Rising oil and gas import and subsidy costs may underpin an acceleration towards renewable energy, writes Prethika Nair
Southeast Asian countries have rolled out more new renewable energy policies than fossil fuel measures in the wake of the US-Iran war, but the region still remains heavily reliant on oil, gas and coal.
Oil and gas prices have surged since the conflict began, leading to higher power costs and greater strain on national budgets that face rising energy subsidy bills. This is especially so in southeast Asia, which receives 60pc of its crude oil imports and a third of its gas imports from the Middle East.
Major regional economies — namely Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines — have implemented 37 clean energy policies in the six months since the war began, compared with 29 fossil fuel polices, according to a report by research group Zero Carbon Analytics (ZCA). But because most of the renewable energy policies are long term, the region's energy security still hinges mainly on its short-term fossil fuel measures for immediate relief.
Indonesia has sought to diversify its fuel sources, including through Russian crude imports. The Philippines declared a national energy emergency in March, and introduced relief measures such as fuel and energy optimisation. The country plans to establish a state-owned strategic petroleum reserve and has launched a 20bn Philippine peso ($33.2mn) emergency fund to improve fuel security. Vietnam's prime minister in April called for the accelerated development of a national crude oil reserve. State-owned PetroVietnam last month signed an agreement with Russia's state-owned Zarubezhneft to study options for developing one.
Governments in the region have continued with upstream development even as they have adopted more energy transition policies, but completing these projects may become more challenging now because of cost inflation. Southeast Asia has $20bn of deepwater development plans for 28 trillion ft³ (840bn m³), or 5bn bl of oil equivalent, of gas through six major projects in Indonesia, Malaysia and Brunei, estimates consultancy Wood Mackenzie. The region also has 106GW of gas power capacity and 70mn t/yr of LNG import capacity in development, according to Global Energy Monitor data, representing $160bn in investment.
Fiscal pressures and the case for renewables
The region's fossil fuel import bill is expected to rise from $82bn in 2024 to $245bn by 2035 under current policies, according to the Institute for Energy Economics and Financial Analysis (IEEFA). For many countries, this is combined with the burden of fossil fuel subsidies. Indonesia last month pledged to keep its subsidised fuel prices unchanged. But Jakarta's 2026 subsidy programme assumed a crude price of $70/bl, and so is now underfunded, according to IEEFA. Similarly, Thailand's Oil Fuel Fund, through which it manages domestic diesel prices, is in significant deficit because of rising international prices.
The economic case for moving away from fuel imports to one-time capital investments for renewables is therefore compelling, IEEFA says. Developing 450GW of wind and solar capacity over the next 10 years would produce about 83 TWh/yr of clean generation, displacing about 17pc of power sector fuel imports.
There is 49GW of gas capacity under construction or in pre-construction in Indonesia, Malaysia, Thailand, the Philippines and Vietnam, equivalent to 263 TWh/yr of power, according to ZCA. Installing the equivalent amount of solar power would cost $45.4bn less than producing it from gas, mainly because of the falling costs of solar. Many countries in the region have accelerated solar power development plans. Indonesia has unveiled the most ambitious target, to add 100GW of solar power by around 2030, and expects the initiative to see annual state subsidy savings of 74 trillion rupiah ($4.2bn) by replacing diesel-powered generation.
