Towards Energy Security in ASEAN: Impact of Regional Trade, Renewables and Energy Efficiency

Liu Yang, Zhong Sheng & Dina Azhgaliyeva Energy Studies Institute

National University of Singapore

Baku, March 12, 2018

Changing dynamics of global energy demand

Source: IEA World Energy Outlook (2015)

Primary energy demand and GDP by selected region in IEA New Policies Scenario (1990-2040)

Primary energy demand, 2035 (Mtoe)

4%

65%

10%

8%

8% 5%

OECD

Non-OECD Asia

Middle East

Africa

Latin America

Eurasia

Share of global growth 2012-2035

480

Brazil 1 540

India

1 000 Southeast

Asia

4 060

China

1 030

Africa

2 240 United States 440

Japan

1 710

Europe 1 370

Eurasia

1 050 Middle East

Changing dynamics of global demand

Global energy demand increases by one-third over the period to 2035. Countries from the OECD make only a marginal

contribution to this growth – only 4%.

Source: IEA,2013

2nd Asian Energy Modelling Workshop on Climate Change and Sustainable Development Singapore, July 2015

3

• ASEAN is 9 times population intensive than Central Asia • But the latter has much richer energy endowment, in particular natural

gas.

4

Central Asia ASEAN

Countries Kazakhstan, Kyrgyzstan,

Tajikistan, Turkmenistan, &

Uzbekistan,

Thailand, Indonesia,

Vietnam, Philippines,

Malaysia, Singapore,

Myanmar (Burma),

Cambodia, Laos, Brunei

Population (2016, million) 70 639

GDP, billion USD (2016) 306.8 2595

Reserves (2016)

Crude oil, billion bbl 31.25 13.39

Natural gas,tln cubic feet 415.4 200.24

Energy productivity in ASEAN over 1971-2015

▫ Increase in energy use by a factor of 4.5

▫ Increase in GDP by a factor of 10.36

▫ Double energy productivity

▫ Increase in GDP per capita by a factor of 4.2

5

6

0

500

1000

1500

2000

2500

3000

3500

4000

4500

0

1000

2000

3000

4000

5000

6000

1960 1970 1980 1990 2000 2010

GD

P p

er c

ap

ita

(U

S$

)

En

ery

pro

du

ctiv

ity

(10

00

US

$ /

kto

e)

Energy productivity and GDP per capita in ASEAN

Energy productivity GDP per capita (constant 2010 US$)

• Energy productivity growth ▫ 105% during 1971 –

2015

• Growth of GDP per capita: ▫ 421% during 1971 –

2015

7

• Growth of total energy use ▫ 454% during 1971 –

2015

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

1970 1980 1990 2000 2010

Kto

e

Total final energy use in ASEAN, 1971 – 2015

However, challenges remain

Energy consumption structure

High dependence on fossil fuels

Limited shares of geothermal, hydro, solar and wind energy

Energy trade

8

9

10

• Renewable energy structure ▫ Geothermal: around 5%

▫ Hydro, solar and wind energy: below 5%

▫ Biofuels:

Provided directly by forestry and agriculture e.g., firewood, wood chips

0

5

10

15

20

25

30

35

40

45

1995 2000 2005 2010 2015

%

Share of renewable energy in total energy use in ASEAN

Biofuels Geothermal Hydro Solar and wind

11

• Major active countries in renewable energy production in ASEAN ▫ Geothermal energy:

Philippines and Indonesia

▫ Hydro energy: Viet Nam, Indonesia and Malaysia

▫ Biofuels energy: Indonesia, Thailand and Viet Nam

▫ Solar and wind energy: Thailand and Philippines

0

500

1000

1500

2000

2500

MW

Example: Cumulative net capacity of solar power plants in ASEAN

Vietnam

Thailand

Singapore

Philippines

Myanmar

Malaysia

Indonesia

Cambodia

12

• Energy use > energy production ▫ Cambodia ▫ Thailand ▫ Philippines

• Energy use < energy production ▫ Brunei Darussalam ▫ Indonesia ▫ Laos ▫ Malaysia ▫ Myanmar ▫ Viet Nam

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1995 2000 2005 2010 2015

Share of energy use to energy production in ASEAN

Brunei Darussalam Cambodia

Indonesia Lao People's Dem. Rep.

Malaysia Myanmar

Philippines Thailand

Viet Nam

13

• Example of Singapore: ▫ Energy use is more

than 20 times energy production

0

5

10

15

20

25

30

35

40

45

1995 2000 2005 2010 2015

Singapore: share of energy use to energy production

14

• What drives growth in energy use?

• With latest data from IEA and ADB Input-Output tables, we decompose increase in global energy use into three factors:

▫ Activity effect : 64%

▫ Economic structural change effect: 20%

▫ Energy efficiency effect: 28%

1.41

1.64

1.20

0.72

0.6

0.8

1

1.2

1.4

1.6

1.8

2000 2005 2010 2015

Global energy use decomposition between 2000 and 2015

Energy use

Activity effect

Economic structural change effect

Energy efficiency effect

15

• Example of Indonesia

1.64

2.40

1.11

0.61

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.5

2000 2005 2010 2015

Indonesia: energy use decomposition between 2000 and 2015

Energy use

Activity effect

Economic structural change effect

Energy efficiency effect

What drives growth in energy use?

• Decompositions of energy use in selected economies between 2000 and 2015

16

Energy use Activity effect

Energy efficiency effect

Economic structural change effect

Philippines 1.41 1.98 0.65 1.10

Thailand 1.69 1.67 0.79 1.28

Malaysia 1.67 2.41 0.90 0.77

Indonesia 1.64 2.40 0.61 1.11

Viet Nam 2.83 2.06 1.03 1.34

Russia 1.06 1.57 0.71 0.94

Mongolia 2.07 4.39 0.52 0.90

China 3.23 4.86 0.64 1.05

India 2.33 2.67 0.65 1.33

Energy trade

• Data: UNCTAD

• Trade of mineral fuels, lubricants and related materials (SITC 3) in thousands of US dollars, including:

▫ Coal, coke and briquettes

▫ Petroleum, petroleum products and related materials

▫ Gas, natural and manufactured

▫ Electric current

• Regional concentration of energy trade ▫ Destinations of energy exports from ASEAN: mostly Asia-Pacific region

▫ Home economies of energy exports to ASEAN: Middle East & Asia-Pacific region

17

Energy trade

• Who buys energy products from ASEAN? ▫ Japan

▫ China

▫ Australia

▫ South Korea

▫ Hong Kong

▫ India

▫ Taiwan

▫ United States

▫ New Zealand

▫ Bangladesh

18

• Who sells energy products to ASEAN?

▫ United Arab Emirates

▫ Saudi Arabia

▫ South Korea

▫ Qatar

▫ Taiwan

▫ Kuwait

▫ China

▫ India

▫ Australia

▫ Oman

▫ United States

▫ Iran

▫ Russia

19

Determinants of energy trade 1995 – 2016

• Findings based on trade gravity model:

▫ Distance matters: Longer distance lowers energy exports

▫ Economic size

Larger GDP producer tends to have more energy trade

▫ Energy intensity

Higher energy intensity in an exporter tends to reduce its energy exports

Higher energy intensity in an importer tends to increase its energy imports

▫ Share of renewables in energy mix

Economies with larger share of renewables tend to import more energy

▫ Regional trade agreement: correlated with increasing energy trade

▫ Oil reserves

Exporters with more oil reserves tend to export more energy

Importers with more oil reserves tend to import less energy

• Energy trade within Central Asia is 2 times larger than the trade within ASEAN

20

Determinants of energy trade (* p<.05, ** p<.01, *** p<.001) 21

Model 1 Model 2 Model 3 Model 4 Model 5

Distance -1.501*** -1.629*** -1.717*** -2.083*** -2.012***

(0.0308) (0.0388) (0.0409) (0.0609) (0.0602)

GDP of exporters 0.947*** 1.075*** 1.086*** 0.874*** 0.879***

(0.0147) (0.0228) (0.0228) (0.0397) (0.0396)

GDP of importers 0.764*** 1.025*** 0.935*** 1.348*** 1.353***

(0.0136) (0.0226) (0.0227) (0.0379) (0.0378) Energy intensity of exporters -0.0673 -0.0863 -0.345*** -0.375***

(0.0569) (0.0581) (0.0948) (0.0945)

Energy intensity of importers -0.0213 -0.167** 0.210* 0.181*

(0.0515) (0.0523) (0.0847) (0.0845)

Regional trade agreement 0.481*** 0.450*** 0.403*** 0.375***

(0.052) (0.0564) (0.0865) (0.0869)

Share of renewables in exporters

0.0202 -0.0359 -0.0434

(0.0151) (0.0241) (0.0238)

Share of renewables in importers

0.0795*** 0.186*** 0.178***

(0.0157) (0.0263) (0.0261)

Oil reserves of exporters 0.308*** 0.305***

(0.0194) (0.0193)

Oil reserves of importers -0.0635** -0.0669***

(0.0201) (0.0201)

Exporters and importers within Central Asia

5.538***

(0.451)

Exporters and importers within ASEAN

2.073***

(0.417)

Constant -25.41*** -35.98*** -35.60*** -35.46*** -37.36***

(0.571) (1.06) (1.165) (1.81) (1.81)

Number of observations 162943 125827 103133 51711 51711

22

• Renewable energy structure ▫ Hydro energy is the

major renewable source in Central Asia, in particular Tajikistan.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1995 2000 2005 2010 2015

kto

e

Renewable energy production in Central Asia

Biofuels Geothermal Hydro Solar and wind

23

• Energy use> energy production ▫ Kyrgyzstan

▫ Tajikistan

• Energy use< energy production ▫ Kazakhstan

▫ Turkmenistan

▫ Uzbekistan

0

0.5

1

1.5

2

2.5

1995 2000 2005 2010 2015

Share of energy use to energy production in Central Asia

Kazakhstan Kyrgyzstan Tajikistan

Turkmenistan Uzbekistan

Energy trade

• Who buys energy products from Central Asia? ▫ Italy

▫ China

▫ Ukraine

▫ Switzerland

▫ Netherlands

▫ France

▫ Russia

▫ Romania

▫ Austria

▫ Canada

▫ Israel

▫ Spain

24

• Who sells energy products to Central Asia?

▫ Most from Russia

25

Selected home economies of energy exports to Central Asia, 1995 – 2016

Russian Federation

China

Algeria

Finland

Turkey

Germany

Belarus

Azerbaijan

Lithuania

Iran

Ukraine

Conclusions

• Development in renewables has not significantly contributed to improving energy security so far

• Progress in energy intensity tends to reduce reliance on energy imports

• Energy efficiency progress contributed to reducing energy demand, but largely offset by economic structural change in part of ASEAN countries

• Regional economic integration has a significant role in promoting energy trade

26

Policy implications

• Countries need to enhance the role of renewables in long term energy strategy

• Energy saving gains must be enabled by technological change and economic structure change

• Regional trade help improve energy security

• Central Asia faces serious infrastructure bottleneck to realize energy bonus due to lack of maritime transport facilities

27

Thank you!

Contact: Dr. Liu Yang esiyl@nus.edu.sg Dr. Zhong Sheng esizs@nus.edu.sg Dr. Dina Azhgaliyeva esida@nus.edu.sg