As demand shifts eastward, IEA advises countries in region on key reforms
29 November 2012
Asia is a major focus of IEA activity amid the vast international reordering of energy supply and demand patterns. The region is at the centre of the changes that will alter the global map of energy trade over the next five years, particularly as Asia’s economic surge alters regional gas and power sectors.
To adapt securely and sustainably, as IEA Executive Director Maria van der Hoeven explained during a visit to Singapore this autumn, Asia must pursue further reforms to liberalise its markets and mobilise capital for sufficient investment. “That is why the IEA is stepping up cooperation with IEA partner countries in Asia,” she told the Singapore International Energy Week forum in October.
Demand is shifting to the East while production is rising in the West. Increasing output of oil and gas in the Americas from the use of unconventional methods is freeing up supply for Asia, where rising demand comes not just from economic growth but also from increased refining in the region. But the shift in trade also highlights potential problems for Asia, particularly in terms of distribution and pricing.
Japan and the Republic of Korea are already IEA members, and the Agency works with other Asian countries in a variety of manners. China, India and the Association of Southeast Asian Nations (ASEAN) have participated in IEA Emergency Response Exercises in Paris, which simulate global oil/gas supply disruptions as well as Agency-organised responses to crises, including the use of strategic reserves. It tailored similar exercises for India and Thailand at those countries’ requests, as well as one for the ASEAN region. Furthermore, the IEA is examining in detail which technologies the ASEAN power sector can adopt to meet projected demand.
“Co-operation with the private sector, among regional actors and stakeholders, and globally between emerging economies and developed ones will all be necessary to sustainably meet rising energy demand and provide supply security,” Ms. van der Hoeven said.
India: an energy market in transition
India is pursuing a two-decade-old liberalisation of its energy sector. It will benefit from a well-functioning energy sector based on market principles that can allow the country to keep up with its strongly growing economy and to ensure the provision of modern energy to all Indians.
The positive impact of energy sector reform is seen, among others, in the fact that India is already a major exporter of refined products in Asia and has one of the most modern refining complexes installed, putting it in very close competition with Singapore. Under the National Action Plan on Climate Change, India is implementing the National Mission for Enhanced Energy Efficiency, whose flagship program is Perform, Achieve and Trade. That system is intended to create a market-based mechanism to facilitate energy efficiency improvements in large energy-intensive industries through trading of certified energy savings.
But as the new IEA publication Understanding Energy Challenges in India explains, the reform process has also been impeded by government intervention, including price controls and bureaucratic processes, and some inconsistent policy messages.
Developments in Singapore
Singapore’s location, experience with oil trading and advanced institutional development help it benefit from the rapid expansion of the liquefied natural gas (LNG) trade in the region. Singapore’s first LNG import terminal will open next year.
“Singapore’s advanced progress is a milestone for Asian gas,” Ms. van der Hoeven said.
China’s expanding market presence
China is increasingly tied into the international markets for oil, gas, coal and renewable energy. The country is growing as a refining centre, and its domestic and international investments in oil supply are rising along with demand. Chinese manufacturers of renewable energy equipment have ramped up production quickly to serve domestic and overseas markets, bringing down costs worldwide, as highlighted in the IEA’s recent report on renewable energy markets.
In part to lessen its reliance on coal, China seeks to double natural gas use by 2015 from 2011 levels. The country has promising new gas sources, domestic and imported, conventional and unconventional, and is trying to address impediments to their development, like outmoded pricing formulas and institutional and regulatory barriers. To aid in this effort, the IEA co-operated with the Chinese research organisation China5e, with the support of China’s National Energy Administration, to issue a report in September that shares with Chinese stakeholders key lessons learnt by member countries in the evolutions of their gas sectors.
The growing role of gas in Asia
Those lessons are ongoing, not just regionally but globally. Gas prices vary significantly, having fallen precipitously in North America because of unconventional production but remaining high in Europe and even higher in Asia. LNG trade is expanding quickly and the Pacific Basin promises much new gas production, two sources that could bring a correction like in North America. But for now, the lack of an efficient regional gas market and suitable trading hubs are keeping Asian prices high.
“Remember why gas is so increasingly important: because of its role in power generation,” Ms. van der Hoeven noted. “Massive electrification is a hallmark of the modern energy economy, in Asia and around the world. The challenges of meeting energy demand and providing security will revolve around electricity. But how that power is provided and used will also have a major impact on sustainability.”
A region rich in renewable energy potential
Fortunately, Asia is rich not only in gas but also renewable energy. Several countries have developed significant hydropower. The IEA estimates that Southeast Asia could rely on geothermal power to provide 15% of the CO2 reductions needed from the region to hold average global temperature rise to 2°C.
“China alone accounts for almost 40% of global renewable generation growth,” Ms. van der Hoeven said. “Other emerging Asian countries such as India and Thailand also play important roles. New deployment opportunities are spurring economies of scale in some renewable technologies, creating a virtuous cycle of improved global competition and cost reductions.”