SINCE Russia's invasion of Ukraine in February, energy prices have skyrocketed.
For example, European gas futures increased from less than 20 Euros per megawatt-hour in early 2021 to more than 270 in August this year, before dropping to around 100, which is still more that five times higher than last year.
This has led to a spike in global inflation and a rapid decline in economic growth, especially in Europe.
According to international management consultancy Roland Berger, with Southeast Asia being strongly integrated in the global economy, the region's economy will obviously be impacted.
The gross domestic product of the Asean-5 countries (Indonesia, Malaysia, Philippines, Singapore, and Thailand) is expected to grow by 5.3 per cent this year and 4.9 per cent in 2023, according to the International Monetary Fund's latest projections.
These are healthy growth rates, but significantly lower than previous forecasts.
Behind these statistics lie stark differences between countries.
In the short term, gas exporters, like Malaysia and Indonesia, generate higher export revenues. For example, Malaysia's exports of refined petroleum products in August this year were 196 per cent higher compared with the same month in 2021 and LNG exports were 74 per cent higher.
On the other hand, countries like Thailand and Singapore are gas importers and hence pay more.
The high energy prices are also boosting the profits of Southeast Asia's oil & gas players and, in the case of state-owned companies, dividends to the government. For example, Petronas announced it would issue a dividend to the government of RM50 billion in 2022, or more than US$10 billion.
The current situation benefits countries with oil and gas exports in the short term. But what will the impact be on the region's decarbonisation trajectories?
Will it further increase CO2 emissions because of the high margins in oil and gas production today? Or will it finally trigger a reduction in the region's carbon footprint?
Although everyone is talking about decarbonisation, the sad truth is that CO2 emissions in the region have increased rapidly (+332 per cent since 1990), except a drop in 2020 due to the Covid-19 pandemic.
"Despite all the commitments and talks, the harsh reality is that emissions in Southeast Asia are still increasing rather than declining." said Roland Berger partner, Energy (Southeast Asia) Dieter Billen.
There is hope that the current situation of high energy prices will boost renewables and Southeast Asia's transition towards decarbonisation for the following reasons.
First, it makes renewable electricity production even more cost-competitive compared with fossil-based electricity.
Second, the current situation has put energy security high on the agenda, again. It shows the risks of being too dependent on energy imports — like Europe has been on oil and gas imports from Russia. With declining oil and gas production in Asia, moving towards renewables is a (geo-)strategic move.
Third, with higher fuel prices (and fuel subsidies being phased out), EV charging infrastructure being developed and attractive new EV models being introduced, there will be a rapid shift to electric vehicles.
For example, Thailand targets to have more than five million electric vehicles on the road by 2030 and more than 15 million by 2035.
Fourth, higher energy prices provide stronger incentives for energy efficiency, for example in buildings and factories.
Companies are implementing energy efficiency measures as energy costs increase or switching to alternative energy sources and fuels and changing their energy procurement models, including corporate power purchase agreements, which are now taking off in some countries in the region.
Despite energy efficiency improvements, the current situation may lead to a more rapid increase in energy use in Southeast Asia.
This is because the region is in a strong position to bring investments, including energy-intensive industries, as Europe and other regions struggle (more so than Southeast Asia) with energy security and extremely high prices for gas and electricity.
These new investments will increasingly require clean energy, especially when major importers, such as the European Union, implement carbon border adjustment mechanisms, whereby tariffs will be imposed on carbon-intensive products.
In addition, companies globally are making efforts to decarbonise along the value chain, including their operations and suppliers in Southeast Asia.
Decarbonisation is increasingly becoming part of the new competitive paradigm, for companies and countries. But the reality is also that the increased energy and electricity use in the region will not make this journey easier.
While the region's path to net zero is challenging, the current situation of high energy prices will support Southeast Asia's efforts to reduce its carbon footprint.
Companies wishing to accelerate their decarbonisation can find out more information in Roland Berger's study here: https://www.rolandberger.com/en/Insights/Publications/Accelerating-decar...