IEEJ：October 2016 © IEEJ2016

21 October 2016
The Institute of Energy Economics, Japan (IEEJ)

Asia / World Energy Outlook 2016
— Consideration of 3E’s+S under new energy circumstances in the world —1. Introduction•In the Reference Scenario of IEEJ’s Outlook, the world primary energy consumption
increases at an annual rate of 1.2%, reaching almost 19,000 Mtoe by 2040 (increase by38% from 2014). Oil will keep the largest share even in 2040, followed by natural gas andcoal. The world will remain heavily dependent on fossil fuels for 78% of its primaryenergy consumption in 2040.

•China, India, and ASEAN are leading a large portion of the demand growth. ASEAN
will become more dependent on coal-fired power generation due to its high growth indemand. In addition to currently being a net importer of oil and relatively resourceful innatural gas, ASEAN will begin importing natural gas within the next 10 years. For Asia,
energy security will become more important in the future.

•Although crude oil is currently in oversupply, its geopolitical risk is still high. Thus, thisyear’s Outlook analyses the economic implications of crude oil supply disruption, and it
reveals that serious damage to the global economy would result from a supply
interruption of 10 Mb/d.

•For the climate change, the Outlook considers an Advanced Technologies Scenario assumingthat the penetration of energy efficient and low-carbon technologies is promoted asmuch as possible. In addition, the Outlook takes account of viewpoints to mitigate thetotal costs including adaptation and damage. The Outlook also analyses scenarios wherethe introduction of nuclear and hydrogen are further progressing.

2. Overview of the ASEAN Energy Market
ASEAN attracts attention as a new growth centre following China and India. 3E’s in
ASEAN would be strengthening significantly through energy market integration
among ASEAN countries; however, ASEAN’s issue is its lack of funds and technology
for energy development. Japanese companies will benefit from a business
opportunity in ASEAN through funds and technology transfers.
•ASEAN has a huge economic potential because its population is 600 million, and itborders on China and India. At the end of 2015, the ASEAN Economic Community(AEC) was established, and ASEAN is expected to further develop its economy by its
expansion of free trade and market integration.

•ASEAN’s energy demand is increasing rapidly through progress of industrialisation,and improvement of living standards and energy access for people in ASEAN. Contrary
to the world’s trend, ASEAN will depend on cheap energy source, such as coal, to meet

IEEJ：October 2016 © IEEJ2016

its tripled electricity demand. ASEAN will become a net importer of natural gas by 2030
because the demand will be beyond the production of natural gas within the region. It isurgently necessary for ASEAN to deal with its energy security and the global
environment problems.
•In order to meet its rapid increase demand, ASEAN requires investment of about$2 trillion to its energy supply infrastructure by 2040. Fund raising is a big challenge, but
the situation will be a business opportunity for foreign companies. It is necessary for
ASEAN to deregulate foreign investment restrictions and subsidy, and to introduce
policy transparency and stability in order to attract investment from foreign companies.
Also, the energy market integration between ASEAN countries, like the ASEAN Power
Grid (APG), makes a significant contribution towards achieving the 3E’s (Energy,Economy and Environment). ASEAN faces the issues of lack of funds and technology fordeveloping its energy market; Japan is highly expected to cooperate with ASEAN
countries to solve those issues.

3. Coping with the Energy Security and the Climate Change Issues
Continuous and appropriate measures are required to cope with both the energy
security and the climate change issues, recognising the risks for the measures. Interms of the climate change issue, sustainable measures should be practiced giventhat the issue is a super long-term subject. In parallel, the development of technologythat is applicable globally should be promoted.
•Although the oil prices have been kept low, the circumstances of geopolitical risks in theMiddle East remain complicated and serious. If crude oil and natural gas supply arepartially interrupted due to trouble, the global economy would be heavily affected by alack of supply. Significant economic damages occur especially in Asia including Japan,Korea, and Chinese Taipei, which heavily depend on imports of oil and natural gas. For
mitigating the damages, all countries and regions are required to continuously practice
conventional measures such as diversification of supply source, increase of storage, andprogress of energy saving and alternative energy technology. The issues are especiallyserious for Asia.

•The world GHG emissions will reach 45.5 GtCO2 in 2030, estimated by ‘Intended
Nationally Determined Contributions’ (INDC) to the Paris Agreement, increasing fromcurrent levels. Although the emissions will be lower than the current trend (ReferenceScenario), it is difficult to image achieving emission reductions by half by 2050. However,the Paris Agreement is highly regarded as a step for the global effort to the reduction ofthe emission, at least currently.

•Based on the perspectives of the super long term and sustainability, it is meaningful toevaluate a combination that minimises the total cost, the sum of mitigation costs,
adaptation costs, and damages. Such evaluations do not require the world CO2emissions to be reduced by half in 2050. Current emission levels will need to be cut by
almost half after 2150, and the total cost is around $100 billion every year, which is lower
than that of the Reference Scenario and even much lower than that of the case that theemission reduced by half in 2050.

IEEJ：October 2016 © IEEJ2016•However, such evaluations have significant uncertainty. The future can change
significantly through progress of innovative technology, decrease of marginal costs for
mitigating GHG, the climate sensitivity, etc. The most important point is to develop
technology through a global network within a collaborative approach in a long-termview with continuous practice of introducing appropriate measures for climate change.

•There are various innovative technologies and hydrogen technology is one of suchtechnologies expected to contribute to the reduction of CO2 emissions. The emissions arereduced significantly in a case that oil and coal-producing countries produce hydrogenwith carbon capture and storage (CCS). In the case, the application of hydrogen occurs
mainly in power generation sectors and also progresses in transport sectors. Hydrogen
contributes to the diversification of energy supply sources because there are manycountries with high potential supply sources, not only the Middle East but also North
America and Australia.

4. Ascertaining the Meaning of Nuclear
Nuclear will play an important role for achieving 3E’s, and ensuring safety is the mostimportant point for nuclear.
•The development of nuclear in the future is significantly uncertain. It is not only due tocountries or regions’ circumstances of energy, economy, and development level of social
infrastructure, but also a matter of international relations.

•If the High Nuclear Scenario is in effect, nuclear becomes the base power source for many
emerging countries, such as Asian and Middle East countries. The scenario assumes that
nuclear power generation will benefit from lower level of costs, and that nuclear
technology transfer will be properly made from developed countries of nuclear
technology, such as Japan, to emerging countries. In the scenario, nuclear power
generation capacity in Asia becomes approximately 7 times larger than that in 2014, andimprovement of CO2 emissions, self-sufficiency of energy, and power costs (economy) is
highly expected. Especially in Asia, the scenario assumes proper progress in further
strengthening the regulatory standards for safety and developing a regulatory systemalong with the level of development of nuclear industry.

•On the other hand, if the Low Nuclear Scenario is in effect, no new nuclear power
generation plant will be constructed not only in developed countries, but also inemerging countries. The world becomes less dependent on nuclear. In the scenario,
primary energy self-sufficiency in Asia becomes below 65% (currently above 75%), andCO2 emissions increase significantly. Consequently, the Low Nuclear Scenario contributes
to the issues of energy security and climate change.

•Regardless of high or low development level of infrastructure and technology, risks ofnuclear incidents are never zero in countries that have nuclear facilities. It is necessary to
make sincere efforts for keeping in mind that there is no end for challenging the issue ofsafety, while nuclear can play an important role to achieve 3E’s in Asia and the world.
Contact: report@tky.ieej.or.jp