Southeast Asia Blends Its Energy Mix
By Thomas Timlen
Negative press about the state of the Southeast Asia energy market, seen by many as being held hostage by decade-long political unrest in Thailand, combined with rising nationalization in Indonesia, conflict in Myanmar, and territorial disputes in Vietnam’s offshore market, belies an underlying continued strength in the sector.
In August 2018, Control Risks’ Senior Partner Dane Chamorro and Great American Group’s Managing Director Thomas J. McNulty jointly penned a report for Forbes, arguing that despite long-standing challenges, regional players see long-term opportunities in Asia’s energy infrastructure. Those same players have gotten a head start over U.S. firms who have been slow to join in and risk missing out on the potential that this market holds.
Breakbulk spoke with Chamorro and McNulty to find out if their conclusions remained valid several months later. McNulty still believed that developments in Southeast Asia’s energy market are creating opportunities for providers of heavy-lift and project transportation services. As examples, Chamorro pointed to projects that have been initiated since August 2018, such as Exxon’s US$10 billion investment to build a petrochemical complex and liquefied natural gas terminal in Guangdong, China.
“It seems now that the major international oil companies are getting in the game with local energy partners, similar to initiatives taken by Shell in Nigeria,” Chamorro said. McNulty pointed at recent moves taken by the Swire Group in the region as another indicator of positive developments.
BBC Chartering’s EPC Director Guenther W. Bielfeld acknowledged some hard truths in Chamorro and McNulty’s initial findings, while maintaining a degree of optimism.
“We are seeing some significant inquiries in the Southeast Asian market. Although they are not all necessarily liquefied natural gas related, they will provide a massive cargo flow,” he said.
He also saw major demand in the power plant sector in Indonesia and the Philippines, and opportunities related to sizable refinery upgrades being undertaken by ExxonMobil and Pertamina in Singapore and Indonesia, respectively.
“While this is something that may translate into actual shipping activity in 2020 and beyond, it will also attract large shipping volumes as these projects and others in Thailand will require the production of large-scale modules in fabrication shops located in Asia,” Bielfeld said. “This is all a bit preliminary but we do share a positive market outlook.”
With regard to LNG, Japan has launched a US$10 billion funding plan for Asian LNG infrastructure, and a somewhat overlooked aspect of China’s Belt and Road Initiative, or BRI, is the construction of LNG pipelines along its route.
Tim Gould, the International Energy Agency’s head of world energy outlook, saw continued expansion of Southeast Asian energy demand and its infrastructure providing opportunities for a range of energy industries.“As to the outlook for specific sectors,” Gould said, “the picture is complex, since policymakers of ASEAN are targeting multiple tasks simultaneously, i.e. affordability, reliability and sustainability. Whichever pathway policymakers follow, huge investments in new infrastructure will be essential.”
However, McNulty felt that the scope depends on the challenges. “In most Southeast Asian nations, the growing middle-class will require better and more efficient infrastructure investment. Two hours in Manila traffic to go a few miles will no longer be tolerated, and the solutions require capital investment and energy.”
Japan, for its part, would prefer to move to natural gas and away from coal and nuclear, while China’s demand depends on its real growth numbers and its desire to become even more dominant as an economic power.
Chinese, Japanese Drive
The IEA’s Gould felt that China’s and Japan’s role in the development of the region’s infrastructure could be significant, and that this will drive more rapid and flexible expansion of the Asian LNG market. “However,” he clarified, “it does not automatically guarantee robust growth of LNG business in the face of competition against gas pipeline imports, domestic coal production and declining cost of renewable electricity.”
Asia’s demand for LNG is expected to double in the next five years, according to McNulty. This projection is based on the activity he sees in the U.S. on the supply side, and the demand forecast data that he sees from Southeast and East Asia.
Gould is less bullish on growth projections, although he still expects imminent growth in LNG demand. “Asia is certainly the driving force behind growth in demand for LNG,” Gould said. “China is the key for the moment as policymakers use gas to tackle the poor air quality in many Chinese cities.”
The data for 2018 shows another year of very strong consumption growth, although some of China’s demand growth will be met by pipeline, as the new connection to Russia ramps up in the coming years. The IEA’s five-year outlook for natural gas, Gas 2018, projects that emerging Asian markets, led by China, will account for more than half of the growth in global gas consumption to 2023, with strong effects on LNG markets.
Clear Gas Goals
Dwindling resources and environmental concerns are also expected to drive government planners and the market towards LNG and other alternative energy sources. Southeast Asian nations are attracted by the reliability and better margins.
Gould sees change as a major driver for the region, bringing opportunities with it. “The bottom line in Southeast Asia is that increasing energy needs are likely to lead to rising consumption of all fuels and technologies. The future won’t look like the past, but how different it will be really depends on the policies that governments adopt and, in particular, how much they try to adapt the energy mix in response to energy security and environmental concerns.”
IEA’s analysis considered different scenarios for the future. Looking at government plans and intentions today, coal will continue to do relatively well, while natural gas and oil demand will increase steadily, and renewables will grow the fastest – helped by falling costs for wind and solar, but from a lower base. However, Gould noted, if governments adopt more stringent policies on environmental issues, that would clearly shift the balance further in favor of clean energy technologies.In relation to natural gas, Southeast Asia as a whole shifts from being a net exporter to a net importer of gas in the 2020s, the IEA’s research predicts.
“The interactions between Southeast Asia and the global LNG market are set to grow considerably, requiring new investments across the gas supply chain,” Gould said. The other “fuel” to watch out for is electricity: electricity accounts for the largest share of the increase in final consumption, as rising incomes in the region translate into higher ownership of appliances and increasing demand for cooling.
ASEAN Long-Term Aims
Does this all culminate in the ASEAN region being the world’s fourth-largest energy consumer by 2030? “The answer depends how you group the world’s consumers,” Gould said. “But there’s no question that Southeast Asia is one of the most dynamic parts of the global energy system.”
In the IEA’s main scenario to 2040, Southeast Asia’s energy demand is predicted to grow by almost two-thirds, representing one-tenth of the rise in global demand, as the region’s economy triples in size, and the total population grows by one-fifth with the urban population alone growing by more than 150 million people.
“That is why, at the IEA, we attach great importance to our relationships with countries in this region; what happens in Southeast Asia will be critical for the future of global energy,” Gould said.
Overall, the projected picture in 2040 is that China remains by far the world’s largest energy consumer, followed by the U.S. and India. Southeast Asia is in the next group, with broadly similar energy consumption to the European Union, Africa and the Middle East.”
Great American Group’s McNulty takes a similar yet more nuanced approach to the question of ASEAN’s ranking by 2030. He said it can be hazardous viewing Southeast Asia as a “monolithic block,” as the trade and investment regimes vary by nation. “The smart money people understand that top-down, the region has substantial potential. But then they apply a bottom-up approach assessing the risks and regulatory structures on a country-by-country basis,” he said.
Looking ahead, McNulty expected that LNG, and by extension natural gas, will be the dominant bridge and baseload fuel as developing nations progress toward more renewable energy capabilities.
Such opportunities bode well for companies that provide the transportation needs for the expanding energy sector in Southeast Asia.
Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.
Photo credit: ANTARA FOTO/REUTERS/Newscom
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