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UNCLAS SECTION 01 OF 02 TOKYO 001592 
 
SIPDIS 
 
STATE PASS DOE FOR KFREDRIKSON, MWILLIAMSON 
STATE FOR G, EEB, OES, AND EAP/J 
NSC FOR PAUL BROWN AND JONATHAN SHRIER 
CEQ FOR JAMES CONNAUGHTON 
 
E.O. 12958: N/A 
TAGS: ENRG KGHG AADP OVIP JA
SUBJECT: PROGRESS MADE DURING FIVE PARTY ENERGY MINISTERIAL 
 
REF: TOKYO 1505 
 
¶1.  Summary.  Representatives from the U.S., Japan, China, 
India, Korea and the International Energy Agency (IEA) 
gathered for the five-party energy ministerial in Aomori, 
Japan June 7.  Participants agreed recent volatility in 
global energy markets and skyrocketing oil prices are largely 
due to the lack of investment in energy infrastructure, 
although the Chinese representative argued that financial 
market speculation was a major factor.  Participants cited 
the need for open and transparent legal and regulatory 
environments to encourage investment.  They also called for 
greater energy efficiency, diversity of energy sources, 
better emergency preparedness and for the elimination of 
subsidized energy prices.  The Chinese representative noted 
ending subsidies would unduly impact its rural communities 
while the Indian representative stated his country could not 
completely lift price controls given "irrational" oil prices. 
 End summary. 
 
¶2.  Representatives from the U.S., Japan, China, India, Korea 
and the IEA gathered in Aomori, Japan June 7 for the second 
five-party energy ministers meeting, preceding the G8 energy 
ministerial June 8.  Discussions focused on oil markets, and 
the themes of global energy security challenges, emergency 
preparedness, the investment climate and energy efficiency 
and diversification. 
 
Five Steps to Energy Security 
----------------------------- 
¶3.  During the session on global energy security challenges, 
IEA Executive Director Nobuo Tanaka posited five steps to 
ensure energy security in the future.  First, significantly 
more investment is needed to address under-capacity across 
the oil value chain.  Second, governments must encourage more 
efficient consumption.  Third, more diversity in terms of 
alternate energies and other sources is necessary to reduce 
reliance on oil.  Fourth, more transparency in reporting of 
key data such as strategic reserve holdings and other indices 
would provide accurate information to oil markets to help 
reduce volatility.  Finally, Tanaka advocated emergency 
preparedness to avoid supply chain interruptions in the event 
of natural disasters or geopolitical upheavals. 
 
Subsidies 
--------- 
¶4.  Both Tanaka and Energy Secretary Bodman urged elimination 
of subsidies that keep oil prices artificially low and 
prevented a demand response to high international prices. 
Chinese National Development and Reform Commission (NDRC) 
Vice Chairman Zhang Guobao argued forcefully that financial 
market speculation was a major factor in the jump in the oil 
price, and observed that eliminating subsidies would unduly 
harm China's citizens, particularly in rural areas.  Indian 
Ambassador to Japan H.K. Singh noted recent hikes in India 
for fuel and heating oil to encourage consumers to be more 
energy conscious while indicating that complete removal of 
price controls were not possible given the "irrational" level 
of prices. 
 
Strategic Reserves Not a Weapon Against High Prices 
--------------------------------------------- ------ 
¶5.  China's Zhang led the discussion on emergency 
preparedness, saying China's eleventh five year plan calls 
for the development of a strategic oil reserve.  He said 
China is not trying to hide information about its stock 
build-up but is concerned more transparency regarding oil 
 
TOKYO 00001592  002 OF 002 
 
 
purchases may drive markets even higher.  Singh stated, while 
the Indian government had approved building a reserve of 15 
million metric tons, storage facilities would not be ready 
for another three years.  Both China and India noted their 
interest in further cooperation with the IEA on emergency 
preparedness and other issues.  In response to Korean 
Knowledge Economy Minister Lee Youn Ho's suggestion that IEA 
members could release some stocks should oil prices reach a 
"certain level," Secretary Bodman cautioned using strategic 
reserves as a weapon against high prices would be 
unsustainable. 
 
More Investment in Production Capacity Needed 
--------------------------------------------- 
¶6.  During the session on investment climate, Secretary 
Bodman stated high oil prices are primarily due to the lack 
of investment in the energy supply chain.  Countries need to 
have open and transparent legal and regulatory environments 
to encourage investment in the sector, he said.  Bodman 
called for countries to fulfill their Joint Oil Development 
Initiative (JODI) commitments and noted the importance of the 
Extractive Industries Transparency Initiative (EITI) to a 
good investment climate, urging candidate countries to 
complete implementation of the EITI criteria.  (Korea echoed 
Bodman's EITI comments.)  Japan's Minister of Economy, Trade 
and Environment Akira Amari decried the rise of resource 
nationalism and stated the private sector's short-term focus 
on profits together with the lack of attractive short-term 
projects had dampened investment.  China's Zhang said his 
country's investment in international energy projects should 
not be seen as a threat but rather as contributing to 
stabilizing global oil markets. 
 
Energy Efficiency and Diversification 
------------------------------------- 
¶7.  ROK's Lee led the discussion on energy efficiency and 
diversification, describing his country's efforts to increase 
nuclear power, liquefied natural gas (LNG) and renewable 
energy sources, as well as Korea's extensive energy 
efficiency efforts.  Meeting participants accepted the 
Minister's offer for the ROK to host the next Five-Party 
Ministerial. 
 
¶8.  Secretary Bodman stressed the need to let markets set 
energy prices and commended India's recent actions to reduce 
energy subsidies.  Vice Chairman Zhang noted that China's 
energy intensity is related to its stage of development, but 
as a result, there is great potential for improvement by 
phasing out older, less efficient industrial plants for 
example.  Amb. Singh remarked on India's use of public policy 
to promote efficiency and create markets for renewable energy 
and alternative fuels. 
 
Comment 
------- 
¶9.  The second Five-Party Energy Ministerial marked a major 
advance over the first such gathering in Beijing in December 
¶2006.  The group agreed to a strong statement on data 
transparency, committed to an eventual phase-out of 
subsidies, welcomed countries' efforts to implement EITI, and 
endorsed the St. Petersburg Energy Security Principles agreed 
by the G8 at its 2006 Summit.  The five parties welcomed the 
forthcoming discussion on oil markets at the G8 Finance 
Ministers Meeting on June 13-14. 
 
¶10.  The Secretary's party has cleared this cable. 
SCHIEFFER