07 Feb 2015
Today, Asia consumes over 40 per cent of the world’s fossil fuels led by China, India, Japan and South Korea.
Within 10 years, the region’s dependence on energy imports is expected to rise by 53 per cent, according to Macquarie research.
That increase alone exceeds the equivalent of the world’s crude oil production today, or put another way, the power supplied by 436 nuclear power plants.
The dependency is being driven by a growing primary energy demand within Asia which is forecast to increase by 37 per cent by 2025.
Primary energy demand refers to sources that are easily convertible to electricity; predominantly coal, oil and gas.
As a result of increased demand, energy prices are likely to rise throughout Asia over the next 10 years. This is despite current volatility in coal and oil markets, according to Macquarie analyst James Hubbard.
This will also drive a push for greater anti-pollution efforts through China and Asia, bring renewable energy into sharper focus and encourage more efficient energy practices.
While the last six months of 2014 saw a significant drop in major commodity prices, especially oil and iron ore, Hubbard says the current market sentiment is not likely to last more than two years.
Energy prices are likely to rise throughout Asia over the next 10 years despite current volatility in coal and oil markets.
“We anticipate market conditions will realign within two years leading to a correction on price,” he says.
“Current prices are being driven down due to temporary dysfunction within OPEC and the strength of the US dollar.”
Longer term, an oil price of below $US80 per barrel would have a negative impact on Asia, according to Macquarie’s research.
The result would be energy demand rising at a faster pace, with energy efficiency and anti-pollution efforts likely to stall.
“A prolonged period of lower prices would serve to exacerbate the world’s reliance on fossil fuels ,” Hubbard says.
Higher prices, however, would see a sharper focus on anti-pollution efforts through China and broader Asia as well as placing a spotlight on renewable energy and the opening of energy chains in the region.
Asia is already the biggest regional net importer of primary energy as well as being inefficient in its use of energy in terms of producing gross domestic product, putting it at a major competitive disadvantage.
If oil prices remain below $US60 a barrel predictions show there is likely to be no improvement in marginal energy efficiency across the globe in the next ten years
Any further delays toward improved energy efficiency would be likely to widen the gap between energy efficient nations and Asian economies, pushing back future adjustments and making them even more difficult to implement.
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The above article is based on information contained in Asia’s energy- short and getting shorter published in October 2014 and China oil & gas: cheaper oil-a poisoned chalice published in November 2014.