By Geoffrey Hartman & Jane Nakano —
The Center for Strategic and International Studies (CSIS) on April 25, 2017, held a roundtable discussing “Southeast Asia in Global Energy Markets: Trends, Challenges, and Policies.” The discussion brought together government, industry, financial, and policy experts in the first meeting in a CSIS-Pertamina Southeast Asia Energy Security Roundtable Series, jointly organized by the CSIS Southeast Asia Program and CSIS Energy and National Security Program.
What follows is a summary of the key policy issues for Southeast Asia energy security raised in the discussion. The full report can be found here.
- Southeast Asia faces regulatory and policy barriers to increasing oil and gas exploration and production.
New production is needed to maintain Southeast Asia’s output of oil and gas and meet at least some of the region’s growing demand for energy. Low prices in both the oil and gas markets today are working against efforts to increase production, however, especially from the significant reserves of exploitable oil and gas in costly offshore areas. In the longer run, technological advances over the next few years could reduce the cost of deep-water projects enough to make them competitive.
Southeast Asian countries are struggling to strike a balance between state ownership and control over resources, insulation of the domestic economy from price volatility, and promotion of a competitive environment for upstream exploration and development. The removal of regulatory and policy barriers that deter increased foreign investment in energy exploration and production in Southeast Asia would go a long way toward increasing the confidence of investors looking to expand exploration and production in Southeast Asia.
Regulations, like price controls on natural gas in Malaysia and Indonesia intended to aid their domestic power sectors, also reduce incentives for exploration and expanded production. Making regulatory changes could play a valuable role in increasing the number of new oil and gas discoveries in Southeast Asia that can move to production when offshore projects become economically competitive.
- Investments in energy infrastructure and institutions are needed as regional energy consumption patterns shift.
Southeast Asia’s ongoing transition from an energy-exporting to an energy-importing region will require regional countries to invest in changes to their existing energy infrastructure to adapt to changes in regional energy consumption patterns. The most obvious example of this is efforts by Singapore, Thailand, and others to build the LNG terminal infrastructure and regasification capacity needed to support a looming shift from pipeline-delivered gas imports from within the region to tanker-delivered LNG imports.
LNG infrastructure development is booming in Southeast Asia. Thailand this year will complete an expansion of its Map Ta Phut LNG import terminal to double its capacity. Vietnam is building its first LNG terminal at Thi Vai, and Malaysia is planning for two new LNG terminals in Sabah and Johor to join its existing terminal at Malacca. Indonesia has converted the Arun LNG production plant into a terminal.
Singapore has perhaps the most ambitious LNG plans in the region. It is looking to seize the opportunity to position itself as a regional LNG trading hub and is expanding the capacity of its Jurong Island LNG terminal.
- Opportunities exist for greater cooperation with Middle Eastern partners.
Producers in the Middle East are looking to expand their market share in Asia over the next few years, offering an opportunity for Southeast Asian countries to court investment in their energy sectors through greater cooperation with Middle Eastern partners. Opportunities for joint ventures with Middle Eastern producers are particularly good in the refining sector and in petrochemicals production.
Recent joint venture deals between Saudi Arabia and partners in Southeast Asia demonstrate the potential for greater cooperation in the refining and processing sector. Saudi Aramco signed an agreement with Indonesia’s Pertamina in December to proceed on an upgrade of Pertamina’s Cilacap refinery on Java that will allow the refinery to produce basic petrochemicals and fuels that meet European emission standards. Aramco signed a similar deal with Malaysia’s Petronas in February to buy a stake in Petronas’s Refinery & Petrochemical Integrated Development project in Johor.
- Regional governments have made progress in slowing energy demand, but more can be done.
Growing energy demand in Southeast Asia will result in an increasing dependence on energy imports even if efforts are made to increase local energy production, and efforts to slow the growth in energy demand in Southeast Asia will be key over the long term in lessening the region’s reliance on energy imports.
Energy intensity — a measure of the energy efficiency of an economy — has begun declining in Southeast Asia over the last decade, and may have peaked in key countries like Indonesia and Malaysia. This increase in energy efficiency is likely to continue as Southeast Asian countries continue to urbanize and shift from the use of traditional fuels like wood and other organic matter to modern energy sources.
While Southeast Asia is making progress on slowing energy demand, the regional focus remains on meeting rather than slowing growing demand and more can be done to increase energy efficiency. Policies mandating increased energy efficiency standards for buildings, equipment, appliances, and vehicles could be particularly effective in Southeast Asia, where many countries have not yet introduced such standards.
- Governments seek to bolster energy security through diversification strategies that include promotion of modern renewable energy resources.
Renewable energy sources already contribute significantly to the energy mix in much of Southeast Asia, but primarily in the form of traditional biofuels, like wood and other organic matter, and hydropower, which is the dominant source of power generation capacity in Laos, Myanmar, and Vietnam. Many countries in the region are promoting the use of modern renewables (wind, solar, geothermal), and have adopted targets for increasing their share of the overall energy mix.
Hydropower remains an important option for Laos and Myanmar, which both have large amounts of unexploited hydropower potential. Laos has taken advantage of its hydropower potential to become a successful electricity supplier, with two-thirds of its hydropower exported to neighboring Thailand and Vietnam. Opposition to further hydropower expansion exists due to the potentially harmful impacts on the environment and local communities, especially in Myanmar.
Solar and offshore wind power have wide potential across Southeast Asia, but are not economically competitive with gas or even cheaper coal for power generation. Financing difficulties and bureaucratic hurdles in areas like licensing hold back the potential of solar and wind projects in much of Southeast Asia.
Geothermal power also has the potential to play a growing role in Southeast Asia’s energy future, albeit one limited primarily to the Philippines and Indonesia. The Philippines and Indonesia are the second- and third-largest producers of geothermal power generation, and Indonesia has significant geothermal potential that has yet to be exploited.