Southeast Asia’s energy landscape to continue shift with rising demand

The energy landscape in Southeast Asia continues to shift as rising demand, constrained domestic production and energy security concerns lead to a greater role for coal, a sharp rise in the region’s dependence on oil imports and the reversal of its role as a major gas supplier to international markets, according to the World Energy Outlook Special Report on Southeast Asia (WEO Special Report).

Released by the International Energy Agency (IEA) during the Association of Southeast Asian Nations (ASEAN) Ministers on Energy Meeting in Kuala Lumpur on Oct. 8, the report presents a central scenario in which Southeast Asia’s energy demand will increase by 80% in the period to 2040, though the region’s per-capita energy use is projected to remain well below the global average.

And despite policies aimed at scaling up the deployment of renewable resources, the share of fossil fuels in the region’s energy mix is projected to increase to around 80% by 2040, in stark contrast to the declining trend in many parts of the world.

Rising imports by the region as a whole sharpen the focus on the economic and security aspects of energy use. By 2040, the region’s net oil imports are projected to more than double to 6.7 million barrels per day (bpd), a level equivalent to the current oil imports of China. Southeast Asia’s oil import bill is projected to increase to more than USD 300 billion per year by 2040, compared with around USD 120 billion in 2014, with increases in spending in almost all countries in the region.

The power sector will shape the energy outlook for Southeast Asia, as electricity demand will almost triple by 2040. The sector will continue its shift towards coal due to its abundance and relative affordability. Although the average efficiency of Southeast Asia’s coal-fired power plant fleet will increase by five percentage points throughout 2040, less-efficient subcritical technologies will account for 50% of the region’s coal power fleet in 2040, highlighting the need to accelerate the deployment of more efficient technologies in the region to reduce local pollution and slow the rise in CO₂ emissions.

The WEO Special Report was prepared in collaboration with the Economic Research Institute for ASEAN and East Asia (ERIA), analyses four key issues that will shape the future of Southeast Asia’s energy system: energy investment, power grid interconnection, energy access and fossil-fuel subsidies.

“The reliability and sustainability of Southeast Asia’s energy system depends on investment,” IEA Director of Energy Markets and Security Keisuke Sadamori said. “To secure its energy needs, the region requires USD 2.5 trillion of investment in energy-supply infrastructure in the period to 2040, but for this to materialise we need to see more progress with reforms to domestic energy markets and the establishment of improved policy frameworks.”

The report notes that greater integration of the region’s energy markets could help catalyse development of energy resources, facilitate more efficient use of the region’s resources and enhance energy security.  The report also calls for more efforts to reduce subsidies to fossil fuels, noting that the region spent USD 36 billion on fossil-fuel subsidies in 2014 despite reforms in Indonesia, Malaysia, Thailand and Myanmar.

The WEO Special Report also includes an in-depth focus on Malaysia that highlights the ongoing changes for the country’s energy sector. Malaysia’s energy demand will almost double by 2040, with fossil fuels continuing to meet more than 90% of demand throughout the period, with coal overtaking oil and gas to become the primary fuel in Malaysia’s energy mix. Renewables, aided by government policies and incentives, will grow, especially in the power sector where their share of generation will reach 16% by 2040. Malaysia’s role in international markets will shift, as it becomes increasingly dependent on imports, the report said.