D&C : Energy Outlook: Where are we going?

Decha Energy Outlook: Where are we going?

 Energy investment in Southeast Asia is a unique business opportunity. From the economic point of view, it is one of the fastest growing regions in the world. Southeast Asia has recorded remarkably strong economic growth over recent decades. The region’s economy has almost doubled in size since 2000 to reach $6.1 trillion in 2013 (year-2014 dollars, purchasing power parity [PPP] terms), making it comparable to that of Japan and Korea combined. Total final energy consumption rises by 70% from 2013 to 2040, driven by urbanisation and increased economic activity in the industrial and services sectors. Taking the aforesaid statistic into account, ASEAN countries, like other countries, are facing an energy security challenge: how to sufficiently and efficiently supply energy to the growing economy both at the national and the regional level?

Conventional fossil fuels such as oil, coal, and natural gas – the “Black” energy – have been the primary energy source in Southeast Asia as well as the world.[1] However, due increasing awareness on climate change and global warming, cleaner and greener energy resources such as wind and solar – the “Green” energy – have been increasingly perceived as way forwards for energy security[2] and, therefore, economic development. Does this trend trigger an end of the Black energy in Southeast Asia? The answer is “no” because oil and coal will continue to play an influential ASEAN energy mix from 2016 to 2040 as forecasted by the International Energy Agency (IEA) in its Southeast Asia Energy Outlook 2015.

Despite recognising the need to promote energy supply from renewable energy resources, the Black energy is expected to dominate ASEAN energy mix by 2040. Coal demand more than triples to become the largest fuel in the energy mix, followed closely by oil.[3] The generation mix continues to shift as the shares of coal and renewables grow and those of natural gas and oil decline.[4] As illustrated by the table below, fossil fuel will continue to serve as primary energy sources in 2040; however, share of renewables in ASEAN energy mix is expected to be declining.

Primary energy demand in Southeast Asia (Mtoe)[5] 


The IEA’s report shows that the Black energy will continue to dominate the energy mix in 2040. Therefore, according to the IEA’s prediction, investment in the oil, gas, and coal industry cannot be overlooked and abandoned. Hence, petroleum concession, production sharing agreement, service agreement, a coal mining permission will continue to play their roles in guaranteeing energy security. Petroleum exploration and production (E&P), trans-boundary natural gas pipeline, coal mining, and coal-based power plants will continue to carry out operational activities, despite a transition towards the Green energy.

Laws governing exploitation of Black energy do not cease their roles, but being modernized. In relation to laws governing petroleum and coal exploitation in Thailand, veteran statutes including the Petroleum Act B.E. 2514 and the Mineral Act B.E. 2510 are now being replaced. A new Petroleum Bill recognises other types of petroleum authorisation namely, the production sharing system and the risk service system.[8] The Bill was initiated in April 2015 and passed a cabinet resolution endorsing the bill in June 2016. Also being endorsed by the cabinet, a Minerals Bill aims at maximising state’s revenue from coal mining, promoting public participation, and effectively protecting the environment.[9] Extractive corporations should be aware of the new regulatory frameworks introduced by these fossil fuel laws.     

It should be noted that energy security is not the only objective of the extractive industry. In the twenty-first century, the people, the real owner of natural resources, expect their government to manage wealth accruing from natural resource exploitation for their best interest. Agency-principal problems such as bribery and revenue squandering have become intolerable. Among several policies and legal remedies, transparency and a soft law initiative like the Extractive Industries Transparency Initiative (EITI) are globally accepted as practically workable mechanisms. In a nutshell, the host government and extractive corporations have to reveal to the public terms of petroleum concession, production sharing agreement, and service agreement and how much the government received from the exploitation. Transparency is expected to minimise corruption opportunities and influence sensible spending including, a grant for renewables research and development (R&D).

Apart from facilitating transparency, regulatory framework must be developed to fit in or at least not to impede the Green energy. One crucial factor impeding the Green energy involves internalisation of environmental cost. Simply speaking, alongside costs associated with technology, fossil fuels seem to be superficially cheaper than the renewables because they do not internalise costs associated with environmental impacts or environmental externality. Petro-based vehicles and coal-based electricity generation have contributed to environmental degradation and global warming. As such, energy consumers do not really bear these costs. Given this challenge, fossil fuel regulatory framework, on the one hand, should be developed to reflect environmental externality. On the other hand, oil price subsidies – for example, making diesel fuel cheaper than the market price at the state’s expense – might have to be removed.

Summarily, ASEAN energy security and sustainability do neither rely exclusively on the Black energy nor the Green energy, but their mixture. Coal, oil, and natural gas are expected to play dominant roles in the energy mix until 2040. However, the Green energy such as wind and solar energy cannot be overlooked as it serves a long-term source of energy supply. In this transition period, the regulatory frameworks governing the petroleum and the mining industry will continue to perform their roles; however, they should stop unnecessarily or accidentally subsidising the Black energy. In addition, revenues accruing to the state from exploitation of petroleum resources and coal could be allocated to finance renewables R&D. When it comes to a practical means to stimulate such allocations, transparency is capable of influencing such sensible spending.

[1] Ditya Agung Nurdianto and Budy Prasetyo Resosudarmo, ‘Prospects and challenges for an ASEAN energy integration policy’ (2011) Environ Econ Policy Stud 13 103, 106.

[2] This evolving energy objective has been expressly recognised at the international and regional level for example: Report of the World Summit on Sustainable Development Johannesburg, South Africa, 26 August- 4 September 2002; Christopher G. Zamora (ed), ‘ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2025 (ASEAN Centre for Energy 2015).

[3] Southeast Asia Energy Outlook 2015, 27.

[4] Ibid.

[5] Ibid.

[6] Compound average annual growth rate

[7] Includes solar PV, wind, and geothermal.

[8] Memorandum of Understanding on the Petroleum Bill, B.E. (….).

[9] Memorandum of Understanding on the Minerals Bill, B.E. (….) 9 March B.E. 2559.

Piti Eiamchamroonlarp
01 June 2017