ASEAN faces energy challenges

ASEAN faces energy challenges

Agence France-Presse, Singapore

Southeast Asian economies face diverse challenges in coping with high oil prices, among them removing costly fuel subsidies and attracting investments into the energy sector, U.S. investment bank Morgan Stanley said.

Regional economies must also improve energy efficiency and cut a heavy dependence on imported oil, the bank said in a report received on Wednesday.

Malaysia appears best placed to benefit from rising oil prices after consistently remaining a net oil exporter, but fuel subsidies are eating up gains, the bank said.

The country has improved energy efficiency and moved away from a heavy reliance on oil, while its investments in exploration and production activities have boosted oil exports.

"(But) in our view, fuel subsidies in Malaysia offset the positive effects of the oil trade surplus, as oil wealth is frittered away without much economic achievement," the bank said.

"Malaysia operates an extensive subsidy mechanism. Fuel subsidies are more far-reaching than is generally thought."

For Indonesia, the bank highlighted the need for Jakarta to substantially increase investments in oil exploration as current production is sourced mainly from its aging fields.

"Although the country's eastern region contains vast unexplored potential oil fields, they would require huge amounts of fresh investment to explore," said the report, which only covered Southeast Asia's five major economies.

Indonesia further needs to improve its refinery capacity as well as build the necessary transport and logistics infrastructure, the bank said, warning the country runs the risk of becoming a permanent net oil importer.

Jakarta last month took a bold step to substantially slash fuel subsidies which have been straining the government budget.

The Philippines needs to diversify its energy-mix, the bank said.

Unlike its Southeast Asian neighbors, Manila's problem is its "significant dependence on imported oil amid inadequate domestic production and the resulting energy imbalance," it said.

Thailand's oil dependency is "more structural than efficiency- related", a situation that limits the government's response to cushion the impact of higher oil prices.

But the government has taken the right moves by removing fuel subsidies, and improving public transport, the bank noted.

Singapore's vulnerability to oil shocks is "exaggerated because oil bunkering trade is counted as domestic consumption and refined oil exports to Indonesia are not properly captured," the bank said.

It pointed out that Singapore is a major global bunkering port -- it sells fuel to ships on anchor here.

Morgan Stanley said Singapore is an "efficient oil user", with oil consumption as a percentage of gross domestic product estimated at 4.0-5.5 percent this year -- the same range as Hong Kong and Taiwan.