The Cost of Asia’s Energy Boom

0 Likes
0 comments

Asia has been warned of the high price to be paid for its energy boom, with the Asian Development Bank urging regional cooperation to overcome mounting power costs, energy security and environmental challenges.

“Our projections show the region will consume more than half the world’s energy supply by 2035, with electricity consumption more than doubling as economic growth and rising affluence drive demand,” said the bank’s S. Chander, special senior advisor, infrastructure and public-private partnerships.

“Countries cannot meet these huge power requirements all on their own, so the region must accelerate cross-border interconnection of electricity and gas grids to improve efficiencies, cut costs, and take advantage of surplus energy,” he added in a statement announcing the bank’s latest Energy Outlook for Asia and the Pacific report.

At 2.1 percent a year over the period through to 2035, the Asia-Pacific’s energy demand is expected to exceed the world average growth rate of 1.5 percent, although the trend will slow as countries improve their energy efficiency.

Nevertheless, the Philippines-based lender said fossil fuels would continue to dominate the region’s energy mix, increasing their share to 83 percent by 2035, led by coal at 42 percent, oil at 26 percent and natural gas at 17.5 percent.

Coal demand is expected to grow by nearly 2 percent a year, led by increased Chinese consumption and greater consumption in Southeast Asia as countries seek lower cost energy sources.

While China will dominate demand with its near two-thirds share, its demand growth is expected to slow due to improvements in energy efficiency and a shift toward other power sources. By contrast, India will see a steady rise in demand, maintaining the second-largest share through continued growth driven by the power sector.

Among Southeast Asian nations, Indonesia is expected to substantially increase demand, reaching Japan’s level by 2035 to become the fourth-biggest coal user in the region. The ADB said the region would become a net importer of coal “sometime after 2015,” but would switch back to a net exporter after 2035 due to growing production in Indonesia and Australia.

The coal forecasts were supported by energy consultancy Wood Mackenzie (Woodmac), which has predicted that coal will surpass oil as the world’s key fuel by 2020 on the back of rising demand in China and India.

Woodmac expects half of China’s power generation capacity to be built this decade will be coal-fired, given limited domestic gas output and the high cost of liquefied natural gas imports and renewable fuels.

Oil, Gas to Gain

The ADB forecast oil demand would grow by 2 percent a year, led by the transport sector. While Japan and South Korea are expected to reduce demand through declining populations and more fuel-efficient vehicles, India, Indonesia and China are forecast to see higher demand as more cars hit the roads.

Notably, the ADB said the region’s net oil imports would equate to the current crude oil production of the Middle East by 2035, “suggesting major challenges for the members of Asia and the Pacific to find and secure stable and affordable supply sources outside the region”.

However, natural gas is expected to expand at the fastest annual pace of 4 percent “because of the lower environmental burden and ease of use,” the ADB said.

Paying the Price

The consequence of increased energy demand is the need for $11.7 trillion worth of new investments through to 2035, “based on business-as-usual power use patterns,” the ADB said. Using pricier coal and natural gas-fired generation technologies and adopting lower carbon options such as wind and solar would increase the bill to $19.9 trillion.

Along with rising energy costs, the bank warned of “major pricing, energy security and environmental challenges.”

“Without reducing its heavy reliance on oil imports, using power more efficiently, and adopting more green energy options, the region will see a growing energy divide between the rich and poor, and increasing threats from climate change,” it said.

On Thursday, the bank gave an indication of what the climate cost might entail, predicting that 12 million people in 23 East Asian cities were at risk of “rising sea levels, severe storms, and more intense drought” that could jeopardize $864 billion in assets.

For China alone, the cost of “climate proofing” all infrastructure was estimated at $44 billion a year between 2010 and 2050, with more than a million people living in coastal areas at risk of being displaced. The country currently produces a quarter of the world’s greenhouse gas emissions, but could cut them by nearly half by 2030 “if mitigation measures are implemented without delay,” the ADB said.

Although China is reportedly “throwing the kitchen sink at diversifying its energy sources,” coal appears set to continue its dominance in Asia for some time to come, helped by the shutdown of Japan’s nuclear power industry and growing coal demand in India and elsewhere. While the coal boom may have faded, Asia’s energy demand – and its growing cost – appears far from over.

Comments
Newsletter
Sign up for our weekly newsletter
The Diplomat Brief