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IEA fires Southeast Asia warning to LNG markets

Fatih Birol of the IEA said LNG markets would face strong competition from coal as demand increases

The International Energy Agency’s (IEA) chief economist warned that coal, not expanding North American shale production, poses the greatest challenge to Southeast Asia’s emerging liquefied natural gas (LNG) markets.

Fatih Birol told the Singapore International Energy Week 2013 (SIEW) that regional LNG markets face very strong competition from coal as Southeast Asia’s energy demand surges.

Despite the environmental benefits of gas – it is half as polluting than coal when burnt – LNG prices are twice the price, meaning that without government intervention more coal-fired power plants will be built, he said.

In the IEA’s latest Southeast Asian energy outlook, coal is emerging as the fuel of choice because of its relative abundance and affordability in the region. It will boost its share of electricity generation from less than one-third today to almost one-half in 2035, mainly at the expense of gas and oil.

The shift is already underway as some three-quarters of thermal capacity being built is coal-fired power.

“This means increasing carbon emissions”, warned Birol.

Over the outlook period to 2035, Southeast Asia’s energy-related emissions are predicted to almost double, hitting 2.3 gigatonnes, under the central scenario.

“The rising share of coal in power generation underscores the urgent need to deploy more efficient coal-fired power plants,” IEA executive director, Maria van der Hoeven, said at the launch of the special report.

The average efficiency of facilities is very low, at just 34%, owing to the almost exclusive use of subcritical technologies.

Two-thirds of global energy demand expansion will come from China, India and Southeast Asia, highlighting Southeast Asia’s rising importance to global energy markets, said Birol.

Southeast Asia’s growth prospects remain strong with per-capita energy use still very low, in part because 134 million people, or over one-fifth of the population, lack access to electricity.

In the outlook, energy demand jumps by more than 80% by 2035 – a rise equal to Japan’s demand today – and supports a near tripling of the region’s economy and a population expansion of almost one-quarter.

But booming energy demand increases the region’s dependence on oil imports and cuts its surplus of gas and coal for export, prompting the IEA to urge Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), Philippines, Singapore, Thailand and Vietnam to take serious action to improve energy efficiency.

With oil production predicted to fall by almost one-third over the outlook period, Southeast Asia will become the world’s fourth-largest oil importer, behind China, India and the EU.

By 2035 its oil import dependency almost doubles to 75% as net imports rise from 1.9m barrels per day (b/d) to just over 5m b/d – similar to China’s imports today.

Phasing out fossil-fuel subsidies, which cost the region $51 billion in 2012, will be crucial to improving energy efficiency and curtailing demand.

“It’s wrong to believe these subsidies protect the poor,” said Birol. 

Around $1.7 trillion of investment in energy-supply infrastructure is needed between now and 2035, with almost 60% of that in the power sector.

Nevertheless, attracting the cash will be difficult unless existing barriers are bridged, including: subsidised energy pricing; under-developed energy transport networks; and the need for greater stability and consistency in the application of energy-related policies, according to the IEA.

But simply by adopting energy efficiency measures that make economic sense could cut projected energy demand by almost 15% in 2035 – an amount that exceeds Thailand’s energy demand today. Net oil imports would fall by around 700,000 b/d and regional gross domestic product would rise by 2% if efficiency policies were implemented, says the IEA. 

Implementation of long-standing projects to interlink markets, namely the Asean power grid and Trans-Asean gas pipeline, would underpin more efficient exploitation of the region’s energy resources, while enhancing its collective energy security.

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