ASEAN’s oil and gas production has been on the decline the past 20 years. Dwindling reserves, lack of new gas infrastructures, unfavourable regulations and the Russia-Ukraine crisis have pushed supplies to a whole new low, with the downward trend likely to continue over the next decade.
Even as the region rapidly transitions into renewable energy, gas will still be expected to play an important role in boosting energy security. Declining gas production could mean that ASEAN ends up becoming a net importer of gas – a tough blow on the economies of its member states.
Push for more open, transparent competition
These priorities and scarcity issues have prompted gas players to convene. In 2018, the Gas Advocacy Taskforce (GATF) of the ASEAN Council on Petroleum (ASCOPE) published a whitepaper in which they debated the need for a strategic gas roadmap for the region.
Transitioning into a low-carbon economy is a key priority for ASEAN countries
ASCOPE is an inter-governmental coalition of member countries whose role is, amongst others, to promote gas advocacy and proper gas policy in the region. Transitioning into a low-carbon economy is a key priority for ASEAN countries, and part of that action plan recognises the role that gas plays as a cleaner, more sustainable fuel alternative.
Amongst the GATF’s recommendations was the establishment of a common gas market for the region, which would enable an economically efficient gas trading
system amongst ASEAN members. The envisioned gas market is one that would encourage competition between gas producers in the up-stream segment, and between traders and suppliers in the wholesale and retail segment.
Like any open market, a common gas market would require the lifting of barriers and tariffs to facilitate intra-country trade. Scarcity conditions would determine the market price. Supply and demand would theoretically balance itself out; consumers could opt out of buying fuel or change habits based on spot prices.
In fundamental economic terms, perfect market competition is good. But in an industry as massive and complex as the gas industry, competition is not always fair or feasible. Many gas systems for example consist of monopolies and state-owned enterprises. In Indonesia for example, the market is still heavily regulated and is dominated by state-owned companies. Moreover, gas prices are set solely by the government.
Additionally, Third Party Access (TPA) mechanisms are not available in all member states. TPA systems allow third parties, such as other gas players, to access existing gas infrastructures in a particular country; in Malaysia for example, the TPA system allows Dutch company Shell to use the country’s pipeline. Such a system is not present in Indonesia, Philippines, Myanmar, and several other ASEAN states.
Gas: a pillar for ASEAN’s energy transition
In early March 2022, hundreds of bakeries in crisis-hit Sri Lanka were forced to shut amidst a cooking gas shortage. Two weeks later, military troops were posted at petrol pump stations to control fuel distribution. The country’s fuel shortage was dire; millions of homes and businesses were affected.
In Malaysia, current gas reserves may not be sufficient to sustain the country’s generation mix for the long term
In ASEAN, although such a scenario seems unlikely, it is not impossible. In Malaysia, current gas reserves may not be sufficient to sustain the country’s generation mix for the long term.
Dwindling reserves point to a looming energy crisis. It is recognised that energy demand in ASEAN is set to grow by 60% by 2040.
With this perspective, advocates cite energy security as the main reason for a common gas market for the region. Higher liquidity and competition would enable countries to trade gas more freely. The blow of an energy crisis could be softened by maximising ASEAN’s different resources and needs.
But do countries really view gas as a crucial pillar of the region’s energy transition? Although gas continues to dominate ASEAN’s energy status-quo, many countries still lack national carbon policies that push or promote the advancement of natural gas. In turn, the new energy policies that are formulated do not reward the adoption of gas-based solutions.
There is also the economic factor of other fuel imports such as coal. Currently, coal dominates the Indonesian power mix, supplying around 60% of its electricity in 2019. The Philippines and Vietnam are also coal-heavy countries. Moving away from coal towards gas as a cleaner, lower-emissions substitute will require national action from these respective countries.
Physical infrastructure required
Moving into a common gas market will also see the need for significant investment. Robust physical connection and updated pipeline networks will be required. With this, analysts propose that the region’s gas infrastructure roadmap, the Trans-ASEAN Gas Pipeline (TAGP) Masterplan, is ripe for a current update.
The TAGP Masterplan, which was developed in 2000, has achieved notable milestones over the past two decades. In 2020, the TAGP connected six member states through 13 pipelines with a total length of 3,631 km. But industry trends and technologies have evolved over the past two decades, and the Masterplan should be amended to reflect those changes.
Taking lessons learnt from the EU
The idea of a shared gas market is not new. In 2006, EU regulators put forward a roadmap that outlined the need for a single, competitive gas market for Europe. Over the next decade and a half, several milestones were achieved to drive the creation of a competitive European gas market.
There are lessons we can glean from Europe. Regulatory co-operation, competition policy, and industry unbundling were amongst Europe’s counted successes. Today, mid 2022, the restructuring process of the region is still on-going. Like ASEAN, political and social changes steered its course.
At the end of the day, any real change of the industry boils down to focus and political will. Leaders will need to join heads to determine the best course of action for their communities. Societal crises in one country will never bode well for its neighbours. ASEAN needs to band together, to ensure the future is one that can drive shared sustainable progress. And if that future needs gas, it’s one that should be handled with more focus.