Southeast Asia risks $300b energy trade deficit with oil reliance: IEA

Its dependence on imports could exceed 80% in 2040, up from 65% today.

If Southeast Asian countries continue their reliance on oil, by 2040, the region is projected to register a net deficit in payments for energy trade of over $300b per year, almost entirely due to imports of the resource, according to the International Energy Agency (IEA). The region’s overall dependence on imports could exceed 80% in 2040, up from 65% today.

“A widening gap between indigenous production and the region’s projected oil and gas needs results in a ballooning energy trade deficit,” IEA said. “This would also imply growing strains on government budgets, especially if subsidy policies remain in place that shield consumers from paying market-based energy prices.”

In a report highlighting possible scenarios of the region’s future in electricity, IEA said that since 2000, overall energy demand has grown by more than 80% and the lion’s share of this growth has been met by a doubling in fossil fuel use.

Oil continues to dominate road transport demand, despite an increase in the consumption of biofuels. “Electrification of mobility, with the partial exception of two and three-wheelers, makes only limited inroads. This pathway suggests little change in Southeast Asia from today’s congested roads and poor urban air quality,” IEA said.

Apart from oil, coal is still dominant in the power mix and demand for the resource is projected to rise steadily over the coming decades, largely to fuel new and increasingly efficient coal-fired power plants. Meanwhile, natural gas faces competing pressures in Southeast Asia as increasing reliance on imports makes the fuel less price-competitive. “In our projections, it is industrial consumers rather than power plants that are the largest source of growth in gas demand,” IEA said.

Renewables potential
“Southeast Asia has considerable potential for renewable energy, but (excluding the traditional use of solid biomass) it currently meets only around 15% of the region’s energy demand. Hydropower output has quadrupled since 2000 and the modern use of bioenergy in heating and transport has also increased rapidly. Despite falling costs, the contribution of solar photovoltaics (PV) and wind remains small, though some markets are now putting in place frameworks to better support their deployment,” IEA said.

In IEA’s scenario, the share of renewables in power generation rises from 24% today (18% of which is hydropower) to 30% by 2040, but this still lags far behind the levels reached in China, India and some other economies in Asia. “Wind and solar are set to grow rapidly from today’s low levels, whilst hydropower and modern bioenergy – including biofuels, biomass, biogas and bioenergy derived from other waste products – remain the mainstays of Southeast Asia’s renewable energy portfolio,” it said.

However, recent revisions to policy planning documents have tended to boost the long-term share of renewables, typically at the expense of coal. IEA observed a significant slowdown in decisions to move ahead with new coal-fired capacity and a rise in additions of solar and wind. In the first half of 2019, approvals of new coal-fired capacity were exceeded by capacity additions of solar PV for the first time.

Even with the nudge towards energy transition, today’s investment levels fall well short of the projected needs in the IEA’s scenario and are more than 50% lower than what would be required for the scenario revolving around sustainable development.

“Public sources have thus far played a very important role in financing thermal power plant projects and large-scale renewables (such as hydropower or geothermal) with sizeable upfront capital needs. By contrast, wind and solar PV projects have relied much more on private finance, spurred by specific policy incentives,” IEA said.

To resolve this, IEA noted that there is a critical need in Southeast Asia to attract additional private sources of capital. It called on governments to enhance the financial sustainability of utilities; improve procurement frameworks and contracting mechanisms, especially for renewables; create a supportive financial system that brings in a range of financing sources; and promote integrated approaches that take the demand-side into account.

“The types of investment that go ahead will also depend on the extent of regional cooperation and integration, especially progress with the ASEAN Power Grid – an ambitious project to interconnect the power systems in the region and establish multilateral power trading,” IEA said.