Southeast Asia is facing a pivotal moment in its energy future, as the changing role of gas is set to transform the regional outlook. As a major energy player, this transformation has significant consequences for Malaysia.
In Boston Consulting Group’s (BCG) timely analysis, “Can Gas Be Green? The Role of Gas in Southeast Asia’s Climate Transition”, we look at how this remarkable period of transition could radically shift the regional energy paradigm, and how countries, companies and decision-makers are now facing a defining moment in their respective energy futures.
Numerous nations across Southeast Asia have now put in place net-zero commitments, seeking to mitigate the 1,700 tonnes of carbon emissions generated annually in the region. The Malaysian government has stated its own commitment to achieve net zero “as early” as 2050 — although any later will see the nation falling behind a global energy transition journey, with 80% of global emissions set to be abated by 2040 under current commitments. In contrast, Southeast Asia is currently projected to abate just 60% of emissions by 2060.
As new technologies provide a path to a more low-carbon future for the region, the question is whether Malaysia is doing enough to adapt, and whether there is a green future of gas that can reduce the emissions burden while maintaining inclusive economic opportunity for the nation and the region.
A regional energy landscape in transition
Southeast Asia is a vibrant and growing region, with surging energy demand. Electricity demand alone has tripled over the last two decades of growth, supported by a sixfold increase in coal-fired generation. On the current trajectory, electricity demand is expected to triple further by 2050, as the region’s rapidly developing economies seek to meet surging residential and industrial demand.
Malaysia’s total energy demand is expected to reach 160 terawatt hours (TWh) in 2022, with an annual growth rate of 2.2%. While that demand growth is modest compared with more than 5% expected in Vietnam, Laos and Cambodia, Malaysia must also adapt an established power mix that sees more than 85% of power generated from fossil fuel sources — one of the highest ratios in the region.
Meeting the expected energy demand growth across Southeast Asia will lead to substantial growth in fossil fuel imports and CO2 emissions on current policy commitments, with the region on track to become a net gas importer by the end of the decade.
Coal still plays a major part of the regional energy landscape — contributing more than 60% of total primary energy needs — and any effective strategy to mitigate overall emissions must wrestle with this dilemma. In Malaysia, coal accounts for almost half (45%) of the power mix, putting it at the forefront of this challenge. While recent announcements commit Malaysia to no new future coal plants, the nation had been launching new plants as late as 2019, framing a significant challenge of how to transition away from a relatively young fleet of coal power stations.
Gas offers a path to help bridge this gap, as nations seek to balance the energy trilemma of affordable, secure and sustainable power. Gas generates between 40% and 80% of CO2 emissions per unit compared with coal, and offers an increasingly cost-competitive alternative. In Malaysia, for example, the levelised cost of energy (LCOE) of gas in 2020 was 31.1 sen/kWh, compared with 31.3 sen/kWh for coal. A comprehensive switch from coal to natural gas could see CO2 emissions in power generation falling by 3,000 megatonnes (Mt) to less than 700 Mt CO2, and below 200 Mt if capture and storage (CCS) technology is implemented.
A green energy future for Southeast Asia is one of widespread renewable adoption, and gas provides a valuable transition fuel to complement that journey. With natural reserves of 2.4 trillion cubic metres — behind only Indonesia and Brunei — this represents both an achievable goal and a valuable transition opportunity for Malaysia.
Managing a changing future of gas
Despite the rapid changes in the regional energy landscape, emerging gas technologies promise an important future for this key Malaysian industry. Evolving innovations in carbon capture, utilisation and storage (CCUS), expanding hydrogen technologies and growing biogas penetration open up new transition potential.
CCUS will play a particularly critical role in energy ecosystem decarbonisation, mitigating emissions from extraction through processing to power generation. CCUS has the potential to remove up to 90% of CO2 from gas combustion in power plants, amplifying the low-carbon credentials of this attractive transition fuel.
Malaysia — and Southeast Asia more generally — enjoys existing advantages that could put the region at the forefront of CCUS adoption. The region’s energy industry today produces around 20 million tonnes per annum (Mtpa) of CO2 emissions, largely due to processing of raw gas for export at major clusters such as Kota Kinabalu. CCUS offers the change to mitigate these emissions by taking advantage of abundant geological storage resulting from legacy fossil fuel extraction, offering an accessible and cost-effective carbon storage option at scale.
Evolving hydrogen technologies provide a further synergy with Malaysia’s legacy energy industry transition, providing a path to repurpose skilled industry workers, but also the ability to repurpose existing infrastructure to this new, zero-carbon fuel alternative. Adoption of hydrogen battery storage technologies will also offer a chance to further empower the renewable energy transition.
Increasing adoption of biogas is another area where Malaysia’s natural resources could offer an important enabler. Biogas is a purified renewable fuel generated from the by-product of agricultural waste, and is well suited to operate within existing gas infrastructure, with little to no modification required. Malaysia’s major palm oil industry — which together with neighbour Indonesia accounts for 90% of total production — generates over 126 million tonnes of palm oil mill effluent (POME) waste each year, providing fertile resources for biogas production.
With its relatively mature gas infrastructure, Malaysia, along with neighbours Indonesia, the Philippines and Vietnam, enjoys significant opportunity for a rapid transition from coal to gas, quickly mitigating the significant emissions burden of the more polluting coal technologies.
While further investment is required to pivot to a fully decarbonised energy landscape, established gas infrastructure provides an opportunity to robustly leverage these low-carbon gas technologies to build a more sustainable energy landscape. Malaysia has a particularly attractive opportunity in the adoption of CCUS, given its indigenous gas reserves and mature national energy industry. Malaysia also enjoys one of the more significant opportunities for hydrogen adoption in the region, with Sarawak’s substantial installed renewable energy base a particular point of focus.
Steering a low-carbon future
Renewable energy is the future in Southeast Asia and beyond, but the journey to that destination must also be completed in a sustainable way. Gas offers an attractive fuel to power that transition, but it remains to be seen which countries put in place policies to leverage that potential.
In approaching this period of change, Malaysia must navigate supply and price market risks, financing risks, the accelerating nature of technology adoption, and complex national and intra-regional policy and societal risks. With the right vision in place, however, the nation could place itself at the forefront of this vital transition, unlocking a future of sustainable opportunities.
Marko Lackovic is managing director and partner at the Boston Consulting Group and Kar Min Lim is principal at the consulting firm