IEEJ：February 2017ｃ IEEJ 2017
○Special Bulletin
A Japanese Perspective on the International Energy Landscape (311)

February 17, 2017

3E’s+S Challenges Facing Asia: Discussions in Malaysia
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn February 13 and 14, I had an opportunity to discuss Malaysia’s energy situation andchallenges with Malaysian government and energy industry officials and energy researchers. I madea presentation on world energy problems under the new situation, including the inauguration of thenew U.S. administration, and the Asian 3E’s plus S (energy security, environmental protection andeconomic efficiency plus safety) and had discussions with the Malaysian energy policy stakeholders.
As explained below, Asia is facing with the most serious or urgent 3E’s plus S challenges
or problems in the world. As the gravity center of the international energy market shifts to Asia,serious problems facing Asia and their solutions will grow more important for the whole of theinternational energy market.
What are 3E’s plus S challenges for Asia? The key to answering the question is substantial
Asian energy demand growth attributable to economic growth, population expansion, urbanizationand growing middle-income population. According to the IEEJ Asia/World Energy Outlook, global
primary energy demand will post an increase of about 40% from 2014 to 2040, of which Asianemerging and developing countries including China, India and the Association of Southeast Asian
Nations will account for more than 60%. Fossil fuel will capture most of the increase. Even if
advanced technologies are introduced and diffused, fossil fuels will account for more than 70% ofprimary energy demand in 2040 in Asia and the world.
As a result, Asia will increase its dependence on energy imports more and more as regionalenergy supply growth fails to catch up with demand growth. This is the first problem emerging forAsia. Asia now depends on imported oil for more than 70% of oil supply and on imported gas forabout 30% of gas supply. These percentages will increase further undoubtedly. As of 2015,
furthermore, Asia depended on the Middle East for 53% of regional oil supply and for 37% ofregional LNG supply. Given that the Middle Eastern situation remains highly uncertain withgeopolitical risks growing, the high dependence on the Middle East is likely to become a major
challenge for Asia. The future course and impacts of the U.S. Trump administration’s Middle East
policy also represent a problem that cannot be ignored. In this respect, Asia will have to take a close
look at the stability in the Middle East and sea lanes for stable transportation of oil and LNG fromthe Middle East to Asia.
A large energy mix share for coal and other fossil fuels is also a fundamental cause of1

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Asian environmental problems. Asia is required to substantially reduce carbon dioxide emissions toaddress climate change over a long term. At the same time, Asian emerging countries like China andIndia are plagued with serious air pollution including the PM2.5 concentration. Asia is thus doubly
forced to tackle environmental problems.
Regarding the third E, or economic efficiency, energy markets in many Asian countries arestill dominated by state-run companies, with regulated energy prices and subsidies, lagging behindWestern industrial countries in reforming energy markets. As Japan has implemented a full-fledged
electricity and gas system reform ahead of other countries in Asia, many other Asian countries havegrown interested in learning lessons from the Japanese reform as well as Western experiences. As for
the S, or safety, Asia is urgently required to enhance nuclear safety based on lessons from theFukushima accident as global nuclear power generation expansion concentrates in Asian emerging
countries such as China and India.
These issues for the whole of Asia have attracted attention from Malaysian policy makers
as important challenges. Malaysia has already become a net oil importer. The country, though still
remaining a net gas exporter, has started LNG imports while implementing LNG exports. The
combination of gas exports and domestic gas consumption has exceeded domestic gas production
and is expected to expand further. Under such situation, Malaysian policy makers are growinginterested in energy security, as indicated at the discussions.
In Malaysia, coal accounts for more than 40% of power generation and natural gas formore than 30%. The combination of coal and natural gas accounts for about 80%. As there are
numerous plans to build new coal power plants to secure competitive electricity sources, Malaysiancoal demand is expected to robustly increase. As a result, carbon dioxide emissions are expected toexpand, increasing environmental load. In this respect, interests are growing in policy discussions on
how to respond to the Paris Agreement and set future emission reduction targets. The promotion ofenergy conservation and non-fossil energy sources is becoming a key energy policy issue from theviewpoints of energy security and environmental protection. The best energy mix for Malaysia has
also grown controversial. In this respect, Malaysia is importing electricity through international grids
linking hydroelectric plants in neighboring ASEAN countries and considering nuclear power
generation as a long-term option. Nuclear energy discussions have led to growing interests in nuclear
safety and in Japan’s nuclear energy policy including the restart of nuclear reactors under new safety
regulations.
Furthermore, momentum is increasing for an electricity and gas market reform in Malaysia,
with specific initiatives being implemented. In a specific development, a legislative action was taken
last year to authorize third party access to natural gas infrastructure including LNG import terminals.
While this institutional reform has yet to lead to any actual moves or initiatives regarding imports
and supply, political initiatives have been implemented to promote market competition to improve
consumers’ convenience. In this respect, Malaysian policy makers are highly interested in Japan’s
market deregulation. I felt that Malaysia has a strong ambition to promote discussions on market
deregulation. I would like to continue discussions with Malaysian government and industry
2

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○stakeholders on the Malaysian energy mix and the relationship between its realization and market
deregulation.

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