Hydropower is the foundation of the Chinese transition from fossil fuels to renewable energy sources. In the past two decades it has added more than 300GW of hydroelectricity to its grid. China sees itself as a global leader in the development of hydropower and is willing to help finance and build hydropower projects abroad. Those projects are often controversial, however, as regional actors are unsure of Beijing’s true intentions
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Indian security analysts are concerned about China’s reasons for damming Tibetan rivers. They believe that dams could allow China to assert control over disputed regions (such as Arunachal Pradesh) and reduce water flows to India.
India is also competing with China for influence in Nepal. In November 2017, the previous Nepalese Government cancelled a Chinese loan for the construction of the Budhi Gandaki hydropower project; a decision that was reversed by Prime Minister Khadga Prasad Sharma Oli in September. His government is likely to continue to attempt to play off the two Asian powers against one another, to derive benefits for Nepal.
There is also growing speculation that China wishes to restart the Myitsone Dam project in Myanmar. The project was suspended by the Thein Sein administration after months of protests in 2011. The Chinese State Power Investment Corporation is reportedly ‘ramping up efforts to lobby residents’ to overcome objections to the project. Myanmar has recently resurfaced as a piece of the Chinese influence building strategy in the Indian Ocean region, with the negotiation of an agreement for the development of a deep-water port at Kyaukphyu. As the Myitsone Dam project remains unpopular in Myanmar, however, any attempt to restart it is likely to lead to an increase in protests.
It is not only geostrategic concerns that call Chinese hydropower projects into question. The International Energy Agency and the Intergovernmental Panel on Climate Change continue to see hydropower as a vital component of the transition away from fossil fuels, but others see it as a costly and inefficient source of renewable energy. While hydropower development continues to increase globally, the rate of growth has declined to its lowest level in more than a decade. That suggests that there is a growing global uncertainty about the long-term utility of the technology.
Advances in solar and wind power, and energy storage technologies, mean that hydropower is not always the most appropriate renewable energy source. Furthermore, there are often delays and cost overruns in the construction of hydropower projects, as well as large environmental and social costs once they are built. While hydropower remains a contentious energy option, there are studies that suggest that, in most cases, ‘large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return’. Increased competition for water and declining river flows, caused in part by climate change, are also likely to weaken the power generating potential of hydropower projects.
Chinese hydropower projects are likely to continue to be controversial in Asia. Due to uncertainty about Beijing’s real intentions and the continuing development of alternative renewable sources of energy, it is questionable whether they will actually be built.
Officials cited factors such as lower supply for hydropower plants and gas fields.
The Ministry of Industry and Trade (MOIT), as well as Vietnam Electricity (EVN), indicated that some factors that could raise the prices of power in Vietnam are growing, local newspaper VnExpress reported.
MOIT’s Electricity Regulatory Authority (ERA) is developing a power supply plan for 2019, which includes four different scenarios based on the predicted growth rates of electrical load as well as the predicted amount of water to be received by power plants.
According to ERA head Nguyen Anh Tuan, all the scenarios point to an increase in electricity prices as the total electricity generated by coal-powered thermal power plants would rise by 116 million kWh and place pressure on EVN. EVN general director Dinh Quang Tri said that EVN is considering four to five different options for electricity prices next year.
ERA expects hydropower plant reservoirs to receive less water and gas field supply to decline. It asked EVN coal suppliers to consider imports in calculating the amount of fuel they can supply.
Total hydropower output is expected to drop by 4 billion kWh, so EVN would have to raise the output of thermal power plants powered by coal and oil.
The 5% increase to coal prices would also come into effect in December and could affect coal prices as well, Tuan said. “Coal accounts for a significant proportion of electricity production cost so this exerts a huge pressure on the electricity industry. When developing a scenario for electricity prices we have to take all these costs into account.”
Higher demand is another factor that could raise the price of electricity which, VnExpress reports, is still above 10% and is “skyrocketing” in some areas. EVN proposed to promote household installations of rooftop solar to curb the pricing challenge next year.
December 5 (Renewables Now) – Finnish consulting and engineering firm Poyry Plc (HEL:POY1V) said on Monday it has entered into a three-year framework agreement for the development of various renewable energy projects in Indonesia, including hybrid schemes.
The contract was awarded by PT Indonesia Power, a unit of state-owned power distributor PT PLN, and covers wind, solar photovoltaic (PV) and battery storage projects, as well as hybrid combinations with diesel or gas engines. The deal calls for starting with four renewable energy projects. It contains about 40 different combinations of different types of studies including wind campaigns, according to the announcement.
Poyry noted that its customer is looking to become a green power generation company, while it currently has over 10 GW of coal-fired power plants, hydroelectric facilities, combined cycle power stations and geothermal plants.
The two parties already teamed up once in 2016, when they worked together on conventional thermal power projects. This is a continuation of that deal, Poyry said.
Indonesia is one of the world’s largest emitters of greenhouse gases, but manages to fly well below the radar.
World leaders are gathered this month in Katowice, Poland, for COP24, the most important global meeting on climate change since the 2015 UN Climate Conference in Paris. At the top of agenda: getting countries to agree on rules to implement the Paris climate accords for 2020, when the pact goes into effect.
The meeting serves as a reminder of troubling facts — President Donald Trump still intends to withdraw the United States from the accord, and the most recent UN Intergovernmental Panel on Climate Change (IPCC)’s warns that we have just 12 years to limit average global warming to 1.5 degrees Celsius.
But flying well below the radar in all of this is Indonesia, currently the world’s fifth biggest emitter of greenhouse gases, which come mainly from land use, land use change, and forestry. Today Indonesia stands out for how little it has done to implement policies that would enable it to meet its commitment under the Paris agreement: cutting emissions from deforestation by 29 percent below business-as-usual projections by 2030.
“To really achieve the climate targets … there is a need to come up with new policies that are more ambitious,” Hanny Chrysolite, the forest and climate program officer with the World Resources Institute Indonesia, said.
In fact, Indonesia is moving in the opposite direction. The government plans to build more than 100 coal-fired power plants, and expand the production of palm oil for local biofuel consumption, which will involve further deforestation of carbon-rich tropical forests. Add the expansion of a car-centric transportation infrastructure, a growing middle class and very little investment in renewables, and you have the recipe for a climate disaster.
If Indonesia fails to reduce emissions and build a clean energy infrastructure, there is little hope for the world to meet its global climate goals. Like the US, China, India, and Europe, Indonesia is crucially important to the success of the Paris agreement. What’s needed now, climate experts on the ground say, is a rapid mobilization from the Indonesian government, the private sector, and the global community to shift the country to a new climate-conscious paradigm.
A palm oil plantation supplying Mars, Nestlé, PepsiCo and Unilever in Papua, Indonesia.Ulet Ifansasti/Greenpeace
Indonesia’s forests are crucially important carbon stocks
Worldwide, emissions from land are responsible for about a quarter of all greenhouse gas emissions, according to data from the World Bank. Indonesia is the largest global contributor to these emissions, spewing 240 to 447 million tons of CO2 annually from agriculture, the conversion of carbon-rich forests to plantations and other uses, according to data from Global Forest Watch.
Tropical rainforests and peatlands — wetland ecosystems that contain peat, a spongy, organic material formed by partially decayed plants — store huge amounts of carbon. According to a Nature Communications paper published in June, one hectare of rainforest converted into a palm oil plantation in Indonesia results in 174 lost tons of carbon.
“The quantity of carbon released when just one hectare of forest is cleared to grow oil palms is roughly equivalent to the amount of carbon produced by 530 people flying from Geneva to New York in economy class,” Thomas Guillaume, one of the authors, said in a statement.
Back in 2015, an extremely dry rainy season connected to a strong El Nino event led to massive fires across the archipelago, particularly on the islands of Sumatra and Kalimantan. They emitted more greenhouse gases into the atmosphere than the United Kingdom does in an entire year.
Indonesia’s forests are still being cut down and fires are still burning
Unfortunately, there has been little progress towards reducing land-based emissions in Indonesia thus far. Despite the creation of a peatland restoration agency in 2016, followed by the extension of a moratorium on partial forest clearing, satellite monitoring shows that palm oil and paper plantations — the key drivers of deforestation and fires — continue to expand, with at least 10,000 square miles of primary forest and peatland disappearing since 2011, according to an civil society coalition.
“They are doing some good things, but it is not enough,” said Teguh Surya with Yayasan Madani Berkelanjutan, an Indonesian environmental NGO. “Palm oil expansion is still in planning, and on the ground we found some peat areas still open for plantation, there is still weaknesses in law enforcement.”
Essentially, efforts to reduce fires after the 2015 event have had too little an impact thus far, and current plans could make things a lot worse. More than 10 percent of the Indonesian population lives below the poverty line, and the country wants to build 3 million hectares of oil palm and sugar plantation in Papua. If these go forward, advocates worry that they could bring fire problems to the only part of the country with native forests intact and increase the country’s agricultural greenhouse gas emissions even more.
Indonesia’s growing economy and energy demands could make things much, much worse
Here’s where things get even more concerning. Even if all the plans to reduce deforestation succeed, fires are eliminated, and palm oil production is shifted towards sustainable practices, it might not be enough. Indonesia’s fast-growing middle class has an increasing demand for energy. In fact, WRI projects that by 2026 or 2027, energy, not land, will be the largest contributor of Indonesian emissions.
There are two facets to this challenge. One is electricity generation. Indonesia has vast coal reserves, mostly in Borneo, where coal mining is also a cause of deforestation. However, the global coal market has a glut, and Indonesian imports to places like China, South Korea, and India are falling. In response, the Indonesian government had a simple plan; replace this foreign demand with local consumption, through the construction of over 100 new coal-fired power plants throughout the country, 10,000MW of power generation capacity, on top of the existing current 42, making Indonesia one of the last places in the world pushing forward on coal energy.
Then there’s transportation. Indonesia is building new highways and car ownership is growing. Oil imports tripled between 2004-2012, and that’s despite the country’s fairly large oil and gas production capability.
The real tragedy is that Indonesia has immense renewable capacity, with ample wind, solar, hydro and geothermal resources across its many islands. Yet, currently, it is only utilizing a paltry 2 percent of that capacity, and even that is mostly from large-scale hydro — a poor choice for a number of reasons.
Some small signs of hope
One bright spot: the Indonesian government is finally ready to begin accepting payments as part of the Reducing Emissions from Deforestation and Forest Degradation (REDD+) program. REDD+ provides direct payments for preserving intact forests, and Norway has already pledged $1 billion specifically to protect Indonesian forests.
If climate finance can get scaled up, this could be a tool to provide substantial funds into forest protection. Jonah Busch, an environmental economist with the Earth Innovation Institute, thinks that Brazil, which dramatically pared its own deforestation between 1996 and 2010 (though the trend has been worrying since then), could be a model for Indonesia to reduce its own deforestation.
“Five, ten, or twenty billion [dollars] for protecting forests would have a much bigger impact,” said Busch. “That would happen when rich countries get much more serious about addressing climate change than they currently are.”
There is potential for clean energy too. A new parliamentary Green Economy Caucus has been created, and there are calls for a renewable energy law, which could level the playing field with fossil fuels. It may not take much support to allow alternatives like solar, wind, and geothermal to compete. In nearby China, India, and Thailand, clean energy is already competing with and beating fossil fuel, years ahead of projections. Indonesia could follow.
“Indonesia recently said that they won’t be contracting for more coal-fired power plants, already too many in the pipeline, and will focus on renewable energy targets and revising air emissions standards,” said Lauri Myllyvirta, an Asian coal and air pollution expert for Greenpeace. “A lot of positive things are happening.”
“The US not taking climate seriously gives a big excuse for the Indonesian government to not take it seriously either”
The question: Can these changes happen fast enough for Indonesia to hit the global targets? Right now, Indonesia’s policies are allowing for deforestation, and are far too fossil-fuel centric. Globally, climate investments and global funds like the maligned Green Climate Fund, which could further incentivize forest protection alongside REDD+, have yet to materialize, with disbursements far behind what was promised at Paris.
Meanwhile, the Trump administration’s abdication of responsibility on climate change means that countries like Indonesia will be less inclined to make the hard decisions essential to radically drawing down emissions.
“The US not taking climate seriously gives a big excuse for the Indonesian government to not take it seriously either,” said Busch. “They have lots of other domestic concerns.”
One thing that could help is stronger requirements from countries that import commodities responsible for deforestation and fires, such as palm oil. Europe — after years of grandstanding — is finally going to revise its biofuels policy to reduce imports of climate-intensive alternative fuels like palm oil. If more countries follow, this could force Indonesia to make the palm oil industry more sustainable.
Financial institutions can also play a greater role. Right now, many foreign banks, particularly those from Japan, are the chief funders of coal-fired power plants. Shifting those investments away from coal and towards clean energy projects could help hasten Indonesia’s move towards clean energy alternatives.
Indonesia can’t solve climate change on its own. But the world can’t stop climate change without Indonesia. Global financial institutions, including banks, funders, and foreign governments, need to do more to reduce deforestation, restore degraded land, and ensure the country does not get locked into decades of burning fossil fuels.
Nithin Coca is an Asia-focused freelance journalist covering environment, human rights, and politics issues across the region.
Retail petrol prices in the Kingdom continued to fall on Monday amid an increase in crude oil prices in the international market.
This follows the renewal of a pact between two top oil producers to cap output and the temporary trade cease fire between the US and China.
A Ministry of Commerce statement released on Monday said petrol prices fell by 200 riel to 3,450 riel per litre, while diesel dropped 300 riel per litre to 3,500 riel for the period between December 1 and 15.
The ministry said the drop came as part of a growing trend of falling oil prices in regional and international markets.
Normally, the ministry evaluates retail petrol and diesel prices once every two weeks in line with market price fluctuations.
However, oil prices soared more than five per cent on Monday with West Texas Intermediate rising $2.82 to $53.75 and Brent up $2.98 at $62.44.
The crude price spike comes after Russia and Saudi Arabia renewed a pact to cap output, while the US agreed to halt raising tariffs on Chinese imports, stalling a trade row that many feared could hit demand for the commodity.
Bin Many Mialia, deputy managing director of Commercial Marketing and Corporate Affairs at PTT (Cambodia) Ltd, said the price of petrol in Cambodia will not rise immediately due to the ministry setting oil prices once every two weeks, also factoring in the price it set for the previous two-week period in its calculations.
“If international prices rise in the next 15 days, [the price] does not reflect the [local retail] price for the next 15 days. [The ministry] takes the price of the last 15 days of last month to calculate the current price,” he said.
However, he said if international crude oil prices increase in the long-term, petrol prices in Cambodia will fluctuate accordingly.
Before this increase in oil prices in the international market, it decreased to about a third of its price at the beginning of October, hit by a number of factors including demand, high production, softer-than-expected US sanctions on Iran and a global growth slowdown.
Another major factor was the ongoing trade row between China and the US.
The oil producers of Opec and non-Opec members will meet in Vienna, where they will announce their cuts to oil production. Most analysts expect a cut of around one million barrels per day.
PHNOM PENH, Cambodia – Grundfos and the Ministry of Industry & Handicraft, Cambodia today confirmed that they will exchange a letter of intent to strengthen cooperation in water management, in an effort to reduce the cost of water and increase access to clean, quality water in the country.
His Excellency Cham Prasidh, Minister of Industry & Handicraft, Cambodia and Mr. Leong Chee Khuan, Area Managing Director – South Asia, Grundfos highlighted that the Letter of Intent will include an endorsement of Grundfos by the Cambodian government, welcoming its latest technology and business models to reduce non-revenue water and boost water management efficiency.
One of the biggest water management challenges for Cambodia is its water infrastructure, which is prone to leakages and insufficient water pressure when serving cities and provinces during peak hours of water consumption. This leads to cases experiencing up to 40 per cent in non-revenue water (NRW), or water that is lost or otherwise unaccounted for in the system.
H.E. Cham Prasidh said, “As Cambodia’s economy grows rapidly, we’ve seen an increasing demand for clean water, and we expect this demand to increase to 0.8 million cubic metres per day by 2025, and to one million cubic meters per day by 2030. This will place more pressure on our water utility facilities to provide efficient and reliable water access.
“We are excited to work with an industry leader like Grundfos to improve Cambodia’s access to clean, quality water. We believe Grundfos’ innovative technology and solutions will have significant impact on our water management systems.”
Mr. Leong Chee Khuan, Grundfos said, “Grundfos is committed to helping Cambodia strengthen the quality, reliability and sustainability of its water supply. We are pleased to work with the Cambodian government in its mission to achieve greater water security by levering our leading industry innovation.”
To tackle Cambodia’s water challenges, Grundfos introduced a pilot project in the Takeo province using its demand driven distribution solution. It is an intelligent water distribution system which automatically adjusts the water flow using remote sensors, reducing excessive pressure in the water pipes. This in turn limits water leakages and losses, minimizing cost and energy. Chemicals usage is also drastically reduced due to more data being available to ensure accurate dosage, ultimately reducing costs along the way.
To encourage adoption of this new technology, Grundfos also created a new business model to remove the barrier of the usual upfront investment. The plant operator is paying for the pump system through annual installments, which are financed by the money saved on energy and water bills due to the equipment upgrade.
As part of this project model, the plant operator is able to track their savings through Grundfos’ Remote Management system, an Internet-based remote monitoring, management and reporting system for pump installations.
The strategy of implementing the innovative solution together with the business model helped the plant save more than 270,000 kWh in electricity and around 200,000 m3 water per year, with a projected payback period of two and a half years.
Mr. Leong Chee Khuan, Grundfos also said, “Our work in Takeo has shown us that our new business model has huge potential in Cambodia and other countries where water utility authorities need not be held back by financial considerations when investing in new and efficient technologies. The success of this pilot project is encouraging, and we look forward to introducing this approach to the rest of Cambodia. We believe the model will open doors for our solutions to truly make a difference to Cambodia’s water utilities.”
Several investors have announced plans to develop solar power plants in Vietnam as the prime minister’s decision providing incentives in terms of power price will expire in June next year.
Solar panels are seen on the roof of the building of Binh Dinh Power Company. Investors have announced multiple solar power projects
According to the Ministry of Industry and Trade, as of August this year, 121 solar power projects with a combined designed capacity of 6,100 megawatts (MW) had been added to the national and provincial power development plans, Tuoi Tre Online newspaper reported.
Of these, Vietnam Electricity Group (EVN) agreed to purchase the output from 25 projects.
The government of the southern province of Tay Ninh has approved a number of solar power projects as well, including Dau Tieng plants 1, 2 and 3 with a combined capacity of 500 MW. Dau Tieng Tay Ninh Energy JSC is the investor behind these projects, which require a total investment of VND12.5 trillion (US$536.7 million).
Other solar power projects are also being developed in the Dau Tieng Lake area, including Tri Viet 1 and Bach Khoa A Chau 1.
These projects are expected to be completed prior to June next year, turning Tay Ninh into a large renewable energy generation center in Vietnam.
Regarding the progress of these projects, Tran Quang Hung, deputy director of Dau Tieng-Phuoc Hoa Irrigation Co., Ltd, said that his company had coordinated with the local authorities to hand over land to the projects.
According to Bui Van Thinh, chairman and general director of Thuan Binh Wind Power JSC, besides wind power, the company has ventured into the solar power sector with a 150-MW plant in Tuy Phong District, Binh Thuan Province.
Also, Bamboo Capital Group (BCG) has invested US$200 million in three solar power projects with a combined capacity of 200 MW in the Mekong Delta province of Long An. The firm is also executing other projects in Quang Nam Province and HCMC.
BCG chairman Nguyen Ho Nam said that the group expected to supply two gigawatts of electricity to meet the domestic demand.
The current situation reportedly arose from a decision of Prime Minister Nguyen Xuan Phuc, which offers a slew of supporting mechanisms for the development of solar power projects, including a hike in the solar power price to VND2,086, or 9.35 U.S. cents, per kilowatt hour (kWh), excluding value-added tax.
After June 30 next year, the price may drop, according to an expert from the Ministry of Industry and Trade.
The development of renewable energy could help reduce environmental pollution, on the one hand, but may put pressure on the infrastructure of the national grid, the representative added.
Tran Viet Ngai, chairman of the Vietnam Energy Association, said that while hydropower potential has been fully tapped, the development of solar and wind power is an indispensable trend across the world. In Vietnam, the Government has focused on developing solar power since 2007, he said.
In related news, more and more households have installed solar panels on their roofs to generate electricity. These households’ solar power systems have been connected to the national grid.
According to Bach Khoa Investment and Development of Solar Energy Corporation, which has cooperated with HCMC Power Corporation to distribute and install solar panels, nearly 200 households have had solar power systems installed on the roofs of their houses since July.
In the past, it took some three years to have 300 solar power systems installed.
Some 1.77 million kWh of electricity from local households’ solar power systems was added to the national grid by late July.
Nguyen Hoang Gia, general director of HCMC Energy Solutions JSC, said the number of clients commissioning his company has increased sharply since early this year, including 30 households, three State management agencies and one corporation.
According to the Ministry of Industry and Trade, households’ investment in solar panels will help generate electricity for their use, reducing pressure on the national grid.
The ministry has teamed up with the Ministry of Finance and EVN to ask for the prime minister’s support in removing obstacles to the development of a solar power system.
Gia Lai inaugurates mega-solar power plant
TTC Group and Gia Lai Electricity JSC, on December 1, put into operation the Krong Pa solar power plant, with an investment of VND1.4 trillion, in the Central Highlands province of Gia Lai, news site Vietnamplus reported.
The plant, which covers more than 70 hectares in Chu Gu Commune, Krong Pa District, has a capacity of 49 MW. It was built in March with over 209,000 solar panels.
The plant is expected to annually add 103 million kWh of electricity to the national grid, serving some 47,000 local households. It will also help reduce carbon dioxide emissions by some 29,000 tons per year.
Krong Pa, with its average temperature of over 25 degrees Celsius and six hours of sunshine per day, or 2,500 hours per year, is ideal for attracting solar power projects to the district.
The development of renewable energy will help exploit the land funds, create multiple jobs for the local people and improve the living standards in Krong Pa, one of the poorest districts in Gia Lai.
Speaking at the inauguration ceremony of the Krong Pa solar power plant, Gia Lai Chairman Vo Ngoc Thanh spoke highly of the efforts of TTC Group in putting the solar power plant into operation on schedule and asked the group to continue investing in other projects to boost the province’s socioeconomic development.
On the occasion, Gia Lai Electricity JSC presented 10 houses, worth VND500 million, to disadvantaged households in Krong Pa District.
Most economies are net crude importers and benefit from lower prices
JAKARTA — Rattled by rapid oil price swings in recent months, Southeast Asian economies are on tenterhooks ahead of an OPEC meeting this week that is expected to result in a supply cut to boost prices.
The recent plunge in prices — the benchmark Brent crude dipped under $60 a barrel last week — has benefited economies such as Indonesia and the Philippines that are net importers of oil. This is helping to blunt the inflationary effects of currency slides against the U.S. dollar in these countries, which are caught in the crossfire of the U.S.-China trade war.
Oil rebounded as much as 5% on Monday after the U.S. and China agreed to a truce in their trade conflict. This latest move follows a 30% slide in crude last month, after it touched four-year highs at the start of October.
While nations in the region welcome the break in trade tensions — Singaporean Prime Minister Lee Hsien Loong said on Sunday that he hoped to see the U.S. and China take further “constructive” steps — they have to be prepared for further volatility after the meeting of the oil producing cartel that starts on Thursday.
Most Southeast Asian countries are trade-dependent, with the exceptions of Brunei, East Timor and Malaysia, are net importers of the commodity. While Indonesia is also an oil exporter, it is a net importer. Lower prices are especially welcome in the region’s largest economy, with the rupiah having dropped 11% against the dollar in the 10 months through October, though the currency has since partially rebounded.
“The region’s current-account deficit economies [will] benefit especially from the dip in crude,” HSBC economists wrote on Nov. 28, referring to Indonesia, the Philippines and also India. But the bank warned that net oil exporters such as Malaysia fare better with higher prices.
Measured as a whole, the 10 members of the Association of Southeast Asian Nations enjoyed economic growth of 5.3% in 2017, an expansion buttressed by both high trade-to-GDP ratios and record foreign investment of $137 billion last year, according to a recently published ASEAN Investment Report.
But while energy importing countries with high trade-to-GDP ratios will benefit from lower prices — not least as a partial offset against trade frictions — low oil prices could also suggest a wider economic downturn, which is not in the interests of emerging economies.
“The ongoing trade tensions have not affected the regional growth yet, but they have intensified the downside risks,” said Ekaterine Vashakmadze, a World Bank economist. “It is expected that lower oil prices will contribute to an improvement of the balance of risks for the region as a whole.”
Last week the International Energy Agency stated that while U.S. demand for oil has been “very robust,” that was not the case in Europe and wealthy Asian countries, nor in emerging economies.
“Trade tensions and other risks to growth can potentially affect global activity and its prospects, reducing, in turn, oil demand,” the International Monetary Fund cautioned in its October 2018 World Economic Outlook.
But absent a wider downturn, lower oil prices should act as a stimulus for Southeast Asian economies.
Noting in a recent report that “consumer price inflation in the Philippines reached a nine-year high of 6.7% in October,” consultancy Capital Economics surmised that “lower oil prices, which will put downward pressure on domestic energy and fuel prices, mean inflation should drop back over the coming months.”
But the OPEC meeting means Southeast Asian governments cannot depend on oil costs remaining low.
“Brent crude oil will recover to average above $75 [per barrel] next year despite clouds looming over global demand as OPEC and its producer allies move to defend prices by preventing a new supply glut,” S&P Global Platts wrote last week.
At the same time, record-high U.S. domestic oil production could hold prices down — as demanded by President Donald Trump.
Containers stacked at Jakarta’s Tanjung Priok port (Photo by Simon Roughneen)
At the OPEC meeting, Saudi Arabia will seek a balance between prices low enough to stall the expansion of the costlier U.S. oil industry, but not too low as to undermine the lavish domestic spending that underpins the monarchy’s control in the kingdom.
Either way, the price volatility looks set to continue.
“Saudi Arabia is working diligently to get a deal in place for next week as it understands that the oil market is over-supplied due to U.S. waivers on Iran and the stronger-than-expected growth in U.S. output in the summer,” said Energy Aspects, a London-based energy consultancy in a report last week. “However, several challenges remain and the market may well be disappointed with the most likely outcome.”
Liaw Thong Jung, regional oil and gas services analyst at Maybank Kim Eng, said that two possible price scenarios could emerge in the short term: a breakup in OPEC-Russia cooperation and status quo in production of 32.5 million barrels per day that would cause weakness and volatility in prices; or an output cut of 1 million to 1.4 million barrels per day that would will infuse confidence and bring more stable prices.
Reza Siregar, head of ASEAN & India Research at The Institute of International Finance, said weaker growth outlook, especially in major global economies, should dampen demand for oil in 2019.
“But the uncertainty on the supply side remains, especially with the sanctions on Iran,” Siregar said. “We expect a marginal fall in the fuel price next year, as weak demand will outweigh less supply of oil globally.”
Either way, the price volatility looks set to continue and some analysts contend that if there is no deal this week, oil inventories will rise next year and prices could fall toward $40 a barrel. Qatar — a small OPEC player — withdrew from the cartel on Monday, potentially weakening the group’s unity ahead the meeting.
And just as oil prices are likely to prove unpredictable, there remains the strong possibility that Trump will revive his threat to impose tariffs on all Chinese exports to the U.S. Such a move would invite retaliation and suck Southeast Asia further into the economic conflict between the world’s two biggest powers.
“What the [Trump-Xi] meeting yielded is simply a temporary cease-fire agreement,” said Mark Wu, professor of law at Harvard University and an adviser to the World Trade Organization. “For it to hold will require that much more progress be made in the negotiations over the next 90 days.”
So far, he said, “the two sides have not been able to resolve the systemic challenges plaguing the relationship, such as [intellectual property] theft and technology transfer. Unless those thorny issues are resolved, there eventually will be renewed calls to step up the pressure once more.”
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