A Vision and Challenges for Overcoming Asia's Energy Dilemma

May 26, 2006

Karen Schneider
Deputy Executive Director,
Australian Bureau of Agricultural and Resource Economics (ABARE)

Projected increases in population and economic activity are expected to lead to a significant expansion in global energy demand in the coming decades. The developing economies of the Asia Pacific region will be the focus of that growth, with analysts forecasting energy demand growth in the region of around 3 per cent a year over the next quarter century. Much of this growth will continue to be met from fossil fuels - coal because of its abundance, accessibility and price competitiveness; oil because it remains the fundamental fuel for the transport sector; and gas because of its growing availability and its relative environmental benefits. Associated with this growth will be a range of challenges that will affect the pace and structure of economic development, the state of energy security, attempts to alleviate poverty, and the quality of the local, regional and global environment.

Energy prices and the security of energy supply

Recent increases in energy prices and in energy price volatility, as well as heightened geopolitical concerns in oil producing regions, have raised concerns about the sustainability of known energy supplies and the ability of economies to absorb the potential impacts of price rises. However, it is important to remember that, while current energy prices are high in nominal terms, they remain well below the real price peaks of the late 1970s. As well, many economies are less dependent on energy, and particularly on oil, than they were in previous decades and hence the impacts of energy price rises have been more muted than they were in the earlier era. Despite the significant increases in crude oil prices, the pace of global economic expansion has not yet been seriously affected.

Energy price signals are also important because they are the mechanism that drives increased investment in new production capacity and in alternative sources of energy. Geoscientific data make it evident that there is no absolute shortage of global energy resources, including oil resources. For example, the USGS estimates that remaining reserves of crude oil and natural gas liquids amount to approximately 930 billion barrels of oil equivalent - well in excess of all the oil that has ever been produced. Estimates of reserves growth and undiscovered resources bring the total oil resource base to 2.5 trillion barrels.

There are also abundant reserves of non-conventional oil resources, including the oil sands of Canada, heavy oil reserves in Venezuela, oil shale deposits in the United States and elsewhere and, increasingly, renewable biofuels that will become commercially viable at higher oil prices. Processes to transform coal into liquid fuels is also a significant technology that is currently being commercialised in China. Development of this wide range of energy reserves has the potential to add significantly to the global energy resource base.

However, large scale investment will be required to harness these resources for consumption around the globe. The International Energy Agency estimates that total investment of $17 trillion will be required over the period to 2030 to ensure global energy demand is met. This will require that governments maintain open, transparent and competitive investment regimes that encourage the flow of funds to their most attractive and highest value use.

The role of energy technology

The development of new technologies will be critical to increasing the energy resource base - in terms of increasing known reserves, adding to reserves through new discoveries and developing processes to exploit non-conventional energy reserves.

Technology is also an essential component of any strategy that aims to ease the pressure on escalating energy demands and significantly curb the environmental impacts of energy consumption while allowing countries to simultaneously pursue their development aspirations. There is a range of technologies that is likely to become commercially available over the medium term that will contribute to this objective. These include, in the power generation sector, advanced fossil fuel combustion technologies, non-hydro renewables technologies and carbon capture and storage. In the transport sector there is the development of hybrid vehicles and advanced internal combustion engines; and in the energy intensive industrial sectors there are many opportunities for advances in energy efficiency.

Analysis at ABARE indicates that the deployment of a range of these advanced technologies throughout the globe could significantly slow the rate of growth in energy consumption, thereby enhancing the prospects for energy security. It would also result in global greenhouse gas emissions that are about 25 per cent below the level they would be in a business as usual scenario. If carbon capture and storage technologies were also assumed to be available at the global level, the reduction in greenhouse gas emissions growth would be further enhanced.

Overcoming barriers to technology development and transfer will be critical to harnessing the potential for technology to contribute to energy security and environmental goals in the Asian region. Governments need to play an important role in this context by creating an enabling environment that supports research and development activities, reduces risk and protects intellectual property. The role of the private sector in disseminating technology through private markets is also key.

Institutional cooperation to underpin energy security and technology development

While national level action will be important, international cooperation can also play a significant role in achieving global energy security and environmental goals. In the energy security context, this could involve the sharing of information and analysis on the functioning of energy markets; the development of consistent and integrated energy market policies across countries; cooperation in the development of long term energy supply infrastructure; and the implementation of joint responses to energy supply disruptions. The APEC Energy Working Group continues to play a leading role in some of these areas but other institutional arrangements exist to further these goals.

In the context of the development of technologies to meet the environmental challenges of energy demand, this can involve participation in international initiatives such as the Carbon Sequestration Leadership Forum, the International Partnership for the Hydrogen Economy and other regional based arrangements. The Asia Pacific Partnership on Clean Development and Climate is a recent example of a regional initiative to enhance technology transfer and cooperation between developed and developing countries.

The broader the extent of cooperation between countries the larger the gains are likely to be. But an overarching concern about cooperation between governments to meet energy goals is that it should act to enhance the operation of energy markets rather than to intervene unnecessarily in those markets. It is primarily through the efficient and effective operation of private markets that energy security and environmental goals will be achieved at lowest cost to consumers and the economy more broadly.

Some key messages related to the future of energy in the Asian region are that:

increases in energy demand will continue to underpin economic growth and development for the foreseeable future. While this growth will be tempered by improvements in energy efficiency and shifts to more environmentally benign fuels and technologies, it will require access to resources at the global level to satisfy demand.
Global energy resources are sufficient to meet the projected energy demand but timely and unimpeded investment will be vital to developing adequate energy supplies.
Development and deployment of new technologies to exploit available and currently undiscovered energy resources and to develop alternatives to conventional energies will be important to maintaining adequate and affordable energy supplies.
In addition, the development of new technologies on the demand side and the transfer of those technologies to developing countries will be critical to ensuring that all economies are able to use energy as efficiently as possible and at the lowest environmental cost.
International cooperation between governments can contribute to meeting the interrelated goals of energy security and environmental sustainability but it should work to reinforce the operation of private markets rather than to intervene unnecessarily in those markets.
Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.