Powering the future

Powering the future

Oil and coal will continue to fuel Southeast Asia’s growing economies, but efficient energy use will become more important as resources dwindle and imports rise.

Southeast Asia remains heavily dependent on fossil fuel imports and by 2035 it will be the world’s fourth largest oil importer, behind China, India and the European Union, based on current trends, says the International Energy Agency (IEA).

The impact on gross domestic product (GDP) growth could be substantial, with spending on oil imports in Thailand alone tripling to $70 billion in 20 years, the IEA says in its latest Southeast Asia Energy Outlook.

Reducing fossil-fuel subsidies that encourage waste, along with promoting more efficient energy use, could help reduce the impact of energy costs on GDP. But the fact remains that the region’s economic growth will fuel huge demand for energy in all forms, and oil and coal will continue to meet the bulk of that demand.

The Asian Development Bank (ADB) takes a similar view in its latest publication, Energy Outlook for Asia and the Pacific, saying that oil will be the dominant fuel through 2035; however, coal will show the fastest annual growth rate at 4.8%.

Southeast Asia’s primary energy demand is projected to increase from 554.8 million tonnes of oil equivalent (Mtoe) in 2010 to 1,110.2 Mtoe in 2035 at an annual rate of 2.8%. Final energy demand will reach 768.9 Mtoe in 2035 with an annual growth rate of 2.6%, primarily driven by the industrial sector, which will grow at 3.4% annually, according to the ADB.

Under such a scenario, coal-fired power plants are likely to play a vital role as the main energy resource in Southeast Asia, and this also raises the issue of unwanted pollution, says the ADB.

As a result, policymakers will need to do more to promote clean-coal technology power plants and remove energy subsidies, while at the same time more emphasis should also be placed on renewable energy.

Maria van der Hoeven, executive director of the IEA, said energy demand in Southeast Asia had risen by 2.5 times from the level in 1990.

“Don’t think that energy is always cheap, but we should think how we can use it more efficiently,” she said during her recent visit to Bangkok.

“Inefficient energy use will directly affect the region’s GDP. If Southeast Asian countries manage energy use efficiently, we believe that it will affect GDP positively by 2%.”

According to the IEA report, limited fossil fuel resources in Southeast Asia will push the region to import more. The 12.9 billion barrels of proven oil reserves (as of December 2012) in Asean will last for 14 years, while current production of natural gas at 202 billion cubic metres (bcm) would be adequate for the next 37 years.

Oil production in the region is expected to fall by roughly one-third by 2035. Meanwhile, oil demand will grow from 4.4 million barrels per day to 6.8 million barrels in 2035, accounting for one-fifth of the world’s growth.

Hence, import volume will climb by 75% to more than 5 million barrels per day from 1.9 million barrels currently. Fossil fuel demand will represent 80% of primary energy demand in 2035 in comparison with 76% in 2011.

The increased oil imports will be equivalent to almost 4% of the region’s GDP. Thailand and Indonesia will be the top spenders for fossil fuel with the spending will triple to almost US$70 billion annually by 2035 in each country.

Despite increasing fossil fuel imports, the share of oil in Southeast Asia’s energy mix is forecast to fall to 31% from 38% at the present. Coal will become more important despite a smaller share if compared with fossil fuel.

The IEA views that coal demand will grow at an average of 4.8% annually, surpassing natural gas as the second largest energy source by 2020.

The share of coal in the energy mix will be 28% by 2035, while the share of gas will be flat at roughly 20%.

The IEA bases its forecasts on the current policies and trends in Southeast Asia. For example, the region has an abundance of coal at low prices. Indonesia is the largest coal exporter, especially of so-called steam coal for use in power plants. Vietnam is the second-largest player in the regional coal market.

Coal resources in Southeast Asia are projected to last for roughly 80 years with current production at 419 million tonnes of coal equivalent in 2012. Some three-quarters of the thermal capacity now under construction consist of coal-fired power plants.

NUCLEAR ENEGY

According to the ADB report, electricity demand in Southeast Asia is expected to grow at 4.3% per year between 2010 and 2035, which is higher than that of the broader Asia-Pacific region. The investment requirements for the Asean Power Grid (APG) are estimated at $5.9 billion.

Currently, countries in the Greater Mekong Sub-region (GMS) are the most active in the electricity trade in Asean. For net power exporters such as Laos and Myanmar, electricity is a major component of export earnings. Laos has agreements to supply 7,000 megawatts (MW) by 2015 to Thailand and 5,000 megawatts by 2020 to Vietnam.

The ADB estimates that electricity imports by Thailand and Vietnam are forecast to rise to approximately 8,000 Gigawatt-hours in 2035.

Nuclear energy has been promoted as a solution for energy-hungry economies such as Thailand and Vietnam, but the latter is the only country still pressing ahead with nuclear plans. Thailand put its nuclear power plant project on hold after the Fukushima disaster in Japan in 2011.

Vietnam recently signed an agreement with the US government, allowing American companies to develop civilian nuclear power plants. Under Hanoi’s plan, the country will build seven nuclear power plants with a total investment cost as high as $50 billion. However, the construction plan has been delayed from 2014 to 2017.

RENEWABLE ENERGY

What is surprising in the experts’ projections is that renewable energy might not play as big a role as previously expected. The IEA foresees that “modern” sources such as solar, wind, hydro and geothermal will replace traditional renewable energy such as biomass. This, it says, is the main reason why the proportion of renewables in the region’s energy mix will decline.

However, there are some different views on the emergence of coal in the region as some feel that this fossil fuel may not be as sexy as it used to be in the past.

“Coal is no longer the favourite fuel that it was in 1993,” said Colin Tam, executive chairman of Crystal Vision Energy.

He still believes that renewables are the future, and that up to 50% of installed capacity by 2020 may come from clean energy sources.

Whether or not coal will play a pivotal role in Southeast Asia, the IEA’s Ms van der Hoeven said that operators of coal-fired power plants need to adopt clean and advanced technology if they want to ensure that carbon emissions will not become a controversial issue.

The IEA also supports phasing out energy subsidies in order not to distort the market. In 2012, Southeast Asian countries spent a combined $51 billion on subsidy schemes, led by Indonesia.

“The global figure for energy subsidies last year was $520 billion,” she said. “Only 8% of this amount really went to the poor.

“So, governments should come up with well-planned policies that do not support subsidy programmes, but at the same time help the poor to get access to the affordable energy equally.”

Wouter van Wersch, senior vice-president for East Asia Pacific and president of Alstom Singapore, said the challenge in Southeast Asia was inconsistent policies. Energy reforms such as removing subsidies and creating a 10-nation Asean Power Grid (APG) are among the things that the private sector needs.

The APG has been a flagship programme of Asean ever since 1997, with 16 interconnection projects in total. Four have been completed; two are covered by agreements to share electricity between Thailand and Malaysia and two between Thailand and Laos. The remainder are still under development.

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