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Energy-hungry Asia to consume more fossil fuels

29 Mar 2016

Increasing energy consumption in Asia will drive demand for fossil fuel resources, despite global efforts to reduce carbon emissions.

Macquarie analysts predict Asia's demand for oil, gas and coal will increase by 23 per cent by 2025, bringing with it an annual increase in emissions of 21 per cent.

While some Asian countries are taking steps to reduce reliance on fossil fuels – particularly coal – progress might not be at the pace required to halt dangerous global warming.

Macquarie's oil and gas research team estimates that Asia's primary energy consumption will rise by 31 per cent in the next nine years and two thirds of that increase will come from fossil fuels.

India has moved to aggressively expand its energy supply, with the Modi government promising to connect all households to some form of power by 2020.

Macquarie Securities India strategist Rakesh Arora said the country is adopting a "three-pronged" strategy for energy use that involves better utilisation of the existing coal-based power networks, restructuring cash-strapped state electricity boards, and setting targets for renewable energy.

"In the near term, India can't get away from fossil fuels. But long term they're putting in a plan to reduce dependence," Arora says.

"Renewable energy is expensive and India is in a growth phase, so they cannot absorb very high cost energy sources.

"India has no oil or gas reserves of any substantial recognition. India is totally dependent on imported oil supplies and that is why coal is the primary energy source for the country at the moment."

Arora says the government's initial strategy focused on the existing, coal-based power network, which had been under-utilised due to coal supply shortages.

The government is trying to cut down on the use of imported coal and rely more on domestic coal deposits.

In the medium term, the country is taking steps to reduce its dependency on coal.

The government has set ambitious renewable energy targets, aiming to have one third of its power supply come from renewable sources by 2022.

Much of the focus is on aggressive investment in solar power projects and Arora says this focus will increase as the cost of solar power continues to fall.

"Coal generated power is very low in terms of cost but the cost of solar power is also coming down very rapidly as technology advances," he says.

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For a full copy of the "20 years in Asia" report please contact your Macquarie Representative.