GUEST COLUMN

A new energy landscape and the implications for Thailand

Chodechai Suwanaporn

BANGKOK: -- In the coming years, the global energy trend will drastically change from the present state, with far-reaching consequences for economic development and global trade. As an energy-dependent country, Thailand will have to live with the new reality of high and volatile energy prices. The new global energy landscape is being redrawn, with the US becoming the leading supplier of oil and gas.

Furthermore, global energy could be further affected by the anticipated retreat from nuclear power in some countries (i.e. Japan and Germany), the continued rapid growth in the use of wind and solar technologies, and by the global spread of unconventional gas production methods, particularly shale gas, tight sand gas and coal bed methane (CBM). On the fossil-based energy supply, development will hinge upon Iraq's success in revitalising its oil sector.

On the demand side, according to the International Energy Agency (IEA), global energy use is expected to grow by more than one-third up to 2035, with China, India and the Middle East accounting for 60 per cent of the increase, while energy demand is expected to barely rise among the developed OECD countries. It is expected that there will be a pronounced shift away from oil, coal (and, in some countries, nuclear) towards natural gas and renewables - the energy of the future.

Despite the growth in low carbon sources of energy, fossil fuels are expected to remain dominant in the global energy mix, supported by subsidies that amounted to US$523 billion in 2011, up almost 30 per cent on 2010 and six times more than subsidies on renewables. Obviously, the cost of fossil-fuel subsidies has been driven up by higher oil prices. Thailand also has its share of energy subsidies, particularly diesel tax exemption and an LPG subsidy costing over Bt160 billion or 1.5 per cent of GDP annually.

Over the next decade, as mentioned, one of the major energy developments will come from the US. Its effect in the global energy markets will be profound and felt well beyond North America.

The recent rebound in US oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas, is spurring economic activity - with cheaper gas and electricity prices giving industry a competitive edge and steadily changing the role of North America in the global energy trade.

By around 2020, the IEA projects that the US will become the largest global oil producer (overtaking Saudi Arabia by the mid-2020s). Moreover, the US economy is likely to be more fuel-efficient given its new fuel-efficiency measures in its transport sector.

The overall impact will be a continued fall in US oil imports, to the extent that North America becomes a net oil exporter around 2030. This accelerates the switch in the direction of the international oil trade towards Asia, putting a focus on the security of strategic routes that bring Middle-Eastern oil to Asian markets. In the coming years, according to IEA, the US, which currently imports around 20 per cent of its total energy needs, may indeed become energy self-sufficient in net terms - a dramatic reversal from the present situation.

Obviously, no country is an "energy island", and market interactions among different type of energy will intensify in the future. Most oil consumers have seen the effects of energy price fluctuations, but we can expect to see growing links among different types of energy and different geographical areas. A current example is how low-priced natural gas is reducing coal use in the US, freeing up coal for export to Europe (where, in turn, it has displaced higher priced gas).

At its lowest level in 2012, natural gas in the US traded at around one-fifth of the import prices in Europe and one-eighth of those in Japan. Going forward, price relationships among the regional gas markets are set to move consistently in line with the narrowing price gap as the liquefied natural gas trade becomes more flexible, meaning that changes in one part of the world are more quickly felt elsewhere.

I think policy-makers looking for simultaneous progress towards energy security, and economic and environmental objectives are facing increasingly complex - and sometimes contradictory - choices.

Energy efficiency is widely recognised as a key issue in the hands of policy-makers, but current efforts fall well short of tapping its full economic potential. I strongly believe there is still significant potential in improving energy efficiency. According to the IEA, if the world could achieve desired energy efficiency, the growth in global primary energy demand up to 2035 would be halved. Oil demand would peak just before 2020, easing the pressure for new discoveries and development.

Looking at the international environment for energy production and demand, we can anticipate challenging tasks for the Thai government to implement energy policies to enable the country to face the new energy reality. Countries are competing for limited and scarce energy resources, particularly the rapidly growing Asian economies. Energy security will be of paramount importance for the Thai economy.

As Thailand is able to produce only 15-20 per cent of its total energy demand, the country needs to look beyond its border to find stable and cost-effective energy sources. Looking ahead, implementing the Asean "Power Grid", which will provide infrastructure linking the region's energy producing countries (Myanmar, Malaysia, Brunei, Laos and Vietnam) to energy consuming countries like Thailand will be crucial to enable efficient energy flows within the region.

On the demand side, promoting energy efficiency will ultimately have to rely on market mechanism - that is "market-clearing prices". People will automatically change their behavior to save energy due to the invisible hand of higher energy prices.

Television campaigns and public announcements can only work to some extent in building public consciousness about the scarcity of energy resources, but ultimately market price adjustments will be the best tool to get people to make their own rational decision on what energy to use and how much energy to consume and save. I can only hope that Thai policy will move toward a more market-based approach with less distortion direction in the near future.

Dr Chodechai Suwanaporn is executive vice president, economics and energy policy, PTT Public Company Limited. [email protected].

-- The Nation 2012-12-21

The average Thai doesn't have the full understanding of where power comes from.. whether it's electricity, fuel for the vehicle or gas for cooking.

If you put up prices to force a change in habits then you have to provide an affordable alternative.

Thais just flick the switch & hope the light comes on.. they don't know where it actually comes from or what it takes to produce.

Take away the costly "bottled gas" and what are they expected to cook on ??

Take away subsidies on fuels such as diesel and LPG then the average Thai cannot make a living, plus as we all know if fuel costs go up then this pushes up prices on everything from manufacturing to delivery to the high street

Thailand has a very poor record concerning infrastructure, and a poorer record on research & development.

When you look at the money being invested in Europe & other Asean countries for diversifying power sources or renewable energy systems, then take a look at the progress being made for future energy in Thailand it's still in the dark ages.

The new global energy landscape is being redrawn, with the US becoming the leading supplier of oil and gas.

Who would have ever thought? But the huge shale gas and shale oil fields in the U.S. and advancements in extracting these energy deposits are rapidly pushing the U.S. from an importer to exporter of fossil fuels, especially natural gas.

One thing that the OP does not mention is that these new energy technologies will,for the most part, only become viable when the price of oil and other fossil fuels goes up for a long period of time.

For example, we have known about the vast reserves of oil shale in the western US & Canada for some time. However, with current technologies, extracting oil from those reserves would only become possible when oil prices hit $200 per barrel. Furthermore, as it will take up to 5 years from the initial investment in oil shale technology to large scale production, oil companies will have to be sure that high oil prices will last for the forseeable future before they invest in those technologies.

So, long-term energy supplies are not the same as cheap energy supplies!

One thing that the OP does not mention is that these new energy technologies will,for the most part, only become viable when the price of oil and other fossil fuels goes up for a long period of time.

For example, we have known about the vast reserves of oil shale in the western US & Canada for some time. However, with current technologies, extracting oil from those reserves would only become possible when oil prices hit $200 per barrel. Furthermore, as it will take up to 5 years from the initial investment in oil shale technology to large scale production, oil companies will have to be sure that high oil prices will last for the forseeable future before they invest in those technologies.

So, long-term energy supplies are not the same as cheap energy supplies!

$200 per barrel seems way high based on what I've heard and read. For example this Wikipedia article has various estimates from govt and private company sources but they seem to be well below $100/barrel. Link

I'm afraid that this scenario is being played out with far reaching effects in Oz, the price of Power, gas and now water , have placed undue stress on households, this news is not good for Thai families, each month in Oz more families are going into financial relief, dept and bankruptcy and no relief in site, good on privatisation.

One thing that the OP does not mention is that these new energy technologies will,for the most part, only become viable when the price of oil and other fossil fuels goes up for a long period of time.

For example, we have known about the vast reserves of oil shale in the western US & Canada for some time. However, with current technologies, extracting oil from those reserves would only become possible when oil prices hit $200 per barrel. Furthermore, as it will take up to 5 years from the initial investment in oil shale technology to large scale production, oil companies will have to be sure that high oil prices will last for the forseeable future before they invest in those technologies.

So, long-term energy supplies are not the same as cheap energy supplies!

$200 per barrel seems way high based on what I've heard and read. For example this Wikipedia article has various estimates from govt and private company sources but they seem to be well below $100/barrel. Link

My $200 per barrel figure is based on using proven technology that we could implement right now. Of course, new technologies will bring that price down. $100 still seems optimistic to me though, I suspect that the final production price will run closer to $150.

I'm afraid that this scenario is being played out with far reaching effects in Oz, the price of Power, gas and now water , have placed undue stress on households, this news is not good for Thai families, each month in Oz more families are going into financial relief, dept and bankruptcy and no relief in site, good on privatisation.

I worked for the Electricity Commission of NSW, Pacific Power and Macquarie Generation, without changing jobs. In that time the aim changed from providing electricity at the cheapest possible price to the people of NSW to making the highest possible profit for the government, and then the privatised company. During one high demand period I suggested that additional generators could be used to reduce the alarmingly high price, but was told this would reduce the NETT income to the company.

My $200 per barrel figure is based on using proven technology that we could implement right now. Of course, new technologies will bring that price down. $100 still seems optimistic to me though, I suspect that the final production price will run closer to $150.

Developing new technologies costs money...what are you basing your $150/b on ?

Oil & gas are produced in massive amounts for long periods of time, so the costs of developing new technology can be amortized over a long period and over a large output, having relatively little impact on the price of an individual barrel. The cost of production, on the other hand, cannot be avoided.

Estimates of the cost of getting oil from oil shale were as high as $200 per barrel a few years ago. If they are now claiming that they can produce that oil for about $100 per barrel, I'll believe that the true figure will end up somewhere in the middle. However, my comments are simply those of an educated amateur - I have a degree in Geology, but I have never worked in this field.

I'm afraid that this scenario is being played out with far reaching effects in Oz, the price of Power, gas and now water , have placed undue stress on households, this news is not good for Thai families, each month in Oz more families are going into financial relief, dept and bankruptcy and no relief in site, good on privatisation.

I worked for the Electricity Commission of NSW, Pacific Power and Macquarie Generation, without changing jobs. In that time the aim changed from providing electricity at the cheapest possible price to the people of NSW to making the highest possible profit for the government, and then the privatised company. During one high demand period I suggested that additional generators could be used to reduce the alarmingly high price, but was told this would reduce the NETT income to the company.

Yeah , the states now think that Mr and Mrs average are the best cash cow they've ever had , Thai families are not in any position to take the staggering increases that the Oz population has had to endure, 150% in two years. Happy Xmas Ozmick all the best for 2013. Yer can now turn on the xmas tree lights hehehe

I'm afraid that this scenario is being played out with far reaching effects in Oz, the price of Power, gas and now water , have placed undue stress on households, this news is not good for Thai families, each month in Oz more families are going into financial relief, dept and bankruptcy and no relief in site, good on privatisation.

I worked for the Electricity Commission of NSW, Pacific Power and Macquarie Generation, without changing jobs. In that time the aim changed from providing electricity at the cheapest possible price to the people of NSW to making the highest possible profit for the government, and then the privatised company. During one high demand period I suggested that additional generators could be used to reduce the alarmingly high price, but was told this would reduce the NETT income to the company.

Same in the UK. Privatisation of electricity, gas and water industries has led to significant hikes in prices and reductioins in service. Most of the companies are owned by non UK groups. Other EU countries such as Germany and France have been much more reticent in implementing the EU deregulation policies. Thailand needs to look at its energy and water management strategies very carefully to avoid the same problems.

The real problem is that Thailand has almost no sunny moments, which could be used to produce hot water, or heat exchangers. Also the Gulf of Siam hardly has any wind, which could be used to produce electricity. Furthermore intelligent pump management, generators with inverter technology, sterling engines and such are not are not available to the public, and so on. Thailand definitely needs a nuclear power plant, best made in China, they are the cheapest around.

I'm afraid that this scenario is being played out with far reaching effects in Oz, the price of Power, gas and now water , have placed undue stress on households, this news is not good for Thai families, each month in Oz more families are going into financial relief, dept and bankruptcy and no relief in site, good on privatisation.

Australia has massive gas reserves and little use of it for motor vehicles. Years of governmnet stupidity and short sightedness have created this. We should be very cheap for energy but gross inefficiencies and government heads in the sand have made us expensive...abject stupidity at its worse. Another example of the benefits of having idiot bureaucrats dictate policy, if it is possible to get it wrong they will.

amazing in oz they can export gas at ridiculously low prices

last i heard 5 cents per litre delivered to japan and other asian countries

yet the average aussie gets screwed big time gas for cars at around

70 cents litre electricity prices going up in january 2013

welcome to the lucky country?