A sustained gradual increase in the price of oil, especially in the last decade, has led to a shift in the strategic thinking of most of the Southeast Asia (SEA) governments' energy policies. Between January 2004 and August 2006, the price of oil rose by nearly 300 percent--to US$75 per barrel. The global price of oil went on to reach a historic high of over US$147 per barrel in July 2008.
Many countries were left reeling from the effects of the high oil prices then. These countries suffered from slower economic growth, high inflation and high unemployment rates. Any deterioration in the national economy inevitably affects socioeconomic conditions. Increases in the prices of goods and services will have a serious impact on the population's quality of life, and naturally, the financially less well-off will be the most affected.
Strategic shift in energy policies
Singapore, which is largely dependent on global trade, was one of the countries that felt the effects of rising oil prices in the last decade. Then Deputy Prime Minister of Singapore, Professor S Jayakumar, remarked in 2006:
Even as our consumption of energy has risen steadily with our rapidly growing economies, we have concurrently taken for granted that the supply of energy will continue to be cheap and sustainable. Recently, however, this idyllic state of affairs has been disrupted.
On that note, it is therefore crucial for Singapore, and SEA states alike, to reduce its risk exposure to the volatility of the global energy prices. Should the price of oil increase to that level (US$150 per barrel), the cost of living, especially in the less-developed economies of SEA, would be severely affected again. These states could be dragged into an economic recession due to an increase in the price of goods and services, among other things.
Additionally, according to the 3rd ASEAN Energy Outlook (2011) report, under the "Business as Usual" (BAU) scenario, electricity demand in SEA is expected to increase in the foreseeable future. The report cited the following determinants: Continued expansion of the regional economy; rapid industrialisation; rising population; rapid urbanisation; and increasing electrification of rural communities.
Looking ahead, the SEA states need to enhance their energy security by reducing their risk exposure and increasing their resilience to the volatility of global oil prices. Energy security thus should be understood as the pursuit for uninterrupted supply of energy sources at a price which is not detrimental to the national economy.
Hydro energy aspirations
The renewable energy sources that have gained traction among policymakers in SEA towards the end of the last decade are solar, biofuels, and hydro. While nuclear energy is not considered as renewables, it was a popular option among SEA states in the pre-Fukushima years. At this point, the future of nuclear energy in SEA remains largely uncertain.However, the future of hydro energy looks bright.
The International Energy Outlook 2010 report suggests that world net electricity generation will increase at an average of 2.3 percent annually from 2007 to 2035. According to the report, renewable energy (including hydro) would be the fastest-growing energy source up to 2035.
In 1995, hydro energy generated 15.3 percent of electricity in SEA. In 2007, its share shrank to 12.5 percent, according to the 3rd ASEAN Energy Outlook 2011,and this was largely due to the increase in the use of gas and coal.
The share of hydro energy in ASEAN's primary energy mix currently remains small and has increased only marginally, from 1 percent in 1995 to 1.2 percent in 2007. However, this trend will continue to increase between now and 2050, since Laos, Cambodia, Vietnam, Thailand, Myanmar, and Malaysia plan to increase the use of hydro energy in their national energy mix. Each of these states envisions energy security via hydro energy as the growth engine to drive social development and economic growth in the future.
Hydro energy potential
The potential for hydroelectricity in SEA is enormous. According to the Mekong River Commission's State of Basin 2010 report, the main source of hydro energy in SEA comes from the lower Mekong River. The report estimates that only 10 percent of its 30,000 megawatt hydroelectricity potential has been harvested. In the last decade, China has been steadily investing in its part of the Upper Mekong River, and now the riparian states in the Lower Mekong River are following suit. Laos, Cambodia, Vietnam, Myanmar, and Thailand are planning to develop more hydro dams and generate hydro electricity either for domestic use or for export.
Although most of the ASEAN member states have shown a common appetite for hydro-electricity, they are driven by different motivations due to the different political and socio-economic landscape. Vietnam and Myanmar need to fuel their growing economy, while Lao and Cambodia aspire to alleviate energy poverty and improve the socio-economic welfare of their people from the revenues raised through electricity exports. The SEA region is economically and politically diverse and its energy strategies reflect that diversity.
For instance, Lao aspires to be the "battery" of SEA. It has vast hydro potential, which it plans to harness by developing numerous hydro dams financed through foreign direct investments (FDIs). From these hydro dams, the government intends to raise revenues for its socio-economic development programmes by exporting hydroelectricity to other SEA nations. At the moment, China, Vietnam and Cambodia have already agreed to import hydroelectric from Lao.
Conclusion
The SEA region has vast unrealised potential in hydro energy, which requires massive FDIs. That said, potential investors may be discouraged by the political risks and prevalent security threats in the region. However, political risks can be mitigated if the SEA states work together through the Greater Mekong Commission to improve existing bilateral and multilateral relations or to develop new ones.
Inevitably, enhanced inter-state relations could lead towards greater security cooperation and a more secure environment in the region, especially around the Lower Mekong River.
Endnotes:
i"Oil Hits Record above $147." Reuters: US Edition, 11 July 2008. (http://www.reuters.com/article/2008/07/11/us-markets-oil-idUST14048520080711; accessed on 23 December 2011).
ii Ministry of Information, Communication and the Arts (MICA), Singapore." Developing A Holistic Energy Policy." 8 November 2006. (http://app.mti.gov.sg/default.asp; accessed on 20 October 2011).
Nur Azha Putra is a Research Associate with the Energy Security Division at the Energy Studies Institute. Prior to this, he was an Associate Research Fellow at the Centre for Non-Traditional Security (NTS) Studies at the S Rajaratnam School of International Studies (RSIS) where he was the lead researcher on the Energy Security and NTS-Plus programmes.
BY: Nur Azha Putra, ESI