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Murray Hiebert: Southeast Asia’s Energy Investment: Opportunity for U.S.

By Murray Hiebert January 30, 2013

The Deputy Director and Senior Fellow of the Sumitro Chair for Southeast Asia Studies at CSIS outlines findings of a recent report on sustainable energy future in Southeast Asia.

Billions of dollars of potential U.S. energy equipment could be at play in the major economies of Southeast Asia. ASEAN’s five largest energy markets—Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, which CSIS calls the ASEAN-5—are expected to import as much as $16 billion worth of energy products over the next few years to power their economic growth. But for U.S. companies to snare sizable shares of this investment, the United States will need to launch new initiatives to ensure that American firms can be major players in this trade in energy goods and services.

To support their economic growth projected at almost 6 percent a year until 2030, the ASEAN-5 countries will need to boost their energy capacity by 20 to 40 percent, or between 168 and 192 gigawatts of power.  Onshore oil and coal reserves in these countries are dwindling after decades of exploitation, driving these countries to import increasing amounts of energy and seek new domestic sources.

The ASEAN-5 are burning increasing amounts of hydrocarbons, including coal, to fire their power plants. Indonesia and Vietnam are rapidly becoming major sources of greenhouse gas emissions, adding to the region’s environmental footprint. Turning more toward cleaner-burning natural gas to fire power plants could help reduce the emission of greenhouses gases in the short to medium term.

The ASEAN-5 will also need to bolster renewable energy capacity, which means increasing resources like hydro-power and geothermal energy as well as newer technologies such as solar, wind, and biomass, the report says.

These five ASEAN states also will need to import most of the equipment required to achieve their energy targets.  In the past, U.S. companies would likely have been major suppliers of this equipment, but today this is no longer guaranteed because American firms have been rapidly losing market share to China in recent years.

Some of this shift is due to the explosion of trade agreements within Asia, most of which exclude the United States. As a result, it behooves the U.S. government to explore other venues, such as the Asia Pacific Economic Cooperation (APEC) forum and the Trans-Pacific Partnership trade talks to cut the tariffs and reduce the non-tariff barriers hobbling U.S. firms in the region.

U.S. companies continue to play an import role in oil and gas development in the region, but countries are increasingly looking to China to equip their coal-fired power plants. U.S. firms cannot compete with China, which offers better credit and financing terms, even though U.S. equipment will often last longer and burn more efficiently.

The ASEAN-5 have developed plans to boost their power generation facilities, upgrade their energy distribution infrastructure, and invest in smart grid technology. These projects present lucrative opportunities for U.S. companies that could compete with regional firms given the right financing packages.

Before U.S. companies will invest their own capital in energy projects in the ASEAN-5, they will need to be reassured by a strong commercial and legal infrastructure, secure rule of law, and the potential for stable returns on their investment in these Southeast Asian countries.

To meet their energy needs, CSIS recommends that ASEAN-5 policymakers take certain steps, including:

  • Reduce or cut altogether subsidies on energy so that government budgets will have more funds to invest in upgrading their energy infrastructure.
  • Work to ensure a strong investment climate in the ASEAN-5 to entice U.S. companies to invest in the region’s energy infrastructure.
  • Cooperate with the United States and others in forums such as APEC to reduce tariff and non-tariff barriers on energy and environmental goods and services.

CSIS has also drawn up recommendations for U.S. policymakers including:

  • Increase resources to support the Department of Energy’s cooperation with the ASEAN-5.
  • Boost funding for the Export-Import Bank so that it can help U.S. energy and environmental companies compete in Southeast Asia.
  • Support increased financing and risk insurance by the Overseas Private Investment Corporation for small and medium-size companies selling energy goods and services in the region.

This post was adapted from the executive summary of the new CSIS report Sustainable Energy Futures in Southeast Asia. The report includes recommendations that the U.S. Government has included as part of its recently announced initiative The U.S.-Asia Pacific Comprehensive Partnership For A Sustainable Energy Future