Fuel for Thought: Energy Asia urges realistic expectations from transition amid conflicts and tariffs

Winston Churchill had once remarked: "Safety and certainty in oil lies in variety, and variety alone."

Using this message from 1912 as an analogy to explain the current volatile global energy landscape, Daniel Yergin, Pulitzer Prize winner and vice-chairman of S&P Global, summed up the sentiment at the Energy Asia conference, saying that one of the fundamental ways to achieve energy resilience in the evolving geopolitical scenario is through diversification of energy resources.

For hundreds of government officials, industry leaders and energy professionals who attended the three-day conference in Kuala Lumpur, the message was loud and clear: There is a lot of investment that needs to keep flowing to ensure energy supplies, both fossil fuel and clean energy, as only one or a few sources of energy won't be able to provide the answer.

The theme of this year's conference was "delivering Asia's energy transition." Most speakers agreed the stakes are higher in Asia than anywhere else.

While Asian governments and companies are doing all they can to embrace cleaner forms of energy, the region's deep reliance on fossil fuels and preference for relatively cheaper energy for energy security throws open a sea of challenges for policymakers and companies looking to strike a balance between supply security, affordability, and sustainability.

As a result, speakers said it was important to have realistic expectations on the pace at which energy transition can move forward and deliver for a region like Asia, which is heavily dependent on energy imports to cater to its growing needs.

"I think that the debate over the last few years made people think twice, but I think that the trend is a little bit clearer now and that investment needs to continue in oil," Vitol CEO Russell Hardy said. Hardy noted the medium- to long-term oil demand outlook remains intact, with the market unlikely to witness peak oil demand for at least another 10 years.

The comments echoed recent views from Yergin, who said that for many developing countries, oil and gas were critical components of their economic strategies. Transition would take longer, will be more challenging and expensive, and will require trade-offs that tend to be downplayed.

Competing priorities

Amir Nasser, CEO of Saudi Aramco, told the conference that turbulent geopolitics and conflicts would reinforce the need for fossil fuels for energy security, even more so at a time when the pace of energy transition remains slow and expensive.

"The world has certainly learned a lot more about the challenges of the global energy transition," Nasser said. "Unfortunately, much of that learning has come from reality, which has revealed a transition plan that is being oversold. Public doubts are growing as fairy tales and fantasies meet realities on the ground."

The comments from the Middle East's biggest oil producer came at a time when marine insurance costs for transporting energy and commodities in Middle Eastern conflict zones have surged, reflecting heightened maritime risks amid the escalation of the Iran-Israel conflict. Israel has launched a succession of air strikes on Iran since June 13, including hitting nuclear sites and coastline energy infrastructure, with Iran retaliating by bombing Israeli targets, including Haifa port.

This escalation has added another layer of uncertainty to energy markets, which are already reeling under the impact of reciprocal tariffs, creating an environment that will be volatile and hard to predict, Muhammad Taufik, president and group CEO of Petronas, told the conference.

"The world's energy transition also hinges on progress in Asia, and the barriers for transition can only be overcome if we all do it together," Taufik said. "But today, as we convene at a time when there is unrelenting uncertainty, it casts a long shadow on the unique pathways that each of us had sought to travel toward as our common destination."

Even though the world is now rushing toward ensuring energy security, there is no scope to take the eyes off the defining challenge, which is climate change. Most speakers agreed that these two priorities are not competing, but they are, in fact, complementary.

Speakers emphasized that fossil fuels should be managed through realistic decarbonization approaches, such as adopting carbon capture and storage technologies.

Oil and gas producers are keen to support inclusive energy transition approaches. As a result, many oil-producing countries have begun scaling up renewable adoption both domestically and abroad, and launching major CCS and carbon utilization projects.

The carbon challenge

A key theme debated at the conference on carbon markets was how Asian countries face a herculean task in building comprehensive legislation and creating interoperability across national boundaries, without which liquid and reliable carbon markets would be hard to establish.

Southeast Asian countries, such as Malaysia, Indonesia, and Vietnam, have abundant forest areas, which means a huge potential to supply nature-based carbon credits. China, as the world’s largest emitter, currently has the world’s largest compliance emission trading scheme, which might help to unlock regional demand once it opens to international carbon offsets. And Singapore and Japan are active buyer countries to scale up demand for the UN-backed Article 6 carbon markets.

Asian countries are expected to be the most critical carbon market players on both the supply and demand sides. However, to materialize these potentials, countries in the region must address the fundamental challenges first.

Peter Zaman, partner with HFW Law Firm, said the most critical task for countries was "legislation, legislation and legislation," emphasizing the importance of building up comprehensive policy instruments. He noted most countries are still at an early stage.

As a lawyer and policy adviser with decades of experience in supporting global carbon markets, Zaman highlighted that an overarching climate change act is far from enough to manage a country’s carbon market, especially for developing countries that plan to sell their carbon credits overseas.

On other fuels, nuclear power, which is clean and less intermittent than renewables, has regained prominence as a critical pillar supporting Asian countries’ decarbonization efforts, speakers said.

In addition, speakers also highlighted the role geothermal energy can play in offering a sustainable, reliable, and locally sourced alternative to meet Asia's growing demand for clean energy, as countries such as Indonesia and the Philippines are sitting on some of the world's largest untapped geothermal resources.

"The Paris Agreement is definitely not about choosing this source of energy versus that source of energy, and that's why, at OPEC, we believe in an all-energies approach, because the world is going to grow phenomenally," OPEC Secretary General Haitham al-Ghais told the conference.