IEEJ：January 2020○ｃIEEJ 2020
Special Bulletin
A Japanese Perspective on the International Energy Landscape (463)January 17, 2020

Outlook for Asian Energy Market and Its Challenges
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
In Tokyo this week, I had an opportunity to discuss an outlook and challenges for the Asianenergy market with experts from various countries. At a time when Asia is growing more importantwith the gravity center of the international energy market shifting to the region, I would like tosummarize Asian energy challenges anew based on the discussions.
Energy demand has been expanding in Asia, supported by economic growth mainly in China,
India and Southeast Asia. Although advanced economies forming the Organization for Economic
Cooperation and Development had accounted for more than 70% of global energy demand in the early
1970s, Asia (including such OECD members as Japan and Australia) commanded the largest share of
global energy demand at 43% in 2018. The global energy market’s gravity center is shifting to Asia.
The shift will continue in the future, leading Asia’s presence in the international energy market toincrease further.
In Asia, however, various energy and environmental challenges are expected to grow more
serious and complicated due to increasing energy demand. Those challenges include energy security
that has become a major matter of concern because of Asia’s growing dependence on energy imports.
As Asian energy production growth fail to catch up with regional energy demand growth, the region
is growing dependent on energy imports. Asian economies such as China, India and Southeast Asia
expected to boost energy demand will face a rise in their dependence on energy imports, particularly
oil purchases from the Middle East. As the heightened risk of a military clash between the UnitedStates and Iran became a “reality” early this year, global interests in the Middle Eastern situation areincreasing. Particularly, the stability of the Middle East is important for energy security for Asia thatheavily depends on energy imports from the oil-rich region. The Middle East for its part must givepriority to the Asian market as its dependence on Asia increases. In this sense, Asia and the Middle
East will grow more interdependent, with their stable development being their common challenge.
Substantial energy demand growth makes it important for Asia to tackle environmentalproblems. A particularly important problem involves Asia’s structurally high dependence on fossil
fuels including coal. In 2018, coal accounted for 48% of primary energy consumption in Asia, farhigher than the global average at 27%. Coal has become a main energy source in Asia including Chinaand India as large energy consumers because coal has been locally abundant and price competitive inAsia. However, massive coal consumption has boosted CO2 emissions, becoming the largest factor
behind growing calls for Asian countries to enhance climate change countermeasures. Massive coalconsumption has also directly caused serious air pollution as an urgent, grave environmental challenge
in Asia. Given future energy demand growth, how best to clean energy use in Asia is also a great futurechallenge.
It is frequently noted that the world now faces energy transition. Following the industrial
revolution, coal became a main energy source in the 19th century. Then came the 20th century as the1IEEJ：January 2020○ｃIEEJ 2020
century of oil. In the 21st century, oil is still the largest energy source, though with its share in totalenergy consumption declining steadily. Recently, solar photovoltaics, wind and other renewableenergy sources have rapidly spread thanks to fast falls in renewable energy power generation costs,
attracting global attention. An increasing number of countries and companies are offering ambitious
initiatives to enhance climate change countermeasures in pursuit of “net zero” greenhouse gas
emissions. In such situation, hopes are growing on the development and diffusion of hydrogen andother advanced or innovative energy technologies.
What energy transition Asia should promote is an important issue for Asia plagued with theabovementioned energy challenges. An impressive issue found in the energy discussions in Tokyo is
how to assess the realities in Asian countries in promoting energy transition. Even in Asian emerging
market economies featuring rapid economic growth, average per capita income levels are still far lower
than in advanced economies. These emerging market economies also have extremely many lowincome citizens. Their top policy priority is the promotion of economic growth to generally raise
income levels and provide most of the citizens with affluent, convenient lives. Stable supply ofaffordable energy is indispensable for that end. How to use coal as a main energy source is a very
important energy policy challenge for Asian countries.
On the other hand, cleaner energy supply will be strongly required to address air pollution
and climate change. The requirement must be compromised with the realities again. Another key pointis that energy investment decisions will exert influence on energy options over a long term because ofenergy investment’s characteristics. Decisions that investors make while considering the uncertain,
unpredictable future will remain in the form of infrastructure over a long term to exert influence onenergy supply and demand. This means a risk that present coal sector investment decisions based onwrong predictions could lead to “stranded assets.”
In Asia where energy demand will keep on expanding, decisions on massive investment todevelop future energy infrastructure must be made now. Therefore, investment decisions must be welloriented toward the future. In Asia, it is basically important to fully consider the realities and holdpragmatic views based on the realities in predicting the future. It is also important to base decisions
on Asian countries’ characteristics regarding energy endowment, the energy supply and demand
structure and the industrial structure. Another important point is that private sector investment
decisions could be unprecedentedly difficult to make in the face of great uncertainties in Asia where
massive energy investment is required. Then, public investment promotion mechanisms may play a
key role. Such mechanisms are required for each country to realize a policy target or planning thatwould be considered desirable for energy and environment policies.
From a realistic viewpoint for Asia, attention is paid to the role of natural gas and LNG. In
Asia, natural gas and LNG account for a relatively small share in the energy mix and have room to beexpanded. The expansion of natural gas and LNG can be expected to contribute to cleaning anddiversifying energy supply and reducing Asia’s dependence on energy imports from the Middle East.
While natural gas is regarded as one of the fossil fuels subject to decarbonization in Europe where“net zero” emissions are pursued, how to use natural gas and LNG is realistically important in Asia.
Even natural gas and LNG are not necessarily any perfect energy source. The biggest challenge
regarding natural gas and LNG is how to make natural gas and LNG more price competitive, moreaffordable, more attractive and easier to be selected as preferred energy. Given these points, the pursuitof the best energy mix adapted to the unique conditions of each country would be the key to energy
policy in Asia as well as any other region.
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