Pa_LYY_Trans-ASEAN Gas Pipeline More Than Just a Pipe Dream

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  • b1087 ASEAN Matters

    151

    FA

    CHAPTER 22

    TRANS-ASEAN GAS PIPELINE:MORE THAN JUST A PIPE DREAM

    Zainal Abidin Matassan and Lee Yoong Yoong

    Oil prices and alternative energy resources are daily headline news. Theyaffect the world in a big way because energy production and consumptionimpact our daily lives, our society and our economy.

    This is why energy security is one of the most important issues on theinternational agenda. The competition for access to energy resources canbe a potential cause for misunderstanding and conflict between states. Therise of oil prices in recent years, combined with the search for a sustainableenergy supply by emerging economic powerhouses like China and India,have further stimulated interest in an issue that is of both economic andstrategic importance.

    ASEAN Vision 2020 on Energy Co-operation

    After the Asian Financial Crisis in 19971998, Southeast Asian countrieshave promoted new investments and consumer confidence, resulting in adecade of strong growth since. As a result, the energy sector is racing tokeep up with the speed of growth, creating varying opportunities fromcountry to country in the region. The ten Member States of the Associationof Southeast Asian Nations (ASEAN) represent one of the worlds swiftlygrowing regions, and one with a rapid rising energy demand driven byeconomic and demographic development. ASEANs primary energyrequirement was projected to triple between 2005 and 2030 (reference

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    scenario).1 Meeting such energy needs with unprecedented increases incoal use, oil and gas imports, as well as greenhouse gas (GHG) emissions would be an acid test.

    The challenge to ensure a secure regional energy supply is thus anoverriding concern, despite the fact that ASEAN is considered to be well-endowed in energy resources, with nine Member States possessingproven oil or gas resources, or both, or other natural resources suchas coal, hydro, and bio-mass (Fig. 1), among others. Southeast Asia is

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    1 ASEAN Plan of Action for Energy Cooperation (APAEC) 20102015: BringingPolicies to Actions: Towards a Cleaner, More Efficient and Sustainable ASEANEnergy Community. ASEANs energy demand is expected to hit 1,252 MTOE(million tonnes of oil equivalent) in 2030 from 474 MTOE in 2005, an increase byan average annual growth rate of 4%. This is higher than the worlds averagegrowth rate of 1.8% in primary energy consumption through 2030.

    Fig. 1. An overview of ASEAN energy resources.

    Source : ASEAN Centre for Energy, ACE.

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    estimated to have a reserve of 22 billion barrels of oil, 227 trillion cubicfeet of natural gas, 46 billion tonnes of coal, 234 gigawatts (GW) ofhydropower and 20 GW of geothermal capacity. This explains the moti-vation behind ASEAN Member States active co-operation for the fullutilisation of the regions energy potential for greater stability, securityand sustainability, as a pathway to building the ASEAN EconomicCommunity (AEC) by 2015.

    Under the ASEAN Vision 2020, there is a call for the establishment ofinterconnecting infrastructures that arrange for electricity and natural gasto pass through the ASEAN Power Grid (APG) and the Trans-ASEAN GasPipeline (TAGP) respectively. Both projects have been promoted byASEAN on the basis that they would speed up economic development andstrengthen regional energy security. Member States that export natural gasand electricity would earn foreign exchange revenue. Greenhouse gasemissions would decrease significantly when gas and hydropower replacecoal and fossil fuel as the primary sources of energy generation. Moreimportantly, the two projects are expected to reduce ASEANs reliance onunpredictable energy imports.

    The APG has achieved delicate progress with the signing of theMemorandum of Understanding on the ASEAN Power Grid (MOU on theAPG), which serves as a reference for the co-ordination and facilitation ofthe programmes to implement the regional power interconnection proj-ects, at the 25th ASEAN Ministers on Energy Meeting (AMEM) inSingapore on 23 August 2007. Through establishing a policy frameworkand the modalities for power interconnection and trade, this MOU willpave the way for the eventual APG implementation.

    The TAGP, endorsed by the ASEAN heads of government in Hanoi,Vietnam, in 1998, can be considered to be an equally, if not more, complexchallenge. To enhance the implementation of the project, an MOU ofthe TAGP was signed at the 20th AMEM on 2 July 2002 in Bali, Indonesia.The present regional cross-border gas pipeline infrastructure is laid outhere:

    1. Malaysia-Singapore, commissioned in 1991 (5 km)2. Yadana, Myanmar-Ratchaburi, Thailand, 1999 (470 km)3. Yetagun, Myanmar-Ratchaburi, Thailand, 2000 (340 km)4. West Natuna, Indonesia-Singapore, 2001 (660 km)5. West Natuna, Indonesia-Duyong, Malaysia, 2002 (100 km)6. Grissik, South Sumatra, Indonesia-Singapore, 2003 (470 km)

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    7. Malaysia-Thailand Joint Development Area (JDA), 2005 (270 km)8. Malaysia-Singapore, 2006 (4 km)

    The TAGP project, with the current eight cross-borders pipelines, suppliesgas from the gas-producing ASEAN Member States of Indonesia, Malaysiaand Myanmar to Singapore and Thailand. Brunei Darussalam, Indonesia,Malaysia, Myanmar, the Philippines, Thailand and Vietnam have builtand/or are in the process of constructing additional pipelines to bring thegas onshore for domestic consumption. The cross-border pipelines werebuilt on a bilateral basis, while domestic pipelines are constructed by therespective Member States. The TAGP Master Plan 2008, indicates the exist-ing cross-border pipelines, existing national pipelines, work-in-progress/planned pipelines and new likely connections. The gas pipeline connec-tions from East Natuna are still being discussed, whereas the otherpipelines are going ahead as scheduled.

    Challenges Faced by TAGP

    Change of priority

    With the demand for gas energy resource increasing, the existing eight cross-border gas pipelines of the TAGP project are almost certainly not enough tomeet the prevailing requirements for building an ASEAN Community. Moresignificantly, plans for the availability of gas by pipelines may have to be re-evaluated, taking into account that a few gas-producing ASEAN MemberStates have realigned their priorities by planning to increase gas supplies fordomestic use. For example, Indonesia, the largest supplier of gas in theTAGP project, is planning to channel a major portion of the gas from theEast Natuna gas field to its domestic market. Myanmar has held discussionsto supply its gas, both by pipelines and as liquefied natural gas (LNG), tonon-ASEAN Member States. Such reduced capacities are of concern tothose ASEAN Member States currently receiving their gas supply bypipelines. Singapore and Thailand, in particular, are now taking stepsto fulfil their energy requirements by planning to build LNG receivingterminals, with the Middle East as a possible source of supply.

    Disputed area in the region

    Another immediate concern over the availability of supply arises from thedisagreements on the disputed areas within the Southeast Asian region,

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    such as the offshore areas between Malaysia-Thailand, Malaysia-Vietnam,Malaysia-Brunei, Malaysia-Indonesia and Cambodia-Thailand. A great dealof negotiations and arbitrations must be concluded before the regionor the ASEAN Member States involved can take full advantage of thepotential in these contested areas, either in the form of Joint DevelopmentArea ( JDA) schemes, or work together on a Commercial ArrangementAgreement basis.

    No onward transmission

    While a number of ASEAN Member States have the experience, resourcesand capacities to build and run gas pipelines, most of these are designed tosupply gas directly from one point to another, without onward transmissionor transition through a third ASEAN Member State. In short, the regionlacks the relevant technical experience to operate an integrated pipelinesystem. The question arises whether ASEAN would experience the sameaggravated concerns of supplying gas through a third Member State,similar to the stoppage of gas delivery by Russia to European Union con-sumers through Ukraine. It remains to be seen, although it must bereiterated that the non-delivery of gas is covered in the contractual obligationbetween the seller and the buyer.

    Geographical diversity in ASEAN

    Integrating infrastructures such as the TAGP have proven to be one ofASEANs toughest goals, partly because the region is geographically diverseand each Member States economic development is at a different level. Forexample, Cambodia, Lao PDR, Myanmar, Thailand and Vietnam, whichform the landmass of mainland ASEAN, find it challenging to build con-crete infrastructure links connecting roads, communication and powerlines across national boundaries because of mountain ranges and swiftlyflowing rivers. The other Member States Brunei Darussalam, Indonesia,Malaysia, the Philippines and Singapore may have better developedinfrastructures, but are separated by deep seas, making linkages betweenthem costly.

    Harmonisation of frameworks

    One last issue faced by the TAGP is that cross-border natural gas pipelinesof the scale of the TAGP entail harmonisation of national legal and

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    regulatory frameworks and, possibly, gas pricing schedules. Many ASEANMember States, however, are still hammering out the regulations on natu-ral gas transmission and distribution, while legislation concerning energyand the environment varies across the region.

    Funding

    More significantly, the sole key challenge faced by all ASEAN MemberStates is funding, deemed to be the biggest problem for regional infra-structure. For investors to invest, they must have the returns. The WorldBank had, at the turn of the millennium, estimated that the developingEast Asian countries, including ASEAN Member States, required up toUS$1.5 trillion in infrastructure investment until 20102011 just to copewith economic development and growth.

    Why TAGP is Still Relevant

    The private sector has been reluctant to invest in regional infrastructuresprojects, arguing that these will be loss-making enterprises, as well as citingthe challenges in meeting the requirements of ten different sets of domes-tic investment rules and regulations. Still, it is critical for ASEAN MemberStates to work with their private sectors to get outstanding regional infra-structure projects, such as the TAGP, off the ground, because theinterconnection of national gas pipelines will almost certainly enhance andensure the availability and accessibility of energy in the region. Gas inter-connections will ensure the provision of affordable and accessible gas toregional industries, businesses and households. Availability and access tonatural gas will contribute to improving productivity and lead to changesin the quality of life, and the standards of living.

    Once completed, the TAGP network will include a series of natural gaspipelines spanning ten Member States spread across 4.5 million squarekilometres of land. Besides the APG, the ASEAN Highways Network andthe Singapore-Kunming Rail Link (SKRL), the TAGP is the one otherregional infrastructure project that connects ASEAN. Concerted and col-lective action is therefore necessary for ASEAN Member States to developthis much-awaited gas pipeline system as an essential part of an increasinglyintegrated and borderless regional economy.

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    Conclusion

    Over the past 43 years, economic linkages in ASEAN have grown phenom-enally. However, much remains to be done in building an integratedinfrastructure network in ASEAN. Basic issues are at stake: an efficient,secure and integrated gas infrastructure system is imperative for ASEAN toimprove its economic competitiveness and facilitate further integrationwith the global economy.

    For TAGP to be effective, it needs the full cooperation of all theASEAN Member States. This may mean that some Member States may haveto reduce their returns and earnings in order to attract investors, whilesome may have to prioritise the needs of the other Members. When thereis a willingness to work together, TAGP would be a success. There is nodoubt that ASEAN is serious in its integration efforts, particularly the build-ing of an ASEAN Economic Community by 2015. Energy is one of the keypillars in the AEC Blueprint, and the TAGP is an important item within theenergy agenda. This regional cohesiveness and willingness to worktogether augur well for the eventual completion of the TAGP.

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