Issue 5 | JANUARY 2013
Interview with Dr Fatih Birol: Insights into the World Energy Outlook 2012

1. What are some of the keytrends in a new global energy landscape?

The global energy map is changing, with potentially far-reaching consequences for energy markets and trade. It is being redrawn by the resurgence in oil and gas production in the United States, and could be further reshaped by a retreat from nuclear power in some countries,continued rapid growth in the use of wind and solar technologies and by the global spread of unconventional gas production.

In addition, perspectives for international oil markets hinge on Iraq’s success in revitalising its oil sector. If new policy initiatives are broadened and implemented in a concerted effort to improve global energy efficiency, this could likewise be a game-changer. We shouldn’t also forget that despite progress in the past year, nearly 1.3 billion people remain without access to electricity and 2.6 billion do not have access to clean cooking facilities. Ten countries – four in developing Asia and six in sub-Saharan Africa – account for two-thirds of those people without electricity and just three countries – India, China and Bangladesh – account for more than half of those without clean cooking facilities. Taking all new developments and policies into account, the world is still failing to put the global energy system onto a more sustainable path.

2. What are the implications of these energy developments for Southeast Asia Region?

The ten economies of the Association of Southeast Asian Nations (ASEAN) are set to play a key role in global energy markets over the next quarter century, with the region’s energy demand expected to expand by over four fifths from now to 2035. Along side rising energy needs in China and India, this robust grow this refocusing the global energy landscape increasingly towards Asia. But many challenges will need to be overcome if Southeast Asia is to meet its growing needs at affordable prices and in a sustainable manner.

The ASEAN region is projected to increase its reliance on imported oil from around 40% of consumption in 2011 to close to three-quarters of consumption in 2035, while also seeing a decline in its natural gas exports. Links between regional gas markets will strengthen as liquefied natural gas trade becomes more flexible and contract terms evolve, helping to reduce some of the massive premiums Asian customers have had to pay for gas imports vis-à-vis consumers in other markets.

Today, fossil fuels subsidies remain commonplace in many ASEAN economies and are contributing to the region’s high rate of growth in energy demand. Based on the IEA World Energy Outlook estimates, fossil fuel subsidies totalled $45 billion in Southeast Asia in 2011, an increase of 30% over the past year. While Southeast Asia has abundant renewable sources of energy, various physical and economic factors mean that it is still a significantly underutilized resource in the region.

3. The WEO 2012 mentioned that "no country is an energy island and the interactions between different fuels, markets and prices are intensifying." What are your views on the prospects of natural gas prices being decoupled from oil prices in future?

We don’t expect either oil or gas prices to fall, because when the global economy is back on its feet, we expect higher energy prices to be with us. However, the big divergence between US gas prices and European and Asiangas prices will likely narrow. In terms of gas prices, Asia now has a major, once-in-a-life time chance to take steps to move away from current oil-indexed gaspricing. Already, there are signals of this happening with spot deals. We hope new producers coming into the picture provide Asian importers with strong cards to negotiate new contracts.

In Europe, oil-indexed gas pricing is coming under tremendous pressure, and Asian importers have to be hard negotiators like what the Europeans are now. By bolstering and diversifying sources of supply, tempering demand for imports (as in China) and fostering the emergence of new exporting countries (as in the United States), unconventional gas can accelerate movement towards more diversified trade flows, putting pressure on conventional gas suppliers and on traditional oil-linked pricing mechanisms for gas.

4. Energy efficiency and conservation are recognised as key measures for countries to manage their energy demand and carbon footprint. What are the current barriers to its widespread adoption? What more can countries do to speed up the implementation of energy efficiency measures?

Indeed, energy efficiency is widely recognised as a key optionin the hands of policy makers but current efforts fall well short of tapping its full economic potential. For years and years, energy efficiency was neglected in policymaking. In fact, energy efficiency is the epic failure of policymaking. There are some important energy initiatives in the last year but, despite that, we see that only one-third of the economically viable energy efficiency potential is used. Although the specific steps will vary by country and by sector, there are six broad areas that need to be addressed.

Energy efficiency needs to be made clearly visible, by strengthening the measurement and disclosure of its economic gains. The profile of energy efficiency needs to be raised, so that efficiency concerns are integrated into decision making throughout government, industry and society. Policymakers need to improve the affordability of energy efficiency by creating and supporting business models, financing vehicles and incentives to ensure that investors reapan appropriate share of the rewards. By deploying a mix of regulations to discourage the least-efficient approaches and incentives to deploy the most efficient, government scan help push energy efficient technologies into the mainstream. In addition, monitoring, verification and enforcement activities are essential to realise expected energy savings. These steps would need to be underpinned by greater investment in energy efficiency governance and administrative capacity at all levels.

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