By Dr. Fatih Birol
In the next 20 years, Southeast Asia will assert itself as a true heavyweight of global energy. Over that period, today’s policy settings suggest that energy demand in Southeast Asia is set to grow at twice the global average, adding the equivalent of Japan’s current total energy consumption to the global system. The region accounts for almost one-fifth of the growth in oil demand over the next two decades, largely to fuel continued growth in the transport sector.
These striking projections are just some of the findings from the International Energy Agency’s (IEA) new Southeast Asia Energy Outlook, released at Singapore International Energy Week (SIEW). The report illuminates in detail the key energy-related challenges and opportunities the region faces.
There are many things to welcome about Southeast Asia’s rise as an energy powerhouse. The strong increase in demand reflects the expectation of robust economic and industrial growth, as well as rising incomes in the region: consumers are buying more vehicles, smartphones, air conditioners and other appliances. Electricity use in homes and other buildings – particularly for making temperatures cooler – is a major driver of demand. Our analysis also suggests that Southeast Asia is on track to bring electricity to all citizens by the early 2030s, a major milestone in the region’s development.
But the report also identifies some worrying trends. To begin with, Southeast Asia, historically a producer and exporter of energy, is on its way to becoming a large net importer of fossil fuels. Oil demand is set to increase by 30 per cent, and natural gas use by 80 per cent. At the same time, we currently project oil production in the region to fall by one-third while gas production stays largely unchanged.
The result would be a sharp increase in the region’s deficit of crude oil and products, and a switch to net imports of natural gas. By 2040, this would mean a net import energy bill of more than $300 billion, with oil imports the main culprit.
The implications would be particularly stark in those countries that maintain artificially low prices for transport fuels. The IEA has reported that the value of fossil fuel consumption subsidies in Southeast Asia has doubled in recent years. Phasing these subsidies out while maintaining targeted support for vulnerable parts of the population remains a pillar of sound policy-making.
As well as being costly, these trends raise energy security concerns as the region becomes more dependent on fluctuations in global energy markets, which are vulnerable to unpredictable geopolitical events. Governments can mitigate these risks with stronger energy efficiency policies – for road vehicles or air conditioners, for example – and by taking advantage of competitively priced energy sources within their reach, such as wind and solar, where possible.
The sustainability of the region’s energy systems is also a key concern. Under current plans and policies, almost 80 per cent of Southeast Asia’s rapidly growing energy demand over the next 20 years is set to be met through increased coal, oil and gas use. Meanwhile, the share of renewable energy in total demand edges higher but is projected to reach only 20 per cent by 2040, from 15 per cent today. Coal-fired power generation is expected to double by 2040, with Southeast Asia being the only region of the world where the share of coal in the total energy mix will increase over this period. The large resulting increase in emissions of greenhouse gases and air pollutants is not consistent with international goals to limit global warming and would also raise health risks for the region’s citizens.
Thankfully, this scenario is by no means set in stone. We are already seeing moves from Southeast Asian governments to enhance the security and sustainability of energy systems by raising efficiency standards and encouraging deployment of cleaner energy technologies. Indeed, the IEA report released at SIEW 2019 will provide a detailed, cost-effective pathway – the Sustainable Development Scenario – that outlines how the region can help the world to meet the Paris Agreement’s climate goals, while also reducing air pollution and achieving universal energy access.
Much greater use of renewable energy and energy efficiency will lead the way along this path, but we cannot rely on them alone. The energy transition in Southeast Asia will require a multiplicity of approaches and technologies, and a balanced mix of policies to get there, as laid out clearly in our analysis.
The benefits of such a transition would be enormous. For a start, greater energy efficiency means less consumer spending on electricity bills and fuel for transport. Combined with the shift away from fossil fuels, efficiency improvements can enable Southeast Asian economies to save nearly $200 billion annually on energy imports by 2040 compared with the region’s current trajectory. This alone would already offset much of the additional investment required for Southeast Asia to achieve sustainable energy targets.
I hope these findings and insights will help policymakers see that clean energy transitions are not only technically feasible, but also beneficial for economies, people and the environment.
The writer is the Executive Director of the International Energy Agency (IEA), which is dedicated to ensuring reliable, affordable and clean energy for its 30 member countries. IEA launched the IEA Southeast Asia Energy Outlook 2019 at the Singapore International Energy Week, on 30 October 2019.