Energy demand in region seen jumping 80% by 2040

Massive investment in infrastructure is one challenge amid changing global energy outlook

As countries in South-east Asia become larger energy consumers and growing participants in global energy markets, their governments will be increasingly confronted by challenges similar to those faced by the 29 member countries of the International Energy Agency (IEA).

These are challenges shaped by the intersection of policy, markets and technology - areas that are subsequently influenced by issues such as local air pollution, geopolitical tensions, climate change and, of course, volatile energy prices.

While the decline in oil prices since the middle of last year and the related fall in the price of natural gas are welcome news for consumers, they are also influencing investment decisions being taken by companies. Many are deferring higher-cost and more technical projects.

These energy investment decisions based on today's market conditions will lock in patterns of consumption and fuel use that will have implications long into the future. Will sufficient investment be channelled towards areas that ameliorate or deteriorate energy security and the impact of energy on the environment?

This market volatility is occurring when turmoil in parts of the Middle East - which remains the only large source of low-cost oil - is at a level rarely seen since the oil shocks in the 1970s. At the same time, tensions between Russia and Ukraine have reignited concerns about gas security.

Nuclear power, which for some countries plays a strategic role in energy security, also faces an uncertain future.

Electricity remains inaccessible to hundreds of millions of people, including two out of every three people in sub-Saharan Africa.

The ability to achieve a global agreement at the upcoming United Nations climate talks in Paris (COP21), and the potential to put the world on a more sustainable path, will also have widespread implications for the trajectory of the energy system.

All of these issues are critically important, especially given that global energy demand remains on a steady upward trajectory. What can South-east Asia do today to ensure reliable, secure and environmentally friendly energy for tomorrow?

While no Asean country is a member of IEA, the agency has close working relationships with major emerging economies in Asia, including Indonesia and Thailand.

The central scenario in the IEA's newly released South-east Asia Energy Outlook (SEAEO) sees energy demand in the region increasing by more than 80 per cent between today and 2040. This rise is roughly equivalent to current demand in Japan, and will support a regional economy that more than triples in size and a population that rises by almost a quarter to 760 million.

Over this period, the power sector increasingly shapes South-east Asia's energy outlook, and the shift towards coal continues, underpinned by its relative affordability, its abundance and the need to provide electricity for the 120 million people who are still without it. The growing importance of coal in the region highlights the need to accelerate the deployment of more efficient technologies to address the rise in local air pollution and CO2 emissions.

The SEAEO also sees the region's share of fossil fuels in the primary energy mix increasing, with coal surpassing oil to become the largest fuel by 2040. Though renewables make inroads in the region's energy mix, bolstered by policy support, their overall share diminishes by 2040 due to the decreasing traditional use of biomass (plant-based materials).

While the region remains an important fossil-fuel producer, its production is increasingly earmarked for domestic markets. In the period to 2040, the region's net oil imports are set to more than double, reaching a level equal to the current oil imports of China and, for the first time, the region becomes a net importer of gas. Removing barriers to energy efficiency, deploying more low-carbon technologies and the accelerated removal of fossil-fuel subsidies can help to slow down the rise in demand and improve energy security concerns.

There is good news here. South-east Asia has been one of the most active regions in the world in phasing out subsidies to fossil fuels. But much more remains to be done. Fossil fuel subsidies in the region amounted to US$36 billion (S$50 billion) last year. Not only do subsidies burden public budgets, but they also encourage wasteful energy use and deter much-needed investment in efficient technologies.

Attracting sufficient investment will be vital to overcome the challenges associated with advancing the region's energy security, affordability and sustainability.

South-east Asia will require US$2.5 trillion of investment in energy-supply infrastructure in the period to 2040. Policymakers will play a critical role in attracting and mobilising energy investment, and there must be continued progress in reforming domestic energy markets and improving credible policy frameworks.

Engagement between the IEA and countries in South-east Asia can help to address these common challenges. They can work together to build secure and sustainable energy supplies and markets to ensure economic development. Such engagement can also provide an example to other regions of the world facing similar challenges.

Indeed, under my leadership, the IEA will strive to build fruitful working relationships with countries beyond its membership, cooperating on a wide range of activities. In this respect, I am committed to building closer ties with countries within South-east Asia, and beyond.

•S.E.A. View is a weekly column on South-east Asian affairs.

•The writer is executive director of the International Energy Agency (IEA). He will speak about global energy transition and its implications at the Singapore International Energy Week, from Oct 26 to 30.

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A version of this article appeared in the print edition of The Straits Times on October 22, 2015, with the headline Energy demand in region seen jumping 80% by 2040. Subscribe