Wood Mackenzie

Press Releases: Energy

Wood Mackenzie says that Coal, not Gas, will Play the Dominant Role in Power Generation for South East Asia by 2030

SINGAPORE, 12th May 2011 – Wood Mackenzie says that due to strong economic growth driving the need for substantial new power generating capacity, coal will dominate over gas by 2030 as the fuel of choice. This was published in a report titled ‘Can coal deliver to South East Asia?’.

Graham Tyler, Head of South East Asia Gas and Power Service says, “A shift to coal in the region’s fuel mix has already started with 35 Gigawatts (GW) of committed coal-fired plant being developed in Indonesia, Malaysia, Thailand, Vietnam and even on a smaller scale in Singapore. We think that while there are opportunities for gas suppliers, the trend towards more coal-fired power in South East Asia will continue beyond 2020 despite arguments against it.”

Wood Mackenzie forecasts South East Asia’s aggregate Gross Domestic Product (GDP) to grow at 5.2% annually over the next decade. This compares to the global average of 3.5%. As a result, power demand is expected to triple, representing a need for an additional 190 GW of generating capacity by 2030. That is akin to rebuilding Thailand’s current capacity six times over which is currently the largest consolidated power market in South East Asia. To meet this demand, there must be an increase in all fuel types, especially in coal and gas that can operate at baseload.

Tyler says, “Local gas reserves in decline will be insufficient to match existing production levels to feed the domestic markets. Reserve replacement is an issue with a number of production areas such as Java/Sumatra, Gulf of Thailand  and the Malay Basin maturing. LNG is a potential solution but it is too costly for a region used to low and often subsidised gas prices ; the era of cheap local and abundant gas reserves is over. This leaves coal to meet demand.”

The report considers the three main arguments by sceptics against the growth prospects for coal in the region but says these key factors are not long-term obstacles for the development of coal-fired plants. The key factors are: the introduction of carbon abatement policies; coal’s negative impact on air quality; and the lack of available infrastructure.

Tyler explains, “Governments have expressed that reducing carbon emissions should not come at the expense of developing their economies. As such, we do not expect them to take the lead on carbon abatement without internationally agreed measures, especially considering their absolute carbon emissions fall well below China and USA. Regarding concerns of air quality, coal-fired power is only one of the factors that can contribute to air pollution. Furthermore, this can be reduced with increased energy efficiency and improvements in technology to reduce pollution from coal. The implementation cost will still make coal-fired plants more economical than LNG.”

On the lack of coal infrastructure, Tyler says, “South East Asia’s power markets benefit from their proximity to Indonesia, which has sufficient supply to meet domestic and Asia Pacific export market demand growth to 2030. This proximity provides the option of barging coal directly from Indonesian mines to regional markets, rather than depending on port infrastructure. Even if port infrastructure is required, the import requirements in Indonesia, Malaysia, Thailand and Vietnam are still easily accommodated with only one or two ports needed in each country.”

In summary, when faced with growing energy demand, South East Asia will ultimately still have a choice between importing coal and gas via LNG. However, Wood Mackenzie’s view is that weighing up the key factors for and against coal, power plant economics still suggest that coal has a significant cost advantage and will emerge as the dominant fuel in the region’s power generation.