Mark J. Valencia, "Energy and Insecurity in Asia," 87. Mark J. Valencia, "Energy and Insecurity in Asia," 87. 47 consumers such as South Korea may look to China to supply petroleum. 7 9 There is little doubt that China is Russia's clear rival for the N E A petroleum market. Recent reforms and restructuring o f the Chinese petroleum industry have improved efficiency and attracted foreign investors. Likewise these actions serve to divert attention away from Russian prospects. In short, the Chinese are attempting to provide a more economically and politically stable alternative for foreign petroleum companies. Considering Russia's desperate need for foreign investment, securing joint ventures is an important strategic goal. Joint ventures not only provide the Russian petroleum industry with much-needed capital while simultaneously allowing the government to retain a portion o f control over domestic resources but additionally allow involvement with other regional corporations increasing Russian access to regional markets and potential investors. Thus the injection o f capital, increased foreign investment, and access to more customers act as strong incentives for Russian participation in the N E A offshore petroleum regime. Unlike Russia and China, N E A ' s petroleum producers, Japan and South Korea have extremely limited petroleum reserves they are, however, in a position to provide the other half o f the region's energy equation - capital. J A P A N In Japan it is the Ministry o f International Trade and Industry (MITI) which regulates the upstream and downstream petroleum industry. Back in 1962, the Japanese government passed the Basic Petroleum Law. This law placed a restriction on the equity shares of foreign oi l companies, thereby promoting the interests o f domestically owned firms. B y If one considers the need to balance Japan's interests while simultaneously encouraging South Korean investment, Russian proposals for a regional pipeline that crosses the Korean Peninsula no longer appear unreasonable. 48 protecting and encouraging domestic petroleum corporations the Japanese Basic Petroleum L a w achieves the opposite effect o f Russian P S A s which favour investment by foreign firms over domestic companies. In addition the law granted MITT the right to set petroleum prices as well as greater control of the refining sector. Later M I T I established the Agency for Natural Resources and Energy ( A N R E ) . Reporting to MITI , A N R E "has direct jurisdiction over natural resources and responsibility for implementing the country's overall energy program and planning, including the review o f foreign investment applications". 8 0 In 1967 A N R E created the Japanese Petroleum Development Corporation later renamed the Japan National O i l Company ( J N O C ) 8 1 . J N O C is an independent government body responsible for promoting and expanding overseas oil exploration and development projects, as well as for ensuring stockpiling by Japanese companies. Today J N O C is responsible for: (i) providing funds for exploration ventures, 8 2 (ii) granting liability guarantees against development loans, 8 3 (iii) providing financial incentives to private and joint public/private ventures to encourage stockpiling, (iv) promoting stockpiling research and development primarily at the J N O C Technology Research Center, (v) developing Japan's strategic o i l reserve, (vi) acting as a financial guarantor for Japanese overseas projects, 8 0 Corazon Morales Siddayao, "The Development and Trade of Petroleum Resources in the Pacific Rim: The Roles Played by Governments," Economic and Political Incentives to Petroleum Exploration: Developments in the Asia-Pacific Region, ed. Jeremiah D. Lambert and Fereidun Fesharaki (Washington; International Law Institute, 1990) 139. 8 1 In 1978, the name changed to JNOC. 8 2 The maximum amount of direct financing is usually restricted to 70% except for offshore projects and other exceptional cases where up to 80% of the necessary funds are furnished. 8 3 As noted in (i), JNOC provides funds solely for exploration. Thus, companies proceeding to the development stage must obtain financing from banks and other institutions and JNOC guarantees such liabilities. 49 (vii) acting as an agent for the purchase o f foreign petroleum rights, 8 4 and (viii) conducting geological and geophysical surveys at the request o f foreign governments and oi l companies. 8 5 In addition to the state-run J N O C , the other prominent domestic petroleum companies are: Japan Energy; Japan Petroleum Exploration ( J A P E X ) ; Nippon Mitsubishi O i l ; and Teikoku Oi l . Joint ventures with other N E A states include activities by the J N O C through the Japan China O i l Development Corporation in China's Bohai Bay, and the J A P E X Donghai East and Teikoku Oi l acquisition o f blocks in the East China Sea. 8 6 Japan is ranked as the world's second largest energy consumer. Japan's proven petroleum reserves amount to a mere 60 mill ion barrels of oi l and approximately 1.4 trillion cubic feet o f natural gas. A s a result o f these low reserves, over 80% o f Japan's primary energy sources are imported. In 1998 oil accounted for 56% o f Japan's energy needs while coal and nuclear power each provided 14%, natural gas 12%, hydroelectric power 3.7% and geothermal, solar and wind power combined provided the remaining 0.3%. 8 7 Thus, petroleum provided 68% of Japan's energy; this translates to an annual consumption o f 2.01 bil l ion barrels of oi l and 2.34 trillion cubic feet o f natural gas. A s limited domestic reserves are unable to meet even a single year's oil demands, Japanese companies have become involved in exploration and production projects worldwide. Japanese companies have invested in fields as far flung as Anagola, Azerbijan, Australia, Burma, Indonesia, Kazahstan, Suadi Arabia, Vietnam and elsewhere. O f greatest significance to this paper is Japanese 8 4 JNOC directly acquires interests for oil exploration in foreign countries where government participation is preferred, particularly in early stages of development. The interests are later transferred to Japanese companies in the private sector. 8 5 Jin Tonku, Information and Public Affairs Office: Ministry of International Trade and Industry, "Re: JNOC Operations," e-mail to author, 16 Aug 1999. 8 6 Jin Tonku. 8 7 United States Energy Information Administration, Japan Country Analysis 28 July 1999 <http://www.eia.doe.gov/emeu/cabs/japan.html>. 50 involvement in its N E A neighbours China and Russia's offshore fields. Japanese companies are, for example, increasingly interested in oil projects in China's Bohai Bay. The Japanese, unlike Russian and Chinese energy consumers use natural gas extensively as a primary fuel source. Natural gas provides 24.8 mill ion homes with energy for gas cookers, hot water, heating and air conditioning in Japan. And in Japanese industry, natural gas cogeneration systems provide the electricity. The importance of natural gas is demonstrated by the large membership o f the Japan Gas Association. 8 8 Composed o f 244 city gas utilities and 259 companies, the J G A annually delivers 22.6 bill ion meters3 o f gas to over 25 million customers. Indonesia presently supplies the majority o f Japan's extensive natural gas needs. The transport o f L N G / L P G is primarily conducted by specialized carriers and delivered to designated terminals. Due to distance, frequent seismic activity and prohibitive construction costs, plans for a subsea L N G pipeline linking Indonesia and Japan are highly unlikely. Hence the appeal o f a less costly and significantly shorter Sakhalin Island-Japan pipeline guaranteeing a constant supply o f L N G . Recognizing that Japan is almost exclusively dependent on petroleum imports, M I T I established an oil and natural gas stockpiling policy. The aim of the policy is to ensure the constant supply o f reasonably priced petroleum in order to maintain a stable economy. In 1972, the J N O C initiated a program o f funding and financing to ensure a private sector oil stockpile for 60 days of consumption. Three years later, the stockpile goal was raised to 90 days. 9 0 However, when compared to stockpile levels in Europe and the U S , M I T I determined that greater oil reserves were required. Thus in addition to the existing private 8 8 The JGA was established by MITI in October 1947 and incorporated in June 1952. 8 9 "Japan Stockpiling Program " Japan National Oil Company Website 23 July 1999 <http://www.icgti.org/open/organ/japan/jnoc/stock.htm>. 9 0 The 90 day consumption stockpile goal was achieved in 1980. 51 sector plans, the JNOC started a national stockpiling program in 1978 with a goal of 30 million kiloliters by 1988.91 Accordingly, the JNOC, in cooperation with private sector companies, began the construction of permanent stockpiling facilities. Today ten national stockpiling bases exist92 with a combined reserve of 40 million kiloliters of oil. The Japanese government recently reexamined its stockpiling policy and determined that the national stockpile should be increased to 50 million kiloliters, and the private sector stockpile may be reduced from 90 to 70 days.93 No new national storage facilities have been constructed, instead private sector facilities have been leased to contain the additional 10 million kiloliters of the national oil stockpile. It is worthwhile to note that Japanese stockpiling has not been limited to oil. In 1981 a program with the aim of stockpiling 50 days consumption of LNG was initiated94 Similar to the oil program, the JNOC provided financial assistance to private sector companies to stockpile LNG, with the target level being reached in 1988.95 In view of Japan's extensive private and national stockpiling policies, it is obvious that ensuring a constant and reasonably priced supply of petroleum is the primary concern of MITI. Japanese policy-makers recognize the importance of petroleum to industrial growth and continued economic stability. Nevertheless, the fact remains that Japan relies on petroleum imports. At present Middle Eastern and Southeast Asian oil and natural gas producers are meeting Japanese petroleum needs. The Japanese are left in position of dependence on foreign producers. 9 1 "Japan Stockpiling Program." 9 2 The four above ground storage facilities are Mutsu-Ogawara with a capacity of 5.7 million kiloliters (mk), Tomakomai-Tobu 6.4 mk, Fukui 3.4 mk, and Shibushi 5 mk. The two floating vessel stockpiles are Kamigoto with 4.4 mk and Shirashima 5.6 ink. There is one inground tank system at Akita with 4.5 mk. Finally three underground facitilities with a total capacity of 5 mk are located in Kuiji, Kikuma and Kushikino. 9 3 "Japan Stockpiling Program." 9 4 "Japan Stockpiling Program." 52 In an attempt to counter this dependency, the Japanese gain a level o f control over petroleum resources by investing in regional joint ventures. A s the partner providing capital and technology to joint offshore projects, Japan reduces a portion o f its resource dependency dilemma. Not participating in joint ventures would limit Japanese companies to downstream operations. The opportunity for Japanese companies to participate in upstream operations is only realized through joint development projects. B y way o f illustration, the Japan China O i l Development Corporation active in the Bay o f Bohai allows the Japanese partner, Teikoku O i l , to be involved in the exploration, production and development o f the Chinese offshore fields. In summary, decreasing dependence on non-regional petroleum producers, increasing leverage with regional petroleum producers and guaranteeing continued involvement in the industry's downstream and upstream sectors are the three substantial incentives for continued Japanese participation in the N E A offshore petroleum regime. S O U T H K O R E A Similar to Japan, South Korea relies heavily on petroleum imports to fuel its extensive energy industry. A s the sixth largest oi l consumer, and the fourth largest crude oil importer in the world, the South Koreans are inordinately dependent on foreign energy resources. The country imports 98% of its primary energy sources, o f which petroleum composes nearly 70%. 9 6 The oil crises o f the 1970s served to highlight South Korea's dependency and as a consequence o f this the government promoted the stable supply o f petroleum to a national strategic priority. Thus in 1978, the Ministry of Energy and "Japan Stockpiling Program." 9 6 Dong sup Yoon, Director Korea National Oil Corporation, "Re: Future Direction of KNOC," e-mail to author, 12 Sep. 1999. 53 Resources ( M E R ) was formed to devise an overall energy policy for South Korea. Later that same year legislation for a Korea National O i l Corporation ( K N O C ) was passed, and in March 1979 the state-run K N O C was founded. Similar to the Japan National O i l Corporation, the K N O C has several responsibilities including: (i) encouraging oil exploration and development by Korean companies in both domestic and overseas ventures, (ii) financing investments, loans, and guarantees of obligation to domestic energy companies, (iii) controlling the export, import, transportation, lease and sales o f crude oil and its products, (iv) overseeing oil production and refining, (v) acting as an agent in negotiations with foreign oil producing nations, (vi) maintaining the petroleum stockpile established by M E R , in addition to the construction, management, operation and lease o f petroleum stockpiling facilities, and (vii) promoting research and development within the oil industry and providing the public with information on the oil sector. 9 7 The Korea Gas Corporation, commonly referred to as K O G A S , regulates the country's natural gas industry. Established in 1983, K O G A S ' s responsibilities mirror those o f K N O C but in this case dealing with natural gas. In addition, K O G A S maintains the operational integrity o f the domestic natural gas distribution network. 9 8 A notable feature of the Korean petroleum industry is that all o f the major private companies have refining as their primary focus. This may likely be a result of the lack of indigenous petroleum deposits, which in turn forced the Korean industry to focus on refining Dong sup Yoon. 9 8 Dong-woo Lee, Senior Manager International Relations Korea GasCorperation, "Re: Functions of Kogas," e-mail to author, 30 Aug. 1999. 54 rather than on exploration and production. A n illustration of this anomaly can be seen in two of the largest private players in the Korean petroleum industry S K Corp. and LG-Cal tex O i l which are fundamentally refining companies that have just recently branched out into exploration and production ventures. Foreign oil companies dominated South Korea's small offshore petroleum exploration business as late as the 1970s. Overseas projects in the country were limited due to the lack of indigenous offshore reserves. And over a 15 year period the Korean government granted only 12 exploratory drilling concessions to foreign companies. In 1979 K N O C took over the exploration business and subsequently drilled 18 exploratory wells and conducted over 63,000 km o f seismic surveys." Currently, the K N O C is reevaluating offshore reserves on the continental shelf located between South Korea and Japan. In addition, the K N O C has displayed interest in offshore development in North Korea's Nampo B a y . 1 0 0 Lastly, domestic blocks located offshore of Ulsan appear promising. Test drillings conducted by K N O C in early July revealed the region's first economically viable natural gas deposits. Plans for production off Ulsan could begin as early as 2002. 1 0 1 However, even i f the discovery offshore of Ulsan proves sizable it is unlikely to be able to meet the domestic demand for natural gas. The South Korean appetite for petroleum consumption is far greater than the current supply provided by existing and potential domestic reserves. Thus, like the Japanese, ensuring a stable supply o f reasonable priced petroleum is a national objective in South 9 9 Dong sup Yoon. 1 0 0 United States Energy Information A(iministration, South Korea Country Analysis 3 Aug. 1999 <http://www.eia.doe.gov/emeu/cabs/skorea.html>. 1 0 1 For a more detailed account of the Ulsan offshore reserves please see " South Korea discovers gas off south-east coast," Alexander's Gas & Oil Connections The World Energy Site ... 4.13 (1999), 7 Sep. 1999 <http://www.gasandoil.com/goc/discover/dix93067.htm>. 55 Korea, and is achieved, in part, by stockpiling programs. Stockpiling, however, cannot guarantee petroleum security and South Korea remains dependent on imported oil and natural gas. It comes as no surprise, therefore, that the incentives for South Korean participation in a regional regime are similar to those of the Japanese. B y providing the capital required for offshore exploration and development in China and Russia the South Koreans gain a much needed level o f control. In addition, as the financial backers to regional offshore projects, the South Koreans are able to choose the programs that best meet their needs. Joint development with Chinese companies in the Yel low Sea ideally meets two needs. The close proximately to South Korean refineries ensures quick delivery while keeping transport costs low, and an involvement in cooperative ventures with the Chinese provides a venue to discuss overlapping maritime claims. Thus, South Korea is well served by participating in a N E A offshore petroleum regime. N O R T H K O R E A North Korea is the final N E A country to be discussed. There is little doubt that the North Korean political philosophy o f "juche," or self-reliance, has severely restricted the country's petroleum industry. Juche emphasizes the superiority of developing indigenous energy resources rather than relying on foreign imports. A s a result, North Korean energy is provided mainly by domestic sources of coal and hydroelectric power. A s recently as 1997, coal composed more than 80% of the country's primary energy consumption and hydroelectric power composed over 10%. 1 0 2 Coal-fired thermal plants generate approximately 35% of North Korea's electricity and hydroelectric plants are responsible for United States Energy Information Administration, North Korea Country Analysis 3 Aug. 1999 <http://www.eia.doe.gov/emeu/cabs/nkorea.html>. 56 the remaining 6 5 % . 1 0 3 A t present, oil is limited to transportation uses mainly motor gasoline, diesel, and jet fuel. Indeed, the United Sates Energy administration estimates than oil accounts for a mere 6% of North Korea's total energy consumption, since North Korea has neither terminals nor facilities for natural gas import and production. A n additional drawback o f the juche policy is a highly inefficient energy sector. For example, the North Korean Ministry of the Power Industry is prohibited from importing and/or employing foreign methods and technologies, and contacts between North Korean energy personnel and their foreign counterparts are tightly controlled. 1 0 4 The political isolation of North Korea has resulted in a stagnant energy industry, lagging behind that of other N E A states. Strong Soviet influence during the Cold War also contributed to the inefficiency o f the North Korean energy system. The former Soviet Union was involved in designing, constructing and providing equipment for much o f the North Korean energy sector. 1 0 5 The outcome is this involvement is that, much like present-day Russia, North Korea's energy sector practices and technology are markedly less efficient than in neighbouring South Korea, China or Japan. A n example o f just such an inefficiency is that North Korea's electric power generation system suffers high losses due to poor transmission and distribution. 1 0 6 A s a result o f this inefficiency the Ministry o f the Power Industry has implemented a policy o f electricity rationing; unfortunately this has not prevented the country from frequent "blackouts for extended periods o f t ime" . 1 0 7 1 0 3 United States Energy Information Administration, North Korea. 1 0 4 David Von Hippel and Peter Hayes, "DPRK Energy Sector: Current Status and Scenarios for 2000 and 2005," Conference for Economic Integration of the Korean Peninsula September 1997, Washington, D.C., 2. 1 0 5 David Von Hippel and Peter Hayes, 2. 1 0 6 For example, Von Hippel and Hayes estimated that in 1990, North Korea generated 46 TWh (terawatt-hours) of electricity, however, in 1996 their estimate fell to less than 24TWh. 1 0 7 United States Energy Information Administration, North Korea. 57 Like South Korea, North Korea has no domestic commercial petroleum reserves and prior to 1990 North Korea imported petroleum products from China, Russia and Iran 1 0 8 . From 1990 onwards North Korean petroleum imports have decreased markedly mainly due to the decrease in Russian exports to the region. Today, North Korean crude oil needs are met by importing primarily from China, and, to a lesser extent, from Russia and the U S . 1 0 9 Crude oil is now processed at the one and only operating domestic refinery, whereas before 1990 petroleum imports were high enough to warrant operating two refineries. Today imports are so low that the sole remaining refinery is often shut down for several weeks at a time. B y relying on domestic sources o f coal and hydroelectric power, restricting electrical power usage and limiting the use o f oil , the North Korean government claims to have resolved its indigenous petroleum deficiency. At best, these drastic measures provide a temporary " f ix" to the problem, and in no way can be considered a long-term solution to North Korea's energy dilemma. In addition, despite the total absence of a domestic offshore petroleum industry, North Korean officials are fond of alluding to the existence of sizable offshore oil and natural gas reserves. 1 1 0 The government estimates that 6 to 10 bill ion tonnes of crude oil are located in offshore reservoirs of the East and West Seas. 1 1 1 A t talks in November 1998 held between North Korean President K i m Jong-il and South Korean Hyundai Group founder Chung Ju-yung, President K i m spoke to American interest in 1 0 8 There have been reports of North Korean oil purchases on the Hong Kong spot market in the mid and late 1980s. 1 0 9 According to the terms of the 1994 Korean Peninsula Energy Development Organization QXEDO) nuclear accord, the United States has assumed the responsibihty of annually providing North Korea with 500,000 tons (3.3 million barrels) of heavy fuel oil. 1 1 0 General Information on North Korean Oil Fields (Pyongyang: Department of Energy, 1998) 3-4. 1 1 1 This information was released in 1998 at Rajin-Sonbong seminars held in Japan. The Japanese newspaper Sankei-Shinbun reported 8 to 10 billion tonnes. Meanwhile the newspaper for the Jo-Chong-Ryon (General Association of Koreans Resident in Japan) reported 6 billion tonnes. 58 potentially large oil deposits in the west coast near Pyongyang. He also indicated his intention to supply South Korea with oi l from this offshore reserve once drilling and production were underway. 1 1 2 Despite North Korean claims, few petroleum companies haven shown any interest in developing these offshore reserves. Foreign exploration thus far has been limited to Beach Petroleum o f Australia and Taurus Petroleum o f Sweden. Unt i l a foreign company discovers offshore oil it is doubtful that North Korean claims w i l l be credible. The closed nature of the North Korean system makes it is difficult to determine the country's incentives to participate in the N E A offshore petroleum regime. I would suggest, however, that the likelihood of North Korean investment in projects elsewhere in N E A is doubtful. In view of the county's depressed economic situation, it is unlikely that the North Koreans would have the necessary capital to invest in Russian or Chinese offshore joint ventures. Presumably, North Korea would be more interested in promoting Japanese or South Korean investment in North Korean offshore projects. South Korea's desire to develop a Rajin-Sonbong free trade zone indicates a willingness to participate in joint ventures with North Korea. Japanese geologists and petroleum engineers were invited by the North Korean government to conducted preliminary tests at a North Korean oil field in the Sea o f Japan. The Japanese representatives determined that the crude oil is high grade, however the field is too small to be considered for commercial exploitation. Regional organizations and petroleum companies are currently considering the feasibility o f a trans-NEA natural gas pipeline system. Two such plans, the Energy Community Plan and the Vostock Plan envisage routing natural gas pipelines through North 1 1 2 "Kim Jong-il Appears to Be Eager for S-N Economic Cooperation," Korea Times Online 2 Nov. 1998,23 June 1999 <http://ww.koreaumes.co.kr/14_home/9811/t40151.htm>. 59 Korea. Should the plans for a trans-NEA pipeline become a reality North Korea would possess with an efficient and effective system for transporting its offshore petroleum to customers in South Korea and Japan.113 At the same time the pipeline would allow North Koreans access to reasonably priced oil and natural gas from Sakhalin Island. Increased opportunity for regional investment in North Korea, entry into Japanese and South Korean markets and access to inexpensive Russian petroleum act as strong incentives for North Korean involvement in the NEA offshore petroleum regime. SUMMARY It is apparent, on reviewing the energy geopolitics of the five NEA states, that the potential for a complimentary relationship exists. On one hand, cash-strapped Russia and, to a lesser extent, China have sufficient petroleum reserves.to supply the region's demands. And appropriately on the other hand, affluent states like South Korea and Japan can provide funding for Chinese development projects and markets hungry for Russian petroleum. These are two complimentary sides of a whole and although possibilities for increased trade and cooperation are high, a realist cannot ignore the potential for NEA's resource disparity to lead to conflict. Yet, what is most notable about the NEA situation is that all of states (even North Korea) have, at a minimum, discussed plans for joint ventures. It is only through increased dialogue and the recognition of common interests that future conflict can be avoided. A lack of conflict will not only preserve the existing NEA regime; it will promote future growth as well. The following two chapters will examine how knowledge and interest have played a role promoting joint ventures and maintained an offshore petroleum regime in NEA. 1 1 3 Resuming that commercial-sized offshore fields do actually exist in North Korea. 60 C H A P T E R 4 - T H E K N O W L E D G E - B A S E D A P P R O A C H Thus far, the discussion of N E A ' s offshore petroleum regime has been limited to a realist approach that focused on the role o f power in a state-centric system. The knowledge-based approach is highly critical o f this power-based rationalist model o f international politics. According to cognitivists, states' identities and interests cannot be assumed as already given. Hence, in shifting gears to a cognitivist-based analysis the primary objective is to uncover the causal and normative knowledge on which a state's interests and identity are constructed. When applied to N E A the cognitivist approach concentrates on determining how the sharing of knowledge between state and non-state actors has contributed to the formation and persistence o f the offshore petroleum regime. In theory, the cross-national exchange o f knowledge wi l l provide a set o f rules for managing the offshore petroleum regime in N E A . A s a result, this chapter has two objectives, to determine whether cross-national sharing o f offshore petroleum knowledge is occurring, and i f this exchange has promoted the development o f rules or guidelines unique to the offshore petroleum regime in N E A . To address these issues I wi l l examine the role o f prominent intergovernmental and non-governmental organizations involved in managing the region's offshore assets. I wi l l then compare the knowledge-based petroleum regime in N E A to similar knowledge-based regimes in the Mediterranean and Southeast Asia. Finally, I w i l l close with an assessment of the extent to which knowledge-based factors have contributed to the formation and maintenance o f N E A ' s offshore petroleum regime. IGOS A C T I V E I N T H E N E A O F F S O R E P E T R O L E U M R E G I M E The most influential intergovernmental knowledge-based actor operating in maritime N E A is the United Nations and its three subprograms, the International Maritime 61 Organization (EVIO), the North-West Pacific Region Action Plan ( N O W P A P ) and the Working Group for the Western Pacific ( W E S T P A C ) . With members from both North America and N E A , the North Pacific Marine Science Organization, commonly referred to as P ICES , is an additional intergovernmental organization (IGO) that promotes the exchange o f knowledge on matters concerning the North Pacific Ocean. Due to the state-centric nature o f international relations in N E A , IGOs enjoy a level of political legitimacy denied to other knowledged-based organizations. In addition, IGOs have access to political leaders and are engaged in the domestic political process. In this way IGOs are able to provide a venue for the development of regional programs and policies advantageous to the N E A offshore petroleum regime. U N C L O S The United Nations Convention on the Law of the Sea ( U N C L O S ) is the fundamental international agreement of ocean governance and management. In order to understand the role and contribution of the U N to the N E A offshore petroleum regime, it is important to recognize the profound effect of U N C L O S on the region. In the preceding power-based chapter, it was noted that maritime N E A is home to four overlapping claim disputes. Ironically, U N C L O S , an international agreement aimed at promoting the peaceful management of the oceans, is partially responsible for these disputes. U N C L O S contributed to the claim disputes by "legitimizing" the 200 nautical mile exclusive economic zone (EEZ) ; by instituting a minimum continental shelf of 200 nautical miles; by establishing the maximum width o f territorial seas as 12 nautical miles, and; by recognizing the common obligation o f all states to protect and preserve the marine environment. 62 In NEA the extension of the EEZ maritime jurisdiction to 200 nautical miles has resulted in overlapping claims leading to serious complications for offshore petroleum exploitation. According to UNCLOS, a coastal state has sovereign rights over the resources of the water column contained within its 200 nautical mile EEZ. If a separate continental shelf boundary does not exist, then the state may exercise sovereign rights over the seabed and subsoil as well. Therefore a state has offshore drilling rights within its 200 nautical mile EEZ provided that an independent continental shelf boundary does not exist. You may recall that UNCLOS instituted a minimum continental shelf of 200 nautical miles in which a state exercises sovereign rights over the living and non-living resources of the seabed and subsoil. Yet, due to the maritime geography of NEA, a state's continental shelf boundaries and EEZ claims do not always coincide. For example, in the same territory, state A may have jurisdiction over the water column rights because their EEZ extends to a maximum of 200 nautical miles, however state B may have jurisdiction over the petroleum in the seabed because their continental shelf extends a minimum of 200 nautical miles.114 In this situation of overlapping jurisdictions, there appears to be no mechanism to resolve the management problems. To further complicate matters if state B drills the seabed for petroleum it may damage the sealife in state A's EEZ. In a situation of petroleum rights versus marine animal rights, UNCLOS fails to specify which state has precedence. In a recent paper on East Asia's marine resources Sam Bateman contends that, "it would seem logical to anticipate that, in these situations, the country with the water column jurisdiction is in the stronger position in view of its primary responsibility for the preservation and protection of the marine environment".115 Although Bateman's argument is compelling, as 1 1 4 Sam Bateman, 6. 1 1 5 Sam Bateman, 7. 63 U N C L O S currently stands, neither state is granted precedence over the water or seabed in question. Indeed, it would appear that the architects o f U N C L O S rather optimistically hoped that in areas of overlapping claims the parties involved would peacefully negotiate a boundary or initiate a joint development program. A further difficulty with the application o f U N C L O S in N E A is that it established the maximum width of territorial seas at 12 nautical miles. Thus, when a distance o f less than 24 nautical miles separates adjacent or opposite states a territorial sea boundary is required. A s noted in the introduction, maritime N E A is a continuous chain o f enclosed, or semi-enclosed, seas. From north to south the four regional seas are: the Sea of Okhotsk, the Sea of Japan, the Yel low Sea and the East China Sea. China, Russia, Japan, South Korea and North Korea have all made national claims to the territorial seas adjacent to their coastlines. 1 1 6 For instance, both South Korea and Japan have overlapping claims in the Sea of Japan. Lastly, part XI I of U N C L O S provides a framework for the protection and preservation of the marine environment through cooperation among maritime states. States bordering enclosed and semi-enclosed seas are urged to coordinate their environmental policies. Ideally, countries surrounding the seas should adopt uniform environmental standards and practices. This directive has particular relevance in N E A where each of the regional seas is bordered by a minimum of two states. A s members of U N C L O S , China, Russia, Japan, North and South Korea are now charged. to take all measures necessary to prevent, reduce, and control marine pollution and to ensure that activities under their jurisdiction or control do not cause pollution damage to other states or otherwise spread beyond the seas where they exercise sovereign rights. 1 1 6 Sam Bateman, Table 2, 4-5. 1 1 7 United Nations Oceans and Law of the Sea Homepage, United Nations Convention on the Law of the Sea (1982) Article 194, 8 Sep 1999 <http://www.un.org/Depts/los/index.htm>. 64 The weakness of this U N C L O S directive is that "all measures necessary" is a rather ambiguous instruction. Taken to one extreme it is possible to interpret "all measures necessary" as an instruction to ban offshore drilling platforms completely. Conversely, simply monitoring the amount and location of marine pollutants may be considered as "a l l measures necessary". Similarly, the directive to "prevent, reduce and control" is likely to be understood differently by governments, industry personnel, scientists and environmentalists. In order to form a coherent policy that may be applied to common seas, government officials and personnel from maritime organizations must be involved in a cross-national exchange of knowledge. U N C L O S has provided a basic framework for ocean governance, but it is only through inter-state cooperation and the pooling of knowledge that a realistic ocean management program wi l l be enforced. In N E A the U N has initiated three organizations that act as a forum for sharing maritime knowledge. At the global level, the T M O has been directly involved in promoting knowledge exchange regarding the safe transportation of petroleum products and reducing the impact o f marine pollution. At the regional level, N O W P A P and W E S T P A C are developing programs aimed at preserving and protecting N E A ' s seas. I N T E R N A T I O N A L M A R I T I M E O R G A N I Z A T I O N (IMO) In 1948 a U N convention proposed the creation of an international organization devoted exclusively to maritime matters. The convention entered into force in 1958 and the I M O was created. Within ten years o f its official formation all five N E A states became members. 1 1 8 The two fundamental objectives o f the I M O are the promotion of safety at sea and the prevention o f marine pollution. With regard to marine pollution, it has been recognized since the 1950s that pollution from ships, as well as oil tanker collision and 65 wreckage pose serious threats. Indeed, four years before the EVIQ was established, the 1954 Oi l Pollution Convention was passed by the U N . The 1954 Convention stands as the first international policy aimed at reducing the damage caused by oi l pollution. The 1954 Convention introduced two important maritime policies. They are, first, the deliberate discharge of oil or oily mixtures from all seagoing vessels is prohibited, 1 1 9 and second, all ships dependent on oil fuel w i l l possess an O i l Record Book in which all oi l transfer and oil ballasting operations wi l l be recorded. However, despite the restrictions placed on vessels by the 1954 Convention, the wreck o f the Torrey Canyon in 1967 demonstrated the devastating potential of oi l pollution. Consequently, the I M O further amended the existing O i l Pollution Convention in 1969. Regrettably, despite the changes in 1969 and subsequent amendments, the O i l Pollution Convention was unable to effectively prevent pollution caused by the routine discharge of oil tankers. In response to this problem the I M O adopted the International Convention for the Prevention o f Pollution from Ships (TVIARPOL). 1 2 0 M A R P O L is a comprehensive policy designed to eliminate ship pollution o f oil , garbage, sewage, chemicals and other harmful substances. M A R P O L affects the petroleum industry in three ways. First, M A R P O L sets a limit on the amount and the location o f ship discharge oi l . Second, it recommends that tankers have segregated protected ballast tanks. Third, tankers are to practice crude oil washing procedures, reducing the amount of waste after cleanings. 1 1 8 Japan and Russia joined the IMO in 1958, South Korea in 1962, China in 1973 and North Korea in 1986. 1 1 9 However this rule does not apply to tankers under 150 tons gross and other sea going vessels under 500 tons gross while operating in "prohibited zones". Prohibited zones extend a minimum of 50 miles from land and in some areas up to 100 miles. 1 2 0 The original MARPOL Convention was adopted in 1973. In 1978, the IMO convened the Conference on Tanker Safety and Pollution Prevention, at which a stricter anti-pollution Protocol was added to the existing 1973 MARPOL Convention. As a result, the Protocol of the 1978 Convention in effect absorbs the parent 1973 MARPOL Convention with modifications. Commonly referred to as MARPOL 73/78 this Convention entered 66 When M A R P O L was first introduced to N E A in the late 1970s, Chinese and Russian oil tankers frequently flaunted the pollution conventions. The most common infraction was the excessive discharge of ship oil before entering L a Perouse Strait, Proliv Kruzenshterna and the Tushima Straits. Prior to M A R P O L , the discharge of excess oi l before navigating a restricted passage, such as a strait, was routine practice in the maritime world. Russian and Chinese tanker Captains who violated M A R P O L claimed that the unrestricted discharge o f ship oil was a safety requirement. The response o f Japanese and South Korean maritime officials was that the routine and scheduled discharge of excess oi l at the appropriate facilities wi l l more than adequately meet maritime safety standards. And , to ensure adherence to M A R P O L , Japan and South Korea raised the fines for illegal discharge o f ship oil. Correspondingly, the incidence o f excessive oil discharge in N E A dropped and is nearly non-existent today. M u c h of the I M O legislation was aimed at combating oi l pollution, however natural gas is also considered a "harmful substance" and therefore is subject to M A R P O L . Nonetheless, the EVIO recognized that the safe transportation o f natural gas required additional regulations. In 1975 the I M O adopted the Code for the Construction and Equipment of Ships Carrying Liquefied Gases which outlines specific design requirements for all gas carriers built after 1986. For example, L N G is best transported under certain pressurized conditions, which are achieved by the unique dome-shaped tanks on L N G carriers. Additional safety standards were amplified in 1983 in the Bulk International Gas Carrier Code. Lastly, a policy that affects both natural gas and o i l is the Code for the Construction and Equipment of Mobi le Offshore Dri l l ing Units. Passed in 1979, the Code into force in October 1983. For ease of discussion, this paper will refer to MARPOL 73/78 and all subsequent amendments simply as MARPOL. 67 outlines a series of safety, health and environmental standards required in the design and maintenance of mobile offshore units. Unlike M A R P O L , the transport codes governing natural gas enjoyed an immediate and high level of compliance in maritime N E A . This compliance is likely the result of the specific design requirements of L N G terminals. A s indicated in the previous chapter Japan and South Korea are heavy importers o f L N G . In the early 1980s South Korean petroleum engineers designed unique docking facilities for L N G vessels that streamlined the delivery and refining processes. The Japanese quickly adopted similar L N G terminals, while China and Russia are currently constructing new facilities. The result is that the new terminals are only able to accommodate specialized L N G carriers. Consequently, it is in the best interests of transport vessels to conform to the carrier codes. Thus, conventions such as M A R P O L and the Bulk International Gas Carrier Code have allowed a global organization like the I M O to have a profound effect on the regional offshore petroleum industry in N E A . R E G I O N A L I N T E R G O V E R N M E N T A L O R G A N I Z A T I O N S (IGOs) Regional IGOs are active in promoting and safeguarding the interests of the N E A offshore petroleum regime. The three most influence IGOs in N E A are N O W P A P , W E S T P A C and P I C E S . The extent to which N E A states participate in N O W P A P , W E S T P A C and P I C E S is outlined on the following page in Table 1. 68 Table 1 Country Membership in N E A IGOs I G O N E A Members Other Members N O W P A P China, Japan, Russia, South Korea, North Korea W E S T P A C China, Japan, Russia, South Korea, North Korea Australia, Fi j i , France, New Zealand, Western Samoa, Solomon Islands, Tonga, U S , Indonesia, Malaysia, U K Singapore, Thailand, Vietnam P I C E S China, Japan, Russia, South Korea Canada, U S N O R T H - W E S T P A C I F I C R E G I O N A C T I O N P L A N ( N O W P A P ) N O W P A P is one of thirteen Regional Seas Programs sponsored by the United Nations Environmental Program (UNEP) . The aim o f the U N E P Regional Seas Program is to help develop and coordinate a marine environmental action plan to be implemented by regional coastal states. Because the role o f U N E P is limited to helping develop programs, rather than implementing programs, U N E P prefers to work through a pre-existing regional organization as opposed to creating a new IGO. In as late as 1990, a regional environmental maritime organization did not yet exist in N E A . Although Russia, South Korea and China all expressed a willingness to create a regional seas organization devoted to preventing environmental marine problems, Japan was hesitant to endorse the U N E P program. In principle, the Japanese supported the creation of a regional organization but they had reservations about the program's implementation. The Japanese were concerned with the lack of consensus regarding the organization's aims, the poor diplomatic relations between 69 N E A states and, finally, the all too real fear of having to provide the majority o f the organization's funding. 1 2 1 Without Japanese support for N O W P A P , it appeared that the future o f the program was unlikely. Indeed, it has been suggested that although Russia, South Korea and China displayed interest in creating N O W P A P , without U N E P support, the organization would not have been formed. Hyon-Jin K i m goes so far as to charge that " N O W P A P was initiated not by the governments o f the region but by U N E P . Hence, impetus for a marine protection regime in Northeast As ia originated outside the region i t se l f ' . 1 2 2 K i m further notes that the backward process o f N O W P A P ' s creation was largely the result of two factors. 1 2 3 First, prior to the early 1990s there was little concern at either state or regional levels with regard to maritime pollution and environmental degradation. Second, delegates at N O W P A P meetings were unable to move beyond political differences and concentrate on environmental issues. Perhaps the most damning political disagreement resulted from South Korean delegates refusal to accept the title "Sea of Japan," and the corresponding Japanese objections to the term "Ye l low Sea" . 1 2 4 In addition to the environmental and political problems identified by K i m , N O W P A P was confronted with a series o f other obstacles. The strong Japanese opposition to the use o f legally binding terminology in the agreements served to undermine the organization's i Z X Mark J. Valencia, "Ocean Management Regimes in the Sea of Japan: Present and Future," ESENA Workshop: Energy-Related Marine Issues in the Sea of Japan 11-12 July 1998, Tokyo, Japan, 6. 1 2 2 Hyon-Jin Kim, "Marine Environmental Cooperation in Northeast Asia." ESENA Workshop: Energy-Related Marine Issues in the Sea of Japan 11-12 July 1998, Tokyo, Japan, 6. 1 2 3 For a detailed discussion of NOWPAP difficulties please see Hyon-Jim Kim, "Marine Environmental Cooperation in Northeast Asia". 1 2 4 Indeed after a great deal of heated discussion, the geographic parameters of NOWPAP are not specified by name but rather by latitude and longitude. The geographic scope of NOWPAP is from 52 to 32 degrees north latitude and from 118 to 143 degrees east longitude. 70 political legit imacy. 1 2 5 N O W P A P was further constrained by the demands of Russian and Japanese delegates that marine environmental problems in the Sea of Japan must be addressed prior to dealing with similar issues in the Ye l low Sea. Finally, N O W P A P had to develop a fair and effective method for determining members' contributions to the organization's financial program, commonly referred to as the N O W P A P Trust Fund. Eventually, Russia, China, Japan and South Korea agreed to contribute an equal "basic" amount of 5% to the Trust F u n d . 1 2 6 The same four states were also levied with an "additional" contribution determined by their level of participation in N O W P A P and their ability to pay. The additional Trust Fund contributions were broken down as follows: Russia 5%, China 7%, South Korea 15% and Japan 2 0 % . 1 2 7 The allocation of the Trust Fund's remaining 33% has yet to be determined by N O W P A P members. N O W P A P ' s members do, however, agree that North Korea is not obliged to provide either the basic or additional contributions provided that the North Koreans agree to more open and active participation in the organization. In summary, the initial success o f N O W P A P was constrained by members refusing to set aside their political differences, a general lack of concern for regional environmental issues, an absence o f legally binding terminology, an inability to determine precedence o f projects in the regional seas and a protracted dispute over financial obligations. Nevertheless, despite preliminary difficulties, over the course of the last six years regional support for N O W P A P has grown. Ironically, the need for a regional maritime environmental organization such as N O W P A P was only recognized in the wake o f two Hyon-Jin Kim, 4. Hyon-Jin Kim, 6. Hyon-Jin, Kim, 6. 71 serious environmental incidents. In 1993 the Russians admitted to dumping radioactive waste in the Sea of Japan, and in 1997 the Nakhodka oil spill had immediate and devastating effects on marine life in the Sea of Japan. 1 2 8 In an attempt to counter the effects o f similar future environmental disasters N O W P A P initiated a series of workshops aimed at developing a regional response to marine pollution, improving the current techniques o f pollution monitoring and stimulating further research in the area o f marine environmental pollution. In so doing, N O W P A P has made a number of notable contributions to the formation and persistence o f an offshore petroleum regime in N E A . N O W P A P provides a forum for delegates from different N E A states to share marine science technology, and to improve the quality and quantity o f regional knowledge on the Sea of Japan and the Yel low Sea. In addition, N O W P A P demonstrates to regional elites (government officials, scientists, and industry representatives) that a more inclusive environmental program is required in N E A . Finally, N O W P A P provides a venue for the discussion of future regional maritime issues. W O R K I N G G R O U P F O R T H E W E S T E R N P A C I F I C ( W E S T P A C ) A n additional U N organization active in protecting maritime N E A is W E S T P A C . 1 2 9 Formally established in 1989, the aim of W E S T P A C is to coordinate regional ocean science programs. 1 3 0 Unlike N O W P A P , W E S T P A C membership is not limited to states bordering the regional seas (see Table 1). Therefore, when compared to N O W P A P , the geographic and political scope of W E S T P A C is significantly broader. In 1998, one o f W E S T P A C ' s major initiatives was the organization o f the Fourth l 2 S Hyon-Jin, Kim, 3-6. 1 2 9 WESTPAC is a regional program of the Intergovernmental Oceanographic Commission (IOC) which in turn is a sub-program of the United Nations Educational, Scientific and Cultural Organization (UNESCO). 1 3 0 Please note that ICO involvement in the Western Pacific began in 1965 with the Kuroshio Current Project, a 12 state joint research program. In 1977 a Regional Committee for the Western Pacific was created which later developed into WESTPAC. 72 W E S T P A C Scientific Symposium held in Okinawa, Japan. More than 160 scientists, including many junior scientists, participated in the Symposium. At this recent Symposium the topics for discussion cut across the boundaries o f traditional categories, consequently, demanded that delegates use a more multi-disciplinary approach. A good illustration, of the new W E S T P A C multi-disciplinary approach is the North-East Asian Regional-Global Ocean Observing System ( N E A R - G O O S ) . In order to succeed, the N E A R - G O O S project requires a greater level o f information and resource sharing than has been previously practiced among N E A states. The primary aim o f N E A R - G O O S is to share oceanographic data and the daily mapping of sea conditions in real time via the Internet for the regional seas bordered by China, Japan, South Korea, North Korea and Russia. A t the 1998 W E S T P A C Symposium delegates were pleased to announce that considerable progress had been achieved in the implementation of N E A R - G O O S . N E A R - G O O S real-time and delayed-mode data bases are up and running in China, Japan, South Korea and Russia. Furthermore, as a result o f greater cooperation between the N E A member states, there has been a substantial increase in the amount of data contributed to N E A R - G O O S . The N E A R - G O O S program allows personnel in the offshore industry access to practical oceanographic and climatic information. Offshore petroleum engineers are one group of actors in the N E A regime who routinely depend on data provided by the N E A R -G O O S project. B y using N E A R - G O O S oceanographic and climatic data, petroleum engineers are able to design offshore platforms with the structural integrity required to withstand N E A ' s extreme maritime conditions. Equally useful are the N E A R - G O O S twenty-four hour weather predictions that warn platform personnel o f incoming ocean storms and allow them sufficient time to make the necessary preparations. Thus, through regional 73 workshops, scientific symposiums and joint projects such as N E A R - G O O S , W E S T P A C promotes the regional exchange knowledge that is so vital to the persistence and growth o f the N E A offshore petroleum regime. N O R T H P A C I F I C M A R I N E S C I E N C E O R G A N I Z A T I O N (PICES) Created in 1992, P ICES membership includes China, Japan, South Korea, Russia, Canada and the United States. P ICES has two main objectives, the coordination o f marine research in the North Pacific Ocean and the promotion of regional exchange of scientific knowledge on the North Pacific Ocean environment. The geographic boundary of P I C E S is defined as the North Pacific Ocean and the adjacent seas located north o f 30 degrees latitude which includes the Sea of Okhotsk, the Sea o f Japan, the Ye l low Sea and the northern portion of the East China Sea. Currently P I C E S scientists are involved in a number of regional joint projects that study: the effect of climate change, the status of l iving and non-living marine resources and the impact of human activities on the regional seas. P I C E S has also spearheaded a number of working groups dealing with issues particular to the North Pacific Ocean, such as ocean current patterns and ice formation in the Sea of Okhotsk. Monitoring changes in the temperature and salinity o f the North Pacific Ocean and the N E A regional seas is one P I C E S project that has a direct impact on offshore petroleum platform construction. The level o f ocean salinity is inversely proportional to the lifespan of offshore structures; higher salinity levels means a shorter platform lifespan, and lower salinity levels result in a longer platform lifespan. Similarly, the amount and type of ocean ice has an impact on the structural requirements o f offshore platforms. The P I C E S project monitors regional ocean current patterns that aid petroleum engineers in determining whether fixed or mobile platforms are 74 required. B y providing beneficial oceanographic data, P I C E S contributes to the regional knowledge pool o f offshore petroleum information, which is a key process in regime formation. B y examining the activities o f regional organizations such as N O W P A P , W E S T P A C and P I C E S I have demonstrated the significant role these regional IGOs play in building and maintaining the N E A offshore petroleum regime. One of the more curious features of N E A ' s IGOs is the implicit shared assumption by regional actors that in order to succeed an I G O must enjoy Japanese endorsement. In all three IGOs there is a sense that Japan contributes more than the other N E A members in terms of leadership and capital. It wi l l be interesting to note i f the same pattern o f Japanese endorsement is required by N G O s active in the N E A offshore petroleum regime. R E G I O N A L N O N - G O V E R N M E N T A L O R G A N I Z A T I O N S (NGOs) The I M O , N O W P A P , W E S T P A C and P I C E S are all intergovernmental organizations and, therefore, are composed of government representatives from member states. N E A ' s IGOs enjoy the luxury o f working from within state governments to achieve their maritime safety and environmental objectives. In contrast, environmental N G O s such as Friends of the Earth, the World Wildlife Fund and Greenpeace International work from outside the state structure. Thus, environmental N G O s achieve their objectives by a variety of methods, including official negotiation with national governments, publicity campaigns aimed at raising citizen consciousness o f the need for new or modified government policies and, as a final resort, direct action. When assessing the impact of knowledge-based organizations on the offshore petroleum regime in N E A , it is useful to remember the distinction between IGOs and N G O s . 75 E N V I R O N M E N T A L N G O s Environmental N G O s are often criticized for having limited political impact in N E A . One of the largest difficulties of N E A environmental N G O s is identifying the appropriate scale. 1 3 1 The region's largest and most powerful environmental N G O s typically focus on global issues, whereas smaller N G O s attend to local problems. A s a result, few environmental organizations concentrate on environmental problems at the regional level. Nonetheless it is possible for global campaigns to have a sizable effect on regional problems. For example, Greenpeace International spearheads a global campaign against the deep-sea dumping of old offshore oil and gas platforms. A t present, Greenpeace has concentrated their efforts on the dumping o f Shell's Brent Spar platform, located in the North Sea. Greenpeace reasoned that i f Shell could resist their campaign then a global deep sea-dumping precedent would have been established. B y preventing Shell from dumping Brent Spar, Greenpeace demonstrated to the petroleum industry that dumping old platforms was an unacceptable practice. Dating from Shell's decision in 1995 not to dump Brent Spar, no other North Sea petroleum platforms have been disposed o f at sea. Indeed, immediately following Shell's action, several o i l corporations announced a moratorium on the practice of deep-sea dumping spent petroleum platforms. The Greenpeace protest has also affected the offshore industry in N E A . Prior to the 1995 Greenpeace campaign several Chinese, Russian and South Korean offshore companies routinely disposed of spent platforms by deep-sea dumping. After the Greenpeace success with Brent Spar, deep-sea platform dumping is no longer commonly practiced by South Korean and Chinese companies. In lieu of deep-sea dumping, old platforms are being towed to land and salvaged for scrap metal. Today in N E A , 1 3 1 Peter M. Haas, "Prospects for Effective Marine Governance in the Northwest Pacific Region," ESENA Workshop: Energy-Related Marine Issues in the Sea of Japan 11-12 July 1998, Tokyo, Japan, 4. 76 only Russian corporations still practice deep-sea platform dumping, and even their activities have been scaled back as a result o f regional pressure to abandon the environmentally harmful practice. The Greenpeace campaign to stop deep-sea platform dumping is a fine example of how an N G O ' s global campaign has successfully impacted and changed industry practices at the regional level in N E A . A further criticism of N E A ' s environmental N G O s is that they "lack political access and legitimacy in many o f the region's countries. Only in Japan and South Korea are environmental N G O s significantly engaged in the domestic political process". 1 3 2 A n example of a highly effective Japanese environmental N G O is the Japanese branch o f the World Wildlife Fund (WWF) . W W F Japan is not only one of the largest environmental N G O s in N E A but one of the largest N G O s in the world. That W W F Japan has access to a substantial resource base can be seen in their decision to address the damage to marine life caused by o i l spills during the G u l f War. Initially W W F Japan sent a team of scientists to assess the final environmental damage to the Persian G u l f . 1 3 3 Next, W W F Japan held a special fund-raising appeal "to save the G u l f wildlife" in which they raised the unprecedented amount of over 1 bi l l ion dollars. 1 3 4 In view of the impressive financial and scientific resources at the disposal o f W W F Japan, it is reasonable to suggest that no other N E A country can boast o f an environmental N G O of equal wealth or stature. Despite the respect and prominence enjoyed by Japanese, and, to a lesser extent. South Korean environmental N G O s , Russian, North Korean and Chinese environmental N G O s do possess the same political legitimacy. A s a result, it is predominantly Japanese and 1 3 2 Haas, 4. 1 3 3 World Wildlife Fund Website 17 July 1999 <http://www.worldwildlife.org/japan/campaigns/67mjt.hto 1 3 4 World Wildlife Fund Website. 77 South Korean environmental N G O s that have the greatest impact in the regional political arena. Similarly, Japanese and South Korean environmental N G O s are active and affective participants in the N E A offshore petroleum regime, as w i l l be demonstrated by the following discussion. F R I E N D S OF T H E E A R T H - J A P A N - A N E N V I R O N M E N T A L N G O S U C C E S S S T O R Y Friends of the Earth-Japan (FoE-J) is an example of an environmental N G O that has made a significant contribution to the region's offshore petroleum regime. In the early 1990s F o E - J identified nature Sakhalin Island offshore petroleum projects as environmental "hotspots". During the following years, F o E - J instituted the "Sakhalin O i l Development Watch" and conducted a series of environmental studies monitoring the effect of offshore development. The Development Watch published a report in June 1995 entitled " O i l Exploration on the Northeastern Sakhalin Shelf - Environmental and Social Impacts". 1 3 5 The report raised a number of objections to offshore development and suggested several recommendations to reduce the extent of environmental damage. Among the most damming charges were allegations that the traditional fisher-herder lifestyle o f Sakhalin's indigenous Nifkhi and Oroki people would be threatened. Moreover, the construction of new natural gas pipelines would further damage the island's already fragile ecosystem and destroy fish spawning grounds. According to FoE-J , prior to offshore development the Russian oil industry had already destroyed nearly 70% of the Oroki 's traditional lands, jeopardizing the continued practice o f reindeer herding. 1 3 6 O f greatest concern to the Oroki is the resource rich region near Piltun-The original 1996 report has been subsequently amended to include events up to 1999 and is available online at http://www.foejapan@igc:env.siberia 1 3 6 Wilson and Noguchi, 8. 78 Astokhskoe that also represents one of the few remaining summer reindeer pastures. 1 3 7 Although the actual drilling w i l l occur offshore, a land based support infrastructure o f roads, terminals and buildings w i l l be required. FoE-J is concerned that continued development o f Sakhalin's petroleum reserves would mean the end of the indigenous peoples' way of life. F o E - J recommends that both government and industry officials consult the Oroki and Ni fk i throughout the exploration, development and production process. Furthermore, under a Russian federal law passed in December 1991, citizens "have the right to demand decisions, at administrative or federal level, about the reduction, suspension or halting o f activities, ventures etc. which adversely effect the environment and human health". 1 3 8 With the help of FoE-J , Sakhalin's indigenous peoples have demanded the right to consult with government personnel and petroleum representatives. A s a result of consultations between Sakhalin's indigenous people and Sakhalin Energy, the energy company has agreed to scale back plans for its land based support system near Piltun-Astokhskoe. This action has allowed nearly three-quarters of the vital Oroki pasture land to be preserved. In this case, FoE-J , an environmental N G O , was able to work with local residents and petroleum developers to resolve a social and environmental problem and consequently contribute to the continued success of the Sakhalin offshore petroleum program. F o E - J has also been involved in the negotiations for the construction o f a trans-Sakhalin pipeline. The original pipeline plans for Sakhalin Island extended over 683km in length and affect an area of approximately 50m in wid th . 1 3 9 Crossing over 800 rivers, the pipelines would disturb the natural habit and spawning ground o f several varieties o f fish and marine Wilson and Noguchi, 8. Wilson and Noguchi, 8. Wilson and Noguchi, 7. 79 l i f e . 1 4 0 The purpose of the pipeline was to link oil from northern terminals with a refinery in Progorodnoe in the South. FoE-J argued that the refinery located on the Russian mainland at Komsomolsk-on-Amur was already connected to Northern terminals by a pipeline that was only 550km in length. 1 4 1 According to FoE-J , repairs to the existing pipeline would not only be cheaper than constructing a new line, but also damage to the environment would be minimized. It would appear that petroleum interests and F o E - J have formed a compromise. The current plans link new pipes to the pre-existing pipeline and limit new construction to approximately 300km. In this, the FoE-J 's second successful Sakhalin campaign, the F o E - J has demonstrated yet again that an environmental N G O can have a major influence on the process of offshore petroleum development in N E A . The activities o f regional N G O s like FoE-J clearly illustrate the ability o f environmental organizations to play a key role in the development and persistence of the N E A offshore petroleum regime. Similar to the manner in which regional IGOs appeared to require Japanese endorsement, N E A ' s most successful environmental N G O s are Japanese. It would seem that in Japan knowledge-based organizations enjoy a higher level o f acceptance and legitimacy than elsewhere in N E A . I would suggest that civil society is stronger in Japan 1 4 2 than in any other N E A state, and for this reason the Japanese play a key role in promoting the interests o f regional offshore petroleum IGOs and environmental NGOS: In the following section, it wi l l be interesting to see i f N G O s formed by industry interests are likewise strongly influenced by the Japanese. 1 4 0 Wilson and Noguchi, 7. 1 4 1 Wilson and Noguchi, 7. 1 4 2 Please note that the use of the term "stronger' is limited to the NEA context. I am in no way implying that Japanese civil society is on equal terms with North American or European civil society. 80 N G O I N D U S T R Y A S S O C I A T I O N S The network o f offshore petroleum industry associations is the final group o f knowledge-based organizations that contribute to the creation and maintenance o f the offshore petroleum regime in N E A . The most notable offshore petroleum industry N G O s active in N E A are the Petrotechincal Open Software Corporation (POSC), the National Petrochemical and Refiners Association ( N P R A ) and the World Petroleum Congress (WPC) . In order to determine the extent to which industry N G O s participate in the formation and persistence of the N E A offshore petroleum regime, I w i l l examine the activities of P O S C , N P R A and W P C in greater detail. P E T R O T E C H I N C A L O P E N S O F T W A R E C O R P O R A T I O N (POSC) P O S C is an international non-profit corporation aimed at improving the exploration and production of petroleum. Due to its non-governmental status, P O S C provides a neutral forum for the exchange o f ideas and issues relating to software requirements o f the petroleum industry. P O S C ' s particular area of expertise includes data and application integration, information modeling and information management as it relates to petroleum exploration and production projects and structures. 1 4 3 Several Chinese, Japanese and Russian companies are regular members of P O S C , and routinely participate in the association's programs. Chinese companies that belong to P O S C include the Beijing Research Institute o f Petroleum, China National Petroleum Corporation ( C N P C ) and T O P Computer Engineering Limited. Japanese involvement in P O S C is limited to the Japan National O i l Corporation (JNOC). Lastly, two Russian companies are regular members o f P O S C , the Ministry o f Natural Resources of the Russian Federation (GlavNIVC) and Central Geophysical Expedition. South Korean Petrotechnical Open Software Corporation Homepage 7 Sep. 1999 <http://www.posc.org/>. 81 companies have participated in P O S C programs on a case by case basis. To date North Korean corporate involvement in P O S C has been purely as an observer. A s P O S C is an international organization, it provides its N E A members with a forum to discuss data application and software requirements of the regional offshore petroleum regime. In the N E A offshore industry, one o f the most popular programs instituted by P O S C is a one-year program aimed at creating an in-house P O S C expert with skills in data mapping, data quality evaluation and data management. A n additional advantage of P O S C membership is that it provides offshore petroleum companies with the opportunity for involvement in joint development projects with other N E A P O S C members. A good example of a successful P O S C joint development project is the shared earth modeling ( S E M ) project currently under development. The object o f S E M is to allow an open computing platform that several offshore petroleum companies can use simultaneously. B y allowing data to be input simultaneously from a variety o f offshore personnel (including petroleum geologists, cartographers, oceanographers and petroleum engineers) S E M wi l l provide a realistic integrated model unique for each potential offshore field. Ideally, S E M wi l l help petroleum companies significantly reduce the initial costs associated with offshore petroleum exploration and production. P O S C supports the N E A offshore petroleum regime in two ways. It holds regular meetings and working groups which provides its members with a forum for the exchange of petroleum data knowledge and it encourages its N E A members to participate in joint projects such as S E M . N A T I O N A L P E T R O C H E M I C A L A N D R E F I N E R S A S S O C I A T I O N ( N P R A ) The N P R A is the second industry N G O that is active in N E A . The N P R A has two objectives. The organization's primary aim is to collect, analyze and distribute scientific data 82 and statistics related to the petroleum refining and petrochemical manufacturing industries. The N P R A ' s secondary goal is to encourage stricter environmental regulations within the petroleum industry. The current N E A N P R A members include companies from China, South Korea, Japan and Russ ia . 1 4 4 Notably, there are no North Korean companies as members o f the N P R A . However, when one considers the fact that North Korea possess only one state-run operating refinery, it is unlikely that any North Korea companies would want to be involved in the N P R A . The N P R A contributes to the offshore petroleum regime in N E A by providing its members with access to a sizable scientific data bank on petroleum refining and petrochemical manufacturing. At the same time, the N P R A ' s commitment to promoting the environmental protection of N E A ' s maritime resources is demonstrated by its membership in the Responsible Care Partnership Program. According to the Responsible Care Program, N P R A members agree to notify, consult and work with their employees, government officials and the general public regarding environmental, health, and safety issues associated with petroleum exploration and production activities. 1 4 5 The N P R A works through a series o f thirteen committees that cover a variety o f topics from an "Environmental Issues Committee" to a "Fuels Advisory Committee". Membership in the N P R A sends a clear message to the petroleum community o f a corporation's commitment to improving environmental standards through greater investment in scientific research and development. Organizations like N P R A are an excellent platform for industry personnel, scientists and environmental groups to share 1 4 4 For example, China's Petrochemical Technology Company (SINOPEC TECH) is a member of NPRA. The Hyundai Oil Refinery Company, LG-Caltex Oil Corporation and SK Corporation represent South Korean interests. Japanese members include the Idemitsu Petrochemical Company, Mitsubishi International Corporation, Mitsubishi Oil Company and the JNOC. The Russian petroleum giant LUKoil is also a member of NPRA. 1 4 5 National Petrochemical and Refiner's Association Homepage 12 Sep. 1999 <http://www.npradc.org>. 83 information and strengthen the NEA environmental elements of the offshore petroleum regime. WORLD PETROLEUM CONGRESS (WPC) The final petroleum-based industry association to be discussed is the World Petroleum Congress (WPC). Founded in 1933, the WPC acts as in international forum for the discussion of issues and problems specific to the petroleum industry. Participants in the WPC include government representatives, industry personnel and research scientists. During the past sixty-six years, fifteen Congresses have been held. Topics have ranged from traditional issues such as petroleum exploration, development and production to more contemporary questions involving finance, management and environmental safeguards. Beijing hosted the Fifteenth Congress in which 91 countries participated146 with over 5,000 delegates in attendance. China, Japan, South Korea and Russia are all members of the WPC, and North Korea has participated as an observer. The WPC provides an opportunity for NEA representatives to interact with their neighbours, by exchanging information dealing with all aspects of the offshore petroleum industry from financing to production and distribution. Thus, although the WPC is not a regional organization, it acts to strengthen the regime in NEA by providing a set of industry guidelines for offshore petroleum exploration, production, development and management. COMPARISON OF NEA REGIME TO OTHER MARITME KNOWLEDGE-BASED REGIMES To assess the effectiveness of the NEA offshore petroleum knowledge-based regime, it is useful to briefly compare it to similar regimes such as the Mediterranean Action Plan The WPC has 54 regular members. 84 (Med Plan), A S E A N ' s Energy and Min ing Committee and the Southeast Asia Petroleum Exploration Society (Seapex). L ike N O W P A P , the M e d Plan is part o f the U N E P Regional Seas Program. Adopted in 1975, the M e d Plan is primarily aimed at combating existing pollution problems as well as preventing future pollution problems in the Mediterranean Sea. The first significant difference from N O W P A P is that the M e d Plan was strongly endorsed by the all coastal states bordering the Mediterranean Sea. In the case of N O W P A P , initial interest in the project was limited to three of the five N E A states, with only Russia, China and South Korea initially endorsing the program. A further difference between the M e d Plan and N O W P A P is that the M e d Plan enjoyed the full support o f the region's dominant power - France. In contrast, the Japanese were hesitant to become involved in N O W P A P . Although China, N E A ' s other dominant power, was interested in promoting N O W P A P , any attempts at a Chinese led program would have been met with suspicion by the other states o f N E A . A s noted in the discussion on N O W P A P , Japan is the logical leader for an environmental program in N E A , and initial lack of Japanese leadership made it difficult for N O W P A P to become established in the region. Fortunately, the Japanese chose to participate in N O W P A P , and over the last six years regional acceptance o f N O W P A P has grown. In summary, despite the obvious similarity of both belonging to the U N E P Regional Seas Program, the M e d Plan and N O W P A P have crucial differences. For example, support for the M e d Plan was regionally based, whereas in N E A the stimulus for N O W P A P came from outside N E A . A n additional difference is that the M e d Plan enjoyed the immediate support o f France, the Mediterranean's dominant power, whereas, Japan, one o f the N E A region's two greatest powers, was hesitant to become involved in N O W P A P . 85 A s I have just demonstrated for a comparison of N O W P A P and M e d Plan the next section wi l l likewise compare the knowledge-based N E A offshore petroleum regime to a similar regime in South East Asia. The A S E A N Energy and Min ing committee ( E & M committee) is composed of representatives from all ten A S E A N states. 1 4 7 The A S E A N E & M committee has no counterpart in N E A . The purpose of the A S E A N E & M committee is to create guidelines for states and companies involved in energy and mining in Southeast Asia. In 1986, the committee passed two landmark policies, the Agreement on A S E A N Energy Cooperation, and the A S E A N Petroleum Security Agreement. According to Article 1 of the Agreement on A S E A N Energy Cooperation, members "agree to cooperate in the efficient development and use of all forms o f energy, whether commercial, non-commercial, renewable or non-renewable." 1 4 8 The Energy agreement then outlines specific areas of energy cooperation, such as planning, development, conservation, training, security o f supply and the exchange of information. The A S E A N Petroleum Security Agreement deals specifically with establishing a petroleum sharing scheme for A S E A N member states. The Petroleum agreement outlines A S E A N member obligations for petroleum shortage situations as well as for periods of natural gas and oil oversupply. Both agreements have been amplified by the recent A S E A N Plan of Action for Energy Cooperation 1999-2004. The Energy Cooperation Plan established the A S E A N Council on Petroleum ( A S C O P E ) . During the next fifteen years A S C O P E , in combination with individual A S E A N Energy Ministers, is responsible for implementing a T r a n s - A S E A N Gas Pipeline. Furthermore, A S C O P E has been tasked with 1 4 7 ASEAN is composed of Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Laos, Myanmar and Cambodia. 1 4 8 ASEAN Homepage Agreement on ASEAN Energy Cooperation (1986) Article 1.1, 12 Sep. 1999 <http://www.aseansec.org>. 86 developing a policy framework and medium-term program of action for the T r a n s - A S E A N Gas Pipeline project by 2004. N E A does not yet possess a regional organization comparable to A S E A N . Nonetheless, plans for regional N E A pipeline projects are underway. The Vostok Plan, the Trans-Asian Gas Pipeline and the Irkustsk Gas Project 1 4 9 are only three o f several multinational L N G pipeline projects currently being discussed in N E A . The purpose of these pipelines is to transport L N G produced in China and/or Russia to customers in other N E A states. In order for any o f the N E A pipeline projects to succeed, a high degree o f commitment coupled with increased regional cooperation would be necessary. A t present, N E A has not yet attained the same level o f inter-state cooperation enjoyed by A S E A N states, and, consequently, the implementation of a regional pipeline(s) project remains a distant goal. B y bringing regional actors together, discussions for trans-NEA pipelines serve the immediate purpose of strengthening the regional energy dialogue within N E A . The final two knowledge-based regimes to be compared are the Southeast Asia . Petroleum Exploration Society (Seapex) and the similar knowledge-based industry N G O s in N E A . Seapex is composed of oil exploration professionals involved in the upstream petroleum industry o f Southeast Asia. In terms o f offshore petroleum, Seapex is primarily concerned with the geological and the geophysical aspects of the industry. Seapex members have the opportunity to meet every two months in Singapore where they discuss geoscientific and technological issues related to offshore petroleum exploration. In addition, Seapex is involved in the biennial Offshore Southeast Asian Exhibition. Seapex provides an excellent Mark J. Valenica and James P. Dorian, "Multinational Cooperation in Northeast Asia's Energy Sector: Possiblities and Problems," Institute on Conflict and Cooperation Policy Paper #36: Energy and Security in Northeast Asia (1998): 1-11. 87 forum for geologists and geophysicists to exchange knowledge relating to the offshore petroleum industry in Southeast Asia. In N E A , industry-related offshore petroleum knowledge is the purview of three separate organizations, P ICES , P O S C and the N P R A . A s one large industry N G O Seapex enjoys a number of advantages over the divided N E A system. For example, Seapex, as the larger organization, possesses a larger membership which allows more scientists to be involved in the cross-national exchange of offshore petroleum knowledge. Although the individual membership size of P I C E S , P O S C and the N P R A is smaller than Seapex, the combined total of the three organizations is greater. Furthermore, combined P ICES , P O S C and the N P R A cover a far greater scope of offshore petroleum issues than Seapex. The great drawback o f the N E A model is that with having three petroleum organizations they have a tendency to overlap and replicate one another's activities, being both inefficient and wasteful. Consequently, considering that both Seapex and the N E A combination o f P O S C , P I C E S and the N P R A have advantages and disadvantages, it is difficult to determine which system is superior. Thus, it is my opinion that N E A ' s industry associations are as effective at promoting the cross-national sharing o f offshore petroleum knowledge as those found in Southeast Asia. A S S E S S M E N T OF T H E K N O W L E G D E - B A S E D A P P R O A C H This chapter has shown that in N E A a variety of organizations are involved in the exchange of offshore petroleum knowledge. IGOs and N G O s act at both the global and the regional level to provide platforms for N E A offshore personnel participation in cross-national knowledge sharing. The state-centric focus of much N E A politics has contributed to the acceptance and success of IGOs such as the U N and N O W P A P . N E A Environmental N G O s do not yet possess the same stature and political legitimacy as IGOs in the region. 88 Nonetheless, the politically neutral nature of environmental N G O s provides a good platform for regional sharing of petroleum related knowledge. It is important to remember that twenty years ago, prior to the establishment o f the N E A offshore petroleum regime environmental N G O s did not exist at all in N E A . With regard to industry N G O s , such as P O S C , the N P R A and the W P C , N E A possesses organizations similar in stature, scope and effectiveness to those found in other petroleum-producing regions o f the globe. Indeed, it is possible to argue that the knowledge-based approach demonstrates the existence of an offshore petroleum regime more convincingly than the power-based approach. Significantly, learning has occurred in the knowledge-based model. B y working with representatives from IGOs and N G O s , states have learned patterns o f behaviour and practices specifically created for actors involved in the N E A offshore petroleum regime. In the preceding chapter, the power-based approach examined N E A ' s uneven distribution of power capabilities and offshore petroleum resources. From the realist perspective, it was difficult to determine whether N E A states' participation in the offshore petroleum regime was motivated by self-serving behaviour, or by cooperative behaviour. In contrast, the cognitivist-based approach to regime theory is concerned with understanding the process through which actors construct their identity and interests. With regard to the offshore petroleum regime in N E A , through the mutual exchange o f knowledge, IGOs and N G O s have effected the formation of one another's identities and interests. The subject of the following chapter w i l l be the "final" perspective o f the regime process, in which actors recognize common interests and participate in joint ventures. 89 CHAPTER 5 - THE INTEREST-BASED APPROACH The final theoretical perspective o f this paper to be applied to the offshore petroleum regime in N E A is the interest-based approach. Popular with liberals, the interest-based approach assumes that regime formation and persistence results from the recognition o f common interests that may only be achieved through cooperation by rational actors. However, the extent to which rational actors are fully aware of their interests is a point o f debate within the liberal school. The perspective of contractualist liberals such as Robert Keohane maintains that rational actors first identify their interests, and, second, modify state policy in order to pursue these interests in a cooperative regime with other states. Using another perspective, Oran Young's model of institutional bargaining claims that uncertainty regarding one's own and other rational actors' interests encourages cooperative behaviour which subsequently leads to negotiations and agreements. Moreover, Young maintains that states do not participate in regimes merely to reduce uncertainty (in fact uncertainty rarely disappears), but to achieve joint gains. Despite differences of opinion regarding the role of uncertainty and the extent o f self-recognition, both the contractualist and institutional bargaining models share the belief that the eventual recognition and development of common interests is the fundamental component to regime creation and continuance. Accordingly, the focus of study for interest-based theorists are activities that require the identification and development of common interests such as joint development projects and other cooperative ventures. According to interest-based theory, in any cooperative venture, once actors have identified their common interests, the next step is to determine a program o f action that not only satisfies their common interests, but is also considered equitable by all o f the actors. 90 Bilateral and multilateral offshore programs are ideal examples of interest-based cooperative activity. In a multilateral offshore petroleum venture, such as those found in N E A , actors recognize that by working cooperatively the common interests of decreased investment costs, lower personnel costs and decreased technical expenses can be achieved. Previous studies of petroleum in N E A have focused exclusively on joint exploration and production ventures and shared development programs. These two activities, however, represent only one half o f the offshore regime. In N E A the interest-based offshore petroleum regime consists o f four sectors, joint exploration and production, joint development, multilateral transportation programs and cooperative storage projects. In this chapter, it is my intention to study all four sectors constituting the interest-based offshore petroleum regime in N E A by discussing a regional example for each activity. JOINT E X P L O R A T I O N A N D P R O D U C T I O N - S A K H A L I N I S L A N D Sakhalin Island is ideally positioned to become a regional focal point for joint exploration and production projects because it is located within close proximity to coastal China, North Korea, South Korea and Japan. The island is currently home to six joint offshore ventures in various stages of development. A s the most advanced project on the Island, Sakhalin 2 is an ideal illustration o f the liberal premise that cooperation among rational actors with common interests w i l l result in joint gains. Established in M a y 1991, the Sakhalin Energy Investment Company Limited (hereafter referred to simply as Sakhalin Energy) controls all exploration and production activities o f Sakhalin 2. Sakhalin Energy is a consortium o f American interests represented by Marathon (37.5%), Shell Sakhalin Holdings B . V . (25%), Japan's Mitsui Sakhalin 91 Development Company (25%) and Mitsubishi B . V (12.5%). 1 5 0 Notably, no Russian firms are members of the Sakhalin Energy consortium. Sakhalin Energy is the first foreign organization to extract oil in Russia under a P S A . It is also the first foreign corporation to produce oil from an offshore platform in Russian territorial waters. It may appear on the surface that Sakhalin 2 is a project aimed solely at fulfilling Japanese and American interests. However, when examined in greater detail, it is apparent that Sakhalin 2 satisfies the interests o f all three participants - the U S , Japan and Russia. Beginning the analysis with Russia, Sakhalin 2 has contributed to improving the country's financial interests in four ways. First, according to the P S A between Sakhalin Energy and the Russian Federation, both the federal and local governments w i l l receive a percentage o f the consortium's profits, either in cash or as petroleum products. The P S A states that the Russian Federation and Sakhalin Oblast w i l l split the revenues from a 6% royalty share, plus bonuses, during the "early production" phase of Sakhalin 2. The 6% royalty is estimated to be worth $25 mill ion annually, with Moscow receiving $10 mill ion and Sakhalin Oblast $15 million. The annual bonuses are estimated to be even higher, at approximately $50 million. The second financial benefit o f Sakhalin 2 is that, according to Russian law, no foreign companies may own land, and as a result, Sakhalin Energy must continually lease territory from the Sakhalin Oblast administration. This policy directly benefits cash-strapped Sakhalin Oblast by providing a constant source o f revenue. Third, Sakhalin Energy has agreed to purchase 70% of the materials it uses over the Miller, Sabirova and Farber, 5. 92 life o f the project from Russian suppliers. B y agreeing to purchase Russian materials Sakhalin Energy w i l l inject much-needed capital into Russian economy. Fourth, Russian Presidential Decrees and laws passed by the local government guarantee Russian citizens the "right of the priority" for employment vacancies. 1 5 1 According to the right o f priority policy Sakhalin Energy is required to hire Russian workers which ensures that it is the local community o f Sakhalin Oblast that benefits from the new jobs created by Sakhalin 2. Considering these four incentives, it is hardly surprising that cash-poor Russia recognized the federal and provincial financial interests that the Sakhalin Energy project would help fulfill. Several "common interests" convinced Sakhalin Energy's Japanese and American firms to pursue a policy o f joint exploration and production. Undoubtedly, the vast size of the region's offshore oil and natural gas reserves were an attractive incentive for Japanese and American investors. The Sakhalin 2 platforms are located approximately 15 kms off the Island's northeastern coast, in the Piltun-Astokhskoe and Lunskoe fields. Piltun-Astokhskoe has 80 million tons o f oi l , 65 bill ion m 3 o f natural gas and 5 million tons of gas condensate. 1 5 2 Predominately a natural gas reservoir, Lunskoe has 8 mill ion tons of oil , 343 bill ion m 3 o f natural gas, 32 million tons o f gas condensate. 1 5 3 The two fields combined have a proven reserve o f 1 bil l ion barrels of crude oil and 14 trillion cubic feet o f natural gas. Sakhalin 2 ranks among the top twenty-five proven offshore petroleum reserves in the world. Preferential liiring is guaranteed according to President Decrees on "Foreign Labors Recruiting and Hiring within the Russian Federation" and "Temporary Regulations On Using Foreign Labor Force for Carrying out Work on the Territory of Sakhalin Region, Regional Sea and Continental Shelf Adjoining the Administrative Border of the Sakhalin Region". Also see the Sakhalin Oblast policy "On the Temporary Order of Recruiting and Hiring Foreign Labor for Implementation of Onshore and Offshore Projects within Sakhalin Oblast Areas Adjacent to its Administrative Boundaries". 1 5 2 Miller, Sabirova and Farber, 5. 1 5 3 Miller, Sabirova and Farber, 5. 93 Another "common interest" is the relative geographically close position o f Sakhalin Island to both the continental U S and Japan. A recent article in Alexander's O i l & Gas Connect ion 1 5 4 illustrates this point by stating that the round-trip voyage between Sakhalin 2 and refineries in central Japan takes approximately 10 days including the time needed for crude loading and customs clearance. Refineries located in Japan's Hokkaido prefecture may be reached by Sakhalin tankers one to two days earlier than those in central Japan. Compare this brief journey to the current 40-day freight period for petroleum from West African fields, or the typical 30-day journey for petroleum supplied by Middle Eastern producers. It becomes readily apparent why Japanese firms prefer Sakhalin offshore petroleum. Similarly, petroleum products from Sakhalin arrive in the United States far ahead of oi l and gas from Middle Eastern and African suppliers. The American partners in Sakhalin Energy, Marathon and Shell, both have refineries located in Alaska, and the voyage from Sakhalin to Alaska takes only two weeks for the average tanker. Both the Japanese and American partners in Sakhalin Energy are able to take advantage of Sakhalin's relatively close proximity to their domestic refineries. In addition, the short tanker voyages serve to reduce transportation costs and ship maintenance expenses for the investors in Sakhalin Energy. A further benefit o f Sakhalin's location is that it is advantageously positioned for easy access to the N E A petroleum market. Pipelines connect Sakhalin Island to mainland refineries in Khabarovsk and Komsomol'sk. Petroleum refined at Khabarovsk is easily transported by truck or rail to Chinese customers because it is located so near the Chinese border. However, i f ship-borne transport is preferred, tankers leaving Sakhalin 2 are able to arrive at one of the numerous Chinese refineries located in the Bay o f Bohai in less than a 1 5 4 Please see "Japan's refiners testing Sakhalin Vitaz crude," Alexander's Gas & Oil Connections: The World Energy Site ... 4.10 (1999), 10 Aug. 1999 <http://www.gasandoil.coni/goc/company/cns92226.htm>. 94 month. Similarly, La Perouse Strait provides an easy access to Northern Japan from Sakhalin. And the coastal refineries in South Korea's Pusan are easily reached with a 2 week tanker journey from Sakhalin 2's offshore fields. Finally, transit from Sakhalin 2 to North Korea's sole operational refinery, located south of Pyongyang, is estimated to take between 2 and 3 weeks. In a period of less than one month tankers departing from Sakhalin 2 are able to reach any of the major refineries in NEA. Although production in Sakhalin 2 only commenced in the summer of 1999, the project already has a number of substantial customers. Sakhalin Energy agreed to supply South Korea's national gas company, KOGAS, with natural gas from the Lunskoe field in March 1998.155 Tokyo Electric and Kansai Electric import petroleum products from Sakhalin 2 for Japan.156 Lastly, negotiators from Sakhalin 2 are currently involved in discussions to provide petroleum to customers in northern China. All of the factors noted above present excellent arguments for petroleum companies to become involved in Sakhalin Island offshore projects; these benefits are, however, equally possible by unilateral investment. According to interest-based theory, in order for rational actors to participate in a joint venture the incentives for multilateral investment must be superior to unilateral investment. Thus, as rational actors, the investors in Sakhalin 2 must have recognized that the common interest of decreased investment is best achieved through a cooperative project. As noted earlier, Sakhalin's extreme weather conditions and storms can severely damage offshore equipment, resulting in unexpected and costly repairs. The severe weather offshore requires specialized drilling platforms and equipment that are not necessary for operations in more temperate regions. In a joint venture capital investment and risk are 1 5 5 Dinty Miller, Elena Sabirova, Rachael Farber, 8. 1 5 6 Dinty Miller, Elena Sabirova, Rachael Farber, 8. 95 shared among the members, as in Sakhalin Energy; thereby decreasing the potential damage to each individual company. A less glamorous, and frequently overlooked, aspect of offshore petroleum exploration and production is the construction of offshore platforms and o f land-based support for the offshore assets. Therefore, a thorough examination of joint exploration and production projects, such as Sakhalin 2, requires an investigation into the interest-based elements of offshore platform construction and building land-based support networks. A s a result, the following section investigates the multinational nature of N E A offshore platform and land-based support construction. N E A offshore operators purchased rigs that were built outside the region from the end of World War II until the 1970s. Shipyards in the U S , Norway and Singapore constructed the majority of N E A ' s offshore platforms. However, during the last twenty-five years, Japanese and South Korean firms have successfully captured a portion o f the regional offshore platform market. Today South Korean and Japanese firms are the regional leaders in the construction and installation o f offshore platforms and equipment. For example, in the last ten years South Korea's Hyundai Heavy Industries has constructed and installed five major offshore platforms for Chinese 1 5 7 and Japanese 1 5 8 corporations. South Korean companies have also been responsible for the recent modifications to the Canadian-made Molikpaq drilling unit for Russia's Sakhalin 2 project. Hyundai Heavy built and installed the offshore drilling platforms, processing modules, accommodation modules and pipelines for CNOOC's Hibernia Development project and the Nanhai West Oil Corporation's Weizhou 11-4 offshore project. 1 5 8 The Japanese Exploration company (JAPEX) has purchased several additional South Korean built platforms including a series of platforms constructed by Hyundai Heavy Industries, and a jackup rig at Sakriku-Oki built by Daewoo. 96 Japanese inroads into the offshore platform construction market are as equally impressive as are the South Korean successes. In 1978 Japan's Mitsubishi constructed and installed its first platform for a N E A customer, a Chinese company operating in the Bay o f Bohai. Two years later, Hitachi Zosen entered the N E A market by building an offshore platform for China's Nanhai West Oi l . It is a significant trend that a large portion of N E A ' s offshore platform construction and installation is provided by South Korean and Japanese corporations. This practice strengthens the ties between N E A states as well as contributing to the formation and maintenance o f the offshore petroleum regime in the region. In addition to the construction and installation of offshore platforms, it is standard industry practice for the offshore rigs to be accompanied by land-based support systems. These land-based systems include ports, terminals, roads, housing, office space and all other structures necessary to the effective and efficient running o f offshore operations. Not surprisingly, the expense o f financing the construction of both an offshore platform and its requisite land-based support system is prohibitive. As a result, offshore investors typically share the construction and maintenance costs of land-based support. For example, in 1998 the Sakhalin Energy Company contracted an American-Russian joint venture company 1 5 9 to construct a massive storage and office fac i l i ty . 1 6 0 A t the same time, modular housing for Sakhalin Energy workers was delivered from a U S company, and then was assembled and installed on site by a local island construction company. The construction of Sakhalin 2's support facilities have involved a number of regional and non-regional companies, where the building costs have been equally shared among the four partners of the joint exploration and 1 5 9 The joint venture company is composed of America's Dillingham Construction, and Yuzhno-Sakhalin's Limited Company STS. 1 6 0 The facility has office space for over 300 employees and includes a kitchen, cafeteria, conference room, storage tanks and an extensive power system designed to withstand the frequent power outages on the island. 97 production project. B y sharing construction costs and exploration and production expenses, the level o f risk to individual investors has decreased. Sakhalin 2 demonstrates well that a group o f rational actors working together can achieve the joint goal of successful and profitable offshore petroleum exploration and production in N E A . 1 6 1 JOINT D E V E L O P M E N T - T H E J A P A N - S O U T H K O R E A C O N T I N E N T A L S H E L F According to the interest-based approach, rational actors w i l l recognize the superior merits o f "peaceful" joint development of a disputed territory as opposed to "conflictual" unilateral development. Furthermore, liberals believe that international cooperation is the emerging norm of inter-state relations; and that the rule of international law is the best vehicle for determining the boundaries and the exploitation rights o f disputed offshore petroleum resources. However, as discussed in the previous chapter, international agreements such as U N C L O S have contributed to the confusion over disputed maritime areas in N E A . In the absence of a clear international law or agreement, liberal theorists believe that the unilateral exploitation of disputed petroleum reserves does not serve any o f the claimants' interests. Liberals point out that the unilateral exploitation of petroleum in regions of overlapping claims is in direct violation of international law, and, therefore, cannot be considered appropriate behaviour for a rational actor. From an interest-based approach, the preferred behaviour is for rational actors to recognize that by implementing a joint development regime they are able to achieve collective gains not possible in the absence of a cooperative agreement. Thus, rational actors with overlapping claims share a common Please note that it is important to balance these numerous advantages of joint offshore petroleum exploration and production in Sakhalin with the problems identified in Chapter 2 such as Russia's PSA difficulties, strong potential for corruption and government infrastructure problems. Exaniining both the advantages and disadvantages of involvement in Sakhalin may help explain why investment in the Island's offshore fields is limited to six projects although there is potential for more. 98 interest in negotiating either a boundary agreement or a joint development program. Joint development o f the disputed region of the Japanese-South Korean continental shelf provides a good example o f two rational actors recognizing the mutual benefits o f cooperative action. Three conditions are required for a joint development program to be successful. First, it is important to take note that the term joint development applies to regions o f overlapping claims with high petroleum potential162 Typically, neither state is fully aware o f how much petroleum is contained in the disputed region. Indeed, it is this uncertainty that compels states to agree in advance to evenly share the potential resources. In the case of the Japan-South Korea continental shelf, both states agreed to joint development prior to any solid confirmation o f petroleum reserves. A 1969 E C A F E report estimated that large reserves existed in the region, but at the time no testing or drilling had been carried out. It is worthwhile to think back to the Japan-South Korea continental shelf from Chapter 3, where the shelf is the subject of three overlapping claims lodged by the China, South Korea and Japan (see Figure 2). In 1970, only one year after the publication o f the E C A F E report, Japan and South Korea agreed to put aside their territorial claims in favour of joint development. And, although the Japan-South Korea agreement was singed in June 1978 the ratification process was stalled due to Chinese objections. The Chinese refused to honour South Korean claims and wanted to deal bilaterally with the Japanese. The Chinese claimed the entire area for themselves, but were wil l ing to entertain a Sino-Japanese program of development. Sino-Japanese relations were tense at the time and the Japanese government Mark Valencia, "Joint Development of Petroleum Resources in Overlapping Claim Areas," Economic and Political Incentives to Petroleum Exploration: Developments in the Asia-Pacific Region ed. Jeremiah D. Lambert and Fereidun Fesharaki (Washington: International Law Institute, 1990) 107. 99 was unwilling to provoke the Chinese. However, in due course, despite Chinese objections, the Japanese government ratified the Japan-South Korea agreement in 1978. Second, in order to ensure that development is o f equal benefit to both states, a joint authority must be created to administer the region. Formed in 1978, the Japan-Republic of Korea Joint Commission is the permanent organization charged with administering the joint development zone for as long as the agreement is in place. Composed o f representatives from both Japan and South Korea, the Commission acts as a supervisory authority over concessionaires. It also performs administrative functions that would normally be carried out by a state's national petroleum corporation. These administrative activities include granting operating titles, concluding contractual operating agreements and collecting revenue. 1 6 3 Determining how to merge two different legal systems under one authority is perhaps the greatest difficulty faced by joint development projects. In the case o f Japan and South Korea, the joint development region "is divided into blocks which are allocated alternatively to license holders of each country, and the law of the nationality o f the relevant license holder applies". 1 6 4 Hence, the laws o f the state that granted the operating rights to the licensee binds that license holder. Therefore, a license holder with one concession in a Japanese block and another in a South Korean block wi l l be bound by Japanese and South Korean laws respectively. A n important caveat to this agreement is that operating agreements between concessionaires are to be approved by the Japan-Republic of Korea Joint Commission. In this manner both Japan and South Korean maintain equal jurisdiction over the joint development zone. Mark Valencia, "Joint Development of Petroleum Resources in Overlapping Claim Areas," 111. Mark Valencia, "Joint Development of Petroleum Resources in Overlapping Claim Areas," l l 2 . 100 Third, in joint development programs long-term agreements are preferable to short-term arrangements. So as to reassure foreign investors that the joint development program wi l l endure, and because relations between South Korea and Japan have been strained in the past, the Japan-South Korea agreement is in force for 50 years - or until such time as both states agree that the natural resources are no longer exploitable. 1 6 5 Offshore joint development projects in regions of overlapping claims, such as the Japan-South Korea continental shelf venture, are a demonstration o f rational actors pursuing mutual interests. Japan and South Korea recognize the need for cooperation in order to optimally exploit the petroleum resources in the disputed region. Interest-based theorists note that the willingness of states to enter into and remain involved in a regime is determined by assessing gains and losses. The only significant loss for Japan and South Korea is the mutual agreement to postpone discussions for overlapping surface and subsurface claims. In contrast, the gains o f a joint development regime are high. Both states benefit from increased foreign investment, both maintain control over equal shares of the region, and any revenues generated by petroleum development are split fifty-fifty. Joint development of the Japan-South Korea continental shelf illustrates the process of states developing mutual common interests and creating an offshore petroleum regime. It is interesting to speculate whether the model provided by the joint development o f the Japan-South Korea continental shelf can be repeated in any of the other three disputed areas in N E A (see Figure 2). Russia and Japan have overlapping claims for a region in the northern Sea o f Japan that has a sizable petroleum potential. In view o f the recent rapprochement between Russia and Japan regarding the disputed Kur i l Islands, it seems Mark Valencia, "Joint Development of Petroleum Resources in Overlapping Claim Areas," 85. 101 reasonable to predict that Russia and Japan have a good likelihood o f promoting a policy of joint development in the disputed region. A s for the disputed area in the Central Ye l low Sea, with proven and potential petroleum reserves, which is claimed by both China and South Korea, predictions for a joint development project should be cautious. The low probability for future joint development in this region can be explained, in part, by the cool relations between China and South Korea and, in part, by the desire by both parties to unilaterally develop the area that has proven resources. The southern Sea o f Japan is the final region in N E A with petroleum potential and overlapping claims. The area in the Sea o f Japan is claimed by North Korea, South Korea and Japan, and is unlikely to be a site of future joint development projects. The difficulty o f persuading North Korea to participate in disputed territory negotiations is the greatest obstacle to joint development in the overlapping claim region of the Southern Sea of Japan. In summary, the potential for further joint development projects in regions of overlapping claims appears likely in the northern Sea of Japan, and could be possible in the southern Sea of Japan, although in the Central Ye l low Sea it seems unlikely. T R A N S P O R T A T I O N The transportation of oil and natural gas from offshore platforms to markets requires specialized vessels and pipelines. Consequently, in order to be considered a complete offshore petroleum regime, elements of the regime in N E A must possess the ability to produce the necessary ships and pipelines required for the safe and efficient transport of oil and natural gas. South Korea and Japan meet this offshore regime requirement by virtue of being regional and world leaders in the petroleum shipbuilding business. Combined, Japanese and South Korean shipbuilders have captured 80 % o f the global shipbuilding 102 market. 1 6 6 In 1997, despite the Asian economic crisis, the total world-wide order for new ships increased to a remarkable 48 mm tons. 1 6 7 In light o f the growing global demand for more ships, it is not surprising that Japanese and South Korean shipbuilding companies are in fierce competition to capture larger shares of the world shipbuilding market. However, with regard to the construction o f petroleum transport vessels, Japan and South Korea have agreed to split the international market. For the most part, South Korean companies concentrate on building V L C C s (very large crude carriers), whereas Japanese firms tend to produce H V A S (high-value-added ships) such as L N G carriers. 1 6 8 The same division of the shipbuilding market into South Korean V L C C s and Japanese H V A S applies to N E A . Evidence o f the tacit agreement between South Korean and Japanese shipbuilding companies is illustrated by the regional trade pattern of oil and natural gas carriers. For example, in November 1998 South Korea's Daedong Shipbuilding Company delivered three 45,000-ton V L C C s to Russia's Primorsk Shipping Company. 1 6 9 Primorsk Shipping operates out o f Nakhodka and uses the vessels to transport Sakhalin oi l and natural gas to regional N E A customers. A n additional demonstration of the regional market division is Daewoo Heavy Industries of South Korea's recent delivery of the Okha, a double-hulled V L C C to Sakhalin Energy for use in the Lunskoye offshore field. Capable o f storing up to 1 million barrels of crude oil , the Okha transports Russian oi l to Japanese markets. 1 7 0 Lastly, the South 1 6 6 "Japan and South Korea see more shipbuilding orders but less margin," Alexander's Gas & Oil Connections: The World Energy Site ... 3.24 (1998), 14 Aug. 1999 <litrp://www.gasandoil.com/goc/news/nts84293.htm>. 1 6 7 "Japan and South Korea see more shipbuilding orders but less margin." 1 6 8 "Japan and South Korea see more sWpbuilding orders but less margin." 1 6 9 "South Korea's Daedong to build three oil carriers for Russian's Primorsk," Alexander's Gas & Oil Connections: The World Energy Site ... 3.1 (1997), 23 Aug. 1999 <http://www.gasandoil.com/goc/contract/cox70205.htm>. 1 7 0 "Sakhalin-n consortium to begin producing oil and gas in July," Alexander's Gas & Oil Connections: The World Energy Site ... 4.17 (1999), 4 Aug. 1999 <http://www.gasandoil.com/goc/company/cnr92489.htm>. 103 Korean shipbuilding giant, Hyundai Heavy Industrial is constructing two V L C C s for the Russian Far East Maritime marine shipping company. 1 7 1 In contrast to the South Korean emphasis on V L C C s , Japanese corporations such as Kawasaki and Ishikawajima-Harima Heavy Industries ( I M ) are noted for their high sales of L N G and L P G carriers to Chinese and Russian customers. Impressively, Hitachi Zosen has ten orders for L N G and L P G carriers to be built by 2000-2001 for Chinese and Russian petroleum shipping firms. The current division o f the international ship-building market into South Korean V L C C s and Japanese H V A S s may soon change. South Korea's recent entry into the membership of the O E C D has been accompanied by moves to deregulate certain aspects of the petroleum industry. 1 7 2 A s a result the state-controlled K O G A S has adopted a new policy of opening bidding for South Korea's national L N G carrier fleet to foreign shipbuilders. Unti l now, national L N G tanker projects were the exclusive province of domestic shipbuilders. 1 7 3 This new policy wi l l permit Japanese corporations to gain access to the domestic South Korean H V A S market. A t the same time, South Korean firms like Daewoo and Samsung Heavy Industries are keen to keep Japanese firms out of the Korean market and have, subsequently, refocused their export production to H V A S . The net result is that the traditional division o f the petroleum vessel market no longer holds true. If shipbuilders from South Korea and Japan choose to engage in a competitive price war, the consumer w i l l benefit from lower prices; but, over the long term, the corporations "Hyundai Heavy to build 2 large tankers for Russia," Alexander's Gas & Oil Connections: The World Energy Site ... 4.17 (1999), 16 Sep. 1999 <http://www.gasandoil.com/goc/contract/cox91627.htm>. 1 7 2 "LNG-carriers order for Kogas open for foreign shipbuilders," Alexander's Gas & Oil Connections: The World Energy Site ... 3.12 (1997) 19 Aug. 1999 <http://www.gasandoil.com/goc/news/nts71804.htm>. 1 7 3 "LNG-carriers order for Kogas open for foreign shipbuilders." 104 from both countries w i l l suffer financially. A better solution from a N E A shipbuilder's standpoint would be a re-division of the market that satisfies both Japanese and South Korean interests. This policy would comply with the interest-based approach, which contends that South Korean, and Japanese shipbuilding firms, as rational actors, would recognize the merits o f developing a new, mutually beneficial balance. 1 7 4 Although past relations between Japanese and South Korean shipbuilders have been strained, negotiations between the ten largest corporations from both states, as well as representatives from China and Russia, are tentatively scheduled for the spring o f 2000. If the talks proceed as planned this may herald a new area of inter-NEA shipbuilding cooperation. Japan and South Korea - two rational actors in the shipbuilding example - have recognized that cooperation is preferable to competition, and is required in order to maintain a healthy regional market for petroleum transport vessels. B y planning negotiations and working together, regional shipbuilding companies have contributed to the persistence o f N E A ' s offshore petroleum regime. P I P E L I N E S Transporting petroleum through oil and natural gas pipelines is an alternative method to using ships. A s noted earlier in the paper, several intra-NEA pipeline plans are presently under discussion, including the Energy Community Plan, the Vostok Plan and the A - B Line (see Figure 3). The purpose of these regional pipeline plans is to link all five N E A states to a pipeline network that provides rapid and inexpensive access to oil and natural gas produced within the region. Pipelines are considered to be a more economical method o f transporting petroleum for the reason that once construction costs have been recovered, pipeline tariffs are Obviously it would be naive to presume that the redivision of the regional market by South Korean and Japanese shipbuilders is based solely on benign motives. However it is possible to suggest that price collusion between South Korean and Japanese shipbuilding firms satisfies the "common interests" of both parties. 105 far lower than ship tariffs and vessel freight expenses; in addition, the maintenance and upkeep o f pipelines is far less costly than routine ship repair. Accordingly, the price of piped petroleum is typically more competitive than its ship-borne counterpart. Thus, compared to ship-borne petroleum, the advantages of piped petroleum include faster delivery, more competitive prices and lower infrastructure costs. These advantages when combined make trans-NEA pipeline projects an attractive proposal for government officials, industry personnel and consumers in Russia, China, North Korea, South Korea and Japan. In October 1997, the Asia Pipeline Research Society o f Japan (APRSJ) was established. The primary objective of A P R J S is the creation of a Trans-Asian natural gas pipeline. In order to achieve this end, in November o f 1997, A P R J S helped organize the Northeast Asia Gas and Pipeline Forum held in Seoul, South Korea. The Forum was a collection o f oil company representatives from the U S , Japan, South Korea, China, Russia, Mongolia, Canada and France. 1 7 5 Delegates discussed the technological, financial and legal aspects of developing a Trans-Asian natural gas pipeline. 1 7 6 Proposals with regard to offshore reserves centered on the transportation of natural gas from the Bay o f Bohai (China) and Sakhalin Island (Russia) to markets in South Korea and Japan. Delegates from South Korea and Japan were concerned with North Korea's unwillingness to participate in the Forum. "Asia Pipeline Research Society for Trans-Asian gas pipeline," Alexander's Oil & Gas Connections: The World Energy Site ... 3.27, (1997) 1 Aug. 1999 <http://www.gasandoil.com/goc/news/nts75065.htm>. 1 7 6 "Asia Pipeline Research Society for Trans-Asian gas pipeline." 106 Figure 3. Map of Proposed Transnational Pipeline Networks in NEA, "Asia," PCL Map Collection Online, University of Texas, 1999. Mark Valencia, "Energy and Insecurity in Asia," Survival 39.3 (1997): 93. 107 Two possible pipeline routes were suggested, the first a result of North Korea's unwillingness to cooperate, the second a result o f the desire to include North Korea in the regional pipeline network. The first plan concentrated on bilateral pipeline development with China's Bay o f Bohai supplying South Korea, and Sakhalin Island supplying Japan. The second plan, with its incorporation of North Korea into the pipeline system, becomes more Trans-Asian in character. The second plan proposed that natural gas from Sakhalin Island be piped directly to Japan and to mainland Russia. From Russia and Japan it would then journey southward, providing L N G to North Korean consumers and would, ultimately, continue until it terminated in South Korea. A t the same time, natural gas from the Bay o f Bohai would be piped to South Korea at which point the pipeline would separate into two branches, one to North Korea and the other - subsea - to Japan. According to this second plan, consumers in South Korea, Japan and North Korea would have access to natural gas from both Chinese and Russian offshore fields, thereby creating a truly trans-Northeast Asian pipeline system. Currently, no formal agreements have been reached due to North Korean unwillingness to commit to the pipeline plans. Despite the slow pace of the trans-NEA pipeline negotiations, the A P R S J and the Forum continue to act as platforms for industry representatives to identify and discuss common interests, thereby strengthening the N E A offshore petroleum regime. Plans for pipeline projects in N E A are not the exclusive provenance of government officials and regional N G O s like A P R S J ; industry groups are also involved in pipeline discussions. For example, in June 1998 the Sakhalin O i l and Gas Development Company referred to as Sodeco proposed a pipeline transporting L N G from offshore Sakhalin to Japan. The plans call for the pipeline to be completed by 2005. Sodeco is a multilateral consortium 108 of American, Japanese and Russian companies operating the Sakhalin 1 offshore program. 1 7 7 The proposed pipeline w i l l carry L N G from Sakhalin l ' s offshore fields in Chayvo, Odoptu and Arkutun-Dagi to refineries in Japan. The required pipeline distance from the Sakhalin 1 fields to Sakhalin Island's southern port of Prigorodnoye is 800 km. Pipeline distances from the Sakhalin fields to the three Japanese refineries are: Hokkaido 1,300 km; Niigata 2,300 km; and Tsuruga 2,500km. Piped L N G from Sakhalin 1 could provide nearly 11% of Japan's L N G demands. Although the Sodeco proposal is limited to Russia and Japan, it stands as an example for future pipeline projects. Sodeco's Sakhalin-Japan natural gas pipeline could provide a model for other regional pipeline initiatives in N E A . S T O R A G E In N E A the storage of offshore petroleum products is a three part process, first the petroleum is transferred from offshore platforms to ships and/or pipelines, second it is received at specialized oil and natural gas terminals on land, and third, it is transported to tank facilities. Regional cooperation between producers of platforms, ships and pipelines has already been discussed above, therefore this section wi l l focus on cross-national activities leading to the development o f terminals and tank facilities. A s expected, Japanese and South Korean companies are responsible for constructing many of the terminals and permanent tank storage systems for petroleum in N E A . What has often been overlooked is the Russian construction of Chinese and North Korean storage facilities during the Soviet era. Today, many o f the Russian-built systems are aging and require significant upgrades such as tank enlargement and integrity improvements. Consequently, a potentially symbiotic relationship exists here, one in which the deteriorating Chinese, Russian and North Korean petroleum 1 7 7 Sodeco is composed of 13 private Japanese companies and JNOC (30%), Exxon (30 %), Russia's AO Rosneft-Sakhalin (17 %) and Sakhalinmorneftegaz-Shelf (23 %). 109 storage facilities which are in need o f upgrades and modifications, can have their requirements serviced by Japanese and South Korean construction companies. Recent construction projects in China provide a good illustration o f the complimentary relationship between those N E A states that require facility upgrades (Russia, China and North Korea) and those N E A states (Japan and South Korea) that can provide this service. China currently possesses eleven functioning oi l terminals. Six o f the eleven terminals were designed and/or constructed by Soviet petroleum engineers and require modernization. The Chinese intend to build four additional o i l terminals using modern standards that wi l l have facilities able to handle increased traffic and larger vessel traffic. The new terminals are scheduled for Qidong in Jiangsu Province, Cezi in Zhejiang Province, Lingao in Hainan Province and the major port city of Tianjin. Both South Korean and Japanese companies are involved in the final rounds o f the bidding competition for the Chinese contracts. Although the contracts for the new terminals have not yet been officially announced, at least two of the terminals are expected to go to South Korean or Japanese f i rms . 1 7 8 Employing South Korean and/or Japanese terminal experts to build the new facilities is a rational decision for the C N O O C , particularly when one considers that South Korea lately completed the world's largest crude oil terminal located in Yosu, South Cholla province. In addition to receiving terminals, permanent storage facilities are an essential element o f a regional offshore petroleum regime. A s noted earlier in the paper, South Korea and Japan have extensive petroleum stockpiling programs in order to ensure their energy security. What is remarkable in N E A is that foreign firms are often responsible for 1 7 8 "Foreign companies to build Chinese terminals?" Alexander's Oil & Gas Connections: The World Energy Site ... 2.12(1999), 19 Aug. 1999 <http://www.gasandoil.com/goc/contract/cox82634.htm>. 110 constructing national stockpiling facilities. Two Japanese firms, Tomen Corporation and Mitsubishi Heavy Industries are involved in constructing underground L N G storage tanks in Inchon, South K o r e a . 1 7 9 The Japanese firms are responsible for designing and installing underground tanks, each with a capacity of 140,000 kiloliters, by the year 2000. 1 8 0 Upon completion, the Kogas Inchon L N G facility w i l l be the third largest in the world. A s previously discussed, according to the power-based approach, safeguarding continued petroleum supplies is identified as a national priority for all five states in N E A . There is a significant level o f trade among N E A companies involved in construction projects related to the offshore petroleum industry, and this is surprising given the highly securitized nature of petroleum in the region. However, companies from each o f the N E A states have recognized that the pursuit of joint gains such as the improved transportation and storage of offshore petroleum are best pursued in a cooperative manner. South Korea's Hyundai Heavy Industries, Japan's Hitachi Zosen, China's C N O O C , and Russia's Sodeco have all been involved in cross-national projects designed to improve the regional transportation and storage of offshore petroleum resources. S U M M A R Y Previous interest-based studies o f petroleum in N E A focused on only two sectors o f the offshore petroleum regime, joint exploration and production ventures and shared development programs. This study, however, also examines the other two important sectors of the N E A regime, multilateral transportation initiatives and cooperative storage projects. It is significant that examples of cooperative behaviour were found in each of the four sectors "Tomen and MHI awarded 2 underground LNG storage tanks," Alexander's Oil & Gas Connection: The World Energy Site ... 3.27 (1998), 4 Aug. 1999 <http://www.gasandoil.com/goc/contract/cox85062.hUn>. 1 8 0 "Tomen and MHI awarded 2 underground LNG storage tanks." Ill that constitute the interest-based offshore petroleum regime in N E A . It is now apparent that actors in the N E A offshore regime recognize that mutual financial and technical advantages can be best achieved by working cooperatively with one another. The incidence of bilateral and multilateral offshore petroleum programs is growing in N E A . According to liberal theory, existing cooperative programs, and plans for future bilateral and multilateral ventures in Russia, China, North Korea, South Korea and Japan, demonstrate the regional commitment to the interest-based offshore petroleum regime in N E A . 112 C H A P T E R 6 - R E G I M E E V A L U A T I O N The introduction identified three objectives for this study. First, to determine a set o f criteria to evaluate international regimes. Second, to identify and analyze the components o f the N E A offshore petroleum regime from realist, cognitivist and liberal approaches, focusing specifically on power, knowledge and interest respectively. Third, to apply the evaluation criteria to the offshore regime in N E A . The first two objectives have been fulfilled in the preceding chapters. The purpose of this chapter is to realize the third goal, determining the nature of the N E A regime by applying the criteria developed in Chapter 2, and recalling that the five indicators to evaluate regime performance are: (i) comparison o f behaviour pre and post regime establishment, (ii) level of compliance to rules and procedures, (iii) impact o f knowledge on perception of self-interest, (iv) regime effectiveness, and (v) regime robustness. To further aid in the evaluation process the regime in N E A wi l l be compared to what may be considered the world's strongest and most successful petroleum regime, the Organization for Petroleum Exporting Countries ( O P E C ) 1 8 1 . C O M P A R I S O N OF B E H A V I O U R P R E A N D P O S T R E G I M E E S T A B L I S H M E N T Regional joint development of petroleum reserves is a relatively new practice in N E A dating from the early 1980s. A s a result, offshore petroleum activity in N E A prior to 1980 wi l l be considered as "pre-regime" and from 1980 onwards as "post-regime". During the 1 8 1 Please note that OPEC is merely one component of the larger Middle-Eastern petroleum regime. However a comparison of the NEA offshore petroleum regime to its Middle-Eastern counterpart would require a lengthy and detailed discussion of the numerous aspects of the Middle-Eastern petroleum regime. Thus, in an effort to 113 pre-regime era, the typical practice was bilateral development between a non-regional actor (usually an American or Middle Eastern company) and a regional national energy corporation. During the last twenty years o f the post-regime period, however, the pattern o f investment changed, assuming a cross-regional flavour. Joint ventures such as the Sakhalin Island projects, Japanese and South Korean investment in China's Bay of Bohai, and the shared development o f the Japan-South Korea continental shelf illustrate the new inter-regional focus o f offshore development. A t the same time the pre-regime emphasis on developing national petroleum companies has been replaced by the post-regime practice of privatization. A s a result, in all five N E A states, national petroleum companies no longer enjoy a monopoly. The introduction of private petroleum companies has created an atmosphere more favourable to cross-national projects. Additional areas of growing regional activity in the post-regime period include shipbuilding, plans for trans-NEA pipeline projects and joint storage construction programs. Likewise, the last twenty years have witnessed an explosion in the number o f offshore petroleum-related IGOs, and N G O s active in N E A . Lastly, at the most basic level, regional trade o f natural gas and oi l has grown, with Japan, South Korea, and, to a limited extent, North Korea purchasing greater quantities o f petroleum from Russian and Chinese offshore fields. In N E A there exists a marked difference in pre and post regime patterns o f investment, exploration and production, development, transportation and storage of offshore petroleum. Indeed, every sector o f the N E A offshore industry has been effected by the regime established in the early 1980s. A comparison of the O P E C model with the regime in N E A wi l l be useful for this discussion. restrict the length of this study I have chosen to limit my comparison of the NEA regime to OPEC. In addition OPEC has the advantage being a well-known petroleum organization that is familiar to most readers. 114 O P E C was formed nearly two decades earlier than the regime in N E A . 1 8 2 Composed of eleven member states, both the size and geographic scope of O P E C is larger than the N E A 183 system. Prior to the establishment o f O P E C in 1960, Middle Eastern and African petroleum producers were involved in a fierce competition for European and North American markets. The net result o f the intense rivalry was that the world cost o f petroleum was set at an artificially low level that negatively impacted on the profit margins o f producing nations. Frustrated by the low global price o f petroleum, Middle Eastern and African producers agreed to form an organization to protect the interests of oil and natural gas exporters. According to the Statute, the objective of O P E C is to "co-ordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply o f petroleum to consuming nations; and a fair return on capital to those investing in the industry". 1 8 4 O P E C recognizes that unreasonable and unnecessary fluctuations in the price of petroleum are harmful to both producers and consumers. Unlike the regime in N E A , which is concerned with ensuring a regional self-sufficient petroleum market, the primary focus of O P E C is ensuring stable petroleum prices in international markets. O P E C achieves this aim by instituting a production quota policy for member states. For example, i f the international demand for petroleum increases, or some oil exporters produce less oil , O P E C members wi l l increase oil production in order to OPEC was formed on September 14,1960, by the five Founder Members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. On November 6, 1962 OPEC was registered with the UN Secretariat (UN resolution No.6363). 1 8 3 Today in addition to the five Founder Members, OPEC consists of Algeria, Indonesia, Nigeria, Libya, Quatar and the United Arab Emirates. 1 8 4 "A Brief History of OPEC," OPEC Online 17 Nov. 1999 <http://www.opec.org/history.htm>. 115 prevent a sudden rise in prices. 1 8 5 Conversely, O P E C members may reduce oil production in response to market conditions in order to counter falling prices. 1 8 6 Admittedly, O P E C has an international focus as opposed to the regional concentration of the N E A regime. Nonetheless, it is possible to distinguish similarities in the pre and post regime behaviour o f the two organizations. In both examples, prior to regime formation, actors engaged in competitive and self-serving behaviour. However, over time, the actors learned to recognize the mutual advantages o f collaboration, and they created cooperative regimes. The most significant difference between N E A and O P E C is the level of institutionalization. Two factors may explain the non-institutionalized nature of the N E A regime. First, O P E C is twenty years older than the regime in N E A and perhaps given time, the level o f N E A institutionalization may increase. Second, in the past, N E A states have displayed little enthusiasm for regional institution building, thus, for institutionalization to be successful new approaches to regional inter-state relations are required. L E V E L O F C O M P L I A N C E T O R U L E S A N D P R O C E D U R E S N E A ' s offshore petroleum regime is notable for its limited number of rules. The regime has only three rules or practices. The first is an adherence to I M O conventions regarding oil tanker and L N G carrier traffic. One such example is that all oil tankers operating in maritime N E A are required to maintain an O i l Record Book in which all oil transfer and oil ballasting operations are logged. Similarly, N E A L N G carrier traffic is subject to the 1975 Construction and Equipment o f Ships Carrying Liquefied Gases Code, and to the 1983 Bulk International Carrier Code. The two Codes outline a series of design "OPEC-FAQs," OPEC Online 16 Nov. 1999 <http://www.0pec.0rg/faqs.hUn#al>. "OPEC-FAQs." 116 and safety regulations, such as specific tank pressurization, that are considered necessary for the secure transportation o f natural gas. The second rule of the N E A regime is an increased regard for safety and environmental standards. A s discussed, regional IGOs such as W E S T P A C , N O W P A P and P I C E S have studied the adverse effects of petroleum related pollution on marine life and have subsequently recommended stricter safety and environmental standards. Environmental N G O s , such as FoE-J , have successfully campaigned to reduce the environmental impact o f offshore drilling in ecologically fragile environments such as Sakhalin Island. The third rule o f the N E A offshore regime is a norm o f non-violent behaviour in areas of overlapping claims with (potential) petroleum reserves. Even though the maritime N E A currently has four disputed regions (see Figure 2), there has been to date, no significant military action taken to defend the offshore reserves. Indeed, from 1980 onwards none o f the rules or procedures has been disregarded by any o f the five N E A states. Perhaps the limited number o f rules accounts for the high level o f compliance. In contrast to the loose association o f IGOs, N G O s and industry personnel that form the offshore petroleum regime in N E A , a high level o f cohesion and institutionalization characterizes O P E C . O P E C is an intergovernmental organization and of overriding importance each state's energy minister is a member of the O P E C Conference, the supreme authority o f the organization. Several sub-committees support the Conference including the Board of Governors, the Secretariat, the Economic Commission, and the Ministerial Monitoring Committee. 1 8 7 Despite O P E C ' s high level of institutionalization it remains a voluntary regime and member states retain absolute sovereignty over petroleum production. If a member country objects to an O P E C policy or practice it may choose to suspend 117 membership at any t ime. 1 8 8 Furthermore, O P E C policies on the key issues of production ceilings and quotas are determined by the unanimous vote o f energy ministers at the O P E C Conference. B y providing member states with an equal share in the decision-making process and the option to withdraw from the organization, O P E C has ensured a high level o f compliance to production policies. Thus, although the two regimes employ different mechanisms to ensure member adherence to regime rules and procedures, compliance remains high both in O P E C and N E A . I M P A C T O F K N O W L E D G E O N P E R C E P T I O N O F S E L F - I N T E R E S T B y encouraging cross-national sharing of knowledge, IGOs, such as N O W P A P , W E S T P A C , and P ICES foster a sense o f regionalism in N E A . These organizations bring together government officials, scientists, and other personnel active in the offshore industry, providing them with the opportunity to create programs designed to maintain and expand the regime in N E A . The N E A R - G O O S project is an example o f a cross-national knowledge-based project aimed at preserving and improving the regional offshore petroleum regime. Likewise, environmental N G O s promote regional awareness for more stringent environmental standards and safeguards. Note the success of F o E - J in convincing Sakhalin Energy to employ more environmentally friendly policies and to include the island's indigenous people in the development process. Industry N G O s like P O S C , N P R A and W P C provide offshore petroleum personnel with forums to discuss financial, technical and managerial issues specific to operations in N E A . In this manner industry representatives learn from one another, develop better practices and foster a sense o f self-awareness. Thus, 1 8 / "OPEC-FAQs." 1 8 8 For example, Ecuador had its membership suspended at its own request, on 31 December 1992 and Gabon did likewise on 1 January 1995. 118 through the exchange o f knowledge IGOs and N G O s contribute significantly to the regional perception o f self-interest with regard to the offshore petroleum regime. It is useful to examine the extent to which knowledge-based organizations have counterparts in the O P E C regime. The O P E C Conference meets twice per year to discuss petroleum production and development policy. O P E C sub-committees including the Board of Governors, the Secretariat and the Economic Commission are permanent organizations that promote research initiatives and provide administrative support to member states. Technological and scientific advances in the petroleum industry are discussed in the monthly editions o f the O P E C Bulletin and the Monthly O i l Report. Additional O P E C sponsored publications include: O P E C Review. O P E C Annual Report. Annual Statistical Bulletin and O P E C N A press releases. In view o f the greater number of permanent support groups and publications, it would appear that O P E C knowledge-based organizations enjoy a higher degree of coordination, cooperation, and established institutionalization than similar N E A petroleum organizations. Considering the nature o f the two knowledge-based networks, this pattern o f development is not surprising. On the one hand, O P E C is an IGO, and as such, knowledge-based organizations are regulated and controlled by the governing O P E C Conference. On the other hand, knowledge-based organizations in N E A are a collection of IGOs, N G O s and industry associations with no higher governing authority. A s a result, although effective, the knowledge-based network in N E A is not as organized or coordinated as the O P E C model. One method o f strengthening the N E A offshore petroleum regime would be to create an authoritative parent organization to oversee the regional knowledge-based network. 1 8 9 1 8 9 However the creation of a higher authority would require some minimal level of institutionalization, which as noted earlier is difficult to achieve in NEA. 119 R E G I M E E F F E C T I V E N E S S Effectiveness is determined by identifying the objectives that a regime expects to be achieved and how well these are accomplished. Overall, the N E A regime satisfies six objectives. The first objective is identifying the common interests of the regional actors involved in N E A ' s offshore petroleum sector. Safe, efficient and cost-effective transportation of offshore petroleum reserves to regional markets is considered an example o f a common interest. The second objective is developing a plan for achieving these mutual goals. Returning to the transport example, I M O conventions and regulations ensure the safe and orderly transport of petroleum. The third objective the N E A regime fulfills is stimulating technical and scientific research and is achieved through IGOs such as N O W P A P and P I C E S as well as by industry N G O s like P O S C and N P R A . The fourth objective is promoting regional investment in offshore exploration and production projects, such as Japanese and South Korea involvement in Sakhalin Island projects. The fifth objective is encouraging joint development ventures like the shared Japan-South Korea Continental Shelf development project. The sixth objective is promoting cross-national trade by the regime supporting N E A companies who are involved in the petroleum industry. The sale of South Korean ships and storage facilities to N E A neighbours is an ideal illustration of cross-border trade. In comparison to the six objectives o f the N E A regime, O P E C fulfills only one major aim; the stabilization o f the international petroleum market through the coordination o f member states' petroleum policies. According to O P E C the benefits o f price stabilization are twofold, petroleum producers are guaranteed a reasonable rate of return on their investments, 120 and consumers are ensured a stable and continuous supply of oil and natural gas. 1 9 0 Although O P E C does provide other services to member states such as administrative and technological support, it must be stressed that the overriding goal o f the organization is to ensure reasonable and stable international petroleum prices for producers and a favorable return on capital for investors. The economic and regular supply o f petroleum to consuming nations is a secondary aim. A comparison of the two petroleum based regimes reveals interesting characteristics. O P E C is extremely effective at fulfilling its main purpose, safeguarding the interests o f petroleum producers by maintaining a reasonable market price for oil and natural gas. In contrast, the N E A regime does not enjoy the same high success rate with its six objectives. It must be recognized that although significant headway has been achieved in each of the regime's six objectives a clearer focus is necessary. In order to reach the same level of effectiveness as O P E C enjoys N E A wi l l have to contribute more in terms o f funding and personnel to regional IGOs and N G O s involved in the offshore petroleum industry. R E G I M E R O B U S T N E S S Regime robustness can be determined by analyzing two questions, how well the regime has withstood exogenous challenges and how the regime has maintained its resilience during periods of change. Turning first to the O P E C regime, the behaviour of its members during the G u l f Crisis is an impressive demonstration of both the regime's robustness and resilience. In 1990, Iraq and Kuwait, two founding members o f O P E C were at war. The conflict suddenly halted the production of nearly three mill ion barrels o f oil per day, resulting in a rapid rise in world oil prices. A t an emergency meeting, the O P E C Conference "What is OPEC?" OPEC Online 16 Nov. 1999 <http://www.opec.org/About.htm>. 121 responded to the situation by proposing that those member states not involved in the Crisis increase their oil production to cover the shortfall from Iraq and Kuwa i t . 1 9 1 Consequently, oil prices stabilized and returned to pre-Crisis market levels. Despite the tremendous difficulties raised by having two member countries at war with one another, O P E C withstood the challenge by transforming the nature o f the regime, therefore, fulfilling the two requirements. In addressing the robustness and resilience of the offshore regime in N E A in comparison to O P E C it is important to bear in mind that the N E A regime has been in existence for the relatively shorter period of twenty years. During this time, the N E A offshore petroleum regime has had three serious external challenges. The end of the Cold War, the G u l f Crisis and competition from non-regional actors are the most significant challenges the regime has encountered. The decline and collapse of the Soviet Union effected North Korea directly by significantly reducing its access to inexpensive subsidized Russian natural gas and oil . Chinese corporations benefited by attempting to taking over the Soviet share o f the regional petroleum market. More importantly, political and ideological barriers preventing cross-national investment, development and the sharing o f knowledge decreased considerably. In the post-Soviet era the possibility for bilateral and multilateral initiatives increased substantially. Thus the end o f the Cold War contributed to the formation and persistence o f the N E A offshore petroleum regime. The second external challenge to the regime was the potential oil shortage resulting from the 1991 G u l f Crisis. A t the time, analysts predicted that the fuel shortage would have "OPEC-FAQs. 122 a serious impact on Japanese and South Korean industry. However, as noted above, O P E C increased production to replace the shortfall. Furthermore American and European petroleum producers increased exports to N E A during the Crisis. A s a result, the G u l f Crisis had a marginal impact on the industrial giants of N E A . The third exogenous challenge to the N E A regime comes from traditional non-regional suppliers. Non-regional suppliers are threatened by Chinese and Russian successes in the N E A petroleum market. Interestingly, rather than compete with regional companies, American and Middle Eastern corporations have chosen to increase their participation in joint ventures with N E A actors. Non-regional corporations are providing the capital to develop regional offshore fields such as those located off Sakhalin Island and in the Bay o f Bohai. Regime robustness has not been negatively effected by the challenge of non-regional actors. With regard to the issue of regime resilience, the N E A offshore regime has persisted despite the Asian financial crisis. A s noted in chapter 5, Japanese and South Korean shipbuilding companies have recovered and construction of vessels and platforms is on the rise. In addition regional investment in offshore exploration and production projects is increasing. Finally, regional trade in petroleum products has continued to grow. The N E A regime has successfully withstood external challenges and maintained resiliency during periods of internal change. In short, the regime in N E A is robust. C O N C L U S I O N The primary purpose of this study is to add to the understanding of international regime theory by employing a three-part process to examine the offshore petroleum regime in N E A . This thesis has examined the regime from power-, knowledge- and interest-based perspectives. The nature o f the regime has been evaluated and compared to the O P E C 123 model. During the course o f this study a number of key findings have been brought to light concerning the offshore petroleum regime in N E A . Foremost, it is clear that Russia, China, North Korea, South Korea and Japan are increasingly aware that they are members o f a regional offshore petroleum regime. Second, the regime provides increasing opportunity for joint ventures and cross-national projects. Third, although compliance to rules is high and the regime enjoys a certain degree o f effectiveness and robustness, it is not a model system. Fourth, and most significantly, a large portion o f the support for the regime comes from non-state actors, corporations, industry associations, and environmental N G O s . Wi th its network of non-state actors, the offshore petroleum regime in N E A is encouraging the emergence o f c ivi l society. The future of the N E A offshore petroleum is indeterminate. Considering, however, the ever-increasing demand for petroleum in N E A , it seems likely that the regime must endure well into the next century. Growing regional environmental awareness combined with the realization that the offshore industry requires strict standards wi l l likewise strengthen the regime and ensure its future sustainability. Nevertheless, I would suggest that more attention be paid to encouraging communication among regional, state, corporate and grassroots levels. Additionally, despite the N E A distaste for institutionalization, the regime could benefit considerably from undergoing a process of organization resulting in a more formal body. The N E A regime presents many exciting opportunities waiting to be studied. Perhaps, the most crucial area requiring further study is the financial aspects o f regime formation, persistence and transformation. Recently, the organization for Pacific Asia Regional Energy Security ( P A R E S ) commissioned Hossein Razavi of the World Bank to 124 quantitatively analyze international regime finances with specific regard to fossil fuel consumption in the Asia Pacific. To date the PARES project is the only study that examines the financial aspects of regime formation in the Asia Pacific. Examples of future areas for research include: determining the basic required levels of funding, uncovering the sources of regime capital and resolving to what extent regime participation is proportional to funding contributions. An additional area replete with potential for future study would be to determine the extent of cooperation and cohesion between regional IGOs and NGOs involved in the offshore industry. The level of overlap between organizations and the extent to which members from different IGOs and NGOs collaborate remains to be discovered. In closing I would like to suggest that much like a good conversation, the study of the Northeast Asian offshore petroleum regime does not finish with this thesis. Rather, it will be returned to as a topic for future discussion, critical analysis and scholarly debate. 12^  L I S T OF W O R K S C I T E D " A Br ie f History of O P E C . " O P E C Online. 17 Nov. 1999 <http://vvvvvv.opec.org/history.htni>. A S E A N Homepage. Agreement on A S E A N Energy Cooperation (1986). Article 1.1, 12 Sep. 1999 <http://vvvvw.aseansec.org/>. "Asia ." Map. P C L Map Collection Online. 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