Powering ASEAN

Peter Coleman on energy as an enabler of Australia-ASEAN connectivity

woodside lng platform

Image courtesy of Woodside

The 2017 Foreign Policy White Paper contains a promise from the Australian Government to “revamp our economic diplomacy to ensure it is better geared to support Australia’s commercial interests.” As the world teeters towards increasing trade nationalism, the urgency of this promise is increasingly apparent.

Alongside food and steel, the trade in energy and associated resources is closely linked to economic security and has therefore always been vulnerable to nationalist policies. Yet it is also a sector where free trade in goods, technology and capital has vast potential to lift living standards – and a track record to prove it. In the past decade, ASEAN nations have made huge progress in connecting their people to power. However, there is still some way to go before universal access to electricity is achieved: more than 10% of the region’s 640 million people remain without electricity and almost 40% still rely on solid biomass as a cooking fuel.

The ASEAN region has long been a major exporter of both coal and LNG but is beginning to turn to imports in recognition of the role trade plays in delivering energy security. This shift has been evident in Indonesia, the region’s biggest energy consumer, where the Arun terminal in north Sumatra switched in 2015 to supporting LNG imports as a regasification facility after 36 years as an exporting terminal – the first such conversion in the world.

Indonesia has also had the foresight to secure future gas supply, including through a long-term Sale and Purchase Agreement that Woodside has signed with Pertamina. This was our company’s first significant transaction with Indonesia and is a good example of how Australian and ASEAN companies can reach mutually beneficial outcomes.

Elsewhere in the region, there has been a proliferation of LNG importing terminals, with eight opening across Indonesia, Malaysia, Singapore and Thailand since 2011, facilitating both intra-regional and global trade in the fuel. These regasification facilities and the vessels that deliver LNG to them form a “virtual pipeline”, providing an increasingly cost-effective option for the distribution of gas and underscoring the close links between Australia and south-east Asia.

This region is no stranger to geopolitical wrangling – indeed managing Cold War tensions was the reason that ASEAN formed some 50 years ago. As we navigate a period of heightened geopolitical sensitivities, the exchange of energy resources and ideas is a good example of how ASEAN and Australia can work together to build our joint security and prosperity.

The two most significant international engagements by Prime Minister Malcolm Turnbull in 2018 so far, his visits to Japan and the United States, have each resulted in communiques pledging greater cooperation in Asian gas markets. In doing so, they reveal two unspoken points of contest. One is philosophical: a prevailing preference in many Asian nations for Government-to-Government energy trading and the dominance of State Owned Enterprises. The other is geopolitical: the presence of an alternative source of energy market development funding via China’s Belt and Road Initiative.

This contest of ideas and for investment could prove influential in shaping trade relations in a region that stands to benefit from continued liberalisation of trade across all sectors, including energy. The Australian Government has made a down payment on its commercial diplomacy revamp, securing wins on US tariff exemptions, agreeing bilateral communiques to work together to develop third-party markets, and hosting the ASEAN-Australia business summit. It’s a good start: in an increasingly competitive international trade environment, there may need to be more to come.

Peter Coleman is Woodside Energy chief executive officer and co-chair of the energy roundtable at the CEO Forum of the ASEAN-Australia Special Summit in Sydney on 17-18 March, 2018. He is an Asia Society Australia Advisory Council member.

This article was originally published in the Asia Briefing (17 March, 2018)