Energy Security in ASEAN+6
Released 2 July 2019.
The ASEAN+6 group comprises the ten countries of the Association of Southeast Asian Nations (ASEAN) and six other countries in the Asia-Pacific region: Australia, the People’s Republic of China (“China”), India, Japan, Korea and New Zealand. This group includes the world’s fastest-growing and most dynamic energy consumption centres. They are led by China, India and ASEAN, the emerging Asian economies, whose share of global energy demand is expected to reach 40% by 2040, up from only 20% in 2000.
Energy demand in the ASEAN+6 countries is set to take diverse paths. In India, for example, low per capita energy use and a high population growth rate indicate the potential for substantial energy demand growth. In Japan, by contrast, a declining population and increasing energy efficiencies are contributing to a continuous fall in energy consumption. Countries of the region also differ in their natural resource wealth and their levels of socio-economic and technological development.
These countries share common challenges, however, in ensuring the security of their energy supplies. Given their shared geographical location, they could help one another meet these energy security challenges by deepening regional co-operation.
This report starts by giving an overview of the energy security issues of the region. Subsequent chapters cover the key energy sectors of oil, natural gas and electricity. They identify the main energy security issues, including a high level of vulnerability to natural disasters and heavy dependence on imports of fossil fuels, which must pass through major global chokepoints. The report provides policy advice, primarily for the region’s developing countries, based on the emergency response systems and accumulated experience in energy security of the International Energy Agency and its member countries.
- Developing economies in the Asia-Pacific region are expected to account for almost two-thirds of global energy demand growth between now and 2040. These economies will increasingly rely on energy imports, especially of oil and gas, to sustain economic growth. A significant share of these imports has to pass through two of the world’s most strategic chokepoints for global energy trade, the Strait of Hormuz and the Strait of Malacca. Every country in the region faces the question of how to mitigate the associated risks to security of energy supply.
- As oil demand surges and import dependence rises, notably in the People’s Republic of China, India and ASEAN countries, there is a critical need to strengthen emergency response capabilities in these emerging economies and incorporate them into global supply security.
- Developing emergency oil response capabilities and integrating them into IEA collective response mechanisms will take time and money. In parallel, regional co-operation offers flexible and pragmatic pathways towards improving domestic and regional oil supply security, such as cross-border stockholding arrangements and joint stockpiling models.
- Natural gas security is also a mounting concern in the region, as it is expected to account for 85% of the growth in global gas trade between now and 2040. The growing role of liquefied natural gas (LNG) in global gas trade is improving the flexibility and liquidity of gas supply. As a result, investments in LNG import infrastructure, such as floating storage and regasification units, can help to improve supply security.
- The prevention of power outages is the primary focus of short-term electricity security; the ASEAN+6 region is one of the most disaster-prone in the world. Some IEA member countries in the region, notably Australia, Japan and Korea, have considerable experience in mitigating the impacts of earthquakes or extreme weather events on power systems. These countries can offer valuable insights to others in the region.
Maintaining reliable and resilient energy supply is a constant challenge for any country. The ASEAN+6 region, which contains the world’s largest and fastest-growing market for energy, faces a particularly pressing need to ensure secure, affordable and sustainable supplies of energy. Countries in the region face common security challenges: high dependence on fossil fuel imports that must pass through major chokepoints, inflexible market arrangements, and high vulnerabilities to natural disasters. Priorities and potential solutions differ among countries depending on their circumstances, but the paths that International Energy Agency (IEA) member countries have taken in recent decades could provide valuable lessons for the region.
The impressive economic growth of the emerging economies in the Asia-Pacific region has led to an equally impressive increase in energy consumption. The People’s Republic of China’s (“China”) rapid industrial growth has made it the world’s largest energy consumer since 2009. India’s economy is growing faster than any other country’s. Between now and 2040, India’s economy will increase to five times its current size and its energy demand is expected to more than double. India will overtake China as the leader of global oil demand growth in the mid‑2020s. Its net oil imports are expected to reach 9.3 million barrels a day (mb/d) by 2040, up from 3.8 mb/d in 2017. By that time, despite efforts to increase domestic oil production, India will depend on imports for 90% of its oil. As Southeast Asia’s economy more than triples in size, the region’s energy demand will also grow, by almost two-thirds between now and 2040.
As IEA member countries’ collective share of global oil demand declines, discussions have begun about broadening the IEA’s oil security umbrella. These conversations are focusing on the emerging economies in the Asia-Pacific region, notably China, India and the Association of Southeast Asian Nations (ASEAN) countries that represent the majority of global oil demand growth. The IEA emergency oil stockholding system is gradually losing its effectiveness, highlighting the need to strengthen emergency response capabilities in the emerging economies and eventually to include them in the collective IEA system. Establishing oil stockpiles is costly and time-consuming, especially in countries where it is necessary to build up domestic storage capacities. Some options for regional co-operation, such as cross-border stockholding arrangements and joint stockpiling models, offer flexible and pragmatic near-term alternatives.
Gas security is also a mounting concern, as the region is expected to account for 85% of the global growth in natural gas net imports between now and 2040, underpinning a shift in inter-regional gas trade from the Atlantic Basin to Asia. While geography limits the possibilities of linking countries in the Asia-Pacific region with pipelines, there is considerable scope within these countries to improve pipeline links between demand centres and liquefied natural gas (LNG) terminals. China is expected to take over from Japan as the world’s largest LNG importer by 2040, quadrupling its LNG imports of today. The increasing share of LNG in gas trade promises to bring more flexibility, transparency and liquidity to the gas market, which could bolster energy security and put pressure on countries to improve the investment climate for gas infrastructure. Japan has promoted removing destination clauses, which restrict where gas can be resold, an initiative followed by other countries in the region, like China and India. Cities like Shanghai, Singapore, and Tokyo are seeking to become LNG trading hubs. Countries that have many islands – and hence fewer pipeline options – can take advantage of floating LNG technologies. These facilities offer an affordable, fast and flexible way to get access to natural gas supplies. They can help create pockets of growth in countries that were not targeted by LNG exporters until recently.
Economic growth in the Asia-Pacific region has pushed up income levels and accelerated urbanisation. As a result, electricity consumption has risen rapidly, propelled by increased ownership of electric appliances and greater demand for space cooling. At the same time, this region is one of the most disaster-prone in the world, so short-term electricity security is focused on preventing power outages. Some IEA member countries in the region, notably Australia, Japan and Korea, have considerable experience in dealing with the power supply consequences of earthquakes or extreme weather events. These countries can offer valuable insights to others in the region.
Renewable energy has become an indispensable part of the electricity mix in emerging economies as they seek to accommodate growing electricity demand with low-carbon supply. The variable power of renewable sources such as wind and solar needs to be carefully integrated to protect the stability of the power system. The establishment of a regional power grid through co-ordination between neighbouring countries can enhance security of electricity supply. This requires complex system operation and strong political will to create a harmonised regulatory framework.