Why balance is such a key to energy transition in Asia

by Paul Everingham

The energy security landscape changed abruptly and fundamentally this year across the world, with global energy markets disrupted by the pandemic and then the war in Ukraine. Across Asia-Pacific and beyond, economies have slowed or stalled, energy costs have soared, and governments have deviated from low-carbon energy transition plans to make sure they meet immediate obligations to provide affordable energy for homes and businesses, and protect their economies.

The low-carbon course correction of governments in their quest to manage the current fractured market is a great example of an important principle at the heart of a successful transition to a lower-carbon energy paradigm—balance.

We need to protect the environment and deliver the climate-change targets of the Paris Agreement, but that has to be balanced with the need to take care of people, providing the energy required for economic growth that will help lift billions out of poverty and improve lives. That energy needs to be affordable and provide security of supply for nations. The complexity of the dilemmas facing governments also illustrates the fact that we do need to use all possible avenues to get us to carbon-zero—including fossil fuels, new energies such as hydrogen, renewables, technology and energy-efficiency measures.

Getting the balance right is perhaps harder in Asia-Pacific than anywhere else in the world. The region is growing fast and will need 20 per cent more energy in 2050 than now, compared with 27 per cent less in Europe over the same period. This growth will bring millions out of poverty and improve the lives of billions, generating half of the world’s GDP by mid-century. In addition to supplying more energy, the region needs to reduce its carbon intensity from a very high base. Not only does 85 per cent of the region’s energy currently come from fossil fuels but almost half of the fossil fuel mix is coal. This is by far the highest dependency of any region in the world.

Addressing these challenges needs a collective effort across all parts of society, led by governments and regulators in partnership with industry and other stakeholders putting in place good public policy, ensuring access to secure resources and making capital available to invest in low- or zero-carbon infrastructure.

The Asia Natural Gas and Energy Association (ANGEA) was formed to provide the collective knowledge and experience of the energy industry to support the region’s decarbonisation journey. ANGEA members include some of the largest energy companies in the world, with long experience of operating effectively across the region and making available their global experience.

The role of gas

A major immediate issue the region faces is intensifying global competition for LNG volumes, leaving some importers that relied on the LNG spot market unable to afford or even secure the energy they need. This has had a direct impact on the region where natural gas is at the heart of many Asian nations’ energy transition policy. New natural gas capacity will take time to develop, and action must be taken now by governments and industry to support that development, including policy-setting and access to resources and financing. Policy must be set for the long term and recognise the scale and complexity of the energy system, creating an enabling environment that encourages investment in flexible solutions.

ANGEA welcomes the progress being made by the Asia Transition Finance Study Group—a private-sector body led by a coalition of commercial banks but also involving regional public agencies such as Japan’s Ministry of Economy, Trade and Industry—on its Transition Finance Guidelines and Technology List. This is an example of the type of collaboration that ANGEA is proposing to ensure that practical recommendations and finance are available to support low-carbon pathways. It will be vital to our success, encouraging investment in infrastructure and systems needed to fuel growth.

Further work is needed to liberalise markets and attract investment, while more transparent markets must also be developed and, over time, international pricing must be passed through to end-users, with appropriate management and support during the transition.

Emerging technologies

The cost of renewable energy has come down, but its intermittency remains a significant issue, and storage technology is not yet able to bridge the gap. Immense infrastructure investments are required in power transmission; carbon capture, utilisation and storage (CCUS); and new forms of energy that can be produced from natural gas, including hydrogen and ammonia.

These new and emerging technologies, alongside nuclear and biofuels, will need to be scaled up to achieve mid-century carbon-zero targets. Research and development in these areas must be supported to transition from prototypes to full-scale technology deployment.

CCUS will be critical as it enables the decarbonisation of industries that are hard to abate such as LNG, hydrogen and biofuels. Asia needs regionally integrated solutions for CCUS, based on a network of carbon dioxide sources and sinks. This requires an international, cross-border policy framework to provide the legal and regulatory certainty for investors. With this in place, CCUS will develop into an economically attractive option, where the region will be highly competitive.

Realistic hydrogen and ammonia technology must be pursued, and natural gas infrastructure should be built to convert to new fuels. These are exciting opportunities for industry and government to collaborate on critical policy solutions.

South and Southeast Asia will need different pathways than other more developed economies. Energy efficiency and renewables alone will not be enough, and developing gas over coal will be critical to balancing emissions targets with energy security. Some multilateral financing organisations are backing away from supporting gas developments; this support should be reinstated now. Connectivity between national systems, whether power or gas, will be critical to energy security.

Developing economies face the multiple challenges of growing populations, economic headwinds, historic energy poverty and growing emissions. Using natural gas on the pathway to lower emissions and creating new forms of energy is critical, and this approach must be made available to them. Close collaboration between governments, financial institutions and industry is needed to make the transition a reality, and ANGEA will facilitate such partnerships by convening the dialogue. Our industry can and must play a leading role in developing technology to drive a successful transition. Without these pragmatic approaches, the energy transition may stall or even reverse.

This opinion article was originally published by The Petroleum Economist.

Paul Everingham is the inaugural CEO of the Asia Natural Gas and Energy Association (ANGEA), which works with governments, society and industry throughout Asia to build effective and integrated energy policies that meet each country’s climate objectives. Contact him at paul.everingham@paule58.sg-host.com or on LinkedIn.