Lack of access to modern forms of energy

Asia is that part of the world where progress in economic growth is at its fastest pace and the place where the most people (close to 1 billion) lack access to modern forms of energy. This combination means that, in the coming decades, a huge increase of energy consumption is anticipated: this economic ‘success story' will lead to higher energy needs to feed the world's factory, which Asia is in the process of becoming; in the meantime, the urbanisation associated with this process and the improvement of living standards will also contribute to keep energy demand under pressure. Considering the size of the economic area and this catchingup process, the energy developments in Asia will obviously be the main engine of the future evolution of the global energy system. Considering the wide diversity of Asian national situations, a specific focus will be made on three countries: China, India and Japan. These economies are today major actors on the energy scene, being ranked, for example, second, third and fifth respectively in terms of electricity consumption. In the future, due to their skyrocketing growth, China and India might be responsible for 45 per cent of the increase in world energy demand by 2030. Japan is also interesting since this country is both highly dependent in terms of oil and gas imports but is probably the most efficient country in terms of energy use.

The Chinese energy mix can be explained by the willingness of the Chinese authorities to remain as independent as possible. Coal represents more than 60 per cent of the primary energy production and may stay high in the future, due to the abundance of local resources in China (second at the world level); this high dependency will not be substantially modified in the future. Oil represents 19 per cent of the energy mix today; demand has long been met by domestic oil, but, with the recent boost in demand, the country is now a net importer. The third main energy source in China is traditional biomass. Although its use has decreased thanks to electrification, it still represented 13 per cent in 2005. Up to 2030, according to the IEA reference scenario, the main phenomenon to be anticipated is that, for the three sources of carbon, China will become a first rank importer with 13.1 mb/d of oil, 128 bcm of natural gas and 95 million tonnes of coal. Despite the important local resources, China will be responsible for 7 per cent of the international trade in coal. The explanation essentially relates to the increased needs for electricity generation (more than 1,300 GW), widely dominated by coal. The Indian energy mix is also characterised by strong coal use as India benefits from huge reserves. Indeed, in 2005 coal represented 39 per cent of the energy mix, and is mainly used for power generation purposes. Like China, the two other main energy sources are oil (24 per cent) and traditional biomass (29 per cent) used in rural areas. Even though gas use has recently increased, it only represents 5 per cent of the energy mix. By 2030, coal use is to rise to 47 per cent of the energy mix also driven by the increased need for electricity.

The oil share will grow to 25 per cent while the other sources of energy, as in China, will increase their shares (8 per cent for natural gas, for instance) at the expense of traditional biomass (15 per cent). India is in roughly the same position as China, but with smaller resources. It has also very limited oil and natural gas that respectively amount to only 0.4 per cent and 0.6 per cent of world reserves. Recent discoveries will enable natural gas production to grow until 2030 and, as coal is the most favoured energy option in India, its production will increase by a factor of almost three by 2030. For natural gas, imports are projected to be multiplied by eight by 2030. The Japanese energy mix has substantially changed over the last fifty years. In the 1950s, coal supplied half of Japanese energy demand and a third was supplied by hydropower. Then, the government decided to use oil extensively but, since the shocks in the 1970s, it was decided to diversify the energy mix and to use energy more efficiently. In 2005, 47 per cent of the energy came from oil, 21 per cent from coal, 15 per cent from nuclear and 14 per cent from natural gas. In terms of future perspectives, as Japan is quite aware of the environmental constraints, notably global warming, oil and coal will see their share reduced to 36 per cent and 19 per cent respectively; while nuclear and natural gas will see theirs increase to 21 per cent and 18 per cent by 2030. Japan is even less well endowed with natural resources than its two counterparts. Indeed, it has no significant domestic resources of fossil fuels except coal. Thus, it has always relied almost entirely on imports for natural gas and oil (coal being costly). This is, along with environmental concerns, one of the reasons for the Japanese decision to dynamise their nuclear energy policy; nuclear power will represent almost a quarter of the energy demand in 2030. In any of the scenarios proposed by the IEA, China and India will import more than half of the gas needed by 2030.

India will rely almost entirely on the Middle East while China will import its gas from several suppliers, mainly Australia, other developing Asian countries and transition economies. Because of their increasing weight in terms of gas consumption, Asian countries are likely to have an increasing impact on gas prices, in the medium term. Indeed, non-OECD Asia, led by China and India, is forecasted to be the fastest growing region in terms of natural gas consumption and should become a net importer by 2020 which would increase Asian reliance on external resources. In terms of global oil use, China and India will continue to put pressure on the global demand as their combined share is likely to increase from 12 per cent in 2005 to 20 per cent in 2030, according to the IEA reference scenario, and developing Asia will increase its share of global oil consumption from 18 per cent to 28 per cent. Therefore, oil demand will mainly be driven by this region, as it represents 54 per cent of the additional demand over the period 2005-30. It should also be noted that Japan and Korea already have a 100 per cent oilimport dependence and that developing Asia's ratio is likely to increase to over 70 per cent in 2030. Consequently, along with this increase in oil consumption, the region will have to face a higher dependency on imports. This is likely to strongly affect the global market since this fastest growing region in the world relies heavily on external resources. Coal is the dominant energy source in China and India which represent 45 per cent of world coal use and will account for three-quarters of the additional demand over the period 2005-30. The other Asian countries are also extremely active in the global coal market. For instance, Japan, South Korea and Taiwan are the three largest coal importers in the world and India and China are ranked fifth and eighth respectively.

In total, Asian countries represent more than half of the world's imports and developing Asia will account for 65 per cent of world consumption in 2030. On the exporting side of the market, Asian countries represent only 11 per cent of the coal exported worldwide and China became a net importer of coal in 2007. Therefore, a rise in coal demand will strongly affect the global market as Asian countries will probably rely on supply from other regions. In the past few years, Asian countries have viewed coal as a cheap and available fuel and thus as a way of developing their electricity generation. As a result, coal prices skyrocketed between 2000 and 2005, from approximately US$38 to US$63 per ton of steam coal. 2004 can be seen as the turning point when total coal demand increased by 8.5 per cent and this was following a 7.5 per cent increase in 2003. In terms of prices, this led to a spectacular 48.6 per cent rise measured by customs unit values for the two major IEA importing areas. Prices have also gone up because producing countries have not committed themselves to investments early enough.

This event is referred to as the ‘2004 coal crisis'. Coal prices are likely to remain high in the medium term. Indeed, while the IEA forecasts a small decline in price up to 2010 before rising again to the 2005 levels, the Institute of Energy Economics Japan predicts that prices will remain at the same level. In both cases, supply is expected to smoothly meet demand. Indeed, after the 2004 crisis, producing countries have upgraded existing mines, developed new ones and invested in transportation infrastructure. Therefore, coal production is likely to increase in the future. This explains the IEA prediction in which supply will exceed demand, resulting in lower prices. However, Chinese and Indian demand for coal may rise even faster than predicted and thus could lead to other crises in the years to come. So, the ‘2004 crisis' is interesting in the sense that it may prefigure a continuing pressure on prices in Asian countries in the future as they will increase their share of total world demand and may account for 87 per cent of the additional demand over the period 2005-30.

Lack of access to modern forms of energy

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