Reforming Energy Markets During Times of Uncertainty
On September 10, 2020, NBR hosted a virtual discussion entitled “Reforming Energy Markets during Times of Uncertainty.” This was the third event in the series “Reshaping Visions for Energy Security in the Indo-Pacific.” The series is part of NBR’s program on the United States’ Asia: Enhancing Development and Growth through Energy (Asia EDGE) initiative. Featured experts include the first class of Asia EDGE Fellows, one of whom participated in this event.
WELCOME AND INTRODUCTION
Alison Szalwinski, The National Bureau of Asian Research
Ashley Johnson, The National Bureau of Asian Research
Mikkal E. Herberg, The National Bureau of Asian Research; University of California, San Diego
Leslie Palti-Guzman, GasVista LLC
Han Phoumin, Economic Research Institute for ASEAN and East Asia (ERIA); Asia EDGE Fellow
Alison Szalwinski opened the event by summarizing the Asia EDGE initiative and NBR’s related multiyear research program. Moderator Ashley Johnson then explained that the aim of the session was to assess the specific steps for energy market reform that may be most effective in increasing confidence, mitigating risk, and mobilizing investment. Following these remarks, she introduced the three panelists.
Mikkal Herberg began the discussion by outlining the Indo-Pacific’s energy “trilemma”—meeting the rapidly rising demand for electricity, transitioning to a cleaner energy mix, and maintaining an affordable supply of energy resources. He argued that the key to achieving all three goals is to mobilize new investment. Some of the first steps to do so include taking advantage of new regional initiatives that support competitive and transparent markets and reforming inflexible or outdated policies that can impede growth, such as state subsidies or state-owned enterprises.
Leslie Palti-Guzman shifted the focus to gas market reform efforts across the region, highlighting that priorities for reform in many Indo-Pacific economies include unbundling gas production and transmission, enhancing storage and regasification capabilities for LNG, and harmonizing standards. She emphasized that in dialogues about a specific country’s reform efforts and the benefits that can come from market liberalization it is important to have the country of focus lead the discussion. The perspectives of local experts and stakeholders make these discussions more credible and convincing.
Han Phoumin concluded the panel discussion by arguing that a key challenge for Southeast Asia is that, despite interest in increasing regional power trade and connectivity, countries often do not want to cede their own policy-setting ability to follow a more regional direction. Dr. Han observed that although efforts have been made to reform energy markets, state-owned utilities are still a major player in regional markets. These companies are often less effective in integrating new technologies or renewables.
Additional takeaways from the discussion include the following:
- There is currently a window of opportunity for governments seeking to adjust outdated subsidies or reform institutions. Low gas and LNG prices as a result of the Covid-19 pandemic can help ease some of these transitions, but policymakers must act quickly. This period of low demand and cost will likely return to “normal” in early to mid-2021.
- Yet Covid-19 also presents a challenge. Governments across the region are faced with depleted national budgets and the need to increase social welfare spending, which has shifted available funds from projects focused on energy transitions and reforms.
- Harmonizing energy markets and standards will first require building confidence among regional governments. This is necessary to assuage concerns about ceding sovereignty to multilateral institutions and deregulating energy markets to encourage further investment in pipeline and grid development. Looking to lessons learned from past efforts, like those of the European Union, can provide insights that could then be adapted for different markets.