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Coal to surpass gas in Southeast Asia power boom, IEA says

Coal will replace natural gas as the dominant fuel for producing electricity in Southeast Asia as the region almost doubles its energy consumption in the next two decades, according to the International Energy Agency.

The 10 members of ASEAN, with energy demand growing at more than twice the global average, will get 49 percent of their power from coal by 2035, up from 31 percent in 2011, the IEA said today in its Southeast Asia Energy Outlook. The share from gas will drop to 28 percent from 44 percent.

“Coal is emerging as the fuel of choice because of its relative abundance and affordability in the region,” Maria Van der Hoeven, executive director for the IEA, said today in Bangkok. “As long as fuel-price differentials continue to favor coal over gas by a significant margin, Southeast Asia’s incremental power generation is set to be dominated by coal.”

While the trends support plans by Indonesia, the world’s top exporter of thermal coal, to almost double output by 2035, emissions linked to climate change will increase at the same rate, the IEA forecasts. Coal, which emits about twice as much carbon as gas, is the fuel source for about 75 percent of power-generating capacity being built by members of the Association of Southeast Asia Nations, the IEA said.

Malaysia buys 68 percent of its coal for electricity generation from Indonesia and 17 percent from Australia, Mohamad Nazri Bin Shahruddin, a vice president at Tenaga Nasional, said in a Sept. 23 presentation.

Largest coal producers

Bumi Resources Tbk PT (BUMI), based in Jakarta, is Indonesia’s largest coal producer. Baar, Switzerland-based Glencore Xstrata Plc, the world’s biggest exporter of thermal coal, scaled back its Australian operation this year as prices fell.

The cost of power from coal will be about 30 percent cheaper than gas in Southeast Asia, the IEA forecasts. That assumes prices of about $80 a metric ton for coal and about $10 per million British thermal units for natural gas.

“A comparison of electricity generating costs demonstrates a strong competitive advantage for coal-fired plants under a wide range of coal and gas prices,” the IEA said. While coal has the edge, gas will remain the second-biggest source of generation, it said.

Benchmark coal price

Asia’s benchmark price for coal fell to $76.10 a metric ton on Aug. 9, the lowest since 2009, amid a glut of the power-station fuel. It traded at $78.30 on Sept. 27.

Natural gas futures in New York will climb above $4 per million Btu this year as low supplies coincide with increasing consumption, according to estimates from banks including Bank of America Corp. Liquefied natural gas shipped to Asia has been about four times as much, trading as high as $19.40 per million Btu in February, according to WGI prices compiled by Bloomberg.

Southeast Asia’s energy demand will rise to about 1 billion tons of oil equivalent by 2035, representing more than 10 percent of the world’s growth in energy use, the IEA said.

Use of natural gas will rise 77 percent to 250 billion cubic meters over the same period, from 141 billion, as higher prices slow the demand growth for the cleaner fuel. Coal consumption will triple, growing by 4.8 percent annually on average, the IEA forecasts.

Shale-gas revolution

Oil demand in the region will rise to 6.8 million barrels a day from 4.4 million now, according to the report. Net crude imports will increase to more than 5 million barrels a day by 2035, the fourth highest after China, India and the European Union, it said.

Southeast Asia’s growing demand for oil will offset declining imports by the U.S., which is producing more crude thanks to the boom in output from shale. U.S. consumption is forecast to stay around 18.7 million barrels a day by 2014, below the peak of 20.8 million in 2005, according to its Energy Information Administration. Net oil imports will fall to 5.71 million next year, EIA said Aug. 9.

“The U.S. shale-gas revolution can’t be copied elsewhere,” Van der Hoeven said. Geological and logistical constraints means output from shale won’t be significant in China before 2020, she said.

Deterring investment

Southeast Asia’s annual spending on net oil imports will rise to $240 billion, almost 4 percent of its gross domestic product, the IEA forecast. Thailand and Indonesia’s spending is projected to triple to almost $70 billion each in 2035.

Fossil-fuel subsidies remain an obstacle to reducing oil demand in Southeast Asia despite some progress, the IEA said. Subsidies stood at $51 billion last year, deterring investment and development of renewable energy.

Malaysia raised fuel prices earlier this month for the first time since 2010 to curb subsidies that have stretched government budgets and threatened investor confidence. Neighboring Indonesia increased gasoline and diesel prices in June for the first time since 2008.

“Had Indonesia not made its recent reforms, government spending on energy subsidies would have reached levels comparable to spending on health and education,” the IEA said. “The impact on government budgets is being compounded in a number of cases, including Indonesia, Malaysia and Vietnam, by growing pressure to divert fossil fuel production away from lucrative exports markets to domestic markets to satisfy fast-growing demand.”

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