Energy Security in Southeast Asia
45 million people.
That is the number of people in Southeast Asia that lack electricity. People who can’t access refrigeration, lighting, heating, air conditioning, or the internet. And millions of more people cannot reliably access electricity or other forms of energy.
This lack of energy security is a major public policy challenge for leaders in Southeast Asia. How Southeast Asian countries choose to improve their energy security has impacts not only on their individual citizens lives but also their economies, their nations financial health and global environment.
Energy Security in Southeast Asia
According to the World Energy Council, countries in the Southeast Asia region rank as high as #30 (Indonesia) to as low as #88 (Singapore) for energy security.
At its most basic energy security is the availability of sufficient and reliable energy supply at affordable prices. As demand for energy continues to grow in Southeast Asia, leaders around the region are determining what sources to develop, suppliers to use and the best ways to get the needed energy to its citizens.
Two other issues when contemplating energy security are Diversification and Resilience.
Energy resilience makes sure that a country has enough of an energy allowance in the supply system to cushion against sudden jolts or changes to the energy supplies while energy diversification means having a diversified energy mix using a variety of resources including oil, natural gas, coal, renewables, hydropower, nuclear and hydrogen so that there is no single dependence on a single type of energy sources.
Balancing demand for energy with diversification and resilience is difficult for any country but for a region like Southeast Asia the challenge is particularly difficult as I explain below.
First however, we need to look at the region’s current energy needs.
Current Energy Demands in Southeast Asia
Southeast Asia currently consumes 700Mtoe on an annual basis but the increase in energy demand in the region has been enormous. Since 2000, overall energy demand has grown by more than 80% with most of this growth coming from a doubling in fossil fuel use. This increase in fossil fuel usage is expected to continue as projected oil demand in the region is expected to surpass 9 million barrels per day (mb/d) by 2040, up from just above 6.5 mb/d today. In addition, at an average growth rate of 6% per year, the demand for electricity continues to grow in Southeast Asia.
According to the International Energy Agency, as of 2018, Southeast Asia primary energy mix
consists of Coal (20%), Oil (38%), Gas (12%), Renewable (15%), Biomass (12%), Hydro (3%). When looking at Southeast Asia electricity generation, energy is produced by Coal (40%), Oil (2%), Gas (36%), Hydropower (19%) and other renewables (3%). In both cases, it seen that Coal, Oil, and Gas are the largest contributors to energy in the region.
But where is all this energy coming from? The answer is, other than coal, almost all Southeast Asia’s oil and gas is imported from outside the region. This can vary from country to country as some countries in the region are producing oil and gas but most of the existing production is old, declining and incapable of meeting future demands. From an energy security and affordability point of view, this reliance on imported energy represents a significant risk and cost to the region.
But what about the future? What will Southeast Asia need going forward?
The current projection is that Southeast Asia’s future energy demand will grow almost 60% over the next twenty years to 1,100Mtoes.
In terms of energy mix for power generation, growth on renewable energy is faster than any other type of energy sources but both coal and gas are expected to continue to expand. The projected energy mix in 2040 is expected to consist of fossil fuels (Coal, Gas and Oil) contributing 70% of the needed energy while low-carbon generation contribute 30%. This represents an increase in 8% for low-carbon generation with an equivalent drop in fossil fuels.
Despite this change towards more low-carbon power generation, Southeast Asia will become increasingly reliant on energy imports over the 2020–2040 timeframe. Imports of oil are expected to rise to over 7 million barrels per day from the current 4 million barrels per day with most of the imports coming from the Middle East, Australia, and the United States. This growth in import demand in Southeast Asia is part of a wider shift in global oil trade towards Asia and away from Europe and North America.
What is driving this growth in Southeast Asia’s energy demands?
There are four main factors driving growth in Southeast Asia: Population, Economic Growth, Income Levels, Urbanization, and Expectations.
1.) The first factor driving future energy demand in Southeast Asia is population growth. Currently the population of Southeast Asia is 650 million people, but by 2040 the region’s population is expected to grow to almost 770 million people. This addition of another 120 million people will result in increased energy demands.
2.) The second factor driving future energy demands is economic growth. Since 1999, the region’s GDP has grown from US$577 billion to US$2,551 billion in 2016, making it the sixth-largest economy worldwide. Even with the recent impacts of COVID19 on the region, projections show that Southeast Asia GDP is to grow by 7.7% in 2021 and 5.2% in 2022. Economists project that the Southeast Asia region will have an annual growth rate of over 5.5% per year with the region expected to become the fourth largest economy in the world by 2050 lagging only behind China, India, and the United States.
3.) With this economic growth comes growing income levels which is the third factor that will affect energy demand. As a result of rising incomes, the middle class in Southeast Asia is expected to double from 80 million households to more than 160 million in 2030. This new middle class will demand greater variety and higher quality goods and services. A good example of how this consumption shift will drive energy demands is with air conditioning. Currently only 15% of households in Southeast Asia have air conditioning at home as compared to over 60% of homes in Canada and 75% of homes in the United States. With increasing incomes and higher regional temperatures, air conditioners sales are expected to boom over the 20 years.
4.) The fourth factor is growing urbanization. The share of Southeast Asia population living in urban areas is projected to expand from under 50% today to more than 60% in 2040. Megacities in the region such as Jakarta, Bangkok, Ho Chi Minh City and Manila will all continue to see rapid growth and likely struggle to provide the housing, infrastructure, and other services that its growing population will require. The lack of widespread public transportation means that most people require a personal vehicle to meet their needs with the IEA projecting that the amount of road vehicles in the region will increase by two-thirds to about sixty-two million. While some of this increase in vehicles will come from electric vehicles (EV), the current lack of charging infrastructure, safety regulations and higher costs of EV that there remains a preference to for non-EV vehicles.
5.) A fifth and final factor increasing energy demands in the region are growing expectations. With people having higher incomes and moving to cities, they are demanding access to a higher quality of goods and services. One good that stands out is for growing numbers is Air Conditioning. In Canada, the number of households with air conditioning is 60%. This compares to just 9% of households in Southeast Asia where the average temperature is 27 C with highs of 38 or more. It is estimated that the number of air conditioning units will rise from forty million units in 2017 to 300 million in 2040. Each of these units will require electricity.
Challenges to Energy Security
While there any many factors affecting the energy demand in the region, policy makers face even more challenges in obtaining energy security for Southeast Asia. While this article highlights four challenges, there are many more than countries must deal with.
The first challenge that Southeast Asia faces in building energy security for its people is geography. With an area spread over 4,545,792 km that consists of mountain ranges, plateaus, massive deltas, jungles and with over 30,000 islands, the sheer vastness and diversity of the geography of the region provides a significant challenge to bringing energy to all off its population. In terms of energy supplies, Southeast Asia has significant coals reserves, hydro power, and potential access to solar and wind power, but the amount of internal oil and gas is not sufficient to meet its current needs let alone future demands.
The second challenge for energy security is Southeast Asia is its energy infrastructure. While most of the focus of the energy debate surrounds the needs for increases power generation and its diverse types, the lack of transmission and distribution will have an enormous impact on the overall energy security for the region. The ASEAN Power Grid, an initiative to construct a regional power interconnection amongst Southeast Asia states, has made progress in connecting countries but significant work remains to achieving its overall goal. The cost of building this infrastructure will be expensive. The Asian Development Bank estimates that from 2016 to 2030, the region will soak up $14.7 trillion of investment in energy infrastructure.
Paying for all this new infrastructure and increase in energy demand is the third challenge that Southeast Asia countries face in building energy security. Countries in Southeast Asia lack the internal funds to build new energy capacity, transmission, distribution and the other accompanying infrastructure or energy sources themselves needed to provide its population with the energy its needs. This means that that the countries will require funds from outside the region whether from other countries, multilateral institutions, or the private sector. Yet as the price of energy rises and international investors become less willing to invest in non-renewable energy sources, countries in Southeast Asia will have fewer places it can turn too to fund its energy needs.
The final and most important challenge for energy security facing the region is Climate Change.
Rising Southeast Asia levels, increased natural disasters, changes to weather patterns, flooding, heat waves, increasing ocean acidification, shifting fish distributions, air pollution are all examples of the direct impact that climate change is already having on the regions. While countries such as the Philippines, Vietnam and Indonesia are particularly vulnerable, all the countries in the region are being impacted.
An example of the intertwining of energy and climate change can be found once again in air conditioning. The higher temperatures are leading to an increased use of air conditioning which in turn drives Southeast Asia’s growth in electricity demand. The peak demand for air conditioning and cooling systems strain power systems which forces countries in the region to increase their power generation capabilities. While renewable energy is growing in the region, it is only projected to meet around 15% of demand as countries focus their efforts on coal and oil and gas-based power generation.
A particular challenge for Southeast Asia is that due to increase growth and fossil fuel consumption, CO2 emissions from the region are expected to increase by two-thirds to 2.4 gigatons (Gt) in 2040. IEA reports show that “the region’s power sector is responsible for just under half of CO2 emissions in 2040, up from 42% today.”
For countries in the region, energy security is a major challenge they are facing as they look to balance growing energy demands due to increasing populations and expanding economies with the climate change and the impact it is having locally, regionally, and globally.
Southeast Asia will continue to see a growth in the demand for energy over the next 20 years and with it a growing demand for energy supplies including oil, gas, and coal. The factors driving this increase in demand (growing populations and economies, increasing incomes, urbanization, and expectations) are not likely to change due over the short or medium term.
As countries move to build their energy security by generating more power, diversifying their energy mix and building a more resilience energy system, they will face geographical, financial, and technical challenges along with the impact of climate changed on their territories and citizens.
While future technologies hydrogen, better energy storage capacity, and more efficient distributed electrical systems will help reduce their emissions and renewable energy will take on an increasing portion of the energy mix in the region, the sheer size of Southeast Asia projected growth and how it will fuel that growth will have global implications.