Emergence of Southeast Asia as energy giant carries risks, opportunities

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. 

“As Southeast Asia flourishes, it is moving to the centre of the global energy stage,” IEA Executive Director Fatih Birol said. “Countries in the region now have much in common with IEA members. We must all work together to build more secure and sustainable energy supplies and markets, as platforms for promoting economic development.”

The World Energy Outlook Special Report on Southeast Asia (WEO Special Report) presents a central scenario in which Southeast Asia’s energy demand increases by 80% in the period to 2040, though the region’s per-capita energy use remains well below the global average. Despite policies aimed at scaling up the deployment of renewable resources, the share of fossil fuels in the region’s energy mix increases to around 80% by 2040, in stark contrast to the declining trend seen in many parts of the world.

Rising imports sharpen the focus on the economic and security aspects of energy use. By 2040 the region’s net oil imports more than double to 6.7 mb/d, a level equivalent to the current oil imports of China. Southeast Asia’s oil import bill surges to over $300 billion per year by 2040, compared with around $120 billion in 2014, with increases in spending in almost all countries in the region.

Indonesia supports a continued expansion of Southeast Asia’s gas and coal output, but production is increasingly consumed within the region. As domestic natural gas demand outpaces indigenous production, intra-regional and intra-country trade increases, and Southeast Asia turns into a net gas importer of around 10 bcm by 2040, compared with net exports of 54 bcm in 2013.

The power sector shapes the energy outlook for Southeast Asia, as electricity demand almost triples by 2040, an increase greater than the current power output of Japan. The sector continues its shift towards coal due to its abundance and relative affordability. Although the average efficiency of Southeast Asia’s coal-fired power plant fleet increases by 5 percentage points throughout the projection period, less-efficient subcritical technologies 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, 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 at the release of the report in Kuala Lumpur during the ASEAN Ministers on Energy Meeting. “To secure its energy needs, the region requires $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. It also highlights the significant progress achieved by the region in expanding energy access but urges increased action as 120 million people remain without access to electricity while almost 280 million lack clean cooking facilities. The report also calls for more efforts to reduce subsidies to fossil fuels, noting that the region spent $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 country’s energy sector. Malaysia’s energy demand almost doubles by 2040 with fossil fuels continuing to meet over 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, grow, especially in the power sector where their share of generation reaches 16% by 2040. Malaysia’s role in international markets shifts, as it becomes increasingly dependent on imports.

A separate IEA report issued on Thursday further emphasises the importance of the power sector in the region’s future. The report, Development Prospects of the ASEAN Power Sector, highlights the role that power sector governance can play in supporting the development needs of the region, and pays particular attention to the implications of renewable energy integration in power sectors that currently rely significantly on fossil fuels. The report also says regional integration must be supported by the development of regional institutions, in particular a pan-ASEAN regulatory body which can support domestic regulators in their efforts to harmonise reliability standards and build regional interconnectors.

To download the World Energy Outlook Special Report on Southeast Asia, please click here. 

To view the presentation at the launch of the World Energy Outlook Special Report on Southeast Asia, please click here.

To download Development Prospects of the ASEAN Power Sector, please click here. 

About the IEA

Founded in 1974, the International Energy Agency was initially designed to help countries co-ordinate a collective response to major disruptions in the supply of oil. While this remains a key aspect of its work, the IEA has evolved and expanded. It is at the heart of global dialogue on energy, providing authoritative statistics and analysis. The IEA examines the full spectrum of energy issues and advocates policies that will enhance the reliability, affordability and sustainability of energy in its 29 member countries and beyond.

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