Mr S Iswaran at the Singapore Institute of International Affairs (SIIA) 4th ASEAN and Asia Forum, 4 Aug 2011

KEYNOTE SPEECH BY MR S ISWARAN, MINISTER, PRIME MINISTER’S OFFICE AND SECOND MINISTER FOR HOME AFFAIRS AND TRADE & INDUSTRY AT THE SINGAPORE INSTITUTE OF INTERNATIONAL AFFAIRS (SIIA) 4TH ASEAN AND ASIA FORUM ON THURSDAY, 4 AUG, 0915 HRS AT CAPELLA SINGAPORE, SENTOSA 

Professor Simon Tay, Chairman of the Singapore Institute of International Affairs

Distinguished Guests

Ladies and Gentlemen

Introduction

Good morning. I am happy to join you this morning at SIIA’s 4th ASEAN and Asia Forum, and I would like to thank Simon and the Institute for the invitation.

The interplay between economic growth, energy consumption, and environmental sustainability has always been high on the global public policy agenda.In more recent times, this trilemma has been drawn into sharper and more urgent focus – with the growth of large emerging economies, the rise in energy prices, and the concerns over climate change.Finding a balance between these sometimes competing objectives is a global, regional and national challenge.

This morning, I would like to focus my remarks on the nexus between energy and economic growth, and what it means for ASEAN and Singapore. On one level, the correlation seems somewhat self-evident - countries which have access to reliable and competitively-priced energy supplies tend to be better able to enhance their competitiveness, and sustain their economic growth. Demand side efforts such as improving energy efficiency in the industrial sector can help to reduce energy consumption and improve energy security. To this end, many regional groupings have set targets to reduce energy intensity – the EU aims to reduce energy intensity by 20 per cent by 2020, while ASEAN has committed to reducing regional energy intensity by 8 per cent by 2015. However, governments cannot rely on demand side efforts alone. Ensuring reliable energy supply will still be critical to sustaining economic growth, and, today, that need has become even more pressing as a result of two global trends.

Global economic landscape

The first is Asia’s rise as a major engine of growth for the global economy. Post the financial crisis, the global economic environment has become more dichotomous and volatile. Many developed economies are still on a long and slow road to recovery. The sovereign debt crisis in Europe continues to cast a pall over the region.The US economy has yet to find a solid footing, with continuing concerns over its fiscal deficit and structural issues such as unemployment. Global markets have seen far greater volatility arising from these uncertainties.Asia, on the other hand, continues to register good economic growth. Starting from a lower base, and driven by rising domestic demand in China and India, growth in Asia is set to outpace the rest of the world over the next few decades.

ASEAN is well-positioned to ride this rising tide. Indeed, we are already witnessing a shift in ASEAN’s trade pattern which is becoming more Asia-centric. This is a reflection of the new economic realities. While the US and Europe continue to be major economic partners for ASEAN, the region’s trade with other Asian countries such as China and India is growing at a faster pace. ASEAN-China trade grew by an average of 23 per cent annually between 2003 and 2009, with India following close behind at 18 per cent. Comparatively, trade between ASEAN and the US grew by an average of 5 per cent year-on-year over the same period, while ASEAN-EU trade saw a 9 per cent increase.Intra-ASEAN trade has also grown significantly, increasing an average of 13 per cent annually between 2003 and 2009.[i]

All this bodes well for ASEAN. We are at the heart of a dynamic region, and the prospect for growth is promising. But this also means that the demand for energy to fuel this growth will be ever-increasing. ASEAN governments will have to find ways to ensure that energy does not become a binding constraint on growth. This task is rendered more difficult by the changing global energy landscape – the second major trend that governments have to contend with.

Uncertain global energy outlook

The global energy outlook has become more uncertain over the past year. Political and economic instability in the Middle East and North Africa has contributed to increased oil and gas price volatility. The Fukushima Daiichi Nuclear Power Plant accident has dealt a setback to nuclear energy.Many governments have revisited their nuclear energy policies.Germany has announced that it will shut down all its nuclear power plants by 2022. Others, such as Switzerland, Spain and Belgium, will likely phase out lifetime extensions of existing nuclear power plants.

These more recent developments come on the back of a longer term trend of tightness in energy markets with consequential upward price pressures.ASEAN governments have had to adjust to these global energy trends. High oil prices have resulted in substantial increases in some countries’ fossil fuel subsidy expenditure. Energy importers have seen a marked jump in electricity prices. ASEAN countries that plan to build nuclear power plants are likely to face more stringent domestic scrutiny, and international nuclear safety requirements post-Fukushima.

The case for ASEAN regional energy cooperation

In the light of these developments, the case for regional energy cooperation has never been stronger. And, there is much scope within ASEAN for greater energy cooperation. Our objectives are similar: to ensure a reliable supply of competitively priced energy.

Some might regard the quest for energy security as a zero-sum game; that countries are locked in a mutually exclusive competition over limited energy resources.But, such thinking fails to consider how demand aggregation can induce greater mutual security of supply.

Regional energy cooperation is an important means of boosting energy security and competitiveness.In the case of ASEAN, an aggregated regional energy market would be better able to attract investments as there would be greater demand assurance. With new investments and collaboration, more energy sources within the region can be unlocked.This, augmented by competitive imports, will boost overall energy supply security. 

Boosting energy connectivity

A key enabler in this regard is infrastructural connectivity.For instance, the construction of trans-ASEAN gas pipelines will allow for a more integrated and competitive ASEAN gas market. It will enhance the economic feasibility of developing gas fields within ASEAN.It could also enable ASEAN countries to collectively obtain better terms for LNG gas imports from global sources.Similarly, expanding regional electricity inter-connections through an ASEAN Power Grid will open up new market opportunities, such as electricity trading amongst member states. Additionally, the sharing of surplus reserve generation capacity between ASEAN member states could enhance overall system security and reduce system costs.

There are already existing mechanisms for regional energy cooperation in ASEAN. ASEAN Energy Ministers meet annually for discussions on regional energy cooperation projects. The ASEAN Plan of Action for Energy Cooperation has initiatives to encourage greater collaboration in areas such as energy efficiency, renewable energy, clean coal technology and civilian nuclear energy.

But we must move faster. Regional energy demand is growing rapidly in tandem with economic growth, rising standards of living, increasing urbanisation, and strong demographic trends. The International Energy Agency’s 2009 World Energy Outlook projected that ASEAN’s primary energy demand is set to expand by 76 per cent between 2007 and 2030.The region’s oil consumption is projected to reach 267 Million tonnes of oil equivalent (Mtoe) by 2030, from 179 Mtoe in 2007. Similarly, regional demand for natural gas is set to increase at 2.3 per cent per annum – from 117 Mtoe in 2007 to 199 Mtoe in 2030.[ii]In short, our future energy needs are significant.

We must, therefore, work together to ensure that energy does not become a limiting factor in ASEAN’s growth. Hence, it is imperative that we speed up infrastructural connectivity through projects such as the ASEAN Power Grid and the Trans-ASEAN Gas Pipeline. We need to promote a greater harmonisation of market regulation and standards across the region, which are prerequisites for energy market connectivity. Joint research and development in areas such as renewable energy and energy efficiency will also help to unlock more energy options for the region.

ASEAN governments must take the lead in this endeavour. As a first step, each ASEAN country should study how greater regional energy connectivity can be fostered within their respective energy markets. Singapore is seriously considering electricity imports as an addition to our energy mix. In this regard, we are currently reviewing our regulatory framework and studying various trading models that could facilitate electricity imports in the medium term. In turn, that could catalyse more opportunities for energy cooperation across ASEAN.

Regional energy connectivity will not be achieved overnight. Pipelines and cables take time to lay. So too, the forging of common or compatible regulatory standards.However, it is essential that ASEAN member countries take steps now to boost regional energy connectivity and collaboration, in step with and complement to, our emergence as an ASEAN economic community. 

Thank you.

[i] ASEAN Statistical Yearbook 2010

[ii] International Energy Agency, 2009 World Energy Outlook