ASEAN Pipeline Dream Falls Flat

ASEAN Pipeline Dream Falls Flat

ASEAN (Association of Southeast Asean Nations) has an energy cooperation plan, with its first phase running from 2010-15 to build gas pipelines (Trans-Asean Gas Pipeline) (TAGP) and power grids connecting member countries for the purpose of trade as well as enhancing energy security.

In addition, an ASEAN official that wished to remain anonymous told Energy Tribune that plans are in the works to have a single LNG system for all ASEAN member states (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam). While he would not elaborate on the details because talks are in its initial stages, he did say that national oil companies would be involved.

All of this sounds promising however does it have any real merit? ASEAN has been known to make bold proclamations before but be weak in implementation. Critics claim that differing national interests stymie the organization. A case in point is its meetings in July over the recent standoff in the South China Sea between China and the Philippines and Vietnam. Many in the region lamented ASEAN’s failure to restore a consensus on the dispute. In fact, the fall-out prompted US Secretary of State Hillary Clinton to appeal to the group to make a united stand on the issue.

Notwithstanding, ASEAN dreams of a strong union that can hopefully stand up to China’s boldness in the region, but one that can also be an international economic player in the decades to come, an alternative power center on the world stage. Make no mistake, ASEAN has potential. As of 2011, the combined population of the group numbered nearly 600 million and if listed as a single entity, it would rank as the ninth largest economy in the world, behind the United States, China, Japan, Germany, France, Brazil, the United Kingdom, and Italy. In 2010, its combined nominal GDP had grown to $1.8 trillion.

Plan of action

The ASEAN Plan of Action for Energy Cooperation (APAEC) 2010-2015, is designed to ensure a secure and reliable energy supply for the region through collaborative partnerships and focuses on several main program areas: ASEAN Power Grid (AGP), TAGP, the promotion of cleaner coal use, energy efficiency and conservation, and renewable energy (including biofuels), regional energy policy and planning, and civilian nuclear energy as an option, to support and sustain economic and industrial activities.

The TGAP is a massive project that would connect South East Asia in one of the largest networks of its type in the world. Linking the gas reserves of Indonesia, Malaysia, Singapore, Vietnam, Myanmar, Philippines, Brunei and Thailand, the project has the backing of the oil and gas majors in each of these countries and was originally projected to be in full operation by 2020.

Unfinished pipeline

Despite ASEAN’s inability to present a united front against China, perhaps its biggest breakdown is the unfinished TAGP. At the time of its conception it was heralded as a maverick idea, however as a decade plus has evolved, it remains just over half finished and many think the idea is either obsolete, too expensive to finish or worse yet — that member nations don’t have the political fortitude to complete it.

Busba Wongnapapisan, head of renewable energy for the World Economic Forum urged ASEAN countries to speed up construction of gas pipelines and power grids to enhance security of supply. Speaking at a conference in Bangkok on May 29 she said that greater collaboration is needed as 40-50 percent of the region relies on oil imports.

Currently, there are pipelines between Myanmar and Thailand, Malaysia and Singapore and Indonesia and Singapore, but they are not connected regionally to allow gas rich countries to export to poorer ones. The pipeline linking Myanmar and Thailand is still only one-way, but Thailand should be able to send back some gas if there is an oversupply, according to Wongnapapisan.

The network already has 10 cross-border gas pipelines costing $14.2 billion, traverses 3952 kilometers and transports 3,095 million cubic feet per day (MMcf/d) of gas, but there are at least six other projects that remain to be completed.

Wongnapapisan added that one of the biggest problems in implementing the plan is one of integration between ASEAN countries. “Different countries have different regulations. How can ASEAN countries harmonize their regulations, as it makes private companies reluctant to invest? They are waiting for a clear policy,” she said.

Various oil major executives have also called for the TGAP to be completed, including Royal Dutch Shell CFO Simon Henry, which said in June that the TAGP and regional power network should be upgraded, and clear guidelines for regional cooperation set.

Beni Suryadi, an ASEAN energy policy analyst, said that the major pipeline to the ASEAN region has yet to be developed because of pending commercial issues. In fact, he said that its commercialization becomes even more crucial for the region since it is projected that there will be a widening supply gap as early as 2015 rising to more than 12 billion standard cubic feet per day (BSCFD) by 2025. According to Suryadi, this shortfall reflects declining gas reserves causing gas supply to plateau and then starts to decline while at the same time demand continues to rise strongly.

He makes a good point. ASEAN member states Indonesia and Malaysia have ageing gas fields and are also struggling to meet their own domestic gas needs as well.

In 2009 Indonesia exported approximately half of its natural gas but the share of domestic consumption is expected to increase. Last year they failed to meet oil and gas production targets.

Though Malaysia is still a gas exporter, the situation there is also changing. The country shifted its focus in 2010, divesting its assets in Pakistan, Ethiopia, Timor Leste, and a stake in Cairn India, and has prioritized domestic investments.

And in December of the same year, Petronas [Malaysia’s national oil company] signed a deal to build the country”s first LNG import terminal, in the south-western state of Malacca. The terminal is designed to meet an impending shortfall of gas in Peninsular Malaysia as demand growth in the densely-populated region outstrips local supply, according to Malaysia Oil and Gas Report Q2 2012.

Who will build it?

In the 1989 blockbuster movie, “Field of Dreams,” star Kevin Costner hears a voice “if you build it, he will come,” which is prompting him to build a baseball diamond in his Iowa corn field so ball players from the past can come and play – a quantum leap of faith. Conversely many energy experts claim that the pipeline will not be built until more gas is found, so no leaps of faith for ASEAN.

Speaking by phone, Wood Mackenzie analyst Graham Tyler said that the biggest problem in developing the TAGP is finding proven gas supplies. He said that in the past the pipeline was built where excess supply had been close to market demand.

“We have also seen some joint development of overlapping claim areas, but these basins are now more mature and reserve replacement is not keeping up. Therefore all the markets in the region are looking to LNG,” he said.

He added “who will build it [the pipeline] until supply is proven?”

He also makes a valid point. There is disagreement over the amount of gas that can actually be tapped in the region. Four major surveys found no common ground on estimated reserves, typically putting projected gas supplies at double or triple the estimates of the others.

Tyler added that price reform would help. By price reform, he is referring to the fact that many ASEAN countries subsidize the price of natural gas thereby making companies reluctant to invest there. They don’t raise the end-user price of gas to a level sufficient enough to guarantee a profit for the companies that search for and then have to pay large sums to develop gas reserves.

IHS analyst Mark Hutchinson has a different take. “Proven reserves are generally there but above ground issues (regulations, politics, pricing etc) hinder development,” Hutchinson said, also by phone. He said that Indonesia changes regulations a lot and Vietnam doesn’t pay enough to make it attractive to invest. He added that Thailand and Malaysia have done a good job at balancing stakeholder interests but not Indonesia and Vietnam.

Another problem for the TAGP is logistical. “Load centers in Southeast Asia are too small and distances too large to justify spending significant sums of money building pipelines when shipping can be cheaper,” Hutchinson said.

“So, why bring gas through a pipeline?” he asked.

Other experts claim that development of the TAGP, which crosses national boundaries, will take time given the significant investment, environmental, social and political consideration as governments navigate cross-border frameworks, contractual and obligations.

Therefore, at this point it appears that completion of the TGAP remains a pipe dream. How ASEAN handles a new LNG scheme remains to be seen, hopefully that project, if implemented at all, will come to fruition.

© 2013 Energy Tribune

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