Even in a greener world, fossil fuels still rule
The current global trend may be "going green, going electric and going mobile", but fossil fuels will continue to dominate energy consumption globally, especially in developing countries, says the CEO of PTT Plc, Thailand's biggest energy company.
"Today, it is about the fight between conventional energy and renewable energy and even though the trend is going much toward clean energy, the projection by BP is that going forward, oil, gas and coal will continue to be important for the world's energy outlook," said Tevin Vongvanich, referring to a study by one of the world's largest integrated oil and gas companies.
"The demand for oil and coal will continue to exist in the near future but the trend will be toward renewable energy such as solar and bio energy," Mr Tevin told a recent Asean forum held by Bangkok Bank.
According to the BP Energy Outlook 2016, oil, natural gas and coal accounted for 87% of the world's energy supply share in 2010. The ratio was down slightly to 86% in 2015 and is forecast to fall to 80% by 2030. By contrast, hydroelectricity accounted for 7%, nuclear 5%, and renewables 2% in 2015, and their respective ratios in 2030 are not expected to be very different, at 7%, 5% and 7%.
One reason for the staying power of non-renewables has been the US shale oil boom, which has led to increases in production that have brought down global oil prices to half of what they were less than three years ago. Meanwhile, technologies required for commercial-scale energy generation from renewable sources and hydroelectricity are still relatively expensive and unevenly spread throughout the world.
"The push toward renewables and hydroelectricity came around five or six years ago when the global oil price reached around US$100 per barrel which was considered expensive, affecting people's daily routines while businesses had to bear increases in costs," said Mr Tevin. "That has led to a surge in investments in research into renewable energy and new technology for the production of oil and gas in order to produce things that we could never produce before."
PTT has predicted that the global oil price will continue to rise from an average of around $40 per barrel in 2016 to no more than $70 over the next five years.
Energy demand is still low due to sluggish world economic growth. On the supply side, the Organization of Petroleum Exporting Countries (Opec) is still pumping at record levels but is hoping to reach an agreement this month to cut production by a modest amount. Meanwhile, US shale producers are reviving wells as the price hovers around $50 a barrel, considered their break-even point. Since the glut is likely to ease only slightly, oil prices will rebound, but only very gradually, said Mr Tevin.
"The discovery of new technology has caused oil prices to drop by one third to around $40 and looking forward, we cannot expect to see prices at around $100 per barrel anymore," he said. "The projection in the next five years is that it will be no more than $70 and this is the consensus that most businesses in the energy sector agree with."
Meanwhile, Asean energy imports will continue to grow with import dependency expecting to reach 80% in 2040, up from around 75% in 2013. Spending on fossil fuel imports, which was roughly $150 billion in 2013, will hit $300 billion by then. The region, which currently is a net exporter of natural gas, mainly from Malaysia and Indonesia, will also turn into a net gas importer by 2040, according to the Asean Energy Outlook 2015 report by the International Energy Agency.
"Despite the trend of growing renewable energy use, Asean is still depending on fossil fuels and the ratio keeps increasing," Mr Tevin said.
"And despite having Brunei and Malaysia as regional net exporters of oil, the demand from main importer Thailand will continue to outweigh the region's supply and we will continue be the main importer in the future. Indonesia, previously an oil exporting country, will also be another major importer as its reserves deplete and currently are not sufficient for domestic consumption, so it will begin to import more and more in the future."
Asean has to choose whether to continue to depend on fossil energy or create its own renewable energy production, but the region's investments in renewable energy are still way too low when compared with those of Europe.
Asean's annual investment in energy supply averaged $48 billion from 2010-14 and is expected to increase to around $71 billion between 2015 and 2020 before reaching $101 billion between 2031 and 2040. Investment in oil, gas, coal-based power stations and transmission networks will continue to dominate and electricity generation will still rely on fossils fuels as more than half of Asean's annual investments in energy supply are in oil, gas and coal, Mr Tevin noted.
Energy price subsidies in the region will automatically decline since prices have gone down.
"Energy conservation will become more relevant in Asean," he said. "There might be price or tax mechanisms created to help drive consumers to consume energy more efficiently while investments in mass transit are also expected to rise (so that people will use cars less often)."