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“The energy transition in Asia - Country priorities, fuel types, and energy decisions”.

May 15, 2020

Oil & Gas Industry

By Etienne Romsom and Kathryn McPhail

Etienne Romsom and Kathryn McPhail, authors of “The energy transition in Asia - Country priorities, fuel types, and energy decisions”, have published their second report with UNU-Wider.

May 2020 

This 51-page report provides an overview of the energy transition in Asia. It sets out the underlying drivers, and how these set energy transition priorities in China, India, and South East Asia (SEA). It particularly describes the role of (liquefied) natural gas in the growing energy demand and changing energy mix. A comparison is then made for each of the three regions on how four main fuel types (coal, oil, natural gas, and renewables) contribute differently to eight energy transition priorities. An analytical model is developed that links a ranking of energy transition priorities to an alignment with the four fuel types. The model determines which fuel types are most aligned with a certain set of energy transition priorities. The predicted alignment with fuel types appear to match the energy investment decisions well for China, India, and South East Asia.. 

The conclusions of the report are provided here:

Climate Change
The most significant challenge facing our planet and that is key to driving the energy transition is climate change. Latest reports suggest we are heading for at least a 2oC increase in global mean temperatures. This is well beyond the 1.5oC now regarded by the Intergovernmental Panel on Climate Change as the threshold at which serious impact on climate conditions is likely. Energy demand is growing at its fastest rate since 2010. Carbon emissions from energy are growing by 2 per cent, the fastest expansion in many years.

Growth of Renewables and Natural Gas 
After renewables, natural gas is forecast to be the fastest growing source of energy. Within this, LNG growth much exceeds growth rates for pipeline exported gas or locally consumed gas. Asia has long history with LNG both as a market and as a supply region. Although the LNG market has become globalized, each country has its own specific issues and opportunities, local context and perspectives. The underlying drivers for the energy transition are demographics, rising living standards, technology advancements, and climate change.

Energy Transition Priorities
These drivers set the energy transition priorities. Some reflect human development: bringing energy to all people of the world through affordability for low income populations and access for the more than 1 billion people who currently have no access to electricity. Others address international commitments made by countries under the Paris Climate Agreement as well as local citizen anxieties of air pollution and that 2.8 billion people do not have access to clean cooking fuel. Lastly, priorities concern national energy security of supply; efficiency of operational processes through continuity of supply; and grid balancing.

Drive Energy Decision Making
A comparison has been made how each of the main fuel types (coal, oil, natural gas/LNG, and renewables) contribute differently to these eight energy transition priorities. The ranking of the energy priorities is strongly dependent on local context. China, India, and South East Asia (SEA) have been compared based on recorded evidence to what degree each of the energy transition priorities drives energy decision making. An analytical model has been developed that links a ranking of energy transition priorities to an alignment with the four fuel types. The model determines which fuel types are most aligned with a certain set of energy transition priorities. The predicted alignment with fuel types appear to match the energy investment decisions well for each of the three regions.

Figure: Spider diagram showing the impact of the four fuel types against energy transition priorities

 

Fuel type choices of China, India and SEA  
The relative ranking of China’s energy transition priorities and how this ranking aligns with each of the four fuel types show a stronger alignment with gas (air quality) and energy diversity (away from coal). Yet it is also positive for coal (energy security). Turning to India, among the three regions, India energy priorities show a stronger alignment with coal (affordability) and renewables (affordability and energy access). Lastly for SEA, the strongest alignment is with coal and for oil, reflecting the energy transition priorities of affordability, continuity of supply, and energy security.

 

Figure: Alignment of the energy transition priorities of China, India, and SEA with the four fuel types.

 

Marketing Insights to LNG Suppliers
Understanding of regions and countries’ fuel type priorities and the underlying energy priorities provides marketing insights to LNG suppliers. LNG marketing strategy should address LNG buyers’ and sellers’ key concerns that can be clustered into the following categories: price, flexibility, risk, and performance. Value-chain design optimization is critical for greenfield LNG ventures to demonstrate their ability to drive performance once operational. It is value chain transparency and best practice that helps to build trust from buyers, even in the absence of operational track record. Each of the elements in the value chain has ‘value drivers’. These value drivers can become key differentiators in securing an LNG contract, if their importance in optimizing the value chain is understood and shared among parties.

  

Download the full paper here: https://doi.org/10.35188/UNU-WIDER/2020/805-4 

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