In the coming years, the global energy trend will drastically change from the present state, with far-reaching consequences for economic development and global trade. As an energy-dependent country, Thailand will have to live with the new reality of high and volatile energy prices. The new global energy landscape is being redrawn, with the US becoming the leading supplier of oil and gas.
Furthermore, global energy could be further affected by the anticipated retreat from nuclear power in some countries (i.e. Japan and Germany), the continued rapid growth in the use of wind and solar technologies, and by the global spread of unconventional gas production methods, particularly shale gas, tight sand gas and coal bed methane (CBM). On the fossil-based energy supply, development will hinge upon Iraq’s success in revitalising its oil sector.
On the demand side, according to the International Energy Agency (IEA), global energy use is expected to grow by more than one-third up to 2035, with China, India and the Middle East accounting for 60 per cent of the increase, while energy demand is expected to barely rise among the developed OECD countries. It is expected that there will be a pronounced shift away from oil, coal (and, in some countries, nuclear) towards natural gas and renewables – the energy of the future.
Despite the growth in low carbon sources of energy, fossil fuels are expected to remain dominant in the global energy mix, supported by subsidies that amounted to US$523 billion in 2011, up almost 30 per cent on 2010 and six times more than subsidies on renewables. Obviously, the cost of fossil-fuel subsidies has been driven up by higher oil prices. Thailand also has its share of energy subsidies, particularly diesel tax exemption and an LPG subsidy costing over Bt160 billion or 1.5 per cent of GDP annually.
Over the next decade, as mentioned, one of the major energy developments will come from the US. Its effect in the global energy markets will be profound and felt well beyond North America.
The recent rebound in US oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas, is spurring economic activity – with cheaper gas and electricity prices giving industry a competitive edge and steadily changing the role of North America in the global energy trade.
By around 2020, the IEA projects that the US will become the largest global oil producer (overtaking Saudi Arabia by the mid-2020s). Moreover, the US economy is likely to be more fuel-efficient given its new fuel-efficiency measures in its transport sector.
The overall impact will be a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030. This accelerates the switch in the direction of the international oil trade towards Asia, putting a focus on the security of strategic routes that bring Middle-Eastern oil to Asian markets. In the coming years, according to IEA, the US, which currently imports around 20 per cent of its total energy needs, may indeed become energy self-sufficient in net terms – a dramatic reversal from the present situation.
Obviously, no country is an “energy island”, and market interactions among different type of energy will intensify in the future. Most oil consumers have seen the effects of energy price fluctuations, but we can expect to see growing links among different types of energy and different geographical areas. A current example is how low-priced natural gas is reducing coal use in the US, freeing up coal for export to Europe (where, in turn, it has displaced higher priced gas).
At its lowest level in 2012, natural gas in the US traded at around one-fifth of the import prices in Europe and one-eighth of those in Japan. Going forward, price relationships among the regional gas markets are set to move consistently in line with the narrowing price gap as the liquefied natural gas trade becomes more flexible, meaning that changes in one part of the world are more quickly felt elsewhere.
I think policy-makers looking for simultaneous progress towards energy security, and economic and environmental objectives are facing increasingly complex – and sometimes contradictory – choices.
Energy efficiency is widely recognised as a key issue in the hands of policy-makers, but current efforts fall well short of tapping its full economic potential. I strongly believe there is still significant potential in improving energy efficiency. According to the IEA, if the world could achieve desired energy efficiency, the growth in global primary energy demand up to 2035 would be halved. Oil demand would peak just before 2020, easing the pressure for new discoveries and development.
Looking at the international environment for energy production and demand, we can anticipate challenging tasks for the Thai government to implement energy policies to enable the country to face the new energy reality. Countries are competing for limited and scarce energy resources, particularly the rapidly growing Asian economies. Energy security will be of paramount importance for the Thai economy.
As Thailand is able to produce only 15-20 per cent of its total energy demand, the country needs to look beyond its border to find stable and cost-effective energy sources. Looking ahead, implementing the Asean “Power Grid”, which will provide infrastructure linking the region’s energy producing countries (Myanmar, Malaysia, Brunei, Laos and Vietnam) to energy consuming countries like Thailand will be crucial to enable efficient energy flows within the region.
On the demand side, promoting energy efficiency will ultimately have to rely on market mechanism – that is “market-clearing prices”. People will automatically change their behavior to save energy due to the invisible hand of higher energy prices.
Television campaigns and public announcements can only work to some extent in building public consciousness about the scarcity of energy resources, but ultimately market price adjustments will be the best tool to get people to make their own rational decision on what energy to use and how much energy to consume and save. I can only hope that Thai policy will move toward a more market-based approach with less distortion direction in the near future.
Dr Chodechai Suwanaporn is executive vice president, economics and energy policy, PTT Public Company Limited.