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Emerging Among Giants: The Energy and Commodity Opportunity as ASEAN Turns 50

The Association of Southeast Asian Nations (ASEAN) is set to become the world’s fourth largest regional economy by the middle of this century. A young population and rapidly expanding workforce will attract industry and drive growth in the region, creating a vast new middle-class along the way.

This will generate demand for housing and infrastructure, for cars and appliances, and for other goods and services. Energy will be required to underpin this growth, as will steel and other commodities. ASEAN is entering an exciting new era, full of opportunities as the region expands its global economic footprint and influence.

But it is not without its challenges. This report explores and discusses some of the key issues and themes applying to ASEAN in the energy and resources space, drawing upon forecasts and market intelligence from across the S&P Global group.

Key Findings

Growing demand hub
The region’s oil imports are forecast to rise to 3.53 million barrels/day by 2025, up from 1.96 million b/d in 2015. The world’s top crude oil suppliers are investing in refinery projects in a bid to capture greater value downstream in ASEAN markets. Even with a stronger push into renewable energy, coal will account for more than a quarter of ASEAN’s energy mix by 2020 and overtake oil to become the major fossil fuel by 2035.

Of particular note is that LNG demand is expected to treble to 30 million mt/year by 2022. ASEAN will be both a major importer and exporter of the fuel, with the potential to develop a major regional trading hub.

‘Lighting up’ the region
ASEAN’s per capita electricity consumption is around half the world average, and although it varies enormously between members, the average electrification rate is just under 80%, leaving millions of people literally in the dark. The ASEAN Power Grid (APG) initiative was established to support the region’s growing power demand – forecast to expand by 5-6% over the next five years – but progress has been relatively slow.

A lack of mutual confidence between member states, and concern that energy sector subsidies represent unfair competition, have held back transnational market integration. This needs to improve to optimize the potential of the APG, and to support the region’s economic development.

However, if ASEAN is to meet its target of sourcing 23% of its energy from renewables by 2025, it will need to attract billions of dollars in investment to build about 80 GW of new hydro capacity and more than 40 GW of new solar, in addition to other energy technology investments. The falling unit cost and small project size of solar in particular represents a major potential opportunity for investors.

Pricing and policy transparency
Prospective financiers will need greater clarity and transparency around electricity and energy pricing before committing funds. Subsidized prices in domestic, regulated markets are a deterrent to new operations, technologies and capacity expansions.

Investors also want to see consistency around government policy, and are concerned when policies are suddenly reversed. Sovereign risk is a key factor when making investment decisions and financiers need reassurance that their interests will not be compromised in the years ahead.

China represents both opportunity and risk
Tensions in the South China Sea, where ASEAN and Chinese maritime borders overlap and lack legal definition, pose potential risks to shipping and global trade routes, to future exploration for energy resources, and, at worst, regional conflict. Under its One Belt, One Road strategy, China is set to wield even greater influence in the region.

However, ASEAN nations could benefit from Chinese help to develop new infrastructure, such as muchneeded ports. As China matures into a domestic-consumption, rather than export-driven economy, ASEAN is well placed to attract manufacturing investment, playing a key role within wider Asian supply chains and as a major exporter of manufactured goods to world markets.