Hormuz disruption should push Asia to renewables – report
The blocking of the Strait of Hormuz underscores the risks of fossil fuel imports. A new report from Ember makes the case that Asian economies should rapidly shift to renewables.
East and Southeast Asia should pursue a rapid shift to renewables and electrification to minimise the economic risk from oil and gas imports, as highlighted by recent disruption in the Strait of Hormuz, according to a new report.
The global oil and gas crisis puts Asia East and Southeast Asian countries in a bind, and should force a shift in strategy, according to a report from Ember, a think tank working on the energy transition. The region “would benefit from rethinking planned LNG expansions, to avoid being locked into import dependence,” Ember analysts wrote.
The war in the Middle East is a “wake-up call for Southeast Asian countries to reshape their energy landscape by increasing the share of clean technologies, reducing fossil fuel imports, stepping up energy efficiency, expanding storage and grid infrastructure, accelerating electrification and integrating renewables at scale by investing in supply chains to reduce power system costs and strengthen domestic energy security,” the report stated.
Around 84 percent of crude oil and 83 percent of LNG that passes through the Strait of Hormuz is destined for Asian markets. The month-long disruption to the flow of oil and gas has hit Asia first, exposing the region to spiking prices, extreme volatility, and an unprecedented level of uncertainty and risk.
Qatar, once considered a highly reliable supplier of LNG, declared force majeure on LNG deliveries after its enormous Ras Laffan LNG site suffered damage from an Iranian rocket attack, which will keep nearly a fifth of the plant’s capacity offline for three to five years.
Many nations are now scrambling to figure out how to make up for the shortfall. Bidding for scarce oil and gas supplies is driving up prices everywhere. LNG prices in northeast Asia (JKM) are now above $21 per MMbtu, more than double the prices seen a month earlier before the start of the war.
Higher prices for fossil fuel imports will weigh on Asian currencies, weaken economies and increase inflation.
Asian economies are reacting in different ways. The Philippines declared a “national energy emergency” and sought to boost coal generation. The South Korean government issued orders to “minimize” the use of LNG, instead boosting coal, nuclear power, and increasing renewable energy targets.
Indonesia is hoping to accelerate the buildout of solar. “In efforts to optimize renewable energy from solar source, we will build 100 gigawatts of solar panels as quickly as possible,” Indonesian President Prabowo Subianto said in mid-March. “This situation pushes us to accelerate [energy transition], we must move faster.”
It is not clear how long the blockage of the Strait of Hormuz will last. Even if the war is resolved relatively quickly, the impacts of the largest disruption to oil and gas markets in history will continue to linger. The expected LNG glut is now gone; analysts not only expect demand destruction today, but also market tightness for the next several years.
As it stands, gas-fired power capacity is expected to double in ASEAN countries in the next few years, rising from 106 gigawatts today to around 200 GW by 2030.
But a shift to gas would be both risky and expensive. According to Ember, the cost of generating that much power could hit US$109 billion. Generating the same amount of power with solar would cost US$42 billion, or less than half.
Some countries are temporarily turning to coal, running existing plants harder to compensate for expensive gas. However, coal is also seeing upward pricing pressure as economies scramble to make up for the gas shortfall.
Even in the short run, coal is not a solution, Ember argues, as it will result in both higher emissions and higher costs. “As a fallback option, coal will be costly, both economically and environmentally,” the report said. For example, ramping up coal in Thailand to capacity factors of 70 percent (compared to 62 percent in 2024) would cost an additional US$263 million. By comparison, solar is roughly 35 percent less expensive.
“[C]ountries with better grid infrastructure and renewables in the mix are structurally better positioned to absorb the shocks,” Ember said.
“Asian countries stand at a crossroads: they can transition toward electrostates that reduce emissions and meet climate goals, or remain petrostates that risk creating greater energy liabilities.”
(Writing by Nick Cunningham; editing by Sophie Davies)