Energy Update: Notes from Energy Committee Q2 2018 Call

Energy Update | July 10, 2018
Authors: Riley Smith and Mianmian Fei
 
NOTES FROM ENERGY COMMITTEE Q2 CALL
 
 

On July 3, the Energy Committee held its second Quarterly Call for 2018. During the call Mr. Ali Al-Saffar provided a briefing on energy trends in Southeast Asia. Mr. Al-Saffar is an Energy Analyst at the International Energy Agency's Directorate of Sustainability, Technology and Outlooks and is the lead author of the IEA's Southeast Asia Energy Outlook 2017. Mr. Al-Saffar's official bio can be found here. The slides accompanying Mr. Al-Saffar's briefing can be found here

The remainder of the call was dedicated to reviewing the Council's participation in the ASEAN-IEA Digitalisation and Energy Workshop on June 27 and discussing a potential Energy Industry Mission to Malaysia immediately before the Malaysian Business Mission in October. A PDF version of the call notes can be found here.

If you have any questions about the call or the activities that were discussed, please contact Riley Smith at rsmith@usasean.org.

Notes from Energy Committee Q2 2018 Call

Date and Time:    Tuesday, July 3, 2018, at 9:00 AM EDT (Tuesday, July 3, 2018, at 9:00 PM Singapore time)

  • Briefing by Mr Ali Al-Saffar, Energy Analyst, Directorate of Sustainability, Technology, and Outlooks, International Energy Agency (IEA), on energy trends in Southeast Asia
    • Main takeaways
      • Robust economic growth and fast-paced demographic change mean that Southeast Asia’s role in global energy is set to expand
      • The region faces myriad energy challenges; it is crucial for policy-makers to pursue a consistent strategy to meet them
        • Rising energy needs coupled with decreasing fossil fuel production mean that the region is not able to keep up with energy demand
          • Southeast Asia will increasingly depend on energy imports in the future
            • By 2040, Southeast Asia is a net importer of all fossil fuels, with an import bill that exceeds US$300 billion
          • This dependence has implications for economic and energy security
        • A growing middle class proves a formidable factor behind both the increase in electricity (in households) and oil (for transport)
      • Energy efficiency, subsidy reform and enhanced regional integration play vital roles
        • Renewables account for the largest share of installed capacity by 2040, but coal plays a major role in the projected generation mix
        • All countries in the region achieve universal access to electricity by the early 2030s, deploying a range of technologies depending on the circumstance
      • With a small increase in overall investment, but a major reallocation of flows, Southeast Asia can achieve a more sustainable path, with multiple benefits
    • Detailed Briefing Notes
    • Overview of key energy trends in Southeast Asia:
      • Summary: Rising energy needs coupled with decreasing fossil fuel production mean that the region is not able to keep up with energy demand
        • Southeast Asia will increasingly depend on energy imports in the future
        • This dependence has implications for economic and energy security
      • Every two years IEA publishes a deep dive on energy trends in Southeast Asia
        • Publication is part of broader annual World Energy Outlook
        • Focus on Southeast Asia because region is emerging major global energy player
      • Factors contributing to emergence as major global energy player
        • Strong economic and population growth
        • Urbanization and industrialization
      • Energy demand increased by 60% since 2000
      • Per capita primary energy demand still around half of global average
        • There is strong potential for further growth
    • Southeast Asia faces multiple energy challenges
      • 65 million people lack access to electricity
      • 250 million people rely on solid biomass for cooking
        • There are health costs associated with relying on biomass
      • Region faces dwindling position as a gas exporter
        • Flattening gas production combined with continuing rise in demand
      • Region faces rising dependency on imported oil
        • Oil imports exported to more than double by 2040
        • Refining capacity expected to increase 60%
      • Wide-scale urbanization and the reliance on solid biomass for cooking lead to:
        • Poor air quality
        • Large increases in carbon dioxide emissions
        • Vulnerability to effects of climate change, especially in the islands
    • Opportunities for a cleaner energy future in Southeast Asia
      • Most countries have started to tackle these challenges
        • All ten members have ratified the Paris Agreement
        • Almost all have renewables and efficiency targets
          • Almost all have started to implement policies to try to achieve these targets
      • Fossil fuel subsidy reforms making progress
        • Especially in Indonesia, Malaysia, Thailand and Vietnam
        • Up until recently, low-oil-price environment since 2014 gave these countries space to reduce subsidies
    • Factors affecting energy development in Southeast Asia
      • Summary: A growing middle class proves a formidable factor behind both the increase in electricity (in households) and oil (for transport)
      • There is a shift in global center of gravity for energy
        • Emerging economies such as Southeast Asia (11%), India (26%) and China (21%) are engines of future energy demand growth
          • Collectively account for almost 60% of global energy demand growth to 2040
          • In comparison, energy demand is increasingly decoupled from economic growth in developed economies (the US, EU and Japan).
      • Factors contributing to the robust growth of final consumption of energy in Southeast Asia
        • Decrease in use of biomass
          • Decrease is a policy-driven phenomenon
          • Traditional biomass gradually being replaced by modern energy such as electricity and liquid petroleum gas (LPG).
        • Consumption of coal continues to grow
          • Mainly centered in industry
            • There is increased demand from glass and steel production, especially in Indonesia and Vietnam
        • Gas consumption grows strongly
          • Gas consumption increases by 60% to 2040
          • Driven by increased use in industrial sector
            • Industrial sector accounts for 80% of the growth in gas consumption
        • Strong growth in oil consumption because of increase in number and use of vehicles
          • Growth in consumption of oil by around 40% in total by 2040
          • There will be 30 million more passenger cars and 1.6 million more trucks on the road by 2040
          • Oil maintains position as the largest source of energy in transport and industry sectors in Southeast Asia.
        • The largest growth in consumption comes from electricity
          • Rate of electricity consumption more than doubled since 2000
            • Grew at annual average rate of 6.1%, twice the world average
            • Increase in consumption from buildings reflects increasing ownership of appliances and growing trend of urbanization (rising incomes)
          • Rising electricity demand means power generation more than doubles to 2040
            • Power generation increases at pace twice the global average
          • Installed capacity expected to double by 2040, reaching 565 GW by 2040
            • Major increase seen in Indonesia, which increases capacity to around 180 GW
    • The power generation mix becomes more diversified
      • Summary: Renewables account for the largest share of installed capacity by 2040, but coal plays a major role in the projected generation mix
      • Coal makes up of the largest source of energy by 2040
        • Makes up of 40% of the power generation mix
        • Due to polices and coal-fired power plants currently in place today
        • Also due to relative affordability and abundance of coal domestically
      • Gas-fired power generation also increases, by around 60% in 2040
        • However, share of gas-fired power generation in mix decreases to 28%
      • Oil is almost entirely phased out
      • Limited growth in nuclear power
        • Currently no nuclear power in region’s energy mix
        • Thailand includes 2 GW of nuclear power capacity by 2036 in national power development plan
      • Major trend in Southeast Asia is increase in renewables in Southeast Asia
        • Renewables expected to make up around 30% of power generation mix by 2040
        • Enabled by significant reduction in cost of renewables globally
        • Many countries have announced plans to boost renewable energy development
          • Thailand, Malaysia, Indonesia and Vietnam have already introduced feed-in tariffs for solar power
          • Almost all the other countries have renewable energy targets
    • The road to universal electricity access
      • Summary: All countries in the region achieve universal access to electricity by the early 2030s, deploying a range of technologies depending on the circumstance
      • There has been tremendous improvement since 2000
        • 170 million people have gained access to electricity, bringing regional electricity access rate to around 90%.
        • 65 million people remain without access, with most of them in remote communities and small islands.
      • All the countries will achieve universal access by the early 2030s
        • Of those currently without access, more than 95% live in four countries: Indonesia, Philippines, Myanmar, and Cambodia
        • Region will have an additional 145 million electricity consumers by 2030
        • Almost 60% of those that gain access to electricity do so through connections to mini-grid (33%) and off-grid (27%) systems
          • Important in remote areas including parts of Cambodia and Myanmar, which accounts for 60% of the new connections
        • Fundamental significance of on-grid connections to new consumers
          • Important in more densely populated areas including East Java in Indonesia 
          • Over 20% of new connections by 2030 comes from coal fired generated links to the grids
    • Southeast Asia will face a growing need for fossil fuel imports
      • Summary: By 2040, Southeast Asia is a net importer of all fossil fuels, with an import bill that exceeds US$300 billion
        • There are financial and energy security consequences to this trend
          • Financial consequences are that import bill will exceed US$300 billion dollars in 2040
          • Most of import bill will be for oil
      • Oil
        • Supply
          • Oil production stands around 2.5 mb/d
          • But depleting reserves means production has been in gradual decline since the 1990s and will continue
            • Production expected to reach 1.7 mb/d in the next 25 years
        • Demand
          • Expect robust increase in demand
        • The Gap will be met by ever-growing imports
          • Region will need to import 7 mb/d by 2040
      • Gas
        • Supply
          • Region is able to maintain its production at the current level of around 220 bcm
        • Demand
          • Large increase in demand for gas in power and industry
          • Southeast Asia will become a net importer of gas after 2025.
      • Coal
        • Southeast Asia will also become a net importer of coal, although Indonesia remains a prominent exporter
          • Reflects policy decision to limit coal production and export
    • Future projections for energy sector in Southeast Asia
      • Summary: A small increase in investment sets Southeast Asia on a more sustainable path in terms of energy and brings multiple benefits
      • Two actions policy makers can take to help alleviate these concerns and put Southeast Asia on more sustainable path
        • Increase regional infrastructure integration
        • Accelerate transition to more sustainable energy system
          • A system in which energy is used more efficiently and renewables account for a greater share
        • To achieve this, the difference in overall spending is relatively small – just around US$14 billion a year to 2040
          • However, beyond slight increase in investment, there needs to be a profound shift in the pattern of spending towards renewables and energy efficiency
          • This shift would bring following benefits
            • Southeast Asia would import less gas and oil, saving around US$180 billion per year from the import bill in 2040,
            • This would cover culminative increase in investment needed to reorient energy sector
          • The increased penetration of renewables and wider deployment of more efficient coal-fired plants reduces carbon intensity in power sector by almost 20%
          • The cleaner use of energy has perceptible benefits to human health, cutting by 60% the number of premature deaths from indoor and outdoor air pollution
  • Q&A with Mr. Ali Al-Saffar
    • Question: Of the ten ASEAN countries, how many are attempting to use high-efficiency, low-emission (HELE) coal-fired power plant technology to help meet their NDCs under the Paris Commitment?
    • Answer: Coal fired power generation is relatively wide-spread across the region apart from Laos which almost exclusively relies on hydropower
      • There is a general movement away from subcritical coal-fired power plants to HELE plants, so much more efficient burning of coal
      • We are still seeing heavy proliferation of coal-fired power generation in the region
    • Question: Is the cost of the HELE technology prohibitive, even with the benefits from the more efficiency burning of coal?
    • Answer:  IEA’s assumption is yes; the economics still work out
      • ASEAN is a resource-constrained region
        • The reliance on domestically produced coal is not only relatively cheap but alleviates some of the concerns over security of supply
    • Question: Could you clarify what you were saying about the cumulative investment in the energy sector needed to move from New Policies scenario to Sustainable Development scenario?
    • Answer: It is around US$3 trillion of cumulative investment up to 2040
      • Power sector accounts for around a half (US$1.2 trillion)
        • Reflects fact that electricity demand grows robustly
        • If you break US$1.2 trillion down, around 60% goes towards renewables, about 30% goes towards coal
  • Readout of ASEAN-IEA-U.S. Digitalization and Energy Workshop in Singapore
    • Main takeaways from workshop:
      • Session 1: Digitization and Energy
        • Presentation by IEA
        • Trend of digitalization: reducing energy by using smart building control, digital solutions for logistics, etc.
      • Session 2: Digitization and its Impact on ASEAN Energy Sector
        • Impact of Digitalization on ASEAN energy section
        • Organization-wide changes are required for organizations to go digital
      • Session 3: Digitalization and its Challenges
        • Included presentation by Energy Market Authority of Singapore on policy and mindset
          • Foster innovation and new business model while keeping regular trade principles.
          • Increase consumer awareness from the demand side.
    • Next steps for joint ASEAN Centre on Energy (ACE) and USABC report on digitalization in ASEAN’s energy sector
      • Main purposes of report are to:
        • Have a project/report that delegation to ASEAN Ministers on Energy Meeting can present at plenary session of all 10 ASEAN Energy Ministers
          • Unlike other sectors, in order to present to ASEAN Energy Ministers plenary, need to have a project that has been endorsed by the relevant sub-sector network and the Senior Officials for Energy
          • Council had concept note for report endorsed by the officials at the Regional Energy Policy & Planning Sub-Sector Network during week of June 25-29
        • Deepen collaboration with ACE
      • Outline of report to be presented at the Senior Officials Meeting on Energy (SOM-E) in July
      • If cannot present outline at SOM-E in July, will do so at SOM-E immediately before ASEAN Ministers on Energy Meeting in October
      • Will send around information on
        • How member companies can contribute case studies/best practices
        • Sponsorship for report
  • Proposed Energy Industry Mission to Malaysia
    • Council soliciting member company interest in an Energy Industry Mission to Malaysia
      • Mission would take place immediately before Malaysia Business Mission
        • Malaysia Business Mission scheduled for October 16-18
        • Energy Industry Mission to Malaysia would take place October 15
      • Focus of Energy Industry Mission would be meeting with
        • Petronas
          • There is a good chance that there will be new leadership at Petronas by October
        • Working-level officials at the Energy Commission (Suruhanjaya Tenaga (ST))
        • Other organizations member companies would find useful to meet with
      • Format – the Council is open to suggestions from member companies on format
      • Comment: Would work best if Energy Industry Mission was as close as possible to Malaysia Business Mission, otherwise logistic for those who want to attend both could be difficult
        • In addition to meeting with Petronas, consider meeting with the following group to gain broader perspective on energy issues
          • Officials at other ministries/agencies that also cover/focus on energy sector
          • Officials at U.S. Embassy who focus on energy issues
      • Response: Country business mission delegation will have a briefing by the U.S. Embassy on first morning of the Malaysia Business Mission
        • But having people at the Embassy who focus on energy brief the Energy Industry Mission delegation would be a great addition
        • Council is trying to maximize the ease of doing the back-to-back missions, so we are looking to have the Energy Industry Mission on Monday (October 15) and lead directly into Malaysia Business Mission the next morning (October 16-18)
      • Comment: We have asked to prioritize meeting with Petronas in the past couple Malaysia Business Missions, but meeting has never materialized
        • We understand that there will be changes in the upcoming elections and turnover in the Petronas, but we want to make sure that we get the meeting
      • Response: The Energy Industry Mission creates a better opportunity to engage Petronas as opposed to the multi-sector mission
        • I think we will have a better shot this year
      • Comment: Some of the officials in the new government do seem to be more open, and I think that will extend to the people at Petronas
      • Comment: A number of senior officials have stepped down so there is a return of the older leadership now to the company
  • Upcoming events
    • 2018 Mission to the ASEAN Ministers on Energy Meeting (AMEM)
      • AMEM will take place October 25-30
        • Last three days with coincide with Singapore International Energy Week (SIEW)
          • Part of SIEW will double as the ASEAN Energy Business Forum (AEBF), the private sector event that takes place alongside AMEM
          • AEBF to take place October 29
        • Mission to AMEM will likely be October 28-30 because this is when Energy Ministers are most likely to be attending AMEM
      • Official registration email will be sent out in August