War-driven green transition stalls in Asia

For a Europe facing massive disruption to its oil and gas supply from Russia, upon which it is currently heavily dependent, renewables such as offshore wind and solar are now also seen as an issue of energy security, not just of climate change. Shortly after the Russian invasion of Ukraine, the European Commission proposed a reduction in EU dependence on Russian gas by two thirds before the end of 2022 (over 100bn m3), as part of a plan to become independent of all Russian fossil fuels well before 2030.

The EC plan, called REPowerEU, relies on securing alternative fossil fuel supplies, at least temporarily, and the rest on an acceleration of energy transition plans, including renewables, low carbon fuels, storage, nuclear, and hydrogen (including offshore wind to hydrogen, which is key). The high gas and oil prices have also made renewables look far more attractive commercially and made green H2 cheaper than blue or grey.

The EU is looking more favourably at coal too, with some EU members likely to delay coal plant closures as questions over gas supply grow. And Germany (with the Greens in government) has called for more North Sea drilling, while discussing a hydrogen pipeline with Norway. The measures in the REPowerEU plan should reduce gas demand by 155bn m³ by 2030 (on top of existing cuts) – equivalent to Russia’s imports in 2021.

Asia less sure

Asia, even more than Europe, relies heavily on hydrocarbon imports, leaving it particularly vulnerable to international market disruption. However, there have only been limited moves to accelerate renewables and other low carbon energy plans in the wake of the Russian invasion. In fact, some Asian countries have even used the war in Ukraine to argue for building more fossil fuel infrastructure.

The IEEFA argues in a recent article, that the continued buildout of LNG and other fossil fuel import infrastructure in Asia will only reinforce vulnerabilities related to energy security and economic growth. It says that although fossil fuels are often seen “as reliable, secure fuels for power generation, the opposite is true: supply of imported fuels is constantly at the mercy of unpredictable disruptions.”

As such, it says Russia’s invasion of Ukraine should have been a wake-up call to big Asian importers. When asked about upfront costs, Sam Reynolds, an energy finance analyst at IEEFA, tells Gas Outlook that little work would be required on most Asian grids to prepare them for more renewables, because renewable penetration is currently at such low levels – typically around 2% in South East Asia, he says. “The IEA and many countries around the world — developing and developed — have shown 10-15% is possible with only minor adjustments to system operations.”

Willing, but not able?

However, there are a number of obstacles. Not all Asian countries are well endowed with capital and renewable energy resources. Bangladesh, for example, lacks wind and has little spare land for solar or cash for investment – although Reynolds says the country does have significant renewables potential, without elaborating. Bangladesh may eventually be able to harness tidal power from the Ganges/Brahmaputra delta, but this would be very expensive and remains a distant prospect. River currents in the low lying country are not sufficient for hydro power. Nevertheless, domestic solar is a huge advantage, helping displace imports, and providing some power when they become too expensive.

Bangladesh already relies heavily on fossil fuel imports and is well aware of their pitfalls. The government increased fuel subsidies as prices rose in 2021 but had to impose large hikes in gas and power tariffs in January, sparking protests. With state-run oil and gas companies already incurring losses due to high import prices, the choice is between hiking tariffs further and running out of funds or going without fuel altogether.

“Increasing dependence on foreign imported fossil fuels is not a strategy that improves energy security—it’s a recipe for high costs, energy insecurity, and economic uncertainty,” says Reynolds. Nevertheless, the lack of cash, land, and the potential for renewables in Bangladesh means hydrocarbon imports still look more feasible than the green alternative – which is renewables plus battery/hydrogen. Resource-poor Bangladesh, and countries like it, would probably still need to import green energy alternatives (hydrogen/ammonia/methanol) after any transition, which would mean continued import dependence, although markets for green fuels like these should be less exposed to geopolitical tensions.

Trade opportunity?

In contrast to the IEEFA’s arguments, some in Asia see the crisis as an opportunity to lock in more secure and better priced fossil fuel supply from Russia as others boycott its exports. China, India, Pakistan, and Bangladesh may get better and lower cost access to Russian oil and LNG as western countries back out of deals and a discount develops – which could encourage further reliance on fossil fuels among these countries.

For example, Pakistan’s Prime Minister travelled to Moscow on the day of the invasion to discuss a pipeline in Pakistan that would carry re-gasified LNG from the country’s southern coast to northern provinces. And more recently, India hosted Russia’s foreign minister, Lavrov, on April 1, for negotiations over crude oil supply. But Reynolds notes: “Asian countries may buy some Russian energy at a discount, but again, is this a credible or stable long-term option,” especially when one side can suddenly demand payment in rubles, for example?

Other officials have suggested Asia switch to coal which would free up more gas for Europe. But Reynolds said: “imported coal and gas are two sides of the same coin in the sense that replacing one costly, volatile imported fuel for another does little to wean your economic growth prospects off of cyclical commodity price fluctuations.”

Finally, GHG emissions from gas have been underestimated, so the environmental advantage is suspect, he noted.