ASEAN’s energy security is at risk as it prepares for gas and coal imports

The region’s reliance on fossil fuel imports threatens its energy security due to price volatility and lack of affordability.

In countries that make up the Association of Southeast Asian Nations (ASEAN), fossil fuels have long been the dominant source of energy. Domestic gas and coal have fueled growth, powered industries, and kept the lights on in homes and businesses across the region. But now, a troubling trend has emerged. As production infrastructure ramps up amidst continuous fossil fuel consumption, ASEAN is on track to become a net importer of natural gas by 2025 and coal by 2039.

“This poses a significant energy security challenge for the region, as heavy reliance on fossil-fuel imports may affect the affordability of energy, exacerbated by price volatility,” according to the ASEAN Centre for Energy’s 7th ASEAN Energy Outlook (AEO7). 

The report revealed that ASEAN countries exported more natural gas and coal than they imported in 2020 at nearly 30 million tonnes of oil equivalent (mtoe) and 153 mtoe, respectively. However, it also noted that the region has already been a net oil importer since before 2005, importing approximately 200 mtoe more oil than it exports.

ASEAN’s primary energy mix was led by oil (33%), coal (28%), and natural gas (22%) in 2020, with renewables, only accounting for 14.2% of the energy share. In terms of installed power capacity, the total share of fossil fuels is at 67%.

Zulfikar Yurnaidi, senior officer of the Renewable Energy and Energy Efficiency Department at the ASEAN Centre for Energy, and AEO7 project manager, discussed more on the report’s findings with Asian Power.

Tell us about the 7th ASEAN Energy Outlook. How do you see the energy demand and supply in the region evolving in the next five years?

We are currently in a period of post-pandemic so both the demand and supply of energy will be increasing and continue to be growing for the next five years following the path of economic growth. The region’s primary energy supply in 2020, for instance, we have 654 mtoe. But in 2025, which is the target year of our regional energy blueprint, the energy can grow up to 818 mtoe in the supply. We're going to see penetration of renewable energy along with national and regional targets, but our estimate is that the role of fossil fuels, including oil in transport, and coal in the power systems, will still be very strong following, of course, the growth of the economy.

Which countries would account for the highest increase in energy demand?

In terms of the structure of the economy and the structure of energy, it will be quite similar to what we have now. Indonesia, for instance, is the largest country in the region. It comprises almost half, maybe 40% of the gross domestic product (GDP) in the region. With that, the share of energy consumption is also the biggest in the region. Following the growth rate of GDP in Indonesia, which is the highest in the region, its energy use will grow significantly. Indonesia will continue to be the biggest player in the region’s energy landscape, and ASEAN will also grow in a similar manner. Following that, countries such as Malaysia, Vietnam and the Philippines are expected to grow quite well in this period, thus we also expect that their primary energy demand will also grow accordingly.

What is the outlook for the installed power capacity and generation? Which power sectors will dominate the energy mix?

There are many efforts currently being done by the countries in ASEAN to push towards the energy transitions, meaning we are moving towards an energy system that is low-carbon, sustainable, and cleaner, including in the power system. Currently, coal constitutes the largest share of electricity generation. The renewables in terms of installed capacity in 2020 are at 33.3%. In the future, this share of renewables will continue to be increasing. But still, at least until 2025, the share of coal will be still very high. Even after that, up to 2050, if we continue with the baseline scenario, which we have in our ASEAN Energy Outlook, coal will still take a large share. But, in other scenarios that reflect national and regional targets, we would see a strong penetration of various renewables, including solar and wind. Overall, hydro will continue to be the largest share of electricity generation. 

The report also shows that the region is expected to be a net importer of natural gas by the mid-2020s, and even coal by the late 2030s. What were the factors that contributed to this outlook? 

Our study has four main four scenarios. First is the baseline. Second is the national targets, which we call the ATS. The ASEAN target, we call the APS. Last is the least-cost optimisations or LCO. For our baseline scenario, we assume a very limited addition in reserves for oil, gas and coal, and we also assume the same level of energy demand growth and projection for the future. We indeed found that around 2025, we could become the net importer of natural gas. We have been the net importer of oil since way before 2005. We can become a net importer of coal by nearing 2040. But, when we implement national policies and regional policies that push towards renewable energy penetrations and improvement of energy efficiency, we can find that the total primary energy demand will decrease. For example, our primary energy supply is growing by four times in our baseline. But in the region target scenario, we can push it down by 2.7 times only between 2021 to 2050. This brings us to more energy security, and less demand for natural gas and coal. With that, we can push this situation of us becoming net importers of gas and coal away. So again, the growth of demand, and the lack of exploration of new resources, especially in gas, will contribute to this situation that might affect our energy security in the future.

How much investment does the region need to meet its renewable energy targets? 

Our study showed that for the power sector only, only for the generations or the power plants, not yet including the upgrade of the power grid, for example, and other systems, we might need up to US$1t in the next few decades. It's huge money. But again, as I mentioned, with the penetration of renewable energy and energy efficiency, as explored in the non-baseline scenarios, we can push this number down. But again, this is assuming that our scenario still shows coal and gas in the system so the penetration of renewable energy is somewhat limited. But in other scenarios that we might explore, when we have a higher share of renewables, this investment requirement number could grow even more, and this is also something that has been shown by other studies that are comparable with ours.

The report also looked into the least costs of the cost optimisation scenario to reach the regional renewable energy target. How can this be achieved and how feasible is this?

One of the new additions that we have in the 7th ASEAN Energy Outlook compared to the previous version is this least-cost optimisation (LCO) on which we tried to optimise the power sector, especially to achieve the regional energy target in renewable energy. We found that, in this optimal scenario, the role of fossil fuels such as coal is slightly higher compared to the other scenario. This is partly because the cost of renewable energy that we have in our model is slightly higher compared to the others. This is also an issue that we might want to address since globally, I think the price of renewables seems to be decreasing, but in the region, it's not yet there. So I think we need to strengthen our supply chain capability and capacity so that we can increase the competitiveness of this renewable energy compared to the others. 

Additionally, in our LCO, we explore technologies such as nuclear and also interconnections. We found nuclear can play a good role in the future power system. We also found that the solution of interconnection between ASEAN member states which we call the ASEAN Power Grid or the APG is actually cost-optimum in comparison with the system without an interconnection. At the same time, it can also support the penetration of renewable energy in the power grid, not only for one country but for the whole ASEAN.

Last year, we just started this Laos-Thailand-Malaysia-Singapore power trade. This brings a lot of interest to the ASEAN Power Grid in the region. We are currently collaborating with the US to develop a feasibility study for an interconnection line between Indonesia and Malaysia. There are talks from Indonesia as the chair of ASEAN this year that they want to initiate another line, which is Brunei, Indonesia, Malaysia, and the Philippines. With Indonesia as ASEAN Chair, we will have the ASEAN Ministers on Energy Meeting (AMEM) in August. Indonesia is targeting to have an announcement by that time to kick off this new interconnection.