Growing US-China trade tensions and US flip-flopping on climate will leave Asean facing tough energy choices, writes Prethika Nair
Geopolitical tensions are disrupting energy supply chains and raising uncertainties over climate funding, and the Asean group of nations is at an inflection point that will determine how members manage their growing energy demand.
The Asean Centre for Energy (Ace) expects regional energy demand to rise by 12pc this year from 2022, with oil still making up the largest share of energy consumption at 41pc. Southeast Asia is still highly dependent on fossil fuels because of their affordability, but the region's fossil fuel production is declining, and southeast Asia is due to become a net LNG importer by 2027.
In light of this, the region now has to decide whether to press on with nascent energy transition plans or maintain and perhaps even increase its reliance on fossil fuels. Malaysia has assumed chairmanship of Asean for 2025, and the country's priorities could influence the group's policy choices. State-run oil firm Petronas posted higher gas output of 1.64mn b/d of oil equivalent for 2024, and it intends to continue maximising oil and gas production. Similarly in fellow major fossil fuel producer Indonesia, President Prabowo Subianto has set a target for reviving oil output to 900,000-1mn b/d by 2028-29.
Asean targets a 23pc share of renewables in total primary energy supply by 2025, up from 15.6pc in 2022. Renewable energy supply is forecast to increase by 33pc to 145mn t of oil equivalent in 2025, according to Ace, particularly from solar and wind power. But southeast Asia is now facing additional headwinds in achieving its climate goals. The US' withdrawal from the Paris Agreement and President Donald Trump's climate stance has raised concerns about funding, especially for countries such as Indonesia, which has planned its policies around promised climate financing including the Just Energy Transition Partnership.
Even so, the funds that have been promised still pale in comparison with the estimated more than $130bn/yr the region needs to meet its emissions reduction targets by the end of the decade, and Asean still needs to secure sustainable financing by other means.
Balancing act
Southeast Asia has generally maintained cordial relations with both the US and China, but alliances may shift because of greater instability resulting from a US-China trade war. Asean needs to diversify its partnerships, Malaysia's prime minister Anwar Ibrahim said in December. "Active engagement with Asean+ countries and Brics+ countries will help secure the region's position in essential global supply networks," he said.
China has established itself as a major presence in global energy investment in both fossil fuels and renewables and could potentially gain a stronger foothold in southeast Asia. But tensions in the South China Sea, where China and a number of Asean countries including Malaysia claim sovereignty over various zones, may limit Beijing's wider involvement in the region.
Instead, countries may benefit as much from intraregional energy co-operation. Malaysia, for example, aims to establish itself as a carbon capture, utilisation and storage (CCUS) hub, and "CCUS and carbon credit topics are planned to be included in the chairmanship prioritisation list", Ace says.
If regulatory frameworks on transboundary CO2 capture and storage are finalised, the region could establish a CCUS value chain to help meet its emissions reduction targets. First steps have already been taken, with Asean members agreeing in December to collaborate on a Common Carbon Framework. There has also been progress towards establishing the long-awaited Asean Power Grid, which could help the region source and share electricity.
