Opportunities and challenges
The Southeast Asian countries have abundant fossil, non-fossil, and renewable energy sources to fuel their economy and sustain their population growth. Therefore, a regional energy market could effectively enhance the SEA states’ energy security. However, what are the factors that could impede this development?
Introduction – Energy sources inSoutheast Asia
As a region,Southeast Asia is rich in fossil and non-fossil energy sources. Specifically, the region has abundant supplies of natural oil, gas, coal, biofuels and hydro energy. In order for the Southeast Asian nations’ economy and population to continue to expand and grow in the future, they will need cheap, reliable, and sustainable sources of energy.
Liquefied natural gas (LNG) is gaining traction in Southeast Asia. Soon, Singapore will have the capacity to join the ranks of Indonesia, Thailand, Myanmar, Vietnam, and Malaysia as LNG-exporting nations. Singapore’s LNG terminal will be operationally ready in 2013 and the government recently announced plans to add a fourth storage tank.
As for biofuels, Malaysia is one of the leading global exporters of palm oil. Domestically, Indonesia and Thailand have been aggressively promoting the production and consumption of biofuels at the community and national levels. For instance, due to the readiness of feedstock supplies, bioethanol has successfully penetrated the market in Thailand. However, this is not the case for biodiesel as its feedstock, oil palm, requires more land mass and a longer cultivation cycle than bioethanol: oil palm takes three to four years to cultivate compared to one year for bioethanol. Nevertheless, there are plans among the Southeast Asian states to increase the production and export of biofuels to each other.
Coal is the second largest global source of energy as of 2011. Indonesia was one of the world’s top 10 producers in 2011, according to the World Coal Association. Indonesia will continue to increase its coal exports to meet rising demand. However, Vietnam announced in 2011 that it would recalibrate its exports to meet the growing need of theSoutheast Asia markets. In fact, the country will be reducing its coal exports and turning to imports in order to support its growing domestic energy needs. Essentially, amidst advancements in clean coal technology and increasing fluctuations in global oil and gas prices, coal may very well be the fuel of choice for the Southeast Asian states.
Hydro energy from the Mekong river is another major source of energy for the region. Currently, only ten per cent of its 60,000 MW hydro potential has been realised by the Mekong’s riparian states and China. Laos, Myanmar, and Cambodiaare implementing hydro dam projects aggressively. There are bilateral agreements in place for the export and import of hydroelectricity among the Southeast Asian nations; Laos, in particular, plans to be the ‘Battery’ of Southeast Asia.
In view of the region’s projected fossil and non-fossil fuel reserves, it can contribute to the energy security of the individual regional states. However, there are three conditions that must be met. First, the regional inter-governmental organisation, ASEAN, must be more effective in enhancing real and meaningful cooperation among the member states. Second, the supply of energy sources must be supported by physical infrastructures that are safe from environmental hazards and security threats.
Finally, the Southeast Asian nations’ regulatory bodies must harmonise their legal and regulatory frameworks to ensure consistency. In the remainder of this article, these three criteria will be used to evaluate the effectiveness of two current ASEAN initiatives: the ASEAN Power Grid (APG) and the Trans-ASEAN Gas Pipeline (TAGP).
Role of ASEAN in integrating SEA’s energy market
Energy security remains an important issue, as competition for access to resources could lead to conflict between and within states. The rise of economic giants such as China and India also introduces greater competition in the energy market, and their rising energy demand affect both the availability and prices of energy sources. Cognisant of these issues, the 10 member states of the ASEAN have sought to enhance energy security through regional energy cooperation.
Benefits of interconnectivity
ASEAN leaders recognise that the APG and TAGP are crucial steps that are needed to guarantee energy security in the region and to optimise the use of energy resources. Currently, the TAGP’s infrastructure consists of seven pipelines adding up to 1,659 km. As for the APG, there are currently five grids in operation, four under construction, and seven in preparatory stages.
The increased integration of ASEAN’s energy markets will sustain industrial and economic activities and open up opportunities for cross-border electricity trading and investments from the private sector. More importantly, interconnected grids and pipelines can also enhance the quality of energy supply and encourage the advancement of renewable technologies, thus helping the Southeast Asian states in their common goal of combating greenhouse gas emissions. Finally, these projects could also increase the electrification rate in Southeast Asia, especially among the rural population.
Although Myanmar, Cambodia, and PDR Laos have significant potential in oil, gas and hydro power, their electrification rates are 13 per cent, 24 per cent, and 55 per cent, respectively. As the largest palm oil producer in the world, Indonesia also has huge untapped oil, gas, coal, hydro, and geothermal resources; yet its electrification rate stands at 64.5 per cent, which implies that 81.6 million people in the country have no access to electricity. An important goal of the APG and TAGP is to address these concerns so as to ensure that distribution of and access to energy are equitable.
Challenges of interconnectivity
As noted by ASEAN leaders, the main challenges to ASEAN’s energy connectivity include: significant variations in the levels of market liberalisation among member states; inconsistencies in pricing policies; the current quality of pipelines and electricity grids in the respective countries; and the differing political directions of the various governments.
S. Iswaran, the Second Minister for Home Affairs and Trade and Industry of Singapore, notes that, while the role of governments is to conceive of plans and lead the general direction of the country’s energy sector, private companies are needed to execute those plans. However, ASEAN leaders are still engaged in considerable debate about the incentives that should be given to the private sector, in terms of subsidies and feed-in tariffs, which will determine the rates of electricity of national or local power grids. J. Almendras, Secretary of the Department of Energy of the Philippines, contends that countries that have to provide power for rural communities and unconnected islands require government intervention. In addition, while both the Philippines and Malaysia are in favour of introducing feed-in tariffs for the renewable energy sector, Malaysia would only support feed-in tariffs if they achieve grid parity, meaning that the prices of electricity from alternatives sources must be competitive vis-à-vis conventional sources. On the other hand, Singapore does not support subsidising the consumption of alternative energy sources such as solar, hydro, wind, and biomass. In Iswaran’s viewpoint, feed-in tariffs are merely subsidising costly alternatives, rather than encouraging competition in the industry.
Another challenge that Southeast Asia faces is the changing priorities of gas-producing countries. Indonesia, for example, is now more focused on channelling its gas reserves for domestic consumption, while Myanmar has agreements with non-ASEAN countries such as China to supply the latter with gas. These developments could have an adverse impact on the effectiveness of the TAGP, as the existing gas pipelines will not be able to secure sufficient gas supplies for the region.
The geographical diversity of ASEAN could also pose difficulties to the successful establishment of the TAGP and APG. The terrains of Thailand, Vietnam, Myanmar, Cambodia, and PDR Laos are mountainous with swift-flowing rivers, which make the construction of integrating infrastructures between countries difficult. On the other side of the region, Singapore, Malaysia, Indonesia, Brunei, and the Philippines are separated by seas; thus, forging these connections is costly. Moreover, while member states possess adequate technical knowledge to maintain domestic pipelines, they lack the experience and infrastructure to supply energy through a transnational border to another country.
Another obstacle to a secure integrated power grid and gas pipeline is the current disputes over territories within Southeast Asia and in the South China Sea. In the case of areas with vast resources, the attainment of energy cooperation can prove to be elusive.
Finally, the expansion of power grids may incite discontent among landowners whose lands are situated within the proposed routes of potential transmission lines. Moreover, as transmission lines are usually located in rural areas, the issue of unequal access to electricity will be brought to the fore. Typically, the urban population and private companies benefit from these developments, while the rural population remains excluded from the shared grid. Therefore, governments need to take into consideration the concerns of landowners and the indigenous populations with their native land rights.
Continuing relevance of interconnectivity and energy cooperation
If the governments address these challenges in their ongoing planning and construction of the APG and TAGP, the integrated frameworks will eventually benefit all communities. Moreover, they will enhance ASEAN’s position in the international economy, promote multilateral cooperation in securing energy supply, and increase the electrification rate, especially for rural communities.
Regional infrastructures such as the APG and TAGP also highlight the relevance of ASEAN in transforming the region to a competitive one. ASEAN’s success with the AGP and TAGP would also show that cooperation is possible in tandem with a policy of non-interference. Finally, an integrated energy market would support the goals set out by ASEAN Vision 2020 and accelerate the implementation of the ASEAN Economic Community plan.
About the Author
For more information, contact Dr Eulalia Han at esihne@nus.edu.sg
