The 10 booming economies of Southeast Asia are rapidly emerging as energy-consuming giants. But as indigenous fuel production dwindles and competition for resources mounts, they all face a number of energy uncertainties.
Consensus is that the locus of world energy demand has shifted away from the U.S. and Europe to Asia, driven by the soaring economies of the 10 countries that make up the Association of Southeast Asian Nations (ASEAN), along with China and India.
The so-called ASEAN-10 countries—comprising the ASEAN-6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) and the “CLMV” countries (Cambodia, Laos, Myanmar, and Vietnam)—are typically grouped with neighbors China and India to constitute a region that is being increasingly referred to as “Emerging Asia.”
And for good reason: With remarkable progress over the past four decades in raising income levels, reducing poverty, and developing manufacturing, some countries in the region characterized by vast economic and natural resource differences are poised to join Japan, South Korea, and Singapore in income and status over the next few decades if they keep pace with changing economic needs.
Disparately Energy Poor
Economic growth over the medium term in Southeast Asia, a region with a current population of about 600 million, is generally expected to average a robust 5.4% through at least 2018, though experts note that gross domestic product projections for individual countries reflect their different stages of development and growth drivers. Indonesia, for example, is projected to be the fastest-growing economy within the ASEAN-6, followed by the Philippines; both countries are expected to see soaring growth in domestic demand for energy and resources, strong infrastructure spending, and implementation of structural economic reforms. Among the CMLV countries, Laos leads the pack at a booming growth rate of 7.7% per year, though growth in countries like Cambodia and Myanmar isn’t far behind.
Yet, experts note that of the 1.3 billion people worldwide who still lacked access to electricity at the end of 2013, 127.4 million were in the ASEAN region. Most were in Indonesia and the Philippines, which are populous and archipelagic countries where grid connection has been challenging. But Cambodia’s electrification rate also stagnated at 31% in 2010, according to the International Energy Agency (IEA), Myanmar’s at 49%, and Laos’ at 63%. Only four countries in the region (Brunei, Malaysia, Singapore, and Vietnam) have electrification rates greater than 95%.
Beyond geographical challenges, the disparity between economic growth and electricity growth is explained by the availability of investment funding and energy resources, as well as the investment climate in the electricity sector.
A Coal and Gas Future
However, that is slated to change, says the IEA. The Paris-based autonomous organization in October 2013 projected that the expected near-tripling of the region’s economy and an estimated 25% increase in population over the next few decades through 2035 could send energy demand skyrocketing by more than 80%—an increase equivalent to Japan’s current energy demand.
What’s more, coal and natural gas will predominantly fuel Southeast Asia’s future. In its central New Policies scenario, which assumes countries will pursue national pledges to reduce greenhouse gas emissions and phase out fossil fuel energy subsidies, coal demand—which has grown at double-digit rates each year since 1990—will triple, accounting for about 30% of global growth. Natural gas demand will surge by 80% to 250 billion cubic meters (bcm), the IEA says.
Those increases will be rooted in an immense jump—“by more than the current output of India,” says the IEA—in power generation over the next two decades. Between 1990 and 2011, power demand already surged five times to 712 TWh, even though compared to developed countries on a per-capita-basis, ASEAN demand remains relatively low. Basing its estimate on a scenario that assumes highly probable deployment of currently proposed energy policies and technologies, the Institute of Energy Economics, Japan (IEEJ) projects electricity demand for ASEAN will climb even more dramatically over the next two decades, to 1,071 TWh in 2020 and 1,668 TWh in 2030.
Today, most of the region’s power sector is fueled by natural gas (44%) and coal (31%), though diesel and heavy fuel oil dominate in areas lacking grid access or transportation and pipeline infrastructure (Figure 1). Renewables, too, have made their mark: About 10% of the region’s power comes from hydro and 3% from geothermal. The region is characteristically devoid of any nuclear power plants, and most plans for future ones are in limbo—with the exception of Vietnam, which recently inked a deal for Russian expertise and financing. Yet that plant isn’t expected to come online until at least 2020.
That means, by 2035, half of the region’s power profile will likely be coal-fired, compared to about one-third in 2013, the IEA estimates. For the IEEJ, coal’s share will climb only to about 36% by 2030. The increase is nonetheless substantial; ASEAN data shows that coal’s share in the region was just 13.4% in 1995. “The shift is already underway: some three-quarters of the thermal capacity now under construction is coal-fired,” the IEA notes. Most plants under construction are located in Vietnam (12 GW) and Indonesia (8 GW). Meanwhile, most plants are of an average efficiency of just 34% because they mostly use subcritical technologies.
According to Shoichi Itoh, a senior IEEJ analyst who this April presented research on coal’s global reemergence for the National Bureau of Asian Research’s Pacific Energy Forum, ASEAN’s deliberate turn to coal to meet its rapid increase of electricity demand is because coal is the “most cost-competitive per calorific value.” In Asia, “prices of gas imports are indexed to crude oil in the absence of gas-on-gas competition, unlike in the U.S. gas market,” he said. “Aggressive use of coal therefore could minimize capital outflow, especially from economies with low-hydrocarbon self-sufficiency.”
The expected increases in coal capacity are massive, he notes. Indonesia, which has planned the largest total gross power capacity additions (100 GW) through 2035, plans to boost its share of coal in the power mix from 44% in 2011 to 60% in 2040. Thailand will add 55 GW through 2035, 44% of which will be gas-fired and 35% coal-fired. In Malaysia, at least 42 GW is planned for installation, 38% gas and 33% coal (Figure 2). As gas prices gradually move to the market price, forcing Malaysia to choose whether to use domestically produced gas or to export it as high-value liquefied natural gas, coal plants are expected to take over as the cheapest option for baseload power. And in the Philippines, of 41 GW of new capacity planned, most will be coal-fired, boosting the fuel’s share in the country’s power mix to 56% by 2035.
If capacity plans aren’t an adequate indication that the region is looking to bank heavily on coal, the IEA also suggests that of about $990 billion that will be required for ASEAN’s power sector through 2035, $440 billion will go towards power plants—and 40% of those funds will be dedicated for coal-fired capacity. Hydro investments (see sidebar) represent 27% and other renewables, 17%.
Fuel Supply Implications for the World at Large
Southeast Asia’s inordinate wealth in energy resources has made it an increasingly significant region of interest for the world, and particularly, for its energy-hungry neighbors China, India, Japan, and South Korea. Indonesia, for example, is the world’s biggest coal producer and, by far, the top exporter of steam coal. Vietnam was as recently as 2011 the world’s largest anthracite exporter, but it has since significantly slashed coal exports (and even began importing coal for the first time in its history) to divert shrinking output to a fleet of coal-fired power plant new builds, which are expected to raise its coal-fired capacity to 36 GW by 2020 (from 5.8 GW in 2011).
Natural gas currently makes up 67% of Thailand’s power mix, but with indigenous gas production forecast to diminish in the 2020s, Thailand has turned to importing more liquefied natural gas (LNG) and building more efficient gas plants. As the country considers prioritizing coal in the long term, this April, Siemens and Japanese partner Marubeni handed over the Wang Noi 4 combined cycle power plant (Figure 4) to Thai state-owned utility Electricity Generating Authority of Thailand.
|4. Guessing gas. The 770-MW Wang Noi 4 combined cycle power plant shown here has an efficiency of more than 57.3%, making it “one of the most modern power plants in Thailand and currently in all of Southeast Asia in terms of environmental compatibility and efficiency,” developers say. Courtesy: Siemens Energy|
Brunei, transformed into the world’s fifth-richest nation since its independence from the United Kingdom in 1984 by its extensive petroleum and natural gas fields, and neighbor Malaysia are the only two net oil exporters in ASEAN. The region harbors only about 3.5% of the world’s proven reserves of natural gas, yet Brunei was the first country in Southeast Asia to export LNG in 1972, and today, Malaysia and Indonesia stand among the world’s top LNG exporters.
Conspicuously of late, however, much of Southeast Asia’s surplus coal and gas production has been diverted to domestic markets. Malaysia and Indonesia have both seen domestic shortfalls of natural gas and have begun importing LNG to honor long-term international contracts. Citing declining volumes from maturing production fields, gas exports from the region, primarily from Malaysia, Myanmar, and Brunei, will fall from 62 bcm to 14 bcm by 2035, as will regional net coal exports from Indonesia and Vietnam, the IEA forecasts.
That will have deep implications for Asia, specifically, which has become increasingly resource-scarce. Japan’s dependence on energy imports has dramatically increased after the Fukushima accident, and South Korea recently revised plans to expand its own nuclear power sector. And with China’s import dependence for oil and gas surging, the increasing energy demands of ASEAN countries will only increase competition for fuel resources in the future. Even with increased supplies from the Middle East and potential U.S. exports of coal and gas, energy security is expected to remain a pervading medium-term issue in Asia for the experts agree.
Joint Efforts to Address Gaps
Underpinning the process of cementing the region’s energy security, affordability, and sustainability is the challenge of attracting at least $1.7 trillion of cumulative investment in energy supply infrastructure through 2035—at least 60% of which is required for the power sector alone.
Acknowledging that addressing energy gaps and energy poverty would narrow development gaps, improve energy access, and facilitate economic integration of the ASEAN region, the 10 countries are working jointly on an energy cooperation framework. In January 2007, Australia, China, India, Japan, South Korea, New Zealand, and ASEAN countries adopted the Cebu Declaration focusing on energy security. Later in 2010, ASEAN states adopted a master plan on connectivity, which focuses on strategies to promote physical grid interconnection in ASEAN-6 nations by 2015. That plan identified 15 transportation, communications, and energy priority areas that would help link member countries. Among them is the implementation of the Melaka-Pekanbaru Interconnection and West Kalimantan-Sarawak Interconnection, to ultimately connect the grids of Indonesia, Malaysia, Myanmar, Cambodia, Vietnam, and the Philippines.
However, the feat is not without significant challenges, as an official with the ASEAN Secretariat confirmed in May: It requires connecting around 9% of the world’s people who live on just 3% of the world’s land mass, and the new transmission must traverse roughly three times more ocean than land in order to do so.
Another significant ASEAN objective is to encourage regionwide energy market integration to achieve balanced and equitable economic growth for all countries. But as well as improving physical infrastructure in certain parts of the region, the proposed ASEAN Energy Market Integration (AEMI) concept that could become a reality by 2030 involves a liberalized flow of energy products and investments across ASEAN, reforms in domestic energy market structures, and a harmonization of energy standards and rules.
And, at the same time, ASEAN is looking to build a gas pipeline to link the gas reserves of Indonesia, Malaysia, Singapore, Vietnam, Myanmar, the Philippines, Brunei, and Thailand. Backed by major oil and gas companies and slated to be operational by 2020, the Trans-ASEAN Gas Pipeline that will traverse more than 3,000 kilometers and transport 3,095 million cubic feet per day of gas is one of the largest networks of its type in the world. The project is making progress: To date, 10 cross-border gas pipelines (at a cost of $14.2 billion) have been completed, and six more remain. Eleven bilateral connections have already been established.
However, experts warn that one of the bigger unresolved challenges in implementing the initiative is that different countries have different rules, which makes private companies reluctant to invest in the network. While ASEAN has been working to speed up harmonization of policy, some countries have begun discussing alternatives such as building LNG-receiving terminals rather than connecting pipelines.
Phasing Out Fossil-Fuel Subsidies
Another issue that experts contend Southeast Asian countries must grapple with to cement investor interest concerns their continued subsidies for fossil fuels. Despite reform efforts in Indonesia, Malaysia, and Thailand, fossil fuel subsidies amounted to $51 billion in 2012 (and $12 billion for electricity) and continue to distort energy markets, says the IEA. Subsidized energy prices seriously burden government resources and restrict investment in infrastructure by depriving energy companies of the revenues needed for new investment, it adds.
For example, Indonesia’s state budget for 2014 designated $5.85 billion in national electricity subsidies. This January, however, despite protests from businesses, the government said it would gradually increase power tariffs for large-scale industrial users to completely eliminate subsidies for the sector by the year’s end. In Malaysia, where higher gas prices (and costly imports of LNG) have made subsidies for power generation untenable, the government is also looking to increase tariffs.
In the Philippines—the only country in the region that does not subsidize power companies—reliability is sketchy and prices are high. Average retail tariffs in that nation of 106.4 million people stand at $0.2026/kWh—making them the ninth-highest in the world, and the second-highest in Asia after Japan. ■
— Sonal Patel is a POWER associate editor (@POWERmagazine, @sonalcpatel).