Diplomacy on the Energy Issue

Thailand has been facing continuous risks due to the energy issue. Sharp rises in world market oil price have particular impacted the country due to the increase in energy demand as the world economy recovers. Moreover, Thailand is also sensitive to the problem of future energy insecurity, having such problems as an energy consumption structure that mostly relies on imported energy from foreign countries, especially the import of crude oil which is about 95 percent of oil consumption in the country. Inefficient energy usage in the transportation sector and the manufacturing sector, plus energy business monopolies causes distortion in the use and allocation of energy. Challenges also arise from severe environmental problems related to investment and the expansion of the energy business.

In the past, the government prepared to cope with the country’s energy security risks by finding a way to increase sufficient energy supply to meet with an increase in demand. For example, the government tried to explore and develop both domestic and international fossil energy sources, supported and promoted renewable energy, accumulated Strategic Petroleum Reserves, intervened in energy price via state oil funds, distributed energy dependence into various types of energy, and participated in demand-side management either by reducing energy consumption or by increasing efficiency in the use of energy.

However, in my opinion, current policies and future plans are both insufficient to ensure that Thailand will not have to face an energy crisis in the future. I would therefore like to recommend one main strategy to build energy security in the future, which I call, "Diplomacy on the Energy Issue"

In the short to medium future, Thailand must still rely on fossil fuels as a primary energy source. As it takes a long time to restructure from fossil fuels to renewable energy, Thailand must temporarily be a net energy importing country, seeing that no internal fossil fuel sources can meet with Thailand’s energy demand for the interim period. Bringing a new type of energy into use is still problematic as nuclear energy has confronted very serious resistance, and solar energy or hydrogen still has a high cost of production.

However, to access fossil fuels in the future will require a greater dependence on diplomatic or international relations than the past because the global oil market has few producers (oligopoly). Thus, at this present time of rapidly increasing energy demand, the bargaining power for producers will increase and the future need to access fossil fuels will also start a race to acquire energy supply.

At present, many countries such as Japan, Russia, India or China have initiated Energy Diplomacy. China is a good example. In order to ensure fuel supply to meet needs, Chinese government have started negotiating and cooperating with oil producing countries, as well as establishing diplomatic relations with oil producing countries whose policies are anti-American. Thailand, however, has no clear diplomatic strategy in relation to energy issues.

In my opinion, Thailand has a channel to expand the diplomatic relations to create energy security for the country, as the following examples show:

Support investment from energy producing countries
Countries that produce and export oil are rich and earn much money from their oil sales. Thailand should therefore encourage governments or investors from these countries to invest in Thailand’s energy industry, particularly in terms of its downstream industries, for example, in the oil refinery, petrochemical business, in the energy distribution business, and other such businesses. These oil producing and exporting countries can therefore participate and partner in Thailand’s energy industry. Then, in order to protect their own interests as energy business owners in Thailand, they will try to supply adequate energy for Thailand’s energy industry.

Food security in exchange for energy security
The world will become more vulnerable to crisis in the future, especially the risk of an energy crisis and a food shortage crisis. Facing such risk, Thailand should take its advantage as the world's largest manufacturer and exporter of food. The Thai government should start negotiating with oil producing and exporting countries which are mostly net food importers; exchanging food security for energy security. For example, an international agreement should be mutually signed in view of any impending energy or food shortage crisis, so that in time of crisis both countries will exchange a trade of energy for food supplies in sufficient quantities and at a reasonable price. Additionally, investment in the energy and food business should be liberalized.

The case of Middle East investors wanting to buy land for farming in Thailand clearly reflects that oil producing countries are aware of the importance of food security.

Establishing an international energy reserve
Many countries have strategic petroleum reserves to some extent. For example, the International Energy Agency has 28 member countries (excluding Thailand) and strategically reserves petroleum at a minimum volume of 90-days of oil imports from each country. The US has 158 days of oil reserves, Japan 161 days, France 96 days, Germany 117 days etc., while Thailand has a strategic oil reserve of 70 days of consumption in the country, but this reserve is only to create domestic energy security.

I propose that the Thai government should start negotiating strategically with countries in ASEAN and other regions in order to create an international agreement that will provide exclusive oil trade reserves for member states before other countries. This approach is similar to the principle of the Chiang Mai Initiative that functions by allowing its members access to the international reserves of another country during a time of financial crisis. This approach to the provision of energy between countries, may take many forms. For example, setting the amount of oil that other countries have, gives Thailand the first right to buy oil from strategic oil reserves, or else allowing members to set up an oil reserve tank in Thailand and then give Thailand the privilege to buy oil from that reserve first, and so on.

One important issue is that the government should try to restore its relationship with such major world oil exporters as Saudi Arabia. We should remember that any action that continues to worsen this relationship should not be taken.

The world faces increased risks from a future energy crisis, in which the market mechanism may not be able to function effectively. Therefore, Thailand, which depends on energy imports from foreign countries, must pay attention to the use of diplomatic strategy when it comes to energy issues, especially the development of diplomatic and economic relations with oil producing countries around the world.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com