Energy Issues in the Asia-Pacific Region 9789814279291

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Energy Issues in the Asia-Pacific Region

The Institute of S outheast Asian S tudies (ISEAS) was established as an autonomous organization in 1968. I t is a r egional centr e dedicated to the study of socio-political, security and economic tr ends and developments in Southeast Asia and its wider geostrategic and economic envir onment. The Institute’s r esearch programmes ar e the R egional Economic S tudies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic pr ess, has issued mor e than 2,000 books and journals. I t is the largest scholarly publisher of r esearch about Southeast Asia from within the r egion. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world. ii

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ISEAS SERIES ON ENERGY

Energy Issues in the Asia-Pacific Region EDITED BY

AMY LUGG MARK HONG

I5EA5 INSTITUTE OF SOUTHEAST ASIAN STUDIES

Singapore

First published in S ingapore in 2010 b y ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: http://bookshop.iseas.edu.sg All rights r eserved. No part of this publication may be r eproduced, stored in a r etrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the I nstitute of Southeast Asian Studies. © 2010 Institute of Southeast Asian Studies, Singapore The r esponsibility for facts and opinions in this publication r ests ex clusively with the authors and their interpretations do not necessarily r eflect the views or the policy of the publisher or its suppor ters. ISEAS Library Cataloguing-in-Publication Data Energy issues in the Asia-P acific region / edited b y Amy Lugg and M ark Hong. 1. Energy policy—Asia. 2. Power resources—Asia. 3. Energy consumption—Asia. 4. Energy policy—Pacific Area. 5. Power resources—Pacific Area. 6. Energy consumption—Pacific Area. I. Lugg, Amy. II. Hong, Mark. HD9502 A82L95 2010 ISBN 978-981-4279-28-4 (soft co ver) ISBN 978-981-4279-29-1 (E-book PDF) Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Photoplates Pte Ltd iv

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Contents Foreword Khoo Chin Hean

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Preface K. Kesavapany

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The Editors

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The Contributors

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SOUTHEAST ASIA 1. The ASEAN Countries’ Interest in Asian E nergy Security Andrew T.H. Tan 2. Biofuels Development and P rospects in the P hilippines N.A. Orcullo, Jr. 3. The Biofuels Industry in Indonesia: Opportunities and Challenges Djatnika S. Puradinata 4. An Overview of the Cambodian E nergy Sector Pou Sothirak

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6. New Partnerships in Energy Security in Asia: I ndia, ASEAN, and Singapore Mark Hong

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INDIA 5. India’s Energy Challenges Rajiv Sikri

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Contents

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CHINA 7. China’s Global Quest for Energy Security Wenran Jiang

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8. Energy and Geopolitics in the S outh China Sea Michael Richardson

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UNITED STATES 9. Energy Security and Mitigating Climate Change: Plug-in Hybrid Electric Vehicles (PHEVs) and Alternatives to Oil in Asia Benjamin K. Sovacool JAPAN 10. Japan’s Energy Supply-Demand Situation, Energy Conservation Policy, and Energy Challenges Yuji Morita ALTERNATIVE ENERGY SOLUTIONS 11. Jatropha Curcas: A Solution for a S ustainable Energy Supply? Hong Yan

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12. Singapore’s Solar Challenge Christophe Inglin

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13. Sustainable Mobility for Singapore Jan Croeni

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Index

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Foreword How energy needs can be met will be the gr eatest global challenge in the coming decade. Up to the point before the financial tsunami lashed upon all our shor es, the relentless increase in the demand for energy to feed burgeoning global economic growth had led to a US$150/barrel oil. The impact of this high oil price alone on food, competition for r esources and ultimately on costs of living was cause for significant concern. Implicit in this was the element of security of food, energy and resources needed for economic gr owth. Notwithstanding the curr ent r ecession, these concerns hav e not gone away. Before the recession, producers were preparing to increase production to meet demand. M any of these projects w ere deferr ed later due to the ensuing fall in demand. Without these inv estments to incr ease production capacity, another supply crunch and high oil price may arise when economic recovery begins. While high oil price is bad for the economy and cost of living, it is perversely good for other r easons. There were many anecdotes of consumers around the world and in Singapore adjusting their purchases and consumption habits to minimise waste and ensur e energy is used efficiently . The world will enter into the Copenhagen r ound of talks at the end of 2009 to hammer out an agr eement to curb climate change. Central to the agreement will be ho w much reduction in the emission of gr eenhouse gases such as carbon dio xide each countr y can offer to make. The global economy is still fuelled primarily b y carbon fuels and this is not likely to change in the foreseeable future unless there is a new technology that can curtail carbon dioxide emissions.The challenge will be how economic vii

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growth can be secured with less fuel to feed it. Much can be done before that point is reached. Singapore has switched from oil to gas for po wer generation and this has significantly reduced Singapore’s carbon dioxide footprint.The Singapore Government has also been pr omoting energy efficiency on sev eral fronts. The Building and Construction Authority (BCA) has implemented standards and programmes to steer Singapore towards energy efficient buildings. The Ministry for the E nvironment and Water R esources (ME WR) and the National Environment Agency (NEA) had for many years been promoting recycling and hav e mor e r ecently focused attention on energy efficiency in consumer habits and choices. The Energy Market Authority (EMA) has started programmes to test-bed and pilot clean and r enewable energy technologies such as electric v ehicles. The pioneering wor k by the Land Transport A uthority (L TA) to pr omote public transpor t and to r educe congestion has helped r educe the amount of carbon dioxide that vehicles emit while stuck idling in traffic jams. At the individual lev el the public will need to suppor t these national efforts to r educe our carbon footprints b y adjusting our o wn consumption habits and choices. For this to happen, the public has to understand why such change has become necessar y. The ISEAS E nergy series of books comes with a wealth of information covering a wide range of energy topics that will help build public awar eness and knowledge of the issues. This book is the second v olume in the series. The essays in this book ar e based on contributions fr om the ver y popular ISEAS energy seminars and fr om various experts. The Energy S tudies I nstitute (ESI) has been wor king with ISEAS on several energy projects and seminars. I commend ISEAS for the great work it has done in promoting the energy seminars and in capturing the thoughts in the ISEAS Energy books series. Khoo Chin Hean Executive Director Energy Studies Institute Singapore August 2009

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Preface This book is v olume two of the ISEAS E nergy Perspectives on the R egion. It comprises papers based on the seminars delivered by speakers at the ISEAS Energy Forum as well as invited contributions from various experts on energy issues. This book serves to educate the general public on energy issues as well as to raise awareness in Singapore and the wider region about energy issues — both aims of the ISEAS E nergy Forum. The range of topics is wide in scope as w ell as touching on a number of countries, such as the United States, Japan, China, India, and Southeast Asia. It is also timely as some papers discuss the Spratlys, renewable energy, nuclear energy, and biofuels such as Jatropha. They are written b y eminent exper ts who hav e kindly and graciously agr eed to shar e their kno wledge with the public. In an interesting departure, some papers are written by senior executives from the private sector who make their case for biofuels, solar energy, electric vehicles, and nuclear energy. Energy issues continue to r emain impor tant to the world at large, intimately linked as they are to climate change and the environment, as w ell as to sustainable economic dev elopment. The price of oil has no w cr ept inexorably up wards as the world economy slo wly stabilizes and r esumes growth from the global recession of 2008–09. Without adequate investments in new oil and gas r esources, the price of energy in 2010 can be expected to rise in step with the global economic er covery. Thus continuous attention and effort must be paid to issues such as energy efficiency and conservation. Both the United States and S ingapore, as well as other countries, have in 2009 launched sustainable development programmes, emphasizing green or clean technology and energy efficiency. We hope this v olume will help to inform r eaders about topical energy issues that r emain high on the international agenda. We thank the paper ix

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writers and the co-editors, Ms Amy Lugg and Mr Mark Hong, for their hard work and careful editing, as w ell as all those in ISEAS P ublishing who have made this volume possible. Ambassador K. Kesavapany Director Institute of Southeast A sian Studies June 2009

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The Editors Mark Hong is a Visiting Research Fellow at ISEAS. He obtained a Bachelor of Arts degree in E conomics fr om Cambridge U niversity in 1969 and a Master of Science degr ee in I nternational R elations fr om G eorgetown University, Washington, DC on a Fulbright Scholarship in 1982. H e served in the Singapore Foreign Ministry from October 1969 to March 2002, with postings in Cambodia, Hong Kong, Paris, and New York, as Deputy Permanent Representative to the UN (1988–94). A t the M inistry of F oreign Affairs Headquarters, he has ser ved in v arious senior capacities. H is last for eign posting was as Singapore Ambassador to Russia and Ukraine, from November 1995 to March 2002. From May 2002 to January 2004, he was attached to the I nstitute of D efence and S trategic S tudies, N anyang Technological University, Singapore, as a visiting senior fellow. He is currently Vice-Chairman of the International Committee of the Singapore Business Federation. He has edited five books for ISEAS: two on energy issues, two on ASEAN-R ussia relations, and one on S outheast Asia, with chapter contributions in each. E-mail: [email protected] Amy V.R. Lugg, c o-editor, is a Visiting Associate at the I nstitute of Southeast Asian Studies (ISEAS). Amy obtained her MA in International Relations from Curtin Institute of Technology, Perth, Australia, in 2007. Her r esearch inter ests include energy security , human security , and transnational crime. E-mail: [email protected]

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The Contributors Andrew Tan is an Associate P rofessor at the School of S ocial Sciences and International Studies, University of New South Wales. He has taught various courses, including in the M asters programme in D efence Studies at King ’s College London (U niversity of London), part of the r enowned D efence Studies G roup of leading exper ts on defence, based at the J oint S ervices Command and S taff College ( JSCSC), B ritain’s only joint militar y staff college. Prior to this, he taught in S ingapore at the Institute of Defence and Strategic Studies (now the Rajaratnam School of International Studies) in its Masters programme in S trategic S tudies. At UN SW , he headed the International Studies programme at its Singapore campus (now closed) before being relocated to the K ensington campus. H e now works under UNSW ’s Strategic Priority Fund and is also Convenor for International Studies in the Faculty of Arts. His research interests are in strategic studies, particularly the areas of terr orism, insurgency , defence, and strategic issues. H e has also written on defence studies, br oader Asia-P acific security issues, and on international security. His most r ecent books hav e focused on terr orism in Southeast Asia and the nature of maritime power. His forthcoming books are on U.S. counter-terrorism strategy since 9/11 and the global arms trade. H e has co-edited or is sole author of twelve books and many articles. Education: PhD (University of S ydney), M. P hil. (Cambridge U niversity), B. S oc. Sc. (Hons) (NUS), BA (NUS). E-mail: [email protected] N.A. Orcullo, Jr. is Professor at the College of B usiness Administration, De La Salle University-Dasmariñas, Cavite, the Philippines. He is an agricultural engineer with a P hD in management. H e has been activ ely engaged in research in the ar eas of management education, energy policy , r enewable xiii

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energy technologies, and envir onment management. H e was pr eviously affiliated with the P hilippines Department of E nergy for o ver a decade. H e has been a consultant to the Bangkok-based United Nations ESCAP under its Regional E nergy Development P rogramme and a r esearch fello w at the Institute of S outheast Asian S tudies (ISEAS) as w ell as at a number of academic institutions in the Philippines. He has also acted as a consultant to private organizations. H e is a member of the AP EC Expert Group on N ew and R enewable E nergy Technologies (AP EC/EGN RET) and a UN ESCO expert on renewable energy . H e has o ver thir ty y ears of pr ofessional work experience in the go vernment sector, as w ell as in international community and academic institutions. Several of his works have been published, including four books. E-mail: [email protected] Djatnika S. Puradinata is President Director of PT Medco Methanol Bunyu, Indonesia. He has held this post since 2001. MMB was established in 1997 as par t of the M edco Group’s participation in the do wnstream oil and gas industry in Indonesia. The company operates the methanol plant in B unyu Island, East Kalimantan, which was set up on a KSO ( Kerja Sama Operasi: Joint Operation) scheme with Pertamina — Indonesia’s national oil company — for twenty years starting from April 1997. Mr Djatnika graduated with a Bachelor degree in Chemical E ngineering fr om the B andung I nstitute of Technology (ITB) in 1976, and r eceived a Masters in Development Studies in the field of M anagement and P lanning in 1998. H e started his car eer in 1976 in the fertilizer industry, eventually holding the positions of Expert for the President Director of PT P upuk Kujang (1999–2001). E-mail: [email protected] Pou S othirak is Visiting S enior R esearch F ellow at ISEAS. P ou S othirak received his secondary education in France from 1973–75, and later settled in America from 1975–1986. He received a Bachelor Degree in Electrical and Computer Engineering from Oregon State University in 1981 and worked as an engineer at the Boeing Company in S eattle, Washington, from 1981 to 1985. He joined the crusade to safeguard Cambodia from foreign occupation and internal conflict from 1986–92, serving as Humanitarian Coordinator at a refugee camp on the Thai-Cambodian border. He also worked in the fields of education and community development for Cambodian refugees under an USAID programme. He was elected as M ember of Parliament twice during the general elections in Cambodia of 1993 and 2003. He served as Cambodian Minister of Industry, Mines and Energy from 1993 to 1998. He was appointed xiv

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as Cambodian Ambassador to Japan from April 2005 to November 2008. On 5 January 2009, he joined ISEAS as Visiting Senior Research Fellow. E-mail: [email protected] Rajiv Sikri has had a rich and varied diplomatic car eer as a member of the Indian Foreign Service from 1970 to 2006. H e retired as Secretary (East) in India’s M inistry of External Affairs (MEA), handling East Asia, ASEAN , Pacific region, Arab world, Israel, Iran, and Central Asia (2004–06). Earlier, he was Additional/Special Secretary for Economic Relations supervising India’s foreign economic relations, including India’s external technical and economic assistance programmes to dev eloping countries in Asia, Africa and Latin America (2002–04). Closely involved in work related to strategic and policy planning, Rajiv S ikri has been A dditional Secretary for Strategic Policy and Research (2001–02) and D irector (Policy Planning) in MEA (1984), and Senior Fellow at the Institute for Defence Studies and Analyses in New Delhi (2000–01). Now a strategic consultant, Rajiv Sikri is associated with leading think tanks in I ndia and abroad. He was a Consultant with the I nstitute of South Asian Studies in the National University of Singapore in 2007–08. He is a M ember of the U nited S ervices I nstitution of I ndia, N ew D elhi; the Institute for D efence S tudies and Analyses, N ew D elhi; the I nternational Institute for Strategic Studies, London; and the Royal Institute for International Affairs (Chatham H ouse), London. H e has r ecently published a book on India’s foreign policy titled Challenge and Strategy: Rethinking India’s Foreign Policy (2009) and has contributed numerous articles to edited books, journals, newspapers and magazines. Rajiv S ikri studied at S t. S tephen’s College in Delhi, and holds a M aster’s Degree in History from Delhi University. E-mail: [email protected] Wenran J iang is A cting D irector, Associate P rofessor, and M actaggart Research Chair of the China Institute, University of Alberta, Canada. He is also Senior Fellow of the Asia P acific Foundation of Canada, the S pecial Advisor on China, and the E nergy Council S enior Research Fellow at the China Energy Security Research Institute, China U niversity of Petroleum (Beijing). Dr Jiang obtained his PhD from Carleton University, Canada, his MA fr om the I nternational University of J apan and his BA fr om Peking University. His research interests include: the pr ocess, cost, and impact of China’s modernization efforts; the relationship between energy, environment, and sustainable economic dev elopment in China; China ’s r elations with neighbouring countries, and Canada-China r elations. H e is curr ently President of the Chinese Canadian Professors Association, a board member xv

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of the East Asian Council of the Canadian Asian S tudies Association, and a board member of the Canadian Consortium on Asia Pacific Security. He has twice been a Japan Foundation Fellow, and has served as visiting scholar to a number of univ ersities in East Asia o ver the y ears. Dr Jiang’s areas of teaching and r esearch include dev elopment studies, Chinese politics and foreign policy, Japanese politics and foreign policy, East Asian international relations, and Canada ’s r elations with the Asia P acific r egion. H e is the editor of a book on Canada ’s energy r elations with China. D r J iang has organized several conferences on Canada-China energy cooperation. H e is a r egular commentator in the media and contributor to op-ed pages in major East Asian and Canadian newspapers. E-mail: [email protected] Michael Richar dson is Visiting S enior R esearch F ellow at ISEAS. H e focuses on a wide range of challenges to gr owth and stability in Asia, including energy and sea lane security in the Asia-P acific r egion. H is columns and commentaries appear in a number of r egional ne wspapers, including The Straits Times and The Business Times in Singapore, and the South China Morning Post in Hong Kong. Based in Singapore, he was the Asia Editor at the International Herald Tribune from 1987 until 2001, with broad r esponsibility for writing Asia-P acific ne ws and analysis, and coordinating the IHT ’s reporting from the region. E-mail: [email protected] Benjamin K. Sovacool is currently Research Fellow in the Energy Governance Programme at the Centr e on Asia and Globalization, par t of the Lee K uan Yew School of Public Policy at the National University of Singapore. He is an Adjunct Assistant P rofessor at the Virginia Polytechnic I nstitute and S tate University in B lacksburg, VA, where he has taught in the G overnment and International Affairs Program and the D epartment of H istory. Dr Sovacool recently completed work on a grant from the N ational Science Foundation’s Electric Power Networks Efficiency and Security Program, investigating the social impediments to distributed and renewable energy systems. He has also worked closely with the Virginia Center for Coal and Energy Research, New York State Energy Research and Development Authority, Oak Ridge National Laboratory, and the U.S. Department of Energy’s Climate Change Technology Program. H is most r ecent book is an edited v olume entitled Energy and American Society: Thirteen Myths, in 2007. E-mail: [email protected] xvi

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Yuji Morita is Senior Research Fellow and Director at the Energy D ata and Modelling Centre (EDMC), The Institute of Energy Economics, Japan (IEEJ). Mr Morita joined IEEJ in 1998 as Senior Economist of the Team for Strategic Research Projects. I n 2005, he was appointed S enior R esearch Fellow and Director. His responsibility covers project management for v arious kinds of research, analysis, and for ecast pr ojects on energy demand, supply , energy policies, and energy technologies. P rior to joining IEEJ, he wor ked at Japan Energy Corporation, where he held a variety of engineering and commer cial posts. From 1995 he served as Senior Manager of the Research and Planning Department, where he was responsible for the company’s upstream businesses in China, R ussia, and the M iddle East. H e r eceived his B.Sc. fr om the University of Kyoto, majoring in Organic Chemistr y. E-mail: [email protected] Hong Yan is D irector of the P lant B ioTechnology G roup, Temasek Life Sciences Laborator y in S ingapore. S ince obtaining his P hD from P eking Union Medical College (now part of Tsinghua University) in 1989, Dr Hong has worked in the biotech industr y and at academic organizations in the United States and S ingapore for twenty y ears. His r esearch focuses on the biotechnology of tropical forest trees and the bioenergy plant Jatropha curcas. He is also the general manager for JOil (S) Pte Ltd, a company specializing in Jatropha breeding and commer cializing elite Jatropha plantation materials. He is also a member of the S ingapore G enetic M odification A dvisory Committee (GMA C), an evaluator for the S ingapore Centr e for D rug Administration (CDA) and part of the exper t panel for herbal medicines, Health Sciences Authority (HSA), Singapore. In addition to more than thirty scientific publications, he also has nine patents awarded or pending. He also serves at two biotechnology companies in S ingapore. E-mail: [email protected] Christophe Inglin is Managing Director of P hoenix Solar Pte. Ltd, which designs and installs solar photo voltaic (PV) power systems. From December 1996 until J une 2006, he was M anaging D irector of S hell S olar P te. Ltd (formerly S iemens S howa S olar). Christophe also chairs the Clean E nergy Committee at the Sustainable Energy Association of Singapore (SEAS). He is the invited trainer for the PV technology courses regularly held at Singapore’s National E nvironment Agency (N EA) and the B uilding & Constr uction Authority (BCA). Before moving to Singapore, Christophe worked for Siemens Semiconductors and Siemens Management Consulting in Munich, California, xvii

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and Zurich. Christophe is a S ingapore Permanent Resident, with Swiss and British citizenships. H e has a B.Sc. in E lectronic & E lectrical Engineering, and an MBA fr om INSEAD. E-mail: [email protected] Jan Croeni is CEO of Eonlux, a Singapore-based sustainable mobility and energy consultancy which dev elops holistic solutions fr om scratch and manages businesses successfully . H e is one of S ingapore’s pioneers in the field of electric mobility , and wor ked closely together with S ingapore’s Government on plans for the development for electric vehicles and charging infrastructure. Eonlux conceptualiz ed in J uly 2008 and managed until October 2009 the Singapore-based Zeco Systems Pte Ltd (“Zero Emission Company”) for its client, a cleantech boutique inv estment company. Jan possesses more than five years’ business experience as Managing Director of Zeco Systems, as R epresentative for leading companies offering M obilityOn-Demand and gr een logistics solutions, in marketing of pr emium consumer goods, and fur thering economic development initiatives for the German Chambers of Commerce and the Ministry of Economic Affairs in Germany, Denmark, and Singapore. E-mail: [email protected]

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The ASEAN Countries’ Interest in A sian Energy Security

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Southeast Asia

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Andrew T.H. Tan

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THE ASEAN COUNTRIES’ INTEREST IN ASIAN ENERGY SECURITY Andrew T.H. Tan

ABSTRACT Energy security is an issue of particular significance to ASEAN states as well as other regional states such as I ndia, China, Korea, and Japan. Given the possibility of high oil prices, diminishing oil supplies and incr eased competition for r esources, disputes o ver territories, and the strategic importance of sea lanes passing through Southeast Asia, there is much scope for competition as well as opportunities for cooperation. The paper discussed two key questions: What is the energy problem in the region and what have its consequences been? INTRODUCTION Eleven years ago in 1998, Ji Guoxing wrote presciently in the Korean Journal of Defence Analysis that “energy security is of particular importance in the Asia Pacific o wing to its physical unav ailability to meet demand, and energy security is now becoming a fundamental cornerstone of economic policy for the Asian P acific economies”.1 He cited a r eport in the Los A ngeles Times, which pr edicted that “ some time in the next tw enty years or less, global petroleum output may begin a permanent decline, even as world oil demand

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continues to rise … though mar ket for ces and impr oved oil pr oduction technology should keep petroleum flowing well into the twenty-first century, the peak of the Oil Age may come far earlier than conventional thinking now assumes”.2 Ji therefore concluded that world oil pr oduction would begin to decline around 2010, and oil prices would rise in r eal terms. 3 Yet, the concentration of two-thirds of the world’s proven oil reserves in the Persian G ulf ar ea means that Asia ’s dependence on impor ted M iddle Eastern oil would incr ease. The problem, however, is that “ these supplies remain potentially vulnerable to military or political events that have nothing to do with mar kets, but which can hav e an enormous impact on oil and gas”.4 Moreover, the fact that these oil supplies must trav erse vast oceans, through long and vulnerable sea lines of communications (SL OCs) that pass thr ough the narro w and tr oubled G ulf of H ormuz as well as the narrow, strategic Straits of Malacca on their way to lucrative Asian markets to fuel their explosiv e economic gr owth, has r esulted in much gr eater vulnerabilities to any disruption. To further complicate the picture, this growing dependence on oil is led by the major economic po werhouses of Asia, namely I ndia, China, S outh Korea, and Japan. Energy security in the Asia P acific is ther efore bound up with the policies and responses of Great Powers such as China and Japan.5 To the extent that China’s rapid economic gr owth and growing dependence on external energy sources are driving its strategic, foreign, defence, and maritime policies, and to the degree that Japan and the United States are bound to have to respond to this gr owing competition for a scarce r esource, it follows that Southeast Asia may increasingly find itself a battleground in this competition, given the presence of oil and gas deposits as w ell as strategic water ways and SLOCs in the r egion. In addition, the ongoing quest for energy security is in fact giving rise to greater insecurity in the region. This is due to a host of reasons. For instance, the incr easing interstate riv alries to secur e energy supplies hav e raised the stakes in maritime territorial disputes, such as the Ambalat dispute betw een Indonesia and Malaysia and overlapping Exclusive Economic Zones (EEZs). There are also gr owing concerns o ver maritime security, especially the long and vulnerable sea lines of communications as well as the security of strategic waterways such as the S traits of M alacca. R elated to these concerns ar e growing anxieties o ver piracy and terr orism that could disr upt the supply chain. Complicating the picture is the presence of historical interstate rivalries and mutual suspicions that hav e limited a cohesive r egional r esponse to energy security challenges, r esulting in a lack of pr eparedness in meeting future challenges.

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The purpose of this paper is to examine the ASEAN states ’ interest in energy security. It poses two key questions: What is the energy problem in the region and what hav e its consequences been? H ow have the ASEAN states responded to the energy pr oblem and what ar e the futur e pr ospects? The essay begins by examining the energy problem in Southeast Asia, with rising demand sparking a search for alternatives, a regional scramble for oil and gas, and heightening concerns over the security of vital sea lines of communications, an issue that also inv olves external Great Powers. The paper then goes on to examine the efforts that the ASEAN states hav e made in r egional energy cooperation. Finally, the paper concludes with an assessment of the prospects for regional cooperation. ENERGY DEMAND AND SUPPLY IN SOUTHEAST ASIA The Southeast Asian states (comprising the ten members of the Association of Southeast Asian Nations, or ASEAN) have a strong interest in Asian energy security for a number of r easons. A key r eason lies in the generally rapid economic growth of the ASEAN economies, despite the problems r egistered during the 1997–98 Asian financial crisis and the 2008–09 global r ecession. This has r esulted in expanding demand for energy . The strong gr owth in transport, including the increasing number of motor vehicles, is a main driver of oil demand. Power generation, industrial boilers, residential and office airconditioning, cooking, and petr o-chemical feedstock ar e also sectors that have increased demand. A selected comparison of primar y energy consumption (namely , of oil, gas, and coal) belo w demonstrates the steady rise in energy consumption of key ASEAN states, with the figures for China and Japan given for comparison. According to British Petroleum, world primary energy consumption increased by 2.4 per cent in 2006, with the Asia Pacific region recording the most rapid growth at 4.9 per cent. Although this r eflected the general overall economic growth of the region, including Southeast Asia, the growth was led by China, where energy consumption increased by 8.4 per cent. China thus continued to account for the majority of global energy consumption growth. By contrast, consumption in N orth America fell b y 0.5 per cent in 2006. 6 The key issue here is whether Southeast Asia has sufficient energy resources on its own. The picture is a mixed one. Oil is clearly still the main source of energy. In this r espect, ther e ar e impor tant oil producers in the r egion, namely, I ndonesia, M alaysia, Vietnam, and B runei. The four countries produced 51.9, 33.8, 17.8, and 10.8 million tonnes of oil in 2006espectively r (see Table 3.2). D espite this, I ndonesia’s enormous gr owth in energy

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Table 1.1 Primary Energy Consumption in East Asia (in million tonnes of oil equivalent)

Indonesia Malaysia Thailand Philippines Singapore China Japan

1990

1999

2006

52.3 21.5 28.8 13.0 20.3 668.0 428.3

79.6 38.0 59.3 21.6 29.6 752.6 507.4

114.3 67.0 86.1 25.2 50.0 1697.8 520.3

Source: BP Statistical Review of World Energy. Table 1.2 Oil Production and Proven Reserves in the ASEAN States (2006) (in million tonnes)

Brunei Indonesia Malaysia Thailand Vietnam

Proven Reserves (Thousand ml.tonnes)

Production (ml.tonnes)

0.2 0.6 0.5 0.1 0.4

10.8 51.9 33.8 11.8 17.8

Source: BP Statistical Review of World Energy July 2007, p. 6.

consumption means it has become a net importer of oil. While oil production in Malaysia has been generally positiv e, it is pr edicted that this countr y too will become a net importer of oil after 2010. Cambodia, which curr ently produces no oil or gas, has been the fortunate site of impor tant offshor e discoveries in recent years and could w ell benefit once they ar e developed. Southeast Asia does hav e major energy importers, namely , S ingapore, Thailand, and the Philippines. Vietnam had to import oil products as it did not hav e r efining capacity until after 2008. The incr easing importance of regional waterways as a conduit for energy supplies to the booming economies of Northeast Asia, especially China, has also provided countries in the region with some limited opportunities. For instance, as China continues to sear ch for alternative routes for oil imports, new pipeline and port service projects in Thailand and Myanmar may benefit these countries.

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Another major beneficiary is Singapore. Indeed, the key role that Singapore plays in the r egional oil industr y deser ves mention. S ingapore has alr eady established itself as a major oil r efining and bunkering centr e on account of its strategic location at the tip of the M alay Peninsula. It is the thir d-largest oil-refining centre in the world, is a regional oil storage hub, has a significant petrochemicals industry, and builds 60 per cent of new jack-up oil rigs. 7 Yet, this belies it o wn insecurity, given that it does not hav e a large domestic oil market and that other countries, with lo wer infrastructure costs, could pose a significant challenge in the futur e.8 This brief analysis points to the fact that, giv en the region’s dependence on oil and its growing energy requirements, ensuring that energy supplies are sufficient and secure will be a gr owing challenge for the r egion as a whole. EFFORTS AT DIVERSIFICATION A number of factors hav e combined to galv anize the ASEAN states into diversifying their energy sour ces. The first is the unabated rise in oil prices, which has put a strain on public finances in those Southeast Asian states that have costly fuel subsidies. There is also gr owing concern over the continued and increasing dependence on imported oil, as security of access to reliable oil and energy sources is important for continued economic growth and political stability in Southeast Asia. Moreover, the possible uncertainties of external supply from the volatile Middle East hav e raised concerns o ver the r egion’s pr eparedness to meet energy contingencies, given the general lack of national and ergional stockpiles.9 Growing concerns over climate change and the accession to the Kyoto Protocol by a number of countries in the r egion have also spar ked efforts to become less carbon-intensive. At the same time, the presence of energy resources in the region, and the possibility of alternativ e energy transport routes thr ough the r egion, hav e attracted the attention of the Great Powers, particularly China, in the search for more diversified sources of energy that could lessen dependence on the Middle East or r educe strategic vulnerabilities. F or the ASEAN states, one major challenge has been the ability to secur e adequate energy supplies in competition with these G reat Powers and even with each other. The above factors have combined to galvanize national and even regional efforts to develop alternative, indigenous supplies of energy as well as strategies to incr ease energy efficiency . The intensified sear ch for alternativ e energy sources has led states in the r egion to explor e nuclear energy, biofuels, and hydroelectricity.

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NUCLEAR ENERGY This topic has recently received a great deal of attention owing to plans by a number of ASEAN states to build nuclear plants. Thailand has announced plans for two nuclear po wer plants with a total capacity of 4,000 MW b y 2020, while Vietnam plans to build its first nuclear po wer plant by 2015. Malaysia, set to become a net oil impor ter after 2010, has stated its inter est in acquiring nuclear power plants by 2020 as part of its energy diversification strategy.10 The most concrete plans are that of Indonesia, which announced that it would build a 4,000 MW nuclear plant near M ount Muria in Central Java, with construction to begin in 2011 and operations in 2018. However, in 2009, there were some indications that I ndonesia may be rethinking its nuclear plans. The decision to build nuclear plants in I ndonesia was not smooth sailing, giv en the heated debates since the early 1990s about the safety of such plants, especially as much of Java is prone to earthquakes and volcanic activity. In 1997, ho wever, a N uclear Energy Law was ev entually passed b y the S uharto go vernment. The curr ent Yudhoyono go vernment has included nuclear energy in its 2005 National Energy Policy.11 Opposition continues to come fr om the public, ho wever, par ticularly fr om environmentalist gr oups that hav e expr essed concern o ver inadequate infrastructural and institutional framewor ks and lack of pr eparedness in dealing with natural disasters. 12 Yet what surprised ev eryone was M yanmar’s move to dev elop nuclear energy with the assistance of R ussia under an agr eement signed in M ay 2007. U nder this agr eement, R ussia’s atomic energy agency , R osatom, would build a nuclear research centre that would include a 10 MW nuclear reactor. The entire facility would initially support medical and agricultural research. However, Myanmar had in fact been exploring means of acquiring nuclear technology for some y ears, with allegations of contacts with I ran, Pakistan, and N orth K orea.13 This should come as no surprise, giv en its isolation from the rest of the world on account of its human rights abuses and the chr onic energy shortages that it faces. M oreover, the paranoid Myanmar militar y r egime genuinely believ es that the U nited S tates is implacably hostile to it. It should therefore be no surprise that it would at least explore the option of a nuclear deterr ent against invasion b y foreign forces. However, significant barriers r emain before Myanmar can harness nuclear po wer; these include a lack of adequate infrastr ucture, funds, personnel, and r egulatory controls. Any fur ther moves to develop nuclear power, even for peaceful purposes, would raise suspicions of nuclear weapons

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ambitions as in the case of I ran, and consequently attract closer scrutiny from the international community. BIOFUELS Biofuels have gr eat appeal to go vernments in the r egion, as they engage existing, well-developed agricultural r esources such as sugar cane, coconut, and palm oil. B iofuels hav e been dev eloped from two sour ces: bioethanol gasoline from food crops such as sugar cane and cassav a; and biodiesel from oil-producing crops such as coconut, castor kernel, and oil palm. Thailand, Indonesia, and the Philippines are making serious efforts to develop bioethanol (or gasohol). In fact, Thailand’s programme began in 1985, and there are now some 4,000 petrol stations ser ving alternative fuel in that countr y. As for biodiesel, initiatives have been launched in Thailand, Philippines, Malaysia, and Singapore. Malaysia’s Envo Diesel programme, announced in 2005, is expected to produce up to 500,000 tonnes of biodiesel. However, it is Indonesia that is leading the way , with the announcement in 2006 by its Ministry of E nergy to raise and inv est 200 million rupiah (o ver US$23 billion) o ver the next fiv e y ears for biofuels pr oduction and distribution. Much of this will focus on palm oil. The problem with biofuels, however, is that already endangered forests might be cut down for such plantations; such crops could also compete with food cr ops for scar ce farmland. 14 A note of realism should also be sounded, as although “the development of bio-fuels is promising … it cannot be assumed at this stage that they will fully substitute for crude fossil fuels ”.15 HYDRO POWER Hydroelectric power is another promising alternative source of energy, given the mountainous natur e of the r egion and the abundance of rainfall in the tropics. In effor ts to div ersify its energy sour ces, Thailand has tapped into hydroelectric power in Laos and more recently in Myanmar. Indeed, the Thai MDX Group has r ecently signed a contract to build a huge, US$6 billion hydroelectric power plant at Ta Sang in Myanmar.16 Yet, as the consumption of hydroelectricity in Table 1.3 indicates, it continues to provide only a useful supplement to the electricity supply , constituting merely a drop in the total energy consumption of key ASEAN states.With the even smaller contribution of alternatives such as wind, solar, and geothermal power, and the still nascent state of hydrogen power research, the ASEAN states will have to continue to rely on primar y energy r esources, par ticularly oil and natural gas, for the foreseeable future.

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Table 1.3 Consumption of Hydroelectricity in Key ASEAN States (2006) (in million tonnes of oil equivalent) Indonesia Malaysia Philippines Thailand

2.3 1.6 1.9 1.8

Source: BP Statistical Review of World Energy July 2007, p. 38.

Table 1.4 Natural Gas in Southeast Asia: Reserves and Production (2006)

Brunei Indonesia Malaysia Myanmar Thailand Vietnam

Trillion Cubic Metres

Share of World Total

Production (ml. tonnes oil equiv.)

0.34 2.63 2.48 0.54 0.30 0.40

0.2 1.5 1.4 0.3 0.2 0.2

11.0 66.6 54.2 12.1 21.9 6.3

Source: BP Statistical Review of World Energy July 2007, pp. 22–25.

NATURAL GAS Natural gas, the r egion’s most abundant fossil fuel, poses the best possible alternative to oil. Table 1.4 shows proven reserves, share of world total, and production in 2006. A ccording to D aniel Yergin and M ichael Stoppard in their seminal Foreign Affairs article, natural gas is “ the next priz e”. They explain that the need to find sour ces of energy for futur e economic growth, as well as the envir onmentally friendly natur e of this natural r esource, has resulted in the emergence of the global gas mar ket. In addition, they point out that the ability to cool the gas and transport the r esulting Liquefied Natural Gas (LNG) b y sea has opened up new markets, opportunities, and sources of supply.17 According to the I nternational Energy Agency (IEA), cumulativ e gas demand will grow the most in Asia, more than tripling from 208 billion cubic metres in 2002 to 672 billion cubic metr es in 2030. 18 In this scenario, the demand from China and India will increase markedly. Indeed, a key source

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of gas imports for them will be Southeast Asia, which will equal the Persian Gulf in importance by 2030. Indonesia, for instance, has emerged as a key source of LNG, which earned US$6.5 billion and formed some 12 per cent of total exports in 2003. According to the U.S. Embassy in Jakarta, Indonesia produced 3.15 trillion cubic feet ( TCF) of gas in 2003, making it number six in world gas production. Indonesia also currently supplies some 26 per cent of the world ’s LNG from two pr oduction centres, Arun in A ceh and Bontang in East Kalimantan.There also remain large, uncommitted reserves in P apua and the N atuna S ea. B ritish P etroleum, in par tnership with Japanese and Chinese companies, is currently developing a US$6.5 billion LNG project at Tangguh in P apua province.19 However, Indonesia has in recent years been losing market share to other new suppliers such as Russia, Qatar, and Australia. This has been attributed to the lack of a coor dinated strategy to improve the gas infrastr ucture and attract new inv estment that would create new sources of pr oduction.20 After years of instability as a result of the financial crisis in 1997 and the fall of the S uharto r egime in 1998, ther e has been under the Yudhoyono government better strategic direction in the country’s energy policy. In 2005, the removal of fuel subsidies raised domestic prices b y almost 50 per cent, affecting fuel efficiency and demand. Also, new inv estments have finally begun to flow, particularly to the Tangguh natural gas field in Irian Jaya, and with Exxon-Mobil developing the vast Cepu oilfield. 21 Apart from I ndonesia, M yanmar is also emerging as a key play er in natural gas. It has abundant natural gas deposits and curr ently supplies it to China and Thailand. The gas comes fr om the disco veries in the G ulf of Martaban, with massiv e new finds in the G ulf of B engal the focus of an intense bidding war amongThailand, China, and India. Myanmar is estimated to have total gas r eserves of around 88 trillion cubic feet, slightly less than Indonesia. Despite energy shortages within the country, Myanmar is already earning around US$400 million from the gas fields in the Gulf of Martaban. There are significant offshore oil and gas exploration activities by companies from China, India, Malaysia, Thailand, and South Korea. In addition, China has begun building an oil pipeline fr om Sittwe in Myanmar to Kunming in southern China as an alternativ e oil transpor t route.22 Malaysia also has gas deposits and signed, in O ctober 2006, a massive gas deal with the Shanghai LNG Company. Under this agreement, Malaysia will supply China with 3 million metric tonnes of LNG annually for the next tw enty-five years thr ough its LN G complex at B intulu in East Malaysia.23 Given the evident need to rely on oil and gas for the foreseeable future, the ASEAN states have made significant investment in the exploration

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and production of oil and gas, as well as new infrastr ucture in suppor t of these industries. Malaysia’s strategy has been to invest heavily in other Muslim countries. Today, one-third of the r evenues of the state-o wned oil company, Petronas, come from operations overseas, especially in Africa. The new Kikeh oilfield will soon be in full production, following an agreement with Brunei in 2009 which resolved the maritime territorial dispute. Another big offshore oilfield, the Gumusu-Kakap field off Sabah, is due to start production around 2012.24 In 2007, Malaysia also approved the construction of a US$7 billion pipeline stretching some 200 miles, or 320 kilometr es, across the north from K edah on the west coast, facing the Straits of Malacca, to Kelantan in the east, facing the South China Sea. A joint ventur e with Indonesian and Saudi firms, the pipeline is meant to help ease congestion as w ell as to pro vide a shor ter oil transport alternativ e to the S traits of M alacca. The pipeline facility would transport 6 million barr els of oil a day and stor e some 180 million barr els when fully completed in 2014, diverting some 20 per cent of the oil currently traversing the S traits of M alacca. This pipeline could ob viously undercut Singapore’s role and position as a regional oil hub, though this could happen only if suppor ting infrastructur e such as por ts, oil storage depots, and oil refineries are also put into place. Needless to say , S ingapore, Thailand, and P hilippines ar e par ticularly vulnerable in terms of energy security , giv en their heavy dependence on imported oil and energy r esources. They hav e only tentativ ely begun to explore alternative energy sources, but for the foreseeable future will have no alternative but to continue to r ely on oil and gas for much of their energy needs. Despite being a major oil exporter, Brunei’s oilfields are heavily depleted and potential new offshore finds are problematic, given territorial disputes in the South China Sea. Vietnam is a significant oil pr oducer, producing 17.8 million tonnes in 2006. It is the third-largest oil producer in Southeast Asia after Indonesia and Malaysia and is aggr essively incr easing both exploration and pr oduction. Indeed, oil drilling activity has doubled since 2005 and ther e has been a substantial incr ease in for eign inv estment. There ar e offshor e oilfields in northern Vietnam, and new disco veries along the south coast as w ell.25 But China has applied pressure on Western oil companies prospecting for offshore oil in disputed waters, which could dampen the momentum. THE SCRAMBLE FOR OIL IN SOUTHEAST ASIA The high price of oil in 2008, with benchmark crude prices reaching US$147 a barr el mid-y ear, was par tly the r esult of the massiv e incr ease in demand

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from China, among other countries, and has led to a scramble for energy resources in Southeast Asia. China is today the world’s second-largest consumer of oil, surpassed only b y the U nited States. Because of its high gr owth and industrial expansion, China is expected to account for one-thir d of the annual increase in Asia’s demand for oil and half the incr ease in demand for natural gas, until 2025. China became a net importer of oil after 1993 and imported oil accounts for o ver half its needs. I ts efforts to diversify sources, particularly away from the v olatile M iddle East, hav e led it to inv est in exploration and production in a number of countries.26 In the region, China has acquired natural gas from Indonesia and Myanmar, and has discussed oil pipeline projects with the latter. SOUTH CHINA SEA DISPUTES But it is in the S outh China Sea that apprehensions over China appeared in tandem with its growing interest in offshore oil resources. The South China Sea may potentially contain deposits of up to 225 billion barrels of oil as well as undetermined but possibly large deposits of natural gas. China, ho wever, has been in direct conflict with Vietnam, Malaysia, Brunei, and the Philippines over the potentially oil-rich Spratly Islands. In 1992, China passed a “Law on Territorial Waters” asserting its claims to the S outh China Sea and reserving for itself the right to use military force to enforce its claims in the area. In the same year, China awarded Crestone, an American oil company, a contract to drill exploratory wells in an area that Vietnam considered part of its continental shelf, while promising naval protection. The member states of the Association of S outh-East Asian N ations (ASEAN), concerned over the prospect of conflict, issued a Declaration of the South China S ea in J uly 1992 in M anila, which called upon all par ties involved in the S outh China S ea dispute to r esolve all so vereignty and jurisdictional issues b y peaceful means. This was ignor ed by China, which increased its naval presence in the Spratlys and proceeded to blockadeVietnam’s oil-prospecting facilities in May 1994. In early 1995, China also occupied the aptly named Mischief Reef in the Spratlys. This territory was claimed by the Philippines. The incident mar ked the first time that China actually seiz ed territory from an ASEAN state. 27 In view of this incident, as w ell as China’s previous pr opensity to use for ce to r esolve bilateral territorial disputes as when it seiz ed the Paracel Islands in 1974, ther e were fears that the S pratly Islands had become a potential r egional flashpoint. But this has not happened as yet. The response of the states in the region has not been confrontation but accommodation towards a rising China. For its part, China has reaped the benefits of its sophisticated approach to foreign

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policy that became evident since the late 1990s. Two developments explain this embrace of diplomacy. The first is the evident need for stability as China pursues its primar y objective of economic development. The second is the emergence since the late 1990s of a new generation of diplomats and academics trained in the best Western univ ersities that has br ought an emphasis on “soft” po wer. N o longer is China uneasy with, or opposed to, multilateral forums dealing with the issue of the S pratlys.28 In November 2002, China signed the D eclaration on the Conduct of P arties in the S outh China S ea with the ASEAN states, wher eby it affirmed the use of peaceful means to resolve the dispute. This was followed by an agreement with the Philippines and Vietnam in March 2005 to jointly develop the resources in the South China Sea, with the question of so vereignty put into abeyance. 29 The P hilippines also signed a series of agr eements in A pril 2005, under which China would pr ovide development aid to the P hilippines. U nlike the U nited S tates, China also signed the ASEAN Treaty of Amity and Cooperation. The ASEAN states and China thus enjoy close relations today, the result of a pragmatic approach on both sides. F or the ASEAN states, China is after all in close geographical proximity and r epresents enormous economic opportunities. The S pratlys issue remains unresolved for the time being. I ts ultimate resolution is likely, however, to be on China ’s terms, giv en that it will be in a much str onger position in the futur e. Apart from the Spratlys, there are other maritime disputes and flashpoints in the S outh China S ea concerning oil and gas. F or instance, I ndonesia is developing gas fields in the Natuna islands, which are also claimed by China. Similarly, Malaysia’s gas fields off the coast of S arawak in East M alaysia also fall within China ’s claims. S ignificantly, China has not raised any str ong objections to these activities. The Kikeh dispute between Malaysia and Brunei, however, arose in July 2002, when a large offshore oilfield was found in the waters off Sabah in East Malaysia. It is estimated to have a recoverable reserve of between 350 to 700 million barrels. However, Brunei and Malaysia both claim 200 nautical miles of Ex clusive E conomic Z ones (EEZs) that o verlap near Kikeh and other potentially oil-rich areas nearby. After the Kikeh find, both countries awarded oil-prospecting contracts to differ ent companies to sear ch two nearb y areas covering some 10,000 squar e kilometr es under dispute. This led to tense naval standoffs involving gunboats on both sides in M arch and April 2003, resulting in stoppages of all work in the area. Subsequent negotiations resulted in an in-principle agreement to redraw the maritime boundary on the basis of the oil claims. 30 This contrasts with the appr oach taken b y Thailand and

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Malaysia, which put aside their sovereignty dispute in the Gulf of Thailand to set up a Joint Development Authority in 1990 that would see r evenues split equally between the two par ties. Another dispute in the r egion that has a bearing on offshor e oil and gas exploration has been the maritime boundar y dispute betw een Vietnam and China that is a consequence of overlapping EEZs. This has been settled tin a June 2004 agr eement that delineates their r espective EEZs in the disputed Beibu Gulf.31 EAST TIMOR The one big winner in the r egional scramble for oil has been Timor-Leste. Although it is not y et an ASEAN member state, its situation has r elevance here and will be briefly examined. I n 1979, Australia’s de jure recognition of Indonesia’s annexation of East Timor, follo wing its inv asion of the former Portuguese territory in 1975, paved the way for a possible joint development of the resources of the Timor Gap. The Timor Gap refers to a 135 nauticalmile stretch of seabed left undelimited by Australia and Indonesia in drawing their 1972 seabed boundaries. In December 1989, the Timor Gap Cooperation Treaty defined a large, three-area Zone of Cooperation for joint development, covering some 61,000 square kilometres. Area A would be jointly developed by the two countries with the benefits of offshore oil production to be shared equally. Areas B and C, adjoining Ar ea A, would be fully administer ed by Australia and Indonesia respectively. After the East Timor crisis in 1999 that led to the territory’s independence from Indonesia, the question of the Timor Gap Cooperation Treaty came to the for e. UN T AET (U nited N ations Transitional A dministration in East Timor), acting on behalf of the EastTimorese people, signed an agreement in 2000 that upheld the tr eaty but with East Timor replacing Indonesia as the implementing par ty. The East Timorese Transitional A dministration subsequently signed a Memorandum of Understanding with Australia in July 2001 proposing a treaty that would formalize a Joint Petroleum Development Area (JPDA) for Area A, but with r evenues split 90:10 in fav our of the ne w Timor-Leste. As independence dr ew closer in M ay 2002, another issue that needed r esolution was the lucrativ e G reater S unrise oil r eservoir, which straddled the eastern lateral boundar y of the JPDA. 32 In January 2006, Australia and East Timor reached final agreement over the sharing of revenues from oil and gas deposits in the disputed ar ea of the Timor Sea. Known as the Treaty on Cer tain Maritime Arrangements in the Timor S ea, it was r eaffirmed that Timor-Leste would get 90 per cent of

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revenues of oil pr oduced within the joint dev elopment ar ea. O utside this zone and within the Greater Sunrise area, revenue would be shared equally. In addition, both also agreed to defer for fifty years the final delineation of their sea boundaries. The net r esult is that Timor-Leste could get up to US$10 billion over the life of the G reater Sunrise oilfield, as w ell as some US$15 billion for the oil produced within the joint dev elopment area.33 SECURITY OF SLOCS An energy-related concern in the r egion is that the bulk of oil imports by China, J apan, and S outh K orea trav erse the S traits of M alacca. The high incidence of piracy in Indonesian waters, the unregulated and insecure nature of the maritime trade, the presence of terrorist networks, and the fact that any disruption of global trade will hav e a dev astating impact on a globaliz ed manufacturing system dependent on just-in-time business operations (particularly by the booming N ortheast Asian economies), hav e raised fears over maritime security in the S traits of Malacca. Unlike the aviation industr y, the maritime industr y is poorly r egulated. There is no proper vetting or certification of shipping crews, and ships are not tracked in r eal time like aircraft. The waters around I ndonesia also suffer from the world ’s highest incidence of piracy . Indeed, there was a dramatic increase in pirate attacks following the fall of the Suharto regime in 1998 and the accompanying crisis of go vernance, but the situation has impr oved with more frequent coordinated naval patrols by the littoral states. Since the ev ents of 11 S eptember 2001, these concerns have assumed increasing urgency and priority . The vital S traits of M alacca is v ery narrow and congested (it is only 800 metres wide at its narrowest point), with a huge amount of seaborne traffic passing thr ough each day. It also lies within the Malay Ar chipelago, which has been designated the “ second front ” in the U.S.-led G lobal War on Terrorism, giv en the pr esence of militant gr oups affiliated with or sympathetic to Al Q aeda. Given the tr end of incr easing links between transnational organiz ed crime and terrorism, fears have been expressed that high-value shipping, such as cr uise ships and chemical tankers, could pr ove to be tempting terr orist targets. Ships could also be used to smuggle terr orists as well as w eapons of mass destruction. One scenario is the hijacking of a chemical tanker and its use as a floating bomb to devastate ports — a maritime version of 9/11.34 An attack on a super container hub such as S ingapore would hav e devastating consequences in a globaliz ed age that has seen an incr easing r eliance on seaborne trade and just-in-time manufacturing processes. Moreover, Al Qaeda

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has already carried out maritime terrorist attacks, as on the USS Cole in 2000 and a French oil tanker, the Limburg, off the coast of Yemen in 2002. MARITIME SECURITY The problem with the maritime industr y, however, is v ast, given that the entire logistical chain needs to be secur ed. This entails impr oving ship , container, and por t security . P orts in the r egion have ther efore mo ved swiftly to implement the r equirements of the I nternational Ship and Port Security (ISPS) Code, which came into effect on 1 J uly 2004. U nder the code, governments, ships, and ports are required to have enhanced security measures to ensur e better contr ol and monitoring of the mo vement of people and cargo.35 The region is also gradually responding to U.S.-led initiatives designed to improve port and container security as par t of pr eventive measures against terrorism. U nder the Container S ecurity I nitiative (CSI), U.S.-bound containers would be inspected at sour ce by U.S. Customs. Under a separate International Port Security Program, U.S. Coast Guard inspectors would be permitted to inspect the region’s port facilities and verify their implementation of the ISPS code. In March 2004, the U.S. P acific Command also floated a R egional Maritime S ecurity I nitiative (RMSI), aimed at dealing with transnational maritime threats in the Asia-P acific. An initial suggestion that U.S. S pecial Forces might be stationed in the vicinity of the S traits of Malacca, however, drew strong reactions from Malaysia and Indonesia, due to sovereignty issues as well as domestic political sensitivities. 36 The pr ospect of an activ e U.S. presence also pushed the littoral states of I ndonesia, Malaysia and Singapore into declaring in J uly 2004 that they would cooperate mor e closely in coordinated, year-round patrols that are linked by communications hotlines, to ensure the security of the busy sea-lanes in the S traits of M alacca.37 This was follo wed up b y an agr eement to conduct joint air patr ols.38 Although Malaysia and Indonesia remain opposed to foreign naval patrols and private armed escorts, ther e is no w a consensus that they could accept for eign assistance in the areas of capacity-building, equipment, and training, so long as these do not compr omise national sovereignty. The littoral states have also taken measures to improve counter-terrorism cooperation through the Five Power Defence Arrangements (FPDA) involving Britain, Australia, New Zealand, Singapore, and Malaysia. From 2005, FPDA multilateral military exercises have focused on maritime security, particularly on countering terrorist threats.39

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In turn, the concern over maritime security has attracted the attention of the G reat Powers and incr eased their rivalr y within the r egion. While the United States has moved to improve maritime security in the Straits with the support of its r egional allies, China has incr easingly expressed concern o ver the ability of the United States to disrupt China’s access.40 Since 11 September 2001, Japan has also moved to increase its strategic and security r oles in the region, especially through the pr ovision of capacity-building assistance to Indonesia and increased coast guard cooperation with regional states such as Singapore. It is undeniable that a motiv ating factor has been the incr easing influence that a rising China will hav e on the r egion.41 REGIONAL COOPERATION IN ENERGY SECURITY The ASEAN states have recognized that energy security is an issue that affects the entir e r egion. A ttempts hav e ther efore been made to impr ove r egional cooperation. I n 1999, a fiv e-year ASEAN P lan of A ction for E nergy Cooperation covering the period 1999–2004 was launched, involving all ten ASEAN member states. At the same time, the ASEAN Centr e for E nergy (ACE) was set up in J akarta, I ndonesia, to better coor dinate a r egional approach to energy development and cooperation. The Plan of Action focuses on the follo wing: an ASEAN po wer grid, a trans-ASEAN gas pipeline, coal and clean coal technology pr omotion, energy efficiency and conser vation promotion, new and renewable energy dev elopment, and energy policy and environmental analysis. 42 To achieve these objectiv es, the Centr e coor dinates the wor k of the following meetings and networ ks relating to energy: the E nergy Efficiency and Conservation Subsectoral Network, the New and Renewable Sources of Energy Subsectoral Network, the Heads of ASEAN Power Utilities/Authorities (HAPUA), the S enior O fficials Meeting on E nergy (SOME), the ASEAN Energy Business Forum (AEBF), the ASEAN F orum on Coal (AFOC), the ASEAN Ministers of Energy Meeting (AMEM), and the ASEAN Council on Petroleum (ASCOPE).43 Although the Centre was set up in 1999, ASEAN regional cooperation in energy has in fact been ongoing for a number of eyars. For instance, under the ASEAN Petroleum Security Agreement signed in J une 1986 in M anila, the ASEAN states agr eed to assist each other in cases of o ver-supply or sev ere shortages.44 At the 22 nd ASEAN Ministers of E nergy Meeting in M anila in June 2004, a ne w five-year ASEAN P lan of Action for Energy Cooperation covering 2004–2009 was adopted. A key focus of this P lan of Action is the implementation of the ASEAN Power Grid and the possible commissioning

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of up to fiv e po wer connection projects that would incr ease electricity interconnectedness. However, it must be pointed out that although a po wer grid might be feasible for land states, it would be difficult and expensiv e to link up the rest of maritime Southeast Asia, with its archipelagic nature. The Ministers also strongly endorsed the recommendation of the Senior Officials Meeting on Energy (SOME) to incr ease the shar e of r enewable energy in power generation in the ASEAN r egion to at least 10 per cent o ver the six years to 2009, in view of rising oil prices and the consequent greater pressure to utilize renewable energy sources.45 Another area of focus for the Plan of A ction is the Trans-ASEAN Gas Pipeline pr oject. E ight possible gas inter connection pr ojects could be implemented under this Plan, four of which would originate from the Natuna gas fields operated by Indonesia. A third area of focus, coal, includes objectives such as the environmental assessment of coal pr ojects and the promotion of clean coal technology. Apart fr om the abo ve, ther e ar e also thr ee other ar eas of cooperation meant to impr ove conservation and the use of r enewable energy. There are strategies for energy efficiency and conservation, involving capacity-building, expansion of private sector involvement, information-sharing, setting common energy standar ds, and pr omoting energy efficiency in the transport sector . There are also projects relating to the development of renewable energy in the energy supply, the promotion of the use of biofuels, and the utilization of biomass-based cogeneration technology . F inally, the P lan also focuses on improving regional energy policy and planning through information-sharing, capacity-building, promoting sustainable dev elopment and concern for the environment in policy formulation, the strengthening of regional cooperation, and the monitoring of the pr ogress of the Action P lan.46 Regional cooperation has also expanded bey ond the ASEAN states. F or instance, in 2003, an ASEAN P lus Three meeting (that is, including China, Japan, and South Korea) was held in Bangkok to discuss improving regional oil stockpiles. I n 2004, the first ASEAN M inisters of Energy M eeting Plus Three issued a joint declaration on str engthening infrastructure-building in the region.47 CONCLUSIONS Ji Guoxing’s prescient obser vation in 1998 that “ energy security is of particular importance in the Asia Pacific owing to its physical unavailability to meet demand ” accurately describes the energy pr oblem in S outheast Asia. Of the region’s two biggest oil producers, Indonesia has become a net

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importer of oil and M alaysia is likely to follo w suit after 2010. This fact, together with rising oil prices and the continued dependence on imported oil by a number of states in the r egion, has led to countries in the r egion making efforts at diversification. They have focused on developing alternative, indigenous sources of energy as well as strategies to increase energy efficiency. The intensified search for alternativ e energy sour ces has led states in the region to explore nuclear energy, biofuels, hydroelectricity, and natural gas. These efforts are aimed at r educing dependence on incr easingly expensive imported oil and incr easing self-sufficiency in or der to ensure reliable and affordable energy supplies that might sustain futur e economic growth and hence political stability. The steady rise in primary energy consumption (namely, of oil, gas, and coal) in Southeast Asia as well as China’s and other Great Powers’ interest in the region for its energy r esources and as a transit point for energy supplies have made the region — particularly the South China Sea with its potentially lucrative offshore oil deposits — a competitiv e battleground for energy. In these circumstances, the ASEAN states have found themselves pitted against each other as w ell as against China in the scramble for oil, particularly in disputed maritime territories. An energy-r elated concern, one which has attracted the attention of the G reat Powers, is the security of the sea lines of communications (SLOCs) that trav erse the r egion, particularly the narr ow, crowded and strategic waterway, the Straits of Malacca. In the context of the post-September 11 th 2001 Global War on Terrorism, this has r esulted in a number of initiatives taken by the United States, as well as the littoral states, to improve maritime security. The ASEAN states hav e also responded to the energy pr oblem through regional energy cooperation. I n 1999, the ASEAN states announced a fiv eyear Plan of A ction for Energy Cooperation. This was r enewed in 2004 to cover the period up to 2009. Despite competition, therefore, there have been genuine attempts by regional states to work together to ensure adequate and secure supplies of energy for their continued economic development. Although there are disputes over maritime oil and gas r esources, with potentially huge stakes involved, no actual conflict has broken out. Instead, states in the region have pragmatically enter ed into cooperativ e agreements with each other or with external po wers such as China and A ustralia, in or der to r eap the benefits of development and cooperation. Yet, regional cooperation has proceeded slowly in the actual implementation of plans. A lot has been said in the form of meetings and declarations, but many of these statements, in tr ue ASEAN style, ar e declarator y in natur e, non-binding, and have no legal force. The ASEAN way of consensus-building

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over ev ery issue has posed r eal limits to institution-building and actual functional cooperation. This is due to barriers such as national so vereignty, mutual suspicions, differing national inter ests, and the complex and div erse nature of the energy needs and economic structures of the states in the region. Indeed, the institutional framewor ks and structur es necessar y for r egional cooperation on most issues, let alone on energy, remain on the whole poorly developed. The ASEAN Centre for Energy, for instance, was set up in 1999 but remains a small coor dinating outfit located in J akarta. In the final analysis, ho wever, ther e is a clear tr end as far as energy is concerned: energy security will r emain high on the agenda of the ASEAN states, both individually and collectiv ely. The impetus comes fr om the increasing demand for energy, the high price of oil, and the continued rapid economic growth in the r egion. This should pr ovide momentum to wards a regional approach in the coming years, though there will invariably be limits to this, and large external powers such as China will have an increasing voice. NOTES 1 Ji G uoxing, “China Versus Asia-P acific E nergy S ecurity”, Korean J ournal of Defence Analysis 10 no. 2 (1998): 109–41. 2 Los Angeles Times, 7 June 1998, p. 109. 3 Ji, “China Versus Asia-Pacific”, p. 109. 4 Robert J. Lieber, “Oil and Power After the Gulf War”, International Security 17, no. 1 (Summer 1992): 172. 5 Indeed, J i G uoxing makes the point that “ Asian P acific energy security is inseparable from China’s security”. See Ji, p. 112. 6 BP Statistical Review of World Energy, June 2007, p. 2. 7 Mark Hong, “Overview of Singapore’s Energy Situation”, in Energy Perspectives on S ingapore and the R egion, edited b y M ark H ong (S ingapore: I nstitute of Southeast Asian Studies, 2007), pp. 2–4. 8 See, for instance, the cautionary warning in Esa Ramasamy, “Singapore’s Role as a Key Oil Trading Center in Asia”, in Energy Perspectives, pp. 40–41. 9 A point made by Jun Tsunekawa, “Energy Situation in East Asia and its Impact on the Strategic Environment”, NIDS Security Report No. 3, March 2002, p. 91 (Tokyo: National Institute for Defence S tudies). 10 “Nuclear Plans in ASEAN”, Straits Times, 23 June 2007. 11 “The Nuclear Conspiracy”, Editorial, Jakarta Post, 26 February 2007. 12 “Alternative Energy: Beware Hidden Costs”, Straits Times, 22 July 2006. 13 Larry Jagan, “Myanmar Drops a Nuclear Bombshell”, Asia Times, 24 May 2007. 14 “Alternative Energy: Beware Hidden Costs”, Straits Times, 22 July 2006. 15 Eric Holthusen, “Bio and Synthetic Fuel”, in Hong, Energy Perspectives, p. 304. 16 Morten B. Pedersen, “The Future Takes Form — But Little Change in S ight”,

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17 18 19 20 21 22 23 24 25 26 27 28

29 30 31 32 33 34 35

in Southeast Asian Affairs 2007, edited by D aljit Singh and Lorraine C. S alazar (Singapore: Institute of Southeast Asian Studies, 2007), p. 234. See Daniel Yergin and M ichael S toppard, “ The N ext P rize”, Foreign Affairs , November–December 2003. International Energy Agency , World E nergy O utlook 2004 (OECD, 2004), p. 161. Andrew S ymon, “P etroleum and M ining in S outheast Asia: M anaging the Environmental and Social Impacts”, in Singh and Salazar, Southeast Asian Affairs 2007, edited by D aljit Singh and Lorraine C. S alazar, p. 90. Report from the U.S. E mbassy in J akarta, undated (accessed 10 August 2007). Vincent S. Perez, “Who Wins in the Asian Scramble for O il?” in Hong, Energy Perspectives, p. 257. Pedersen, “The Future Takes Form”, p. 234. Ooi Kee Beng, “Malaysia: Abdullah Does it His Own Vague Way”, in Singh and Salazar, Southeast Asian Affairs 2007 , p. 194. Ioannis Gatsiounis, “ASEAN Explorers Head for Deeper Waters”, International Herald Tribune, 24 May 2007. Ibid. Manjeet Singh Pardesi et al., Energy and Security: The Geopolitics of Energy in the Asia-Pacific (Singapore: I nstitute for D efence and S trategic S tudies, N anyang Technological University, 2006), p. 19. See Andrew T. H. Tan, Security Perspectives of the Malay Archipelago (Cheltenham, Glos: Edward Elgar, 2004), pp. 228–30. For an ex cellent analysis of the ne w Chinese diplomacy , see Allen Carlson, “Constructing the Dragon’s Scales: China’s Approach to Territorial Sovereignty and Border Relations in the 1980s and 1990s ”, Journal of Contemporary China 12, no. 3 (N ovember 2003): 677–98. Perez, “Who Wins in the Asian Scramble for Oil ”, p. 254. “Malaysia and B runei near deal on sea-bor der dispute ”, Biz N ews D atabank, 14 August 2007 (accessed 16 A ugust 2007). People’s Daily O nline, 1 J uly 2004 (accessed 16 A ugust 2007). Andrew T. H. Tan, A Political and Economic Dictionary of Southeast Asia (London: Europa, 2004), p. 284. “Australia, E. Timor S ign Oil D eal”, CN N N ews, 12 J anuary 2006 (accessed 20 August 2007). See for instance G raham Gerar d Ong, “P re-empting M aritime Terrorism in Southeast Asia ”, ISEAS V iewpoints (Singapore: I nstitute of S outheast Asian Studies), 29 N ovember 2002. See International Maritime Organization, “ What is the ISPS Code?” (accessed 19 A ugust 2007). “Officials Clarify Maritime Initiative Amid Controversy”, Defence Link, 4 June 2004 (accessed 19 August 2007). “Malacca Straits Anti-Piracy Patrols Start Next Week”, MIMA News Flash, July 2004 (accessed 19 A ugust 2007). “Joint air patr ols o ver M alacca S trait to star t next w eek: I ndonesia”, AFP, 8 September 2005. The Age, 22 N ovember 2005. Ian Storey, “China’s Malacca Dilemma”, China Brief 6, no. 8 (12 A pril 2006). Andrew T. H. Tan, “Singapore’s Cooperation with theTrilateral Security Dialogue Partners in the War Against G lobal Terrorism”, Defence Studies 7, no. 2 ( June 2007): 199–202. ASEAN Centr e for Energy , I ntroduction (accessed 19 A ugust 2007). ASEAN Centre for Energy, ACE in ASEAN Structure (accessed 19 A ugust 2007). ASEAN Petroleum S ecurity Agr eement, M anila, 24 J une 1986 (accessed 19 A ugust 2007). See The 21st HAPUA Council M eeting, 10 M ay 2005, Vientiane, Lao PDR , p . 7 (accessed 19 August 2007). ASEAN Center for E nergy, Work P rogramme (accessed 19 A ugust 2007). Christopher Lee, “E nergy Cooperation in Asia ”, in H ong, Energy Perspectives, p. 162.

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2

BIOFUELS DEVELOPMENT AND PROSPECTS IN THE PHILIPPINES N.A. Orcullo, Jr.

ABSTRACT Economic growth is a goal and an aspiration of developing countries such as the Philippines. The challenges to economic growth presented by the escalating prices of petroleum product imports have motivated governments to consider localized and renewable sources of energy as a major aspect of the countries ’ energy supply. For the P hilippines, an essentially agricultural economy , one option is to dev elop renewable energy r esources, particularly biomass-based feedstock. As a r esult, localizing energy supply b y exploring and dev eloping renewable energy has always been a part of the countr y’s priorities since energy planning was institutionaliz ed there in the 1970s. INTRODUCTION The Department of E nergy (DOE) is the primar y agency of the P hilippine Government mandated to develop and implement the overall agenda for the energy sector . The agenda is embodied in the P hilippine E nergy Plan. Developing the alternativ e/renewable energy sector thr ough the Alternativ e Fuels Program is among the components of the Philippine Energy Plan. The DOE emphasis on the harnessing and utilization of ernewable energy comprises

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a critical component of the go vernment’s strategy to pr ovide energy supply for the country. This is evident in the power sector, where increased generation from geothermal and hydro resources has lessened the countr y’s dependence on impor ted and polluting fuels. I n the go vernment’s rural electrification efforts, on the other hand, r enewable energy sources such as solar , micr ohydro, wind, and biomass r esources are now used on a wide scale. B ased on current projections of the DOE, r enewable energy is for eseen to provide up to 40 per cent of the country’s primary energy requirements over the ten-year period beginning in 2003. Although its shar e will decline in r elation to the total figure, renewable energy is estimated to gro w at an average annual rate of 2.4 per cent in absolute terms. Biomass, micro-hydro, solar, and wind will remain the largest contributors to the total shar e of renewable energy in the energy mix, with an av erage share of 27.5 per cent. M eanwhile, hydro and geothermal will contribute the balance and continue to be significant sources of electric power. THE ALTERNATIVE FUELS PROGRAM This is one of the fiv e key components of the Arr oyo administration ’s Energy Independence Agenda, which outlined the roadmap that will lead to the countr y’s attainment of 60 per cent energy self-sufficiency b y 2010 (www.doe.gov.ph). The DOE is implementing a long-term Alternativ e Fuels Program meant to (1) reduce the country’s dependence on imported oil and (2) provide cheaper and more environment-friendly alternatives to fossil fuels. Through this programme, the DOE intends to tap the country’s domestic pr oduce as viable sour ces of energy . The goal is to dev elop indigenous and r enewable energy fuels for long-term energy security , so that these sources of energy may become a pillar of the country’s sustainable growth. The Alternative Fuels Program has four major subpr ogrammes, namely, the Biodiesel Program, Bioethanol Program, Natural Gas Vehicle Program for Public Transport (N GVPPT ), and A utogas P rogram. O ther technologies advocated under the programme are hybrid, fuel cell, hydrogen, and electric vehicles. The direction to address biofuels was giv en more specific emphasis with the enactment of the B iofuels Law (RA 9367), which was signed by President Gloria Macapagal-Arroyo on 12 J anuary 2007. Development of a comprehensive biofuels programme is underway. The Department of Energy (DOE), Department of Agriculture (DA), and other partners as identified in the B iofuels Law ar e no w pursuing an action plan focused on biofuels, as mandated by the said law in the spirit of the energy plan alr eady in place.

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THE BIOFUELS ACT OF 2006 The encouraging results of tests evaluating coconut mythel ester (CME) as a diesel fuel additive, the existence of the biodiesel standards, and the growing number of private business organizations engaged in the pr oduction and marketing of biodiesel all indicated that biodiesel in CME form was pr omising. Eventually, President Gloria Macapagal-Arroyo launched the Coco-Biodiesel Program on 21 A pril 2004 in S an P ablo City, a coconut-pr oducing ar ea where a number of coconut-based pr ocessing companies ar e located. These developments somehow inspired the fast tracking of the enactment of the law known as Biofuels Law (RA 9367) — a landmark piece of legislation for the energy sector and a boon for the Alternative Fuels Program. The Biofuels Law made it mandatory to use biofuels (see, in particular, Section 5 of RA 9367). DEFINITIONS AND CONTEXT OF BIOFUELS AND BIOFUELS PRODUCTS As defined under the B iofuels Law (RA 9367), biofuels r efer to bioethanol and biodiesel and other fuels made fr om biomass and primarily used for motive, thermal, and power generation with quality specifications consistent with the Philippine N ational S tandards (PN S). The law also specifically defines biodiesel as r eferring to Fatty Acid Methyl Ester (FAME) or monoalkyl ester obtained from vegetable oil, animal fats, or other biomass-derived oils that shall be technically pr oven and appr oved b y the DOE for use in diesel engines, with quality specifications in accor dance with the P hilippine National Standards (PNS). This generic definition of biodiesel points to the fact that the law is not really all about biodiesel sour ced fr om coconut feedstock in the form of coconut methyl ester (CME). Rather, it provides a window for sourcing or producing biodiesel fr om other sour ces/feedstocks, giv en the existing marketing and supply/value chain system for the coconut-based pr oduct. Operationally, biodiesel in the Philippines is a renewable and biodegradable diesel fuel extracted from plant oil. It is a form of natural hydrocarbon with negligible sulphur content that will substantially help in er ducing emissions from diesel-fed engines. Coconut Methyl Ester (CME) is essentially the kind of biodiesel fuel blend now being discussed in the Philippine market. Biodiesel, on the other hand, is the international name for methyl ester when used as a diesel fuel or enhancer. The coconut methyl ester is not the same as the coco-diesel blend that was used in the countr y in the 1970s and 1980s. That was a mixture of commer cial diesel fuel and cr ude coconut oil that did not

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undergo esterification pr ocess. The pr operties of CME-based biodiesel result in mor e efficient combustion that translates to incr eased engine power, longer mileage, and less emission. Bioethanol r efers to ethanol (C 2H5OH) produced fr om feedstock and other biomass. It refers to hydrous or anhydrous bioethanol suitably denatured for use as motor fuel, with specifications in accor dance with P hilippine National Standards (PNS). I t is a high-octane, water-fr ee alcohol produced from the fermentation of sugar or converted starch. In its purest form, it is a colourless, clear liquid with a mild, characteristic odour and that boils at 78°C and fr eezes at 112 °C. B ioethanol can be pr oduced fr om sugar cane, sorghum, cassava, and other crops that can be grown in the Philippines. Like coconuts, sugar cane is a major industr y in the countr y, with a number of distilleries pr oducing alcohol from cane sugar and ser ving the needs of various industries, including the food and bev erage sectors. Ethanol, up to 190 proof (95% strength), can be produced using simple distillation. Removal of the last 5 per cent water fr om an ethanol solution requires more complex methods. Hydrous (water-containing) ethanol can be used in a modified gasoline engine, as in Brazil. If the ethanol is to be blended with gasoline at any rate, the ethanol must be completely anhydrous (dry), or 200 proof. Otherwise, separation of the fuels will occur . The use of ethanol as a fuel additiv e was extensiv ely tested in the P hilippines back in the late 1970s and early 1980s, under the government’s Alcogas programme. Despite the data and experience accrued, ho wever, no comprehensive application or large-scale use was ev er dev eloped, in contrast to the pr ogress made with CME-based biodiesel. THE NATIONAL BIOFUELS PROGRAM As mandated by the Biofuels Law, a National Biofuels Program (NBP) has to be pursued by the D epartment of E nergy (DOE), the D epartment of Agriculture (DA), and other agencies specifically identified. An important provision in the B iofuels Law is the establishment of the N ational Biofuels Board (NBB) to ensur e coordinated and sustainable implementation of the Biofuels Law, par ticularly the N ational Biofuels Program (NBP). With the convening of the National Biofuels Board, the timeline for the implementation of the N ational Biofuels Program has been drawn as sho wn in F igure 2.1. Running in parallel with the timeline for the N BP is the pr ogramme framework as shown in Figure 2.2. As shown in Figure 2.2, the programme has six major components as follows: a) Feedstock development, production, and extension; b) R esearch dev elopment and deplo yment; c) I ndustry

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First Month

Sixth Month

Third Month

IRR Promulgated

IRR publication – May 23, 2007

1% biodiesel – May 6, 2007

Four Years

10% bioethanol May 6, 2011

Blends can still be decreased

Two years

5% bioethanol 2% biodiesel May 6, 2009

Source: Department of Agriculture/Agribusiness Lands Investment Center, October 2007.

Publication – Jan. 22, 2007

Effectivity – Feb. 6, 2007

NBB convened – Feb. 27, 2007

President Signed Biofuels Law – Jan. 12, 2007

Phase Out MTBE

Figure 2.1 National Biofuels Program — Timeline of Implementation

Fifth Year

Blends can no longer be decreased

28

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Community Development

Farmers’ Organization

Agriculture Propagation/ Cultivation Fertilization Expansion Mechanization Blend performance tests & standards development

Protocol & standards development

By-products development

Process enchancement

Varietal improvement & management

Pilot plant & showcase projects ■

■

■

■

■

■

Research, Development & Deployment

■

■

■

■

■

■

■

Application development

Distribution & sales

Competitive Pricing

Transport & handling

Fuel storage & exchange

Plant construction, operation & expansion

Biofuels road map

Industry Development

This covers all major areas and strategies of the Program.

■

Tax incentives

Tri-media info Web access

■

Seminars, conferences, & Worshops

Manpower development

Social amelioration

Market development services

■

■

■

■

■

Credit facilitation services

Government financing

■

Pertains to additional Enabling Rules and Regulations that shall avoid and/or resolve conflicts during the implementation of the Law ■

Standards and Quality Assurance

Policy Formulation & Dissemination

Source: Department of Agriculture/Agribusiness Lands Investment Center, October 2007.

■

■

-

-

■

■ Land use - Survey - Validation of existing plantations

For Coconut, Sugarcane, Jatropha & Other Feedstocks:

Feedstock Development, Production, & Extension

NATIONAL BIOFUELS PROGRAM

Figure 2.2 National Biofuels Program Framework

■

■

Penalizing

Inspecting & monitoring

Enforcement:

Utilization technologies

Biofuels & blends ■

■

Production Facilities Utilities and services ■

■

Covers technical & environmental compliance in the following areas:

Investments, Incentives, & Promotions

Biofuels Development and Prospects in the Philippines 29

N.A. Orcullo, Jr.

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development; d) Policy formulation and dissemination; e) Investments and incentive promotions; and f ) Standards and quality assurance. KEY PLAYERS IN THE NATIONAL BIOFUELS PROGRAM The Biofuels Law mandated sev eral agencies to pursue the biofuels agenda. Their respective roles are as follows: a) Department of Energy (DOE): DOE’ s r ole is to pr epare the B iofuel Program within the P hilippine E nergy P rogram while taking into consideration the DOE’s existing biofuels pr ogramme. b) National Biofuels Board (NBB): Purposely created under RA 9367, NBB is the technical secr etariat for biofuels and is tasked to monitor the implementation of , and ev aluate for fur ther expansion, the N ational Biofuel Program prepared by DOE. c) Department of Agriculture (DA): In coordination with the Department of Science and Technology (DOST), DA shall coordinate the identification and development of viable feedstock for the pr oduction of biofuels. Through its relevant agencies, and within three months from the date of effect of the biofuels law, DA will develop a national programme for the production of crops for use as feedstocks. The agency is further tasked to ensure increased productivity and a sustainable supply of biofuels feedstock and shall institute a pr ogramme that would guarantee that a sufficient and reliable supply of feedstock is allocated for biofuel pr oduction. d) Department of Science andTechnology (DOST): Through the Philippine Council for Industry and Energy Research and Development (PCIERD), DOST shall develop and implement a r esearch and development programme supporting a sustainable improvement in biofuels production and utilization technologies dev eloped locally and abr oad. e) Department of Labor and Emplo yment (DOLE): DOLE’ s task is to promote gainful livelihood opportunities and facilitate pr oductive employment thr ough effectiv e emplo yment ser vices and r egulation: to recommend plans, policies, and programmes that will enhance the social impact of the N ational Biofuels Program. f ) Local Government Units (LGUs): LGUs are to assist the Department of Energy in monitoring the distribution, and sale of biofuels and biofuels blends. g) Department of Finance (DOF): DOF’s role is to monitor the production and importation of biofuels through the Bureau of Internal Revenue and Bureau of Customs.

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One important aspect of the Biofuels Law is the administrative intervention it has provided for ensuring the coordinated and sustainable implementation of the Biofuels Law, in particular, the creation of the National Biofuels Board to serve as the technical secr etariat for biofuels-related activities. VISION AND OBJECTIVES OF THE NATIONAL BIOFUELS PROGRAM The country’s ideals for its biofuels development agenda comes in the form of a bolder vision statement that r eads as follows: The Philippines shall be the leader in a globally competitive biofuels industry by year 2011. Towards the r ealization of the vision, the countr y shall accelerate the commercialization of biofuels in order to achieve energy selfsufficiency, protect the environment and spur socio-economic development.

As drafted b y the Depar tment of Agricultur e, with inputs fr om the Department of Energy and other concerned agencies, the N ational Biofuels Program set forth the follo wing objectives: a) Maximize the contributions of indigenous biofuels in the country’s energy mix towards self-sufficiency and better envir onmental conditions; b) Establish the Philippines as a leader in sustainable biofuels feedstock development, technology generation, and mar ket development; c) Harmonize research, development, demonstration, and commercialization efforts in the countr y; d) Coordinate efforts towards the creation of new applications and markets for biofuels; e) Update national incentiv es and r egulatory r equirements to encourage production and use of biofuels; and f ) Ensure improvement of the quality of life of the people, particularly the farmers and other wor kers in the r elated areas of endeavor, through the growth of the biofuels industr y. Vital to achieving the end goals of the N ational Biofuels Program is the National Biofuels Feedstock Program, whose main goals ar e as follows: a) To produce a sufficient amount of feedstock to meet the demand for biofuels; b) To augment farmers’ income;

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c) To generate r ural employment; and d) To spur the development of idle and marginal lands. To achieve the goals of the National Biofuels Program, the Department of Agriculture is initiating several interventions as shown in Figure 2.3. The primary feedstock for biodiesel is coconut, while Jatropha is an emerging feedstock. While not yet included in the programme, palm oil is a possible option. I n the case of bioethanol, sugar cane is being targeted as the primary feedstock sour ce, with cassav a and sorghum as the emerging feedstocks under consideration. BIOFUELS PROJECTS The private investment projects meant to address the supply requirements of feedstocks both for biodiesel and bioethanol ar e sho wn in F igure 2.4. As shown, there are now eight major investment projects in the area of plantation projects that cater to the feedstock needs, co vering a total ar ea of 400,000 hectares. I n the case of bioethanol feedstocks, ther e ar e no w ten major investment pr ojects for plantations meant to pr oduce raw materials for bioethanol (sugar cane and cassav a) co vering an area of almost 100,000 hectares. The inv estment projects for the biodiesel and bioethanol feedstock programme ar e in the form of ne w plantation ar eas found in thr ee major islands and growth regions. The projects are expected to generate employment in the agriculture and industr y sectors in these ar eas. QUALITY STANDARDS FOR BIOFUELS Given the commercial potential of the biofuels mar ket, ther e is a need to develop technical and quality standards for biofuels. The standards for CME were the first to be established. The Technical Committee on P etroleum P roducts A dditive ( TCPPA) came up with the P hilippine N ational S tandards (PN S) for biodiesel — essentially referring to the coconut methyl esters (CME).The TCPPA prepared the standar ds for biodiesel based on CME, which has to be blended with commercial diesel fuel as mandated by the Biofuels Law of 2006. Apart from energy considerations, the standar ds for CME w ere made pursuant to the intent of the Clean Air Act (RA 8749) for the development and utilization of cleaner alternative fuels. These standards are also designed to standardize the quality of CME to ensur e its effectiveness when used either in its pur e state or as a blend.

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Technical Assistance for Production (PCA, SRA, BPI, NCPC, BPI, BAR, UPLB, PFC, PCCARD, PCIERD) • research and development • regulatory

Produce sufficient amount of feedstock

Augment income of farmers

Feedstock Supply Assurance (PCA, SRA, PFC, PAFC, BSWM/DA-Goal 1 Program DA-PADCC/Philippine Agribusiness Center) • rehabiltation • establishment of new plantations • identification of new lands • investment promotion/intermediation/facilitation • crop protection • irrigation

Source: Department of Agriculture/Agribusiness Lands Investment Center, October 2007.

Infastructure (DA-FOS, DA-RFU’s, PCA, BPRE, AFC) • development of farm to market roads • provision of post harvest facilities • provison of hauling facilities • establishment of processing plants

Policy Support and General Supervision (DA-Planning Service, PCA, SRA, DOE, DOLE) • inclusion in the IPP formulation of guidelines

Credit Facilitation (Quedancor/ACPC, GFIs) • development of financial packages

IEC Activities (info support) (DA-AFIS, PCA, SRA, BAR) • distribution of IEC materials • primers • audio visual aids • re-toolind and capacity building activities • media relations • press conference

Figure 2.3 Department of Agriculture Biofuel Feedstock Interventions

Biofuels Development and Prospects in the Philippines 33

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SUMMARY:

15,000 Has

7/12/10, 3:51 PM ALSONS POWER Jatropha for Biodiesel General Santos City 56,000 has

ROBSON AGRO VENTURES Cassava for bioethanol S Cotabatoand Saranggani 25,000 has

ALSONS POWER Cassava for bioethanol MisamisOriental and Saranggani 16,000 has

BASIC ENERGY Sugarcane for bioethanol Zamboangadel Norte 10,000 has

FUELS Inc. Sugarcane for Bioethanol Talakag, Bukidnon 5,000 has

PNOC-AFC Jatropha for Biodiesel General Santos City 30,000 has

44

33

ARMM ARMM

44

NCR NCR

11

CAR CAR

99

66

55

12 12

CARAGA CARAGA 10 10 ARMM ARMM 11 11

77

88

PNOC-AFC Jatropha for Biodiesel Quezon Province 10,000 has

EASTERN PETROLEUM Cassava for Bioethanol Sarangganiand General Santos City 50,000 has

22

ENERFUSE Davao CME for biodiesel production

GMC Oil Palm for Biodiesel production Dalurong, Bukidnon down to ArakanValley, Cotabato 30,000 has

GMC Oil Palm for Biodiesel Production Laak, CompostelaValley to San Isidro and Asuncion, Davao 30,000 has

PNOC-AFC Jatropha for Biodiesel Bukidnonand Misamis Oriental 160,000 has

SAN CARLOS BIOENERGY San Carlos City, Negros Occ. Sugarcane for ethanol production 5,000 has

Leyte ArgiCorp. Ormoc, Leyte Molasses for bioethanol production

E-CANE FUEL LaloCagayan Sugarcane for ethanol production 20,000 has

Source: Department of Agriculture/Agribusiness Lands Investment Center, October 2007.

ECO GLOBAL BIO OIL Jatropha for Biodiesel Provinces of Region 12 50,000 has

AM: 464,000 Has

CP:

LUB: 20,000 Has

NLAQ: 248,000 Has

Southern BukidnonBioenergy Sugarcane for bioethanol Bukidnon 2,000 has

Negros Biochem Sugarcane for bioethanol BagoCity, Negros Occidental 10,000 has

BENLINC Coconut for CME production Magsinggal, Sto. Domingo, Kabugao(IlocosSur) 100,000 has

Figure 2.4 Biofuels Accounts — Ongoing (as of 21 September 2007)

34

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Biofuels Development and Prospects in the Philippines

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For the time being, the sole standard for biodiesel is limited to coconutbased feedstock, in particular, CME. The Philippine Government is expanding and considering diversifying its feedstock sources to address the demands of biodiesel blends as mandated under the Biofuels Law (RA 9367). The efforts of the Technical Committee on Petroleum Products and Additives (TCPPA) are ongoing. Eventually, standards for feedstock other than CME will evolve after a thor ough ev aluation of its technical performance when used with transport vehicles or motive power in general. ACCREDITATION OF CME SUPPLIERS The r esults of laborator y and r oad tests on the use of commer cial diesel blended with CME, using government vehicles and private commercial buses, were positive and promising. The private business sector thus saw the potential of CME to serve the emerging energy market. With the standards for biodiesel (CME) now in place, the D epartment of Energy established a pr ocedure on accrediting potential suppliers of CME. There are now six companies alr eady issued with CF AR (Certificate of Fuel A dditive R egistration) and one with pro visional accr editation (Mt. Holly Coco I ndustrial Corporation), with a combined output of 256.7 million litres (as of A ugust 2007). O ther than the CME that flo ws out of petrol pumps all over the country, there are 304 CME outlets in various parts of the countr y, as of 2006. Aside fr om the seven companies alr eady issued with CFAR, the accreditation of two other companies are underway (namely, Lion Chemical and A tson Coco I nc.), thus placing the number of CMEproducing companies at nine. The additional CME producers will provide an additional 34 million litres per year after the completion of their accreditation requirements. In all, the nine CME producers are expected to have a combined production capacity of about 391 million litr es annually. DEMAND FOR BIODIESEL The mandate of the B iofuels Law no w in for ce translates to a biodiesel demand projection shown in Table 2.1. As seen, a 1 per cent CME blend with biodiesel means a biodiesel demand of 78 million litr es for 2007. This demand increases up to 173 million litres in 2010 when the blend is doubled and further to 209 million litr es by the year 2015. This means a demand of 123,810 metric tonnes of coconut oil, or 260,000 metric tonnes of biodiesel sourced from Jatropha curcas. In terms of the pr oduction area required, the biodiesel demand for the y ear 2007 (at 1 per cent CME blend) r equires

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Table 2.1 Projected Biodiesel Demand

Blend

1% 2%

Year

2007 2010 2015

Demand (M liters) 78 173 209

Equivalent Feedstock Volume (MT)

Equivalent Area for Production (Has)

Coconut

Jatropha

Coconut

Jatropha

123,810 274,603 331,746

260,000 576,667 696,667

121,382 269,219 325,241

52,000 115,333 139,333

Source: Department of Agriculture/Agribusiness Lands Investment Center, October 2007.

121,382 hectar es to be planted with coconut, or some 52,000 hectar es of land planted with Jatropha. By the year 2015, when the biodiesel blend has to be incr eased to 2 per cent, about 331,746 metric tonnes of coconut oil and 696,667 metric tonnes of Jatropha-based oil are needed. This means a pr oduction area requirement of 325,241 and 139,333 hectar es for coconut and Jatropha respectively. Comparing the current and projected demand for biodiesel at v arious levels against the production capacity of the existing CME suppliers, it appears that local suppliers will be able to handle this demand. This means that the Philippines has the potential to be a net exporter of CME-based biodiesel. In fact, one CME pr oducer (Chemr ez, I nc.) is alr eady expor ting biodiesel to Japan and Germany. China is also r eported to have expr essed confidence in the Philippine’s biodiesel product. The existing demand for other coconut-based pr oducts is a matter that might potentially thr eaten the biodiesel (CME) supply . The demand for biodiesel is seen as a thr eat to the supply chain of the food- and industr ybased markets. This situation demands that feedstocks other than coconut, or biodiesels other than CME, be considered for production. It is in this context that the biofuels pr ogramme of the P hilippines is exploring other options besides CME as an additiv e for the diesel fuel. Jatropha curcas is therefore under serious consideration as another feedstock for biodiesel pr oduction. DEMAND FOR BIOETHANOL The National Biofuels Program projects a demand for bioethanol as shown in Table 2.2. As seen, the 5 per cent blend for bioethanol translates to a bioethanol demand of 268 million litres. This bioethanol demand is expected to increase to 594 million litres in the year 2011 and further to 721 million litres by the year 2015.

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268 594 721

2009

2011

2015

5%

10% 10,300,000

8,485,714

3,842,857

Sugar cane

14,420,000

11,880,000

5,380,000

Sweet Sorghum

4,005,556

3,300,000

1,494,444

Cassava

Equivalent Feedstock Volume (MT)

Source: Department of Agriculture/Agribusiness Lands Investment Center, October 2007.

Demand (M liters)

Year

Blend

Table 2.2 Projected Bioethanol Demand

158,462

130,549

59,121

Sugar cane

144,200

118,800

53,800

Sweet Sorghum

500,694

412,500

186,806

Cassava

Equivalent Area for Production (Has)

Biofuels Development and Prospects in the Philippines 37

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To supply the pr ojected demand for bioethanol, the N ational Biofuels Program expects to source alcohol from three feedstocks, namely sugar cane, sweet sorghum, and cassav a. The equiv alent feedstock v olume needed to supply the demand for bioethanol for the y ear 2009 is about 3.84 million tonnes of sugar cane, 5.38 million tonnes of sweet sorghum, and 1.49 million tonnes of cassav a. B y the y ear 2011, the v olume of feedstock needed will increase to 8.48, 11.8, and 3.3 million metric tonnes for sugar cane, sw eet sorghum, and cassav a respectively. By the y ear 2015, this demand level for bioethanol translates to 10.3, 14.2, and 4.05 million metric tonnes of sugar cane, sweet sorghum, and cassav a respectively. To grow these amounts of sugar cane, sorghum, and cassav a, substantial tracts of land hav e to be dev eloped or converted into plantations. As sho wn in Table 2.2, to supply the need for bioethanol at a 5 per cent level by the year 2009 means planting 53,121 hectares of sugar cane, 53,800 hectares of sweet sorghum, and 186,806 hectares of cassava. By the year 2015, when the blend level will increase to 10 per cent, the area required is about 158,462 hectares of sugar cane, 144,200 hectar es of sweet sorghum, and 500,694 hectar es of cassava. As shown in Table 2.2, the bioethanol programme requires a substantial acreage to be planted. MEETING THE DEMAND LEVELS FOR BIOFUELS While it appears that the current producers and suppliers of CME will be able to meet the demand for biodiesel all the way to 2015, the existing mar ket system for coconut-based pr oducts must be taken into consideration. F or instance, producers hav e the option of expor ting their biodiesel (CME) to other countries for profit and other corporate considerations. As mentioned earlier, the existing demand for other pr oducts based on coconut might potentially thr eaten the biodiesel (CME) supply and hence the price of CME. The demand for biodiesel is also considered a threat to the supply chain of the food- and industr y-based mar kets for coconut-based companies that also ser ve the biodiesel mar ket. This situation demands consideration of feedstocks other than coconut, for example, Jatropha curcas. This would be in line with the mandate to generate other forms of economic activity in the agricultur e sector. While it appears that meeting the demand for biodiesel appears not to be much of a problem, the supply of bioethanol is a differ ent and more challenging issue ev en though a number of alcohol distilleries ar e alr eady in place or operating in various parts of the country. To address the demand-supply gap for bioethanol, the National Biofuels Program envisions the establishment of

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alcohol distilleries for the sole purpose of pr oducing alcohol for the energy sector. The N BP will need to have established nine distilleries b y the y ear 2009 (each with a 30 million litre capacity), seventeen to twenty-five distilleries by the year 2011, and at least tw enty-five distilleries by the y ear 2015. As it is, a substantial inv estment is needed to addr ess the intents of B iofuels Law for bioethanol alone. Building the distillery facilities is a relatively simple task but making the plants operational and deliv ering the necessary feedstocks is another matter. The high level of expectations is not easy to meet in light of the peculiar natur e of the agricultural inv estment projects that suppor t the bioethanol programme. ROLE OF THE AUTOMOTIVE INDUSTRY The automotive industry of the country plays a critical role in the acceptance of biofuels as w ell as of the biofuels pr ogramme in general. As the major industry behind the transpor t sector, car manufactur ers and assemblers ar e directly affected by the use of blended fuel. While the vehicle itself may not be directly affected, the per formance of the engine that uses a biofuel blend may have a bearing on the o verall performance of the v ehicle. A more valid reason for the automotiv e industr y to be appr ehensive about the use of biofuel blends is that the engines w ere originally designed to run on pur e gasoline or diesel; the issue of pr oduct warranty is ther efore critical. Like the petr oleum pr oducts companies, the automotiv e industr y has shown its initial apprehension over the use of biofuels. In fact, the Chamber of A utomotive M anufacturers of the P hilippines, I nc. (CAMP I) openly displayed its opposition to the passage of the Biofuels Law. One fear expressed was o ver the purpor ted effect of ethanol-blended gasoline on particular engine parts. However, an advocacy group (Philippine Fuel Ethanol Alliance) countered CAMP I’s stand and has r epeatedly asserted that such fears ar e unfounded, as evidenced by the Worldwide Fuel Charter and the example of a number of oil firms that ar e already selling E10, or gasoline blended with 10 per cent ethanol. REGULATORY CONSIDERATIONS As a priority area for development, and in accordance with the desire of the executive leadership to addr ess the energy component of its dev elopment agenda, the biofuels sector is not r egulated. I nstead, ther e ar e basic considerations and existing laws and r egulations that have to be complied with in pursuit of the biofuels agenda.

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The petroleum distribution sector is a der egulated industr y. M ajor petroleum companies may choose where to source the biofuels that are to be blended with diesel and gasoline. S imilarly, biodiesel suppliers ar e fr ee to transact with whichev er major petr oleum companies they feel comfor table with. In addition, biodiesel suppliers may sell their products as additives that individual motorists can buy and blend with the fuel loaded in their gas tank. While there may be minimal economic advantage to the individual in having a blend higher than what is mandated b y law , the contribution to the environment in having a cleaner exhaust emission is laudable in itself . In a way, the enactment of the Clean Air Act in 1999 contributed greatly to the wider and commer cial use of biofuels, particularly the CME-based biodiesel. Undergoing the emission testing mandated under the Clean Air Act may be costly and cumbersome for some vehicle owners, but the outcome of this initiative, especially in view of the country’s commitment to the Kyoto Protocol, extends beyond simply promoting clean air and good go vernance. The only regulatory requirements of the B iofuels Law thus far ar e the registration r equirements for biofuels pr oducers and the accr editation of their pr oducts and brands with the DOE. To be able to sell biofuels in the Philippine market, prospective producers and sellers need to pass the Philippine National Standards (PNS) for a par ticular product. Passing the standards requirements means eventually being granted a CFAR by DOE, as earlier mentioned. CHALLENGES AND BUSINESS OPPORTUNITIES The r equisites of the B iofuels Law and the targets set under the N ational Biofuels P rogram translate to challenges and business opportunities for individuals and corporate organizations that want to r espond to the biofuels programme at large. In specific terms, the business opportunities come in the following forms and sectors of the economy: A) Feedstock Producers and Suppliers Given the substantial v olume of biofuels r equired for blending with diesel (namely, biodiesel) and gasoline (namely , bioethanol), the need to establish feedstock plantations (coconuts, sugar cane, cassav a, and sw eet sorghum) is an open ar ena for any inter ested par ties — fr om individual farmers to corporate giants. I ndividual farmers or farmer gr oups can seek permission from the go vernment to plant any of the feedstock in demand wher e they find it technically possible and economically viable, then sell the pr oduce to processors (namely, millers, r efiners, and blenders). This is the ar ea wher e

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employment, entrepreneurship, and industrialization or dev elopment of the agriculture sector can be addr essed as mandated and implied under the Biofuels Law. In parallel, corporate organizations can integrate production of biofuels feedstock with processing into biodiesel or bioethanol to take advantage of efficiency considerations as w ell as economies of scale, perhaps gaining a competitive advantage thereby. B) Feedstock Processors For existing companies no w engaged in pr oducing biofuels (e.g., CME producers and alcohol distilleries), the demand for biofuels is both a pr oduct and market development opportunity. By adding a new product line to an existing production facility, such a company would hav e the potential for transforming itself into a biofuels company to supply local and external demand. B iofuels r epresent an opportunity for capacity and mar ket ar ea expansion and also a gr eenfield investment area. Feedstock processors can either play the role of agricultural producer and integrator or simply act as downstream play ers in similar fashion to the existing coconut and sugar cane millers. C) Feedstock Trading With agri-based feedstock to ser ve as raw material in the pr oduction of biofuels (namely, cr ops such as coconut and Jatropha), the upsurge in the market for this kind of pr oduct will result in a vigor ous commodity trading system that may potentially affect the supply chain system for coconut-based products. In the case of Jatropha, this is a relatively new product in the market that new and existing entrepreneurs can quickly move on. Either way, traders and third parties that are engaged in this kind of product can look forward to brighter prospects both for the domestic and export market. D) Biofuels Product Trading The trading of biofuels in the form of biodiesel or bioethanol generates potential for another level of commodity trading, giv en the fact that ther e are institutional buyers for biofuels domestically and abr oad. Institutional buyers (e.g., petr oleum companies operating r efineries where the biofuels blending pr ocess takes place) ar e mor e concerned with the price of the product delivered to their refineries/depots than about the cost of production of the biofuel additiv es. This may pr ovide commodities traders with an entrepreneurial opportunity.

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E) Backward Integration Opportunity The Biofuels Law of 2006 set the minimum blend lev el at 1 per cent during the initial year of implementation (2007) and incr easing the blend to 2 per cent by 2009. Hence, there is an increasing level of demand for CME to form the commercial biodiesel that will be sold in the market. Similarly, the higher volume of blend requirement for bioethanol to form the E5 or E10 gasoline production also means a large volume of ethanol requirement that petroleum companies have to procure to meet market demands. Hence, the high demand for ethanol and CME in the long-term, particularly among the major petr oleum industry players and refiners, also means huge demands for ethanol and CME to be delivered at the blending facility. The scenario can motivate or drum up the need for backwar d integration among major petr oleum fuels pr oviders and refiners to ensure that there is sufficient volume of biodiesel and bioethanol in the market to meet the r equirements of the B iofuels Law . B ackward integration through investments in biofuels projects is both a challenge and opportunity for the petroleum-based companies which might not be prepared to do so . It is a critical corporate decision that these organizations hav e to seriously look into. F) Biofuels Technology Providers and Suppliers In the case of coconut-based biodiesel and alcohol from sugar cane feedstock, the production technology and mar ket systems ar e already in place, hence production costs and mar ket prices ar e already established. S uch is not the case for the pr oduction of bioethanol fr om sorghum or of biodiesel fr om Jatropha. I n fact, curr ent cost estimates for sw eet sorghum and Jatropha plantations are paper-based, as large or industrial-siz e plantations ar e yet to become operational. M oreover, the costs and r eturns at the milling and processing levels have yet to be proven. Nonetheless, there exists an opportunity for for eign technology and equipment pr oviders (especially wher e sw eet sorghum and Jatropha oil are the inputs to refineries and processors) to supply the ambitious biofuels pr ogramme of the P hilippines. G) Engine/vehicle Manufacturers The biofuels programme of the P hilippine Government is designed so that traditional and existing engine models (both diesel and gasoline-fed) may use biofuel blends without any modification whatsoever. While some testing has been done as to the effects of blended fuels upon engine performance, the fact remains that the engines used in the countr y were designed for pur e diesel

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and pure gasoline fuels; the use of such fuels is considered a requisite product for warranty. This makes it a challenge for engine and car manufactur ers to consider biofuels-friendly engines, not only in supporting the P hilippines’ biofuels agenda but also in responding to the country’s Clean Air Law as well as the global imperativ e to fight climate change. H) Biofuels Export Potentials Given the recurring fluctuations in petr oleum prices on the global mar kets, the potential for biofuels export is not only in domestic but also in international markets. In fact, some local producers of biodiesel are already exporting CME to advanced countries. Given the country’s large tracts of idle land that can be explored for biodiesel and bioethanol feedstock production, there is substantial potential for pr oducing biofuels for export. The development of a biofuels standard should prime the market, opening it up for export-oriented business organizations. The export trade in biofuels might serve as an equalizer for the ever-increasing price of impor ted petroleum products; at the same time, it might catalyse the gro wth and dev elopment of the agricultur e sector and address the employment objectives of the biofuels pr ogramme. Local Government Units The role that can be played by the local government units (LGUs) should not be underestimated. The LGUs have to cooperate with the national leadership in addressing local requirements as well as the business aspects of putting up commercial-sized plantations to pr oduce the required amounts of feedstock for biodiesel and bioethanol pr oduction. SOME CONCERNS ABOUT LONG-TERM BIODIESEL USE Blending commercial diesel with 1 per cent CME b y volume was fear ed by car manufacturers and vehicle owners to have a negative impact upon engine performance. Petroleum producers also sho wed appr ehension in the initial stages on their products about possible effects. However, with the laboratory and road tests by commercial users as well as by various government agencies under DOE M emorandum Cir cular 55 in 2004, and with pr omotional campaigns, the appr ehension seemed to hav e vanished. In a way , it helped that the Technical Committee on Petroleum Product Additives (TCPPA) was composed of representatives from various stakeholder groups. Now that the Biofuels Law is being implemented, ther e is no other choice but to use the one per cent CME diesel pr oduct sold all o ver the countr y.

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At the level of one per cent blend, concerns about engine per formance may not be r elevant as the impr ovement in the level of engine emissions outweighs any perceiv ed disadv antages. N onetheless, as the lev el of blend moves up to two per cent and higher, long-term impact upon vehicle engine performance must be addressed as any negative indications might potentially undermine the future of the biofuels programme in general and the biodiesel initiative in par ticular. Given the potential for biodiesel to be blended with commercial diesel at a level as high as 20 per cent, the incentiv e to explor e other feedstocks for biodiesel production is immense. The opportunities for the agricultur e and biodiesel production sectors ar e substantial. The production technology , infrastructure, standar ds, and mar ket system for CME-based biodiesel ar e now in place. However, the same cannot be said for other biodiesel feedstocks (notably Jatropha curcas). These matters must be pursued with vigour b y all stakeholder groups, most principally the go vernment sector . While the economy at large stands to benefit in the long term, the concerns of the public about the implication of using biofuels is a matter that must be addressed now. The positive contribution of biodiesel on the emissions levels of vehicles, from the call for a cleaner envir onment as mandated under the Clean Air A ct to the agricultur e sector in terms of emplo yment and other business opportunities, are all sufficient reason for the Philippine Government to pursue a vigor ous agenda on biodiesel usage. CONCLUSION The use of biofuels, either in biodiesel or bioethanol form, is something that the P hilippine Go vernment is fully committed to . I t is a pr ogramme that must be implemented b y virtue of the mandate of the B iofuels Law. While biodiesel using CME as an additive is now being sold throughout the country at one per cent level, the introduction of the bioethanol blend is to be made two years from now. The challenge at hand is the production of feedstocks for both biodiesel and bioethanol. It appears that the biofuels programme has the necessary elements and inputs for achieving the go vernment’s aspirations. One can only look for ward to the effectiv e implementation of the N ational Biofuels P rogram, with the hope that it will meet the expectations of all stakeholders. The use of fuel additives in existing engines will hopefully move forward without technical pr oblems and with r esults that ar e favourable to stakeholders in the mo vement to biofuels.

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REFERENCES Ables, R. Coconut M ethyl E ster as Q uality E nhancer for P etro Diesel , Philippines, Quezon City: Philippine Coconut A uthority, 2001. Department of Agriculture, National Biofuels Program, Agribusiness Lands Investment Center, Quezon City, 18 August 2007. Department of Energy . B iofuels Law (RA 9367) and its I mplementing Rules and Regulations. Department of Energy. Clean Air A ct (RA 8749) and its I mplementing Rules and Regulations. Department of Energy, Status Report on Compliance to DOE MC 55, 2006. Department of Energy, Status Report on Biofuels Program, Makati City, October 2007. Department of Trade and I ndustry/Bureau of P roducts S tandards, M akati City , 2007. Isla, P.A. and J. Cadacio . “B iofuel Players G ear U p for A ction”, Business M irror, vol. 1, no. 145, 21–22 A pril 2006. Lopez, A.B. “Automakers’ Anti-ethanol Stand v. National Interest”, Sun Star Bacolod, 12 August 2006. Paredes, D. “ Trains and B iodiesel”. Columns from M alaya and A bante, 16 M arch 2007 , 2007.

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3

THE BIOFUELS INDUSTRY IN INDONESIA Opportunities and Challenges Djatnika S. Puradinata

ABSTRACT Energy facilitates all human endeav ours. It is used for heating and cooling, illumination, health, food, education, industrial pr oduction, and transportation. Energy is essential to life. The development of human society and civilization has been shaped b y energy. Countries across the world hav e considered the sufficient production and consumption of energy to be two of their main challenges. M odern economies ar e energy-dependent. E nergy availability and consumption are such important considerations to economies worldwide that the energy consumed per capita has become one of the key indicators of modernization and pr ogress in any given country. The security of energy supplies has been a geostrategic issue thr oughout this centur y. At the same time, the sheer intensity of energy production and its use has begun to result in negative impacts on the envir onment. INTRODUCTION Broadly speaking, the final form of energy can be found in thr ee types, namely, electricity, fuel, and heat. These are normally found in applications

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such as cooking, heating, cooling, lighting, the safe storage of food, clean water and sanitation, and in other ser vices r equired by society , such as transportation, po wer for industr y and agricultur e, energy for commer ce, communication, and other economic activities. The appetite for energy has often exceeded the capacity of local resources. During the twentieth century, the energy supplies of many countries w ere imported from distant sour ces. Efforts to establish influence and control o ver oil w ells, gas fields, or oil shipping r outes hav e generated persistent tensions and political pr oblems. This situation has often influenced national policies in for eign affairs, economics, and science and technology. It has been a factor in influencing the political map of the world. Since the disco very of massive, subterranean oil r esources in the early 1900s, the world has consumed petroleum-based products as its main source of energy. As the engine of growth, energy has played a key role in achieving real improvements to human w elfare. Over time, technological inno vations in the petroleum sector , from identification and exploration of oil r eserves, drilling and pr oduction activities, to r efinery and pr ocessing the business chain, hav e cr eated an inevitable global dependency on oil and gas. The second half of the twentieth century was the age of oil, during which human civilization became dependent on fossil fuels. The leading oil companies, known as the “S even Sisters”, were tr uly global enterprises; in many cases, they were more powerful than states and governments. Several worldwide crises were linked to competition o ver fossil fuels. S uch crises included the 1974 Arab-Israeli War, the 1978 I ranian Revolution, and the 1980s I ran-Iraq War. The oil shocks of 1973 and 1979 br ought the energy pr oblem into the consciousness and awareness of peoples throughout the world. Price increases led to economic disr uptions at international, national, and local lev els. The vulnerability of all economies to energy prices and supply fluctuations became evident to government policy-makers and consumers alike. Some oil-importing developing countries faced serious balance-of-payments pr oblems and, in some cases, became mired in debt. The development of indigenous fossil fuel resources and power generation was hindered by capital scarcity together with a lack of contr ol o ver energy r esources. This situation has highlighted the importance of national and local self-reliance and the need to diversify energy sources and production patterns as a means of minimizing risks. FOSSIL FUELS, BIOFUELS, AND INDICATORS OF GLOBAL MOVEMENTS Biomass fuels, commonly known as biofuels, are defined as any solid, liquid, or gaseous products derived from a wide range of organic raw materials, either

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directly fr om plants or indir ectly from industrial, commer cial, domestic, forest, or agricultural wastes. They are produced in a variety of ways. The liquid biofuels, ethanol and biodiesel, ar e attracting inter est worldwide. Industrial countries view biofuels as a way of erducing greenhouse gas (GHG) emissions fr om the transport sector and as a means of div ersifying energy sources. D eveloping countries see biofuels as a highly pr omising way to stimulate rural development, cr eate jobs, and sav e foreign exchange by the reduction of imported goods. These concerns, taken together and highlighted by r ecent surges in world oil prices, hav e been major rationales for many countries to include biofuels implementation in their energy pr ogramme. Oil prices hav e the largest impact on the economics of biofuels production. I f world oil prices r emain at high lev els o ver a considerable period of time, biofuels programmes will have a better chance of becoming financially viable without sustained go vernment support. Our o wn calculations show that at a sustained crude oil price of US$80 per barr el, the biofuels feedstock supply could be maintained securely without having to rely on government-induced policy measures. Developing countries’ interest in biofuels is motiv ated by a number of factors. Substitution of Fossil Fuels and Energy Diversification Countries that are net importers of crude oil, gasoline, or diesel fuel may be able to enhance their energy security thr ough the substitution of fossil fuel consumption with locally pr oduced biofuels. P articularly for land-locked countries, domestic biofuels production could be competitive with imported fossil fuels, which have significant deliv ery costs. The extent of energy diversification possible fr om biofuels will depend on their supply potential and also on the demand for transpor t fuels relative to the amount of energy used in other sectors. Rural Development and Employment Creation Biofuels hold the promise of contributing to rural development and creating jobs through the multiplier effects of industrial development in every business chain: plantations (feedstock pr ocurement), processing plants, pr oduct transportation, and the distribution and r etail marketing of pr oducts. Particularly on the upstr eam side, feedstock pr ocurements for biofuels production will absorb significant numbers of workers and utilize rural land. This is a condition of impr oving rural dev elopment and helping to pr event increasing and pr otracted migration from rural ar eas to the cities, which already creates unresolved problems for many large urban ar eas.

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Role as Environmentally Friendly Fuels Since vehicles contribute significantly to the deterioration in urban air quality , biofuels, broadly considered to be environmentally benign, compare favourably to fossil fuels for use in motor v ehicles. I n a worldwide trend to mo ve to sulphur-free fuels (industrial countries hav e already adopted E uro 3 and 4 specifications), biofuels could be an eligible alternativ e, since their naturally very low sulphur content pr ovides a r emarkable advantage. Ethanol has the greatest air quality benefits when used in older v ehicles, as is commonly found in dev eloping countries. I t contributes much to wards reducing local pollutants such as carbon mono xide, residual hydrocarbon, and par ticulate matter, especially in cold climates. The higher octane number of ethanol fuels could offer another advantage for countries suffering fr om extensive lead pollution. As an octane number enhancer, lead constitutes a low-cost option for increasing engine performance when added in substantial v olume to lo w-quality gasoline. H owever, lead emissions, when r eleased in fuel combustion, pose a hazar dous to xicity to human health. In many countries (par ticularly industrial countries), lead as an octane enhancer is officially banned. The implementation of the Kyoto Protocol in 2005 was a prime mover in the switch to biofuels. The K yoto P rotocol included the Clean Development M echanism (CDM), a single mechanism allo wing for the active involvement of developing countries in the current global commitment towards greenhouse gas reduction. Under the CDM, biofuels could play a significant role in such countries. The European Union (EU), the U nited States, India, and sev eral other countries hav e mandated significant r oles for biofuels in their transport sectors. Brazil has been the worldwide pioneer in ethanol pr omotion since 1975. After a period of decline in ethanol consumption, the positiv e results of using flex-fuel v ehicles, which are capable of running on a wide range of levels of ethanol, ar e revitalizing the ethanol mar ket. Ethanol and biodiesel are two primary biofuels consumed in the transport sector. Ethanol has a much longer commer cial histor y and a larger mar ket than biodiesel. The world’s largest biofuels market is Brazil, where ethanol is made from sugar cane. B etween 1975 and 2004, the ethanol pr ogramme in Brazil r eplaced appro ximately 230 billion litr es of gasoline. The secondlargest mar ket for ethanol is the U nited S tates, wher e corn pr ovides the feedstock. The Brazilian and U.S. ethanol markets are nearly comparable (the latest data sho w that the U nited S tates is the number one ethanol fuel producer). However, ethanol constitutes only about 3 per cent of the gasoline market in the United States, as compared to more than 40 per cent in Brazil.

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Although growing rapidly, the global biodiesel market is much smaller in size than the ethanol mar ket. The EU is the world ’s largest pr oducer and consumer; its biodiesel comes primarily fr om rapeseed oil. O ther countries base their production on various crops: soybean in the United States, sunflower in sev eral E uropean countries, palm oil in M alaysia and I ndonesia, and coconut in Philippines. INDONESIA MOVES TO BIOFUELS Although Indonesia is a major petroleum producer, it became a net petroleum oil importer for the first time in 2004. D omestic petroleum product prices have historically been considerably lo wer than on the international mar ket, leading to widespread smuggling of subsidized fuels out of the country and to increasing domestic consumption. The cost of fuel subsidies was close to US$10 billion in 2005. Although domestic fuel prices more than doubled in 2005 (the price of kerosene tripled), they remained below international levels, thus posing a budgetary burden. Based on an assumed world cr ude oil price of US$57 per barrel, the government allocated Rp 54 trillion (US$6 billion) for fuel subsidies in 2006. The government is focusing on reducing demand and switching to alternativ e fuels to cope with the large fuel subsidy bill. One of the go vernment’s strategies for r educing the consumption of subsidized petr oleum fuels is to switch to biofuels. As specified b y the National Team for B iofuels D evelopment ( Timnas BBN ), I ndonesia is targeting for 10 per cent domestic consumption of liquid fuel to beeplaced r with biofuels by 2010. In order to facilitate introduction and consumption of biofuels, the Government of Indonesia has set forth some policy measures, both at the macro-level as well as at the more technical levels. The Presidential Decree N o. 5/2006 on N ational Energy P olicy pr ovides o verall policy guidance. This policy serves as the strategic basis for national energy planning. It has become impor tant for biofuels dev elopment since this document specifically sets the target for biofuels at up to 5 per cent of the o verall national energy mix by 2025. E ven though it is unclear about the choice and implementation of strategies to achieve this target, the Government of Indonesia now has at least an official document that both stipulates the or le of biofuels in the future of national energy and marks a new era for biofuels development in I ndonesia. Several other policy measur es already set for th were as follows: (i) Presidential Instruction No. 1/2006 on B iofuels Supply and Utilization as Alternative Fuel;

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(ii) Gasoline and D iesel Fuel Specification, including r egulations allo wing blending of 10 per cent ethanol in gasoline and 10 per cent biodiesel in diesel fuel; (iii) Biodiesel and Ethanol Fuel Specification issued by BSN (National Agency for Standardization); (iv) Presidential Decree No. 10/2006 on the Establishment of the N ational Team for Biofuels Development; (v) Government R egulation N o. 1/2007 on I ncome Tax F acilities for Investment Activities in Specific Industries and/or Particular Regions; (vi) Government Regulation N o. 8/2007 on The Government Investment; and (vii) Minister of F inance D ecree N o. 117/PMK.06/2006 on C redit for the Development of Biofuels Energy and P lantation Revitalization. In fact, these kinds of policy measures were hitherto perceived as having minimal impact. They had failed to achiev e noticeable pr ogress in biofuels development. Although economic conditions were a major hurdle, the lack of willingness on the par t of the go vernment and priv ate sector in tackling obstacles is also consider ed to hav e contributed to the ineffectiv eness and reduced influence of the biofuels pr ogramme. OPPORTUNITIES The new official fuel standar d set by the Government of Indonesia through the Ditjen Migas represents a milestone in the transition to biofuels utilization. Continuous suppor t and pr essure by biofuels pr oponents, through various organizations and institutions, and crude oil price hikes at the end of 2005 (which imposed burdensome expenditures on the government budget) opened the Indonesian Government’s eyes to the importance of adopting biofuels in country fuel mix es as soon as possible; ne w fuel specification r eflects this. Indonesia has learned some obvious lessons from the success stories of other countries with regard to the introduction of biofuels into markets and society. The recognition of biofuels as pr oper and r eady-to-use fuels in the existing infrastructure is a necessary step before going further. Official fuel specifications, which would become guidelines for all stakeholders, hav e to state clearly the functions of biofuels, as fuel, as neat, or as blending components. B esides serving as an initial guarantee for r elated parties — par ticularly for the end users, r etailers, and automakers — such a standar d would also pr opel the biofuels issued for ward. Indeed, if this fuel specification wer e accompanied by a series of detailed and continuously updated r egulations, this would act as a real guarantee in the mar ketplace.

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In fact, what is already set forth in this specification mar ks a major step forward as r etail markets are permitted to have a maximum of 10 per cent volume of biofuels (ethanol and biodiesel) blended with commer cial, conventional fuel (diesel fuel and gasoline). I n the most r ecent Worldwide Fuel Char ter (r egularly updated), the official r eference issued by leading automobile manufacturers’ associations r ecommended the adoption of only 5 per cent volume of biofuels, without major modifications to the engine system and fuel channel. Should the oppor tunity provided by the specification bill be follo wed by necessary, suitable, and harmonized supporting policy measures, there is a huge mar ket potential for biofuels in I ndonesia. F or example, if all consumer gasoline nationwide w ere blended with 5 per cent ethanol (or E-5 as sold across the country), 1.2 million kilolitres (kls) of ethanol would have to be domestically produced to fulfil the expected increase in demand. Supposing a capacity of 200 kls per day , appr oximately four teen new distilleries would need to be established across the country. Achieving such levels of production would require a cassava supply of roughly 6.5 million tonnes per year (if cassava is assumed to be the single chosen feedstock for new ethanol production). Through a rough estimation (without conducting thorough research and assessment via mathematical models), we can imagine the size of the multiplier effect that would stimulate employment and rural development through such biofuels activities. This is not wishful thinking, since scientific r esearch findings on issues such as macr oeconomic impact and life cycle assessment have r egularly been published in many countries to promote biofuels. For example, research studies by the Ifo Institut, a German-based research centre, hav e yielded positiv e conclusions on biodiesel dev elopment using Input/Output (I/O) methodology. Similar studies have also been carried out in several other countries such as Nicaragua, the United States, and Australia. Furthermore, the potential demand for biofuels will also come fr om the Asian region, from countries such J apan, India, and Korea. These countries will r equire considerable v olumes of ethanol but they hav e constraints in feedstock av ailability. F or example, as pr ojected b y F.O. Licht, a leading ethanol consultancy agency , J apan and the EU countries (due mainly to respective go vernment policies to stimulate the domestic biofuels mar ket) will potentially need up to fiv e or six million kls of imported ethanol respectively by 2010. This demand will not be easily met b y I ndonesian producers. Other countries such asThailand (widely regarded as an agricultural development r ole model in the S outheast Asian r egion), I ndia (the major player in the sugar cane industr y in Asia), and B razil (known as the S audi

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Arabia of ethanol fuel) will enter the mar ket and make competition tighter . Therefore, to grab the lion’s share of the rising demand in Asia, I ndonesianbased pr oducers need to ensur e their costs ar e contr olled at ev ery stage of production. Ultimately this should be r eflected in the price competitiv eness of the product. CHALLENGES The biomass-to-liquid fuels business is not necessarily a lo w-risk business, nor is it secure. These high-risk business ventures often result in a very high percentage of business failures. Unless companies have significant financial resources, they could be risking all of their assets, along with other thir dparty investments. The whole biofuels business chain r equires that strict criteria be met in order to minimize potential risks and vulnerability to business fluctuations. The end price may be influenced by government pricing schemes representing how important cost control is at each stage of the chain. A successful biofuels business venture should not focus only on one area but should pay attention to other areas. The lessons learned from biofuels operations in the energy mar ketplace, particularly as provided by influential countries such as Brazil and various EU states, are beneficial to this fledgling industry in Indonesia. At the very least, they demonstrate the need for a str ong chain of interlinked stages that comprise the following: (i) Feedstocks; (ii) Processing Plants; (iii) Storage and Blending; and (iv) Distribution and Retail. The company that can best manage this chain will limit the pr oblems associated with biofuels so that they become contr ollable, ev en negligible, issues. KEY FEEDSTOCK ISSUES Biofuels producers resemble the agriculture-based industries more than energy producers. Petroleum refinery owners, in order to run their plants, need not occupy specific oilfields to pr oduce crude oil by themselv es. B y making agreements and long-term contracts with dedicated upstr eam companies,

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they ar e able to secur e supplies for normal pr oduction. M eanwhile, the agriculture-based industries, such as oleo-chemical companies, normally secure substantial volumes of feedstock fr om their o wn plantations (i.e., upstr eam sector). Certainly, ther e ar e sev eral logical explanations for this differ ence, mostly pertaining to the nature of each business environment. With regard to the feedstock chain — referring to our own short experience and that of other national pr oducers — the shining futur e of biofuels could come tr ue, if related stakeholders could ensur e the following. Land Availability It is inevitable, as biofuels ar e tr eated much mor e like agricultur e-based industries, that land av ailability becomes a major issue. Countries that ar e able to set aside substantial land possess a significant adv antage, while small and densely populated countries will be disadv antaged. I ndonesia, having 17,508 islands and 1.9 million square kilometres of land area, is well known for its high lev el of land availability . H owever, in terms of economics and industrial feasibility, this land potential has to be tr eated in a pr udent and careful way. Land use competition is the first obstacle. Despite it being often mentioned in academic speeches and biofuels forums that crops for biofuels production may be grown in less fer tile land in v ast, unutilized areas, the required high and stable crop productivity can be maintained only on fertile, irrigated, and premium land. I n the most suitable lands, pr oducers need fe wer acr es of planted area and feedstock costs can be maintained at affordable levels for the entire production cycle. This in practice creates competition for land use, not only between biofuels cr ops, but also with cr ops grown for other purposes. The v ast, under utilized ar eas spoken of ar e mostly located in marginal, remote ar eas with poor infrastr ucture; though most suitable land can be found in these locations, the extent of infrastructur e development required often sends daunting signals to potential investors. Compared to the investment costs for a processing plant facility, say, a 200,000 tonne per annum biodiesel plant that costs US$30 million in capital expenditure, the budget required for infrastructure development might be two or thr ee times bigger. Large-scale plantations require large-scale labour. The high level of land availability outside J ava could be optimiz ed by programmes to attract J avabased farming labour (since they have the best work attitude and are completely reliable for large-scale plantation work). But this would create problems such as the follo wing: besides the for eseeable and significant costs of pr oviding good salaries, housing, and other facilities, tensions might arise between local

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people and immigrant labourers. The current political atmosphere in Indonesia, which is the result of rapid and stunning democratization processes, sometimes appears to place a great deal of stress on people. Violent acts become the most common way to express disaffection and discontent. It is not an uncommon experience for company assets to be v andalized, facilities to be left idle, and plantation areas to be encr oached upon. The large land r equirement for biofuels pr oduction is the major r eason for the limited r ole of biofuels in the for eseeable energy supply . Take for instance a petroleum refinery that has a 150,000 barr els per day capacity. If the biofuels producers seek to emulate, say, just one-tenth of this capacity in the initial effor t, 1,500 barr els, or 2,000 kls, per day of ethanol pr oduction must come to the marketplace from one plantation. To take the current data as the benchmark (in which 180 kls per day requires 13,000 hectares cassava farming), imagine ho w large the land ar ea to be cultiv ated and managed would hav e to be. I magine the deliv ery, transpor tation, and feedstock management problems that would need to be r esolved on a r egular basis! Crop Productivity Crop productivity issues are highly important for economies of scale, both for farmers and producers. Farmers must be convinced of the returns and producers need to believe in business sustainability thr ough the limiting of costs as a consequence of crop productivity. For example, reluctance of many parties to develop Jatropha plantations is due to the low level of productivity. Five or six tonnes per hectare of seed production after reaching the peak period (starting from the fifth crop year) is not necessarily sufficient to earn farmers adequate revenue and to win the land use competition. I f seed prices ar e set at high levels, the pr oblem will be shifted to the biodiesel plant. The end-product price will go up and become uncompetitive. Higher crop productivity would bring costs per unit do wn, but the farmers ’ absolute r evenue would not be significantly affected. Farmers’ Welfare The sustainability of feedstock supplies also necessitates the impr ovement of farmers’ welfare. Basically, the condition of farmes does not determine eractions to the business of biofuels. H owever, in the medium term, the security of feedstock supply would be in jeopar dy if this issue became sensitiv e, and if tight competition for supply ar ose. The issues of farmers ’ welfare must be raised, since one of the declar ed objectives of biofuels dev elopment is to incr ease the quality of the farmers ’

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lives and to contribute to rural dev elopment for the people. F rom the beginning, all stakeholders hav e to pay attention to this issue. There are lessons on ho w often economic dev elopment has not benefited the rural population, despite the fact that rural dev elopment aims to benefit the farmers. B iofuels dev elopment in I ndonesia must include farmers ’ w elfare improvement as an indispensable target that is integral to the progress of the entire programme. Infrastructure Concerns over infrastructure are related to feedstock production itself and the delivery method from farms to the processing plant site. As already discussed, adequate infrastructure, notably r oad and irrigation facilities, ar e important in getting a critical mass of biofuels inv estors to come to I ndonesia. In fact, as long as farming operations can be considered economically feasible and to promise high r eturns, many companies ar e willing to open new plantation areas, even though they may be sited in r emote, sparsely populated r egions with poor facilities. The r ecent oil palm plantation expansion in P apua province (the easternmost pr ovince in I ndonesia, possessing large tracts of virgin land) indicates ho w infrastructure constraints can be o vercome. KEY PROCESSING ISSUES A project can achieve success by focusing tightly on these points: Capacity The bigger the capacity installed the larger the inv estment needed. This is a common r eason why inv estors decide to build small-scale pr oduction facilities. However, empirical studies show that greater capacity brings costs per unit down to the level wher e the project economy can be maintained, even when there is price volatility of feedstock and products. It is better for potential pr oducers to design their plants to a capacity that pr oduces economies of scale. For reference, 100,000 tonnes per annum for biodiesel plants and 200 kilolitr es per day for ethanol distilleries ar e curr ently the minimum capacities deemed feasible. Main Contractor The selection of the main contractor plays a key r ole in achieving efficient and cost-effective production. Therefore, biofuels project owners have carry out fair, detailed, and compr ehensive selection procedures before reaching a

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decision. The project owner that uses poor or irrelevant selection will experience constant production problems and higher operating costs, if not failur e and the need to r edesign. Waste Treatment One of the main concerns o ver the expansion of ethanol production in Indonesia — mentioned by many parties, particularly environmental pressure groups — is the poor quality of ethanol waste treatment. This concern makes sense since the bad r eputation of ethanol distilleries is due to the failur e to fulfil government mandated waste standar ds. Such failur e r esults in protracted complaints fr om the surrounding community over the contamination of rivers and over the pungent smells. If this issue can be r esolved, the public support for ethanol will be mor e widespread, and the “N ot in M y B ack Yard” (N IMBY ) syndr ome will be minimized. Waste treatment using anaerobic digestion is one option. Besides fulfilling the r equired standard for waste water , the electricity generated b y methane gas as a b yproduct could pr ovide additional benefits for pr oject owners in r educing utilities costs. E thanol distilleries hav e adopted this technology in several countries. These projects are under constr uction or in the planning stage. Manpower Manpower problems should not be as critical as the other issues mentioned above. The technology to produce biodiesel and ethanol is not so advanced and complex as those for fertiliz er and Liquefied N atural G as (LN G). However, the availability of domestic labour is one of the key factors in tackling the challenges of developing biofuels industries. Therefore, concerted efforts (by government, private sector, and universities) to provide a pool of skilful and well-trained workers should be made from the developing stages of the industr y. KEY DISTRIBUTION ISSUES Broadly speaking, one of the key advantages of biofuels, as compared to other alternatives such as Compr essed Natural Gas (CNG), fuel cell, or Liquefied Petroleum Gas (LPG), lies in the ability to use existing distribution and retail marketing infrastructures already widely in place all o ver the countr y. Since biofuels may be perfectly mixed with petroleum-based fuels, it is not necessary to build dedicated filling stations for biofuels or blended fuels (such as B5 and

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E5). As alr eady implemented in sev eral Pertamina-managed pump stations that sell biofuels, consumers have practically no difficulties in getting the fuel and using it corr ectly in their vehicles. However, there are several issues r elated to the distribution that should be r esolved to speed up biofuels utilization and consumer acceptance. Unfortunately, they are in danger of being ignored by the government (whether by the relevant ministry or an ad hoc team): Storage There should be standardization of biofuels storage. There should be several important indicators to ensur e the expected levels, such as water content, specific component content (i.e., methanol, gum, free glycerol), and others. Guidelines for quality assurance and pr ocedures to ensure this should also be established. Trans-shipment For pr oducers that have export-oriented or island destinations, thr eshold shipping v olume becomes a specific limitation to gr owth. O nly the large producers will r egularly deliv er products and maintain pr oper cash flo w. Small and medium producers have to wait for three to four months before the cargo arrives, with a further wait for payment fr om the customer. Blending Stations In popular thinking, the practice of blending biofuels with petr oleum-based fuels is quite similar to some notorious adulteration practices. The most common consists of mixing gasoline or diesel fuel with ker osene. This commonly happens in areas near highways, and is often done by truck or bus drivers as a way to get cheaper fuel at the expense of engine durability . This practice can be seen along the Northern Highway in Java, where many small stalls offering a lo w-cost fuel in bottles can be seen. Despite the fact that this practice is illegal and that the sellers could be brought to jail, truck or bus driv ers prefer to use it as a short-cut to r educe operating costs. They assume the expected engine damage due to lo w fuel quality will be borne b y the fleet o wners and not by themselv es. To ensure that this poor image of illegal blending is not applied to biofuels, strict regulations and guidance in blending pr ocedures must be set from the very start of biofuels utilization. The regulation should serve as the

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single reference for every venture involving blending. It should be made very clear that numbers, parameters, test methods, punishments, and sanctions for failure have been pr escribed. Filling Stations The filling station is the place for customers to obtain biofuels. Therefore, efforts at quality assurance become useless if filling stations are underdesigned and undermanaged. As these stations function as a sho wroom to the public, it is v ery impor tant to set a series of quality assurance pr ocedures and to implement the monitoring pr ogramme as well as possible. Pump operators often play tricks and disappoint customers. These unfortunate experiences become lessons for biofuels pr oducers in ho w to maintain product quality and prevent deterioration of service quality. Without strict r egulation and monitoring of practices at filling stations, the rapid progress of biofuels development could be just a day dream. CONCLUSION: THE BIOFUELS BUSINESS The zigzag progress of the biofuels business in Indonesia today is much about the inability of all the r elated play ers to implement the ideal pictur e as described in F igure 3.1. Essentially, if the biofuels business is to hav e solid growth, all sectors from farming to retailing should be well run, and government revenues will be higher as taxpayers increase in number. The flow of materials, products, cash, and taxes, if taking place as described in this ideal picture, will obviously render biofuels a success stor y in Indonesia. However, since progress is ver y slow, if not stalled, suppor t can act as a lubricant for the biofuels engine so that it can accelerate and find stable velocity. Furthermore, the plan described in Table 3.1, if implemented w ell, will ensure that the futur e in biofuels is not just a day dream.

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material

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Source: PT Medco Energi Internasional.

MATERIAL REVENUE

FEEDSTOCK REVENUE

Farming

tax

material

Industry

tax

Supportings

subsidy

Government

Consumer

tax

PRODUCT REVENUE

product

tax

Figure 3.1 The Inter-relations among Players in the Biofuels Industry

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Source: PT Medco Energi Internasional.

– simplified permit procedures – taxation exemption (value added, income, excise) – special interest rate

*Incentives in whole chain

✓

– ✓

– – –

– –

– quality monitoring & certification – blending & storage procedure – mandatory scheme – manufacturing adaptability – fuel spec assurance

✓

Status – fuel specification

*Market certainty

*Comprehensive technical regulation

Policies required

Government of Indonesia has set taxation exemption in several lines Government of Indonesia only focus to provide this incentives to upstream side

Third party inspector and sanction penalty mechanism

Improvement must be continuously undertaken to win trust of stakeholders

Remarks

Table 3.1 Several Major Policies Required to Boost Biofuels Development in Indonesia

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4

AN OVERVIEW OF THE CAMBODIAN ENERGY SECTOR Pou Sothirak

ABSTRACT Cambodia’s po wer sector has been sever ely damaged b y years of war and neglect. S ince 1993, the go vernment has started to r estore the electricity infrastructure with suppor t from the World Bank, the Asian D evelopment Bank, Japan, France, and other donor countries. The 2007 statistics sho w that per capita consumption is about 100 kWh per y ear. Only 16.4 per cent of households have access to electricity, the lowest electrification rate in Asia. Electricity costs in Cambodia remain one of the highest in the world due to the reliance on imported fuels and the lack of a grid system. INTRODUCTION Cambodia’s public electricity supply at present comprises twenty-six small, isolated po wer systems that ser ve P hnom P enh and the capitals of the provinces. The largest system is in Phnom Penh, which has a population of around 1.4 million. I n 2007, the system in P hnom Penh had a maximum output capacity of 243 MW with an actual installed capacity of 270 MW , out of which 224.4 MW was pro vided by I ndependent Power Producers (IPPs) and 45.6 MW was supplied by the state-owned power stations. The

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total output capacity for pr ovincial capitals is estimated at 50 MW , with sizes ranging from 1MW to 10MW. Cambodia imports 95 MW of electricity from Thailand for the thr ee northw estern pr ovinces and 9.25 MW from Vietnam for the nor theastern provinces. ELECTRICITY DEMAND GROWS According to the 2007 P ower D evelopment P lan of Cambodia, electricity demand is expected to incr ease significantly in the next four teen y ears. Electricity generation is projected to grow from 808 MW and 1,550 GWh in 2009 to 3,867 MW and 8,300 GWh in 2020.The Government of Cambodia has intensified its efforts in enhancing energy r esources and infrastructur e development in or der, firstly , to pr ovide stable and affor dable supplies of energy; secondly, to meet the rise in energy demand as the key element of fuelling national economic gr owth; thirdly, to pr ovide adequate supplies of electricity to the rural areas and to improve the electrification ratio; fourthly, to tap sustainable sources of clean energy in order to offset the great increases in oil and gas prices in r ecent years. I n the shor t term, these effor ts should result in the restoration and development of the electricity infrastructure and supply, as well as in reforms to the electric power sector. In the medium term, they should alleviate the shor tages of r eliable po wer and r educe electricity costs. In the long term, they should dev elop r enewable energy in or der to reduce reliance on impor ted oil for energy generation, and to pr omote the export of energy to neighbouring countries. NATURAL ENERGY RESOURCES Cambodia has substantial hy dropower resources and indications of oil, gas and coal deposits. There is an urgent need to assess the extent of these energy resources. Other renewable energy sources such as biomass, solar, and minihydro are available and their use has been implemented. The challenge is to diversify the sources of supply and to intensify the exploration of natural resources and the dev elopment of renewable energy resources. IMPORTANCE OF THE ENERGY SECTOR The energy sector is v ery important to the growth and development process of any nation because of its siz e, strategic r ole, and major environmental impacts. The Government of Cambodia views the development of this sector in the context of sustainable dev elopment. It has been encouraging private sector participation in the energy sector thr ough direct, open pr ocesses and

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transparent competition. This paper presents an overview of the energy sector in Cambodia. It will describe in more detail the power sector, the renewable energy, hydroelectricity, and oil and gas sectors in pr esent-day Cambodia. HISTORICAL NOTE Electricity was first made available in Cambodia in 1906. Until 1958, electricity was supplied by thr ee private companies: Compagnie des Eaux E lectricité (CEE), Union d’Electricité de l’Indochine (UNEDI), and Compagnie FrancoKhmer d’Electricité (CFKE). In October 1958, the R oyal Go vernment of Cambodia took o ver CEE and UN EDI and established a ne w state-o wned enterprise called Electricité du Cambodge (EDC). A t that time, EDC supplied electricity to Phnom Penh and all provincial towns in the country except the provincial town of B attambang. Other smaller to wns w ere supplied by priv ate enterprises. In 1958, the total installed generation capacity in the Kingdom of Cambodia was approximately 30 MW, of which 16 MW was supplied by EDC and 14 b y the priv ate companies. I n 1970, the total installed generation capacity of EDC had reached 61,125 kW, 77.5 per cent of the total electricity pr oduction capacity of the whole countr y (78,805 kW ). In 1970, the EDC pr oduced 123,820,000 kWh in P hnom P enh and 12,230,000 kWh in pr ovincial towns. During 1971–79, Cambodia experienced civil war (1971–75) and the Khmer Rouge regime (1975–79). Electricity facilities, including generation, transmission, and distribution networ ks, were nearly destr oyed not only in Phnom Penh but also in other provincial and smaller towns. Most of the data and other information relating to this period on the electricity sector did not survive these traumatic ev ents. In 1979, the government started to restore the electricity infrastructure in Phnom P enh and in the main pr ovincial to wns. At the time of the UN sponsored election of 1993, the ser viceable generation capacity in P hnom Penh was less than 20 MW . The actual demand was estimated to be 60 to 70 MW; consequently, the capital city suffer ed daily blackouts in all ar eas. Similarly, the distribution network was in a very run-down condition, which contributed further to the unreliability of supply. It was immediately obvious that urgent measures needed to be taken to r ectify the situation if ther e was to be an adequate electricity supply system to attract inv estments in the development of Cambodia. The power system in Cambodia is differ ent from most other countries. Most countries in the world hav e an interconnected grid consisting of large

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generating stations, high v oltage (HV ) lines and substations, and medium voltage (MV) and low voltage (LV) systems to take the power supply from the grid substations to the consumer . I n addition, fe w countries have isolated systems for supplying po wer to r emote ar eas. I n Cambodia, ther e is no national grid, and the supply to cities and to wns is through a large number of isolated systems. E xcept for two hy dropower stations, all generators use heavy fuel oil or diesel as fuel. GENERAL INFORMATION The Kingdom of Cambodia covers a land area of 181,035 square kilometres — appro ximately 284 times the size of the R epublic of S ingapore. The country is situated in the Lo wer Mekong region bordering with Thailand in the w est, Vietnam in the east and Laos in the nor th. Cambodia has a population of more than 14 million people, of which more than 80 per cent live in rural areas. Most of the existing energy sources in the country are used by the people living in r ural areas. (Figure 4.1) Wood and char coal ar e the only sour ce of energy for cooking, and kerosene and car batteries are the main source for lighting. The exact amount of coal, petr oleum, and gas av ailable in Cambodia is not kno wn, as no specific studies w ere conducted in the past, ev en though at pr esent some companies are exploring petroleum and gas fields in offshore areas of Cambodia. The potential for hydropower in Cambodia is high (more than 10,000 MW). However, the development of these energy sources has not been implemented mainly due to the lack of pr e-feasibility studies and shortages of investment, capital. At the moment, imports of electricity from neighbouring countries at low tariff rates ar e an appr opriate choice for bridging the gap betw een demand and supply and for reducing the electricity tariff. This approach will increase the siz e of the electricity mar ket and lead to large-scale po wer development in Cambodia. POWER SECTOR DEVELOPMENT The Royal Government of Cambodia formulated an energy sector development policy in October 1994. Its objectives were: • •

To pr ovide an adequate supply of energy thr oughout Cambodia at reasonable and affordable prices, To ensure a reliable, secure electricity supply at affordable prices, in order to facilitate inv estments in Cambodia and dev elopment of the national economy,

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Figure 4.1 Map of Cambodia

·'Stc»ng TrAng POUthiSat•

K4mp6nd" . Sa6m 50

KAmp6t

~

•

?

Source: Travel Blog, Cambodian Geography .

• •

To encourage exploration and envir onmentally and socially acceptable development of energy r esources needed for supply to all sectors of the Cambodian economy, To encourage the efficient use of energy and to minimiz e detrimental environmental effects resulting from energy supply and use.

To achieve these objectives, the go vernment has under taken sector reform measures and rehabilitation of the power sector with the support of multilateral and bilateral agencies aimed at: (1) mobilizing support from donors and private investments to generate an adequate supply of electricity; (2) str engthening sector managerial assets and implementing capacitybuilding; (3) cr eating a conduciv e environment for priv ate sector participation in the development of a sustainable and efficient power sector, on the basis of open competition; and (4) extending the po wer development programme to rural ar eas.

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Sector r eforms and r ehabilitation of the po wer sector hav e been in progress since 1994. With the r ehabilitation wor k undertaken, the po wer supply in P hnom P enh and S ihanoukville has impro ved considerably . Rehabilitation of the distribution networ k in Phnom Penh, Siem Reap, and Sihanoukville was completed in 1999. The review and study of the electrification of provincial towns under ADB assistance has been completed, and a Power Transmission Master Plan of Cambodia and Rural Electrification Strategy has been conducted under World Bank sponsorship. CURRENT SITUATION Isolated Load Centres Cambodia’s po wer sector was sever ely damaged b y its turbulent histor y of conflict, civil war , and inv asion. With donor assistance and priv ate sector participation, the go vernment has managed to pr ovide only the most basic electricity ser vices to the main load centr es. Cambodia’s public electricity supplies at pr esent comprise tw enty-six small isolated po wer systems that serve Phnom Penh and the capitals of the provinces. The largest system is in Phnom Penh, which has a population of about 1.4 million (F igure 4.2). Figure 4.2 Load Centres in Cambodia

Source: JICA (see note 1 for detail).

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The system in Phnom Penh is by far the largest and had a peak demand of 204.5 MW in 2007, accounting for about 60 per cent of the national demand with maximum capacity output of 243 MW, out of which 158 MW is provided by eight IPPs and 46.5 MW by the state utility company , EDC. The total maximum capacity output for pr ovincial capitals is estimated at 159 MW, out of which 105.5 MW is provided by importation from Thailand and Vietnam, 25 MW by IPP, and 28.5 MW by EDC. Cambodia has one of the lo west electrification ratios in Asia, with only 16.4 per cent of the country’s total households. The national per capita consumption is just 100.7 kWh, according to 2007 statistics. Electricity costs and tariffs are among the highest in the world. There is no national grid, and most towns are supplied through isolated systems (F igures 4.3–4.7). PRINCIPAL ENTITIES IN THE ELECTRICITY SECTOR The M inistry of I ndustry, M ines and E nergy (MIME) was established in 1993, and is r esponsible for setting and administering go vernment policies,

Figure 4.3 EDC’s Installed Capacity in 2007

Source: Electricité du Cambodge (see note 2).

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Figure 4.4 EDC’s Generation by Source for 2007

Source: Electricité du Cambodge (see note 2).

Figure 4.5 EDC’s Install Capacity by Kind in 2007

Source: Electricité du Cambodge (see note 2).

strategies, development, and investment plans for the power sector. Its functions encompass po wer sector r estructuring, electricity trade with neighbouring countries, major inv estment pr ojects, and full management of the r ural electrification sector . The R oyal Go vernment of Cambodia entrusts the

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Figure 4.6 EDC’s Output Capacity in 2007 MW

200 180

181 99

1 60 140

1 20 100

80 60 40 20 0 0 EDC's O u tput Capocoty, 20 11%

•

IPP's Output Capacoty. 50.51%

D Imported Output C 100kwh/month

Lao PDR

0.5¢US (41 kips) 1.11¢US (91 kips) 1.67¢US (137 kips) 1$US = 8,200 kips

0 – 50kWh/month 51 – 100kWh/month 101 – 200kWh/month

Vietnam

3.93¢US (550 vnd) 4.57¢US (640 vnd) 5.71¢US (800 vnd) 1$US = 14,000 vnd

0 – 50kWh/month 51 – 100kWh/month 101 – 150kWh/month

Thailand

3.12¢US (1.123 baht) 4.45¢US (1.602 baht) 4.64¢US (1.670 baht) 1$US = 36 baht

5 – 35kWh/month 36 – 100kWh/month 101 – 150kWh/month

Source: JICA (see note 8).

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years. Electricity generation in Cambodia is projected to grow from 329 MW and 1,548 GWh in 2006 to 3,867 MW and 8,300G Wh in 2020. To meet future demand, the go vernment has dev eloped a P ower Development Plan for the period of 2008–21, which takes into account the following strategies: • • • • • •

Reducing r eliance on impor t oil for po wer generation (through diversification of energy sour ces) Increasing operational efficiency of the system Encouraging least-cost development of provincial load centres (through grid expansion and local priv ate generation) Increasing competition in po wer generation by pro viding access to competitively priced external sources of energy from Vietnam, Thailand, and Lao PDR Maintaining reliability of power supply Promoting export of energy ( Table 4.4). Table 4.4 Forecast Electricity Demand Year

2009

2010

2015

2020

Power, MW Energy, GWh

808 1,550

1,015 1,895

1,915 3,500

3,867 8,300

Source: Electricité Du Cambodge (see note 2).

The Cambodia P ower S trategy focuses on (1) the dev elopment of a sufficient, efficient, and sustainable electricity supply thr ough the isolated system, with special attention given to the city of Phnom Penh and provincial towns, (2) the construction of a skeleton transmission system throughout the country, (3) the power trade with neighbouring countries, especiallyThailand, Laos, and Vietnam, and (4) the expansion of the po wer system to co ver all provinces and r ural areas of Cambodia. DEVELOPMENT OF HYDROPOWER GENERATION AND TRANSMISSION Generation Currently ther e ar e a number of hy dropower stations being constr ucted others are being studied, with the aim of incr easing the generation capacity. These projects are as follows:

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193 MW Kamchay H ydro-project, BO T (B uilding, O perating, and Transfer Scheme) by Sinohydro from China (2010) 18 MW Kirir om III H ydropower Plant, BO T by CETIC fr om China (2010) 120 MW Atay Hydropower Plant, BOT by China Yunnan Corporation (2012) 338 MW Lo wer Russei Chhrum Hydro Power Plant, BOT by China’s Michelle Corporation (2014) 246 MW Tatay Hydropower Plant, feasibility study may lead to BOT by China Heavy Machinery Corporation (2015) 260 MW S tung Chay Ar eng Hydropower P lant, feasibility study may lead to BOT by China Southern Power Grid (2015) 2600/450 MW Sambor Hydropower Plant, feasibility study may lead to BOT by China Southern Power Grid (2019)

POWER TRADE WITH NEIGHBOURING COUNTRIES To provide electricity to to wns and villages at the bor der areas, the strategy generation as an interim measure, is to import electricity from neighbouring

Figure 4.10 Generation Expansion Plan (2008–2020)

Source: Ministry of Industry, Mines and Energy and Electricité du Cambodge (see note 8).

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countries at affordable prices. Currently, the government plans to increase the power trade with Thailand, Vietnam, and Laos. Some of these developments are listed below: • • • • •

200 MW from Vietnam at 220 kV by 2009 90 MW from Thailand at 115 kV, to serve northern grid starting in 2007 20 MW from Vietnam to Kampong Cham Province at 115 kV by 2009 20 MW from Laos to S tung Treng Province at 115 kV by 2009 Five cross-border MV links from Vietnam and eight cr oss-border links from Thailand at 22 kV to ser ve border towns and villages.

PROVINCIAL AND RURAL ELECTRIFICATION PROGRAMME The government of Cambodia has prepared a ten year, three-phase Renewable Energy Action Plan (REAP) to meet the need for r ural electrification. This action plan calls for better access b y r ural households to r eliable grids, affordably priced electricity, and an expansion of the scale of operations of the rural electrification enterprises. S ome of these effor ts are as follows: • • • •

•

Complete rehabilitation of eight provincial towns, supported with $18.6 million from ADB and €3.75 million from AFD (Agence Française pour Development), Grid extension and rural electrification, with SDR 27.9 million from the World Bank and $5.75 million from GEF (Global Environment Facility), Renewable energy master plan to study three micro-hydro developments, supported by JICA Rural electrification targets: – 100 per cent of villages to have access to electricity services by 2020 – 70 per cent of r ural population to hav e access to quality electricity services by 2030 Rural E lectrification F und to subsidiz e par t of rural electricity project investment

RENEWABLE ENERGY Currently, there is no renewable energy policy in Cambodia, although the government has adopted the Renewable Energy Action Plan (REAP) and has expressed its commitment to promote r enewable energy for r emote applications. There is a lack of information on v arious renewable energy options and their costs and benefits. Efforts at information dissemination

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are weak, and mar keting of pr oducts is non-existent. The REAP should be rigor ously pursued as a component of the countr y’s o verall energy sector strategy. I n the medium to long term, the go vernment needs to consolidate a rural electrification policy framework that clearly articulates its policy , strategies, and pr ocedures so that the much-needed priv ate sector investments may be attracted to participate in the electrification of rural Cambodia. However, there is a gr owing awareness about utilizing renewable energy resources in Cambodia, especially for the rural areas, where 85 per cent of the population reside. Prospects for the utilization of biomass and biogas are very promising, and significant progress has been made. The tapping of wind and solar energy resources is also being ev aluated. Solar Energy The following are developments in Cambodian solar energy: • • • •

Phnom Penh showed an average sunshine duration of six to nine hours per day, with a high av erage of 5 kWh/m 2/day, indicating considerable potential for solar energy. Photovoltaic systems with a total installed capacity of around 130 kW are a recent development in Cambodia, donated by international organizations such as UNICEF. The R ed C ross, SIDA, and FON DEM hav e installed demonstration systems on health and r ehabilitation centres. Solar Home Systems (SHS) with an output of 12V, 50–70 Ah are being used for lo w-income households in rural ar eas and r equire a US$40 investment per household.

Biomass and Biogas The following are the developments in this sector: •

•

As in most ASEAN countries, biomass energy plays a major r ole in satisfying the rural demand in Cambodia. B esides wood for fuel, an estimated 167,000 tonnes of agro-industrial residues, such as rice, sugar cane, maize and cattle ex creta, are also available as fuel. Biomass is used in the industrial sector for copra dr ying and po wer generation. Rice husks ar e used in bakeries, brickwor ks, and other commercial establishments.

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•

Cambodia has joined the EC-ASEAN Cogen P rogramme in A ugust 2002 and now has a F ull Scale Demonstration P roject in the form of a 1.5 MW cogeneration plant using rice husks as the primar y fuel.

No reliable estimates of the amount of biomass energy consumption ar e available; a study needs to be conducted for this purpose. Wind Energy The following are the developments in this sector: •

• •

The potential of wind energy in Cambodia has not y et been assessed. There are some data on the annual average wind velocity for example in Sihanoukville 5.06, in P ursat 1.89. I n general, inland av erage wind velocity is estimated at 2.01 metr es per second (m/sec), wher eas in the coastal areas it is 2.65 m/sec, with an annual av erage of 3 m/sec. Mechanical wind pumps ar e probably the best choice for using wind energy when the annual av erage wind speed is less than 4 m/sec. It is possible that small wind po wer systems or individual household wind power systems may be applicable in some ar eas, particularly along the southwest coast close to the Cardamom Mountains or in the highlands along the Vietnam border.

Wood Energy Energy derived from wood (wood fuel and other woody biomass) has played a crucial role in meeting r ural energy needs for many y ears. It is no longer confined only to rural households and traditional industrial and commercial activities. Today, wood fuels may be av ailable in solid, liquid, or gas forms. With advancements in technology, new wood fuels in the form of char coal, briquettes, dendro-thermal power, wood alcohol, and pr oducer gas are used to generate heat and power through cogeneration. Recently, both woody and non-woody biomass for energy generation have been utilized in the wood and agro-industries. HYDROELECTRICITY Cambodia has abundant hy dropower potential, estimated at 10,000 MW . However, according to a World Bank study, the realistically exploitable potential in the mid- to long term is about 1,900 MW; 9,000 GWh p.a., at an average cost of about US$1,668/kW, or 3.5 U.S. cents per kWh.

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With an inventory of twenty-nine hydropower sites capable of delivering 6,695 MW (3,580 MW from Mekong mainstream, 1,771 MW from Mekong Tributaries, and 1,344 MW from outside the Mekong Basin), the government is of the view that the dev elopment of hydr oelectricity po wer plants will ultimately make electricity power more accessible to more people at a reasonable price and will pr ovide the nation with a measur e of energy independence. Existing Hydropower Projects These are the completed projects: 1. Kirirom I, 12 MW, BOT by CETIC Chinese company 2. O-Chum, 480 KW, built and operated b y EDC There are five “Projects under Implementation”. They should be included and are not the same as in the “Committed P rojects under Private Sector Study.” Committed Projects under Private Sector Study The following are proposed projects: 1. MOU for 2600 MW S ambor Hydro project feasibility study b y China Southern Power Grid Figure 4.11 29 Projects for MP Study

Source: Ministry of Industry, Mines, and Energy (see note 10).

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2. MOU for 420 MW Lo wer S esan 2 H ydro pr oject pr e-feasibility and feasibility study, by Vietnamese company 3. Letter of P ermission for 375 MW Lo wer S esan 3 H ydro project pr efeasibility study by K orean company 4. MOU for 330 MW Lo wer Sre Pok 3 Hydro project feasibility study by Chinese company 5. MOU for 235 MW Lo wer Sre Pok 4 Hydro project feasibility study by Chinese company 6. Letter of Permission for 24 MW Stung Battambang 1 Hydro project prefeasibility study by K orean company 7. Letter of Permission for 36 MW Stung Battambang 2 Hydro project prefeasibility study by K orean company 8. MOU for 100 MW S tung Pursat 1 H ydro project feasibility study by Chinese company 9. MOU for 17 MW S tung P ursat 2 H ydro pr oject feasibility study by Chinese company 10. Letter of P ermission for 64 MW P rek Liang 1 H ydro pr oject pr efeasibility study by K orean company 11. Letter of P ermission for 64 MW P rek Liang 2 H ydro pr oject pr efeasibility study by K orean Company 12. Letter of P ermission for 38 MW S tung S en H ydro pr oject feasibility study by Korean company 13. MOU for 980 MW S tung Treng Hydro pr oject feasibility b y R ussian company Transmission There were three high-voltage lines operating at the end of 2007: a 115 kV line ar ound Phnom P enh, a 115 kV line from the Kirir om I hy dropower plant (12 MW) to the Phnom Penh distribution system, and the 115 kV line from Thailand to the thr ee nor thwestern pr ovinces. B ased on two studies carried out under World Bank technical assistance in 2000 and 2006, the government sought suppor t from the World Bank, the Asian Development Bank, the J apan B ank for I nternational Cooperation ( JBIC), the G erman development bank Kr editanstalt für Wiederaufbau (KfW ), and the private sector to construct the primar y transmission system and to expand the subtransmission system from substations to pr ovide electricity ser vice from the main grid to national customers. Some of these dev elopment projects are:

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115 kV transmission line fr om Thailand to supply B anteay Meanchey, Siem Reap and Battambang provinces. The licence was issued to Cambodia Power Transmission Line Company in 2007; 115 kV line connecting Kampong Cham, Soung, and Kraek to Tay Ninh in Vietnam, with a grant from the World Bank and scheduled operation in 2009; 115 kV line connecting Stung Treng and Suong to Ban Hat in Laos, with a grant from the World Bank and scheduled operation in 2009; 230 kV transmission line connecting P hnom Penh to Kampong Cham, the World Bank (2009) 230 kV transmission line connecting Phnom Penh to Kompong Chhnang, Pursat, and Battambang, BOT by China Yunan Corporation (2012) 230 kV transmission line connecting Phnom Penh and Takeo to Vietnam, from the World Bank loan (2009) 230 kV transmission line connecting Takeo to Kampot, under loan from KfW (2009) 230 kV transmission line connecting Kampot to S ihanoukville, under joint loan from ADB and JBIC (2010) Figure 4.12 Transmission Expansion Plan (2001–2020)

Source: Ministry of Industry, Mines and Energy and Electricité du Cambodge (see note 9).

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Coal The following are the developments in this sector: • •

•

From 1958–61, a mineral countr ywide sur vey mission fr om China reported indications of coal in Kampot, Kampong Thom, Kratie, Stung Treng, and Battambang provinces. One deposit in Phum Talat in Stung Treng province has been identified and the r eserve has been estimated at around 7 million tonnes. I ts exploitation might be feasible for application in cement pr oduction and for domestic fuel. The pr omotion of the clean coal technology is an important strategy involving coal-fired plants and the feasibility studies ar e need for such generation at the coal mines, as w ell as for the coal impor ts.

ASEAN POWER CONNECTIONS As the Cambodian power sector continues to evolve, and with the possibility of tapping into the huge potential for hydropower, the government is currently studying the viability of connecting with the ASEAN P ower Grid and using it to export ex cess energy. Cambodia places great importance on interconnection with neighbouring countries such as Thailand, Laos, and Vietnam. This is a key element of the Greater M ekong S ub-region (GMS) strategy . I n addition to cr oss-border exchanges with Thailand and Vietnam, already occurring at 115 kV and 220 kV, there are plans to import electricity at 115 kV from Laos. This connection would subsequently be stepped up to 220 kV, with Vietnam supplying power to Phnom Penh under an ADB credit. Transmission is envisioned at 500 kV in the long r un when large hy dropower plants ar e developed in Cambodia (Table 4.5). Table 4.5 Summary of Hydropower Stage

Installed Capacity (MW) Annual Energy (GWh)

2 Existing Projects 5 Committed Projects 10 Projects under Master Plan studies 13 MOU Projects

13 915.2 1,031 5,283

51 3,022 4,601 28,516

TOTAL

7,242.2

36,190

Source: Ministry of Industry, Mines and Energy (see note 11).

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The ASEAN Power Grid Consultative Committee (APGCC) established and adopted a master plan in 2002. Among the ten interconnection option studies, the link betw een Cambodia and Vietnam is ranked fourth and is classified as a potential shor t- to medium-term pr oject for completion before 2010. OIL AND GAS DEVELOPMENT IN CAMBODIA Although offshore oil exploration has resumed in Cambodia after a respite of twenty years, the history of oil and gas exploration in Cambodia dates back to the 1950s. The first r eported geological sur veys in Cambodia were undertaken from 1958 to early 1960 by a team of Chinese geologists. From 1960–62, geologists from Poland and the Soviet Union performed

Figure 4.13 Oil and Gas Development in Cambodia

Source: Ministry of Industry, Mines and Energy (see note 12).

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geological field mapping, mainly in Western Cambodia. Then in 1966, a partnership of F rench and Cambodian bodies compiled maps of ar eas with petroleum potential. In the early 1970s, E lf of Cambodia performed seismic sur veys and drilled a wildcat w ell. This w ell r eached a depth of 2,437 m and was rumoured to hav e discovered oil and gas. F urther exploration was carried out by an E lf-Esso consor tium, which per formed a 2,159 km marine seismic survey during 1973 and drilled two wells in 1974. Both wells were believed to be dry. Between 1987 and 1989, Soviet and Cambodian geologists studied and identified sev en sedimentar y basins (Khmer Trough, S iam Basin, Tonle S ap B asin, Khmer B asin, P reah B asin, Chung B asin, and Mekong D elta Basin) with oil and gas potential in onshor e and offshor e areas. The basins co vered a total ar ea of 116,000 squar e kilometr es, of which 38,200 ar e located offshor e.

Figure 4.14 Cambodian Acreage Map

Source: Cambodian National Petroleum Website (see note 13).

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The previous Government of Cambodia passed a new law in J uly 1989, called the Foreign Investment Law, under which the government encouraged investments from overseas and exploration for hydrocarbons by international oil companies. The exploration was focused initially in the Cambodian sector of the G ulf of Thailand, on the acr eage pr eviously held b y the E lf-Esso consortium. A total of sev en offshor e blocks and nineteen onshor e blocks were created for oil and gas exploration. I n 1991, the pr evious government awarded these concessions to the for eign companies listed in Table 4.6 to operate four of the offshor e blocks ( Table 4.6). Table 4.6 Offshore Blocs Concessions to Foreign Companies (1991) Bloc

Area (km2)

Operator

Partners

Bloc I

4,700

Enterprise Oil

4,900 3,669 4,595

Enterprise Oil Campex Premier Oil

Enterprise Oil Total British Gas CEP As above

Bloc II Bloc III Bloc IV

Premier Oil Idemitsu Ampolex

Award Date 40% 30% 20% 10% 100% 33.33% 33.33% 33.33%

03/10/91

03/10/91 26/12/91 07/11/91

Source: Ministry of Industry, Mines and Energy.

CAMBODIAN PETROLEUM INDUSTRY Cambodia’s petroleum industry is in the early stages of development. However, since the government created the Cambodian National Petroleum Authority (CN PA) in 1998, ther e has been gro wing inter est in dormant upstr eam projects, both offshore and onshore. The recent reported discovery by Chevron Texaco in December 2004 is believed to contain predominantly crude oil. It sparked inter est in the hydr ocarbons industr y, leading to new rounds of bidding for offshore blocks. The government has rearranged the blocks and offered concessions to the international companies listed in Table 4.7 and Figure 4.16 ( Table 4.7 and F igure 4.16). The CNPA is tasked b y the government to •

promote investment in Cambodia’s upstream oil and gas sectors by giving licences to firms for exploration and pr oduction (E&P)

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Figure 4.15 Map Showing Petroleum Areas and Blocs

Source: Cambodian National Petroleum Authority (see note 14).

Table 4.7 International Companies’ Blocs Bloc

International Company

Bloc A

Chevron 55%, Meoco 30%, and GS Caltex 15% PTTEP 33.33%, SPC of Singapore 33.33%, and Resourceful Petroleum 33.33% Polytec of Hong Kong 100% Petrotech Holding of China 100% Medco 60%, Kuwait Energy 30%, and JHL 10% Chinese National Offshore Oil Co., (CNOOC) 100%

Bloc B Bloc C Bloc D Bloc E Bloc F

• • • •

oversee the activities of these firms investigate potential do wnstream markets for natural gas in Cambodia, including electricity generation update and enhance regulatory framework and reliability of information report directly to the Council of M inisters.

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Figure 4.16 Map Showing Offshore Blocs

Source: Cambodian National Petroleum Authority (see note 15).

The vision and purposes of oil and gas dev elopment in Cambodia ar e • • • • • •

To promote economic growth, energy security, environmental protection and conser vation, po verty alleviation and peace and stability in the region To enable Cambodia to monetiz e its petroleum resources To reduce Cambodia’s total dependence on imported petroleum products To develop a natural gas and crude oil market nationally, regionally, and internationally; To use indigenous gas for electricity generation To r educe electricity prices, expand energy consumption, and build networks

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Presently, there is limited downstream infrastructure to meet the growing demand for petroleum products in Cambodia. There is no refining capacity, even though there is an old and inoperative refinery with the capacity of 0.5 million tonnes per annum in S ihanoukville, built with F rench assistance in 1969. All major oil products such as super gasoline, r egular gasoline, highand lo w-speed diesel fuels, ker osene, lubricating oil, J et A1, and LPG ar e imported by oil mar keting companies, transpor ted by either barges or r oad tankers fr om the coast to P hnom P enh. F uel supplies fr om Vietnam ar e shipped along the M ekong River . C urrently ther e ar e nine do wnstream operators, four local (S okimex, Tela, S avimex, and M itapheap) and five international (Caltex, Shell, Total, PTT, and Petronas). There are approximately 360 retail outlets, of which about 200 are located in the Phnom Penh area. It is difficult to estimate properly the annual consumption of petroleum products that ar e smuggled fr om Thailand and Vietnam. H istorical gr owth rates in petroleum consumption are estimated at four to five per cent per annum for different products. Currently, there is no consumption of piped natural gas in Cambodia. Due to high taxation, the petroleum products in Cambodia are more expensive than those in the ASEAN r egion. Figures 4.17–4.20 sho w oil pr oduct statistics for Cambodia fr om 1995 to 2006.

Figure 4.17 Cambodian Imported Petroleum Products

Source: Ministry of Industry, Mines and Energy (see note 16).

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An Overview of the Cambodian E nergy Sector

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Figure 4.18 Petroleum Consumption by Economic Sector

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prices do not rise just because oil has “peaked”. Supply depends on how many wells are in production and at what rate they can pump the oil out. I t does not matter whether the well is full, half empty, or three-quarters empty — the oil still gushes out at the same rate. Demand is easier to understand. I t depends gr eatly on the global economy. The last few y ears saw a tr emendous incr ease in demand for commodities to fuel China ’s boom. The rate of oil pr oduction could not keep pace, so prices shot up . N ow we face a global r ecession, which has cooled off demand. It is no surprise, then, to see ho w prices have dropped significantly from their peaks. GLOBAL COMPETITION FOR SCARCE RESOURCES What happens after w e r ecover fr om the r ecession and head into the next economic upswing? The global population will hav e gr own, and energy consumption per capita in China and I ndia especially will r esume growing faster than the global average, as those nations chaseWestern living standards. What that means for S ingapore is that w e will face competition fr om much larger and more powerful neighbours for the fossil fuels we need to feed our power stations. Although the whole world ultimately needs to solv e the problem of energy supply, Singapore is likely to face the pr oblem of energy shortage sooner than the rest. So we had better explore alternatives while we still have the luxur y of time on our side. INCREASING ELECTRICITY SUPPLY — THE SOLAR ALTERNATIVE What alternatives? We have no natural resources, remember? On the Equator, wind blows too feebly to harness any po wer. Tidal energy is unpr oven. We have no volcanoes to tap for geothermal energy. And most people doubt that solar energy could ev er be cost-effectiv e or po werful enough to make a difference. As recently as 2006, the prevailing wisdom among the authorities was that we had too little space with which to harvest meaningful amounts of solar energy. On 23 October 2006, an Energy Market Authority (EMA) spokesperson responded to a Straits Times Forum letter lamenting the lack of solar energy policy by stating: “… even if most of the av ailable rooftop space in S ingapore were covered with solar panels, only about 3 to 4 per cent of S ingapore’s current annual electricity consumption could be met ”.

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That mistaken belief (possibly based on an assessment limited to HDB roof space) held us back for many years. And it conflicts with the oft-quoted factoid, that enough solar energy strikes the earth in under an hour to power our whole planet for a y ear. How do we r econcile these opinions? Clearly, ther e’s mor e to S ingapore’s 700 squar e kilometr es than HDB rooftops! Our combined r oof space, exposed façades, and open expr essways add up to around 100 squar e kilometr es. I f we co vered all that with solar photovoltaic (PV) panels, we could generate around one-third of our current electricity consumption. 1 DECREASING ELECTRICITY CONSUMPTION — MANAGING DEMAND It is not practical to cover every roof with PV, so let’s look at the demand side of the equation as w ell. Energy efficiency is a vital pr erequisite to selfsufficiency. Air-conditioning, combined with sloppy building design, has much to answer for in terms of squander ed electricity (Figure 12.4). There are many ways to segment our building types, but for this discussion the most meaningful differentiator is whether the building is air-conditioned or naturally v entilated. There is a factor of thr ee between the electricity consumption of the two categories. Air-conditioning is not in itself a bad thing. But we should not abuse it to compensate for poor building design, as with the recent fashion of designing apartments with fully exposed, expansive glass façades. Traditional tropical buildings take car e to shade east and w est façades and put windows on the north and south faces where they are less exposed to the sun ’s daily path. I n Figure 12.5, at least one of those glass walls is facing east or west. There are two underlying assumptions in the design of this building: • •

It will be air-conditioned instead of naturally v entilated. Electricity is a cheap commodity . Only it isn’t so cheap any mor e.

The key message is that we need to manage energy demand through intelligent improvements in energy efficiency . That allows us to meet a much gr eater share of the r educed energy needs sustainably with PV . BEYOND RESIDENTIAL BUILDINGS — REDUCING COMMERCIAL WASTAGE Residential properties are one thing. But a huge challenge would be to tackle commercial buildings, wher e hundreds of thousands, if not millions, of us

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Figure 12.4 Air Conditioning Triples the Average Electricity Consumption of Buildings

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Figure 12.5 Unshaded Glass Walls Trap the Heat

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Christophe Inglin

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spend eight or more hours a day in an air-conditioned envir onment. Energy performance in this sector v aries widely, fr om 150 to o ver 400 kWh per square metre per year. So the B uilding and Constr uction A uthority (BCA) is carr ying out a bold experiment to convert one of its BCA A cademy buildings into a z eroenergy office (ZEO), by first reducing energy demand and then meeting that demand using available roof space to generate solar electricity (F igure 12.6). Thanks to some high-tech solutions, the ZEO’ s energy intensity will be just over one-third the national average, and 41 per cent lower than buildings that are considered excellent by present-day standards (Figure 12.7). By consuming only 88 kWh per square metre per year of gross floor area (GFA), the ZEO has just enough roof space to meet that demand sustainably with solar energy. The building was completed in the fourth quarter of 2009, and will be an ex cellent reference point for S ingapore. MANY SUPPORTING POLICIES — SOME GOOD, OTHERS NOT So we have some ideas of what is possible. How about policies and strategies to help us along? Not to worry — we have plenty. Some are good; others lack substance. In August 2007 the Energy M arket Authority (EMA) removed a critical hurdle by allowing PV systems to be connected to the electricity grid.2 From March 2009 the new guidelines wer e incorporated into our national code of electrical practice, CP5. Having started in January 2005 with the carrot of voluntary Green Mark assessment, the BCA upped the pr essure in A pril 2008 to add some stick while sweetening the carrot. The Green Mark standard is now compulsory for new buildings and r econstructions above 2,000 square metres of GFA. And the r evised Green M ark criteria emphasise energy efficiency (F igure 12.8). But despite per ceptions of S ingapore as one massive constr uction site, new buildings form just a tiny minority of the building stock. The BCA estimates about forty years before this legacy is cycled through the Green Mark programme. The N ational E nvironment Agency (N EA) has been encouraging us with awareness campaigns and competitions to pr omote energy saving. I n January 2008, it intr oduced energy labelling schemes for white goods, giving consumers a vital tool with which to make informed pur chasing choices (F igure 12.9). S uppliers ar e duly r esponding with better quality goods. We can expect to see energy labelling extended to other goods and possibly even to entire buildings. While almost no one has failed to notice the energy labelling scheme, the public awar eness of S ingapore’s carbon

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12 Energy Issues Ch 12

Source: Christophe Inglin

Figure 12.6 One of the BCA Academy Buildings is being Retrofitted as a Zero Energy Office

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Figure 12.7 Due to a Very Low Energy Intensity the Sun Can Cover All the ZEO’s Energy Needs

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Figure 12.8 BCA Green Mark Criteria Emphasise Energy Efficiency, Environment and Renewable Energy

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Figure 12.9 NEA’s Compulsory Energy Efficiency Labels

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intensity target is almost nonexistent. In contrast to the well-communicated BCA and NEA schemes, the carbon intensity target is an embarrassment. Basically, our response to Kyoto is to claim asylum as a dev eloping nation and expr ess a non-binding target of 25 per cent r eduction in our 1990 carbon intensity b y the year 2012 (F igure 12.10). At first that sounds quite impr essive, if we o verlook the non-binding part. A 25 per cent reduction is not bad! Probe a little further, however, and it’s actually carbon emissions per dollar of G ross D omestic P roduct, or GDP, which will keep increasing. In other words, we’re not really trying to do mor e with less. (O ur actual carbon emissions nearly doubled, fr om 21,832 kilotonnes in 1990 to 40,377 in 2005. 3) N otice also that this carbon intensity target appear ed in M ay 2006, when it was posted for public feedback b y 30 September 2006.

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Figure 12.10 Singapore’s Obscure Carbon Intensity Target

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Better yet, thanks to solid GDP growth and the widespread conversion of power plants fr om oil to gas, b y 2005 (one year prior to setting this bold target) we had already reduced our carbon intensity by 22 per cent from 1990 levels. So we were actually setting ourselves a meagre 3 per cent hurdle in the remaining six years to 2012. How many of us enjoy such luxury of hindsight when setting per formance targets? I t is no surprise that b y May 2007, fiv e years ahead of the 2012 deadline, Singapore had already met the 25 per cent target reduction in carbon intensity. NO TOP-LEVEL TARGETS We have lots of ad hoc goals and some elegant pr ogrammes that ar e making Singapore a better place. We are exploring zero-energy offices … catching up with M alaysia. We ar e pr oposing eco-cities … in other people’s countries. Others have been much bolder. Britain announced an ambitious plan to cut emissions levels by 80 per cent of 1990 levels before 2050. In Hawaii, the U.S. Army has 8,000 buildings in a family housing project, where solar PV will meet 30 per cent of their electricity needs. In Florida, Babcock Ranch City is being planned to accommodate 18,000 homes and 600,000 squar e metres of retail, commercial, office and civic space on a 68 squar e kilometre expanse of land. S olar PV will generate 100 per cent of the electricity . If it’s considered tough for PV to compete commer cially against fossil fuels in S ingapore, what chance does it hav e in the oil-pr oducing M iddle East? Yet that’s exactly wher e a ver y bold initiativ e is taking r oot. “Masdar” means “the source” in Arabic. It is the name giv en to a self-sustaining, z erocarbon city in the hear t of Abu Dhabi (). Masdar will occupy 6.4 square kilometres of land, or roughly 1 per cent of S ingapore. I ts r esident population will start at 50,000 (which is also around 1 per cent of S ingapore’s population) and expand to 100,000 in future. Another 40,000 daily commuters will help operate 1,500 businesses. Foster + Partners, as the master ar chitects, are rethinking every detail of city life to promote sustainability without compr omising quality of life. N o cars will ply its str eets, but no one has to walk mor e than 200 metres to the nearest public transpor t link. PV will supply half the energy , with the r est coming from concentrated solar thermal po wer, wind power, and municipal waste incineration, as w ell as ground-sourced heat pumps. The budget is US$22 billion, and the pr oject will take eight y ears to build.

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LEADERSHIP REQUIRES CLEARER VISION If they can do it, why can ’t we? What will it take to make S ingapore a true leader in this field, rather than a timid follo wer? Let’s prove we can cut our addiction to fossil fuels! How can we replicate our success in water tr eatment in the field of solar energy? We must aim for world-leading capabilities that w e can expor t internationally . S o far , the leaders ( Japan, Germany, the U nited S tates, S pain, and K orea) ar e all in temperate climates. Singapore can pioneer tropical applications for PV . Singapore is w ell known as an ex cellent test bed, wher e cutting-edge communities for consumers and R&D experts to interact can be established. We can sho w the world what wor ks. S o far our test beds hav e been on nursery cot scale. I t’s time to go king-siz ed! After w e’ve finished the z eroenergy office, how about a zero-energy campus? Or a zero-energy industrial park? Setting such ambitious goals requires the right vision. We need clear targets for r educed energy consumption, coupled with wor thy goals for renewable energy supply. DEMAND SIDE TARGETS On the demand side, w e hav e alr eady seen ho w much scope ther e is for reducing av erage electricity consumption in buildings b y two-thir ds, so reducing it by half should be feasible (F igure 12.11). With the right focus, we can reduce electricity consumption in industry by 28 per cent. These two measures would reduce total electricity consumption to 30 TWh (terawatt hours) per year, even allowing for Singapore’s population to grow to 5.8 million by the year 2020. RENEWABLE ENERGY TARGETS Covering 100 square kilometres of roof space is an unrealistic aspiration, but 35–40 squar e kilometr es (appr oximately 5 per cent of S ingapore’s ar ea) is readily accessible and could accommodate around 5 GWp (gigawatts peak) of PV power plant capacity (F igure 12.12). CONCLUSION Five GWp of PV capacity is r oughly 75 per cent of global pr oduction in 2008. How can we expect that much to be allocated to S ingapore? PV cell production continues to gr ow at an impr essive rate. E ven allo wing for a significant slowdown, we find that 5 GWp r epresents a mere 1.6 per cent

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Figure 12.11 We Can Reduce 2020 per Capita Energy Consumption by 36 per cent Below 2007 Levels 50'000 290

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