Coal to surpass gas in Southeast Asia power-use boom in next two decades

Business Mirror

02 Oct 2013 

 

Written by Bloomberg News

Coal will replace natural gas as the dominant fuel for producing electricity in Southeast Asia as the region almost doubles its energy consumption in the next two decades, according to the International Energy Agency (IEA).

The 10 members of the Association of Southeast Asian Nations (Asean), with energy demand growing at more than twice the global average, will get 49 percent of its power from coal by 2035, up from 31 percent in 2011, the IEA said on Wednesday in its Southeast Asia Energy Outlook. The share from gas will drop to 28 percent from 44 percent.

“Coal emerges as the fuel of choice in the power sector, as it is relatively cheap and abundant in the region,” the IEA, the Paris-based adviser to the world’s most-developed nations, said. “As long as fuel-price differentials continue to favor coal over gas by a significant margin, Southeast Asia’s incremental power generation is set to be dominated by coal.”

While the trends support plans by Indonesia, the world’s top exporter of thermal coal, to almost double output by 2035, emissions linked to climate change will increase at the same rate in Southeast Asia, the IEA forecasts. Coal, which emits about twice as much carbon as gas, is the fuel source for about 75 percent of power-generating capacity being built by members of the Asean, the IEA said.

The price of power from coal will be about 30 percent cheaper than gas in Southeast Asia, the IEA forecasts. The assumption assumes costs of about $80 a metric ton for coal and about $10 per million British thermal units (Btu) for natural gas.

“A comparison of electricity-generating costs demonstrates a strong competitive advantage for coal-fired plants under a wide range of coal and gas prices,” the IEA said. While coal has the edge, gas will remain the second-biggest source of generation, it said.

Fastest growth

“Coal-fired generation grows faster than every other source except bioenergy and some renewables that grow from a very low base,” the IEA said. It sees renewables increasing from a 14-percent share in 2011 to 20 percent in 2035.

Asia’s benchmark price for coal fell to $76.10 on August 9, the lowest since 2009, and traded at $78.30 on September 27 amid a glut of the power-station fuel.

Natural gas futures in New York will climb above $4 per million Btu this year as low supplies coincide with increasing consumption, according to estimates from banks including Bank of America Corp. Liquefied national gas shipped to Asia is about four times as much, trading as high as $19.40 per million Btu in February, according to WGI prices compiled by Bloomberg.

Southeast Asia’s energy demand will rise to about 1 billion tons of oil equivalent during the period, representing more than 10 percent of the world’s growth in energy use, the IEA said.

Higher prices

Use of natural gas use will rise 77 percent to 250 billion cubic meters in 2035 from 141 billion as higher prices slow the demand growth for the cleaner fuel. Demand for coal will triple, growing at 4.8 percent annually on average, the IEA forecasts.

Oil demand in the region will rise to 6.8 million barrels a day from 4.4 million now, according to the report.

The region’s crude imports will rise to more than 5 million barrels a day by 2035, making it the world’s fourth-largest oil importer after China, India and the European Union, it said.

Southeast Asia’s growing demand for oil will offset declining imports by the US, which is producing more of its own crude thanks to the boom in output from shale. US oil demand is forecast to stay around 18.7 million barrels a day by 2014, below the peak consumption level of 20.8 million in 2005, according to its Energy Information Administration. Net oil imports will fall to 5.71 million next year, the IEA said on August 9.

Deterring investment

Southeast Asia’s annual spending on oil imports will rise to $240 billion, almost 4 percent of its gross domestic product, the IEA forecast. Thailand and Indonesia’s spending is projected to be the highest in the region, with each country tripling oil imports to almost $70 billion in 2035.

Fossil-fuel subsidies remain an obstacle to reducing oil demand in Southeast Asia despite some progress, the IEA said. Subsidies stood at $51 billion last year, deterring investment in energy infrastructure and hampering improvements in energy efficiency and development of renewable energy.

Malaysia raised fuel prices earlier this month for the first time since 2010 to curb subsidies that have stretched government budgets and threatened investor confidence.

Neighboring Indonesia increased gasoline and diesel prices in June for the first time since 2008. The country will influence markets more than US as its gasoline supply deficit rises to 420,000 barrels a day by 2018 from 340,000 barrels, while that in the US will fall to 60,000 barrels from 560,000 barrels, according to Wood Mackenzie Ltd.

“Had Indonesia not made its recent reforms, government spending on energy subsidies would have reached levels comparable to spending on health and education,” the IEA said. “The impact on government budgets is being compounded in a number of cases, including Indonesia, Malaysia and Vietnam, by growing pressure to divert fossil fuel production away from lucrative exports markets to domestic markets to satisfy fast-growing demand.”   source