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Clean energy and oil prices

Hydrocarbon Engineering,

Frost & Sullivan has said that renewable energy, rationalisation of fuel subsidies and changing economic policies are set to impact various industries as they look to transform and keep their business relevant amidst the backdrop of volatile oil prices.

The new norm?

As Saudi Arabia appears to be showing no immediate need to change energy policy, the oil price could temporarily hit low US$40 /bbl levels, or lower for a brief period this year. The majority of the world economies will stand to benefit from these prices, thus stimulating economic growth to take the supply glut off the market. In fact, Frost & Sullivan has said that the demand for oil is projected to increase by 1 million bpd in 2015 – 2016, with China being one of the key demand drivers. However, the declining oil prices could have a negative, long term impact on selected industries and countries.

Ravi Krishnaswamy, Vice President, Energy and Environment Practice, Frost & Sullivan Asia Pacific said, “if oil prices stay below US$75 /bbl over a longer period (more than 2 years), then more than a quarter of the planned deep water projects in the region will not be viable. In addition, depending on the amount of crude oil stored, refiners will have high inventory value loss in the short term.”

LNG’s part

The impact of lower oil prices, according to Frost & Sullivan will also lead to lower LNG prices in the near future although its usage will be partially changed by the revival of nuclear energy and strong interest in coal due to uncertainties in overall oil and gas investments. Japanese landed LNG prices will see the sharpest decline, falling to nearly US$12/million Btu by 2020, if the current trend persists.

The lower LNG price is likely to stimulate demand for LNG based power projects. China has the opportunity to capitalise on low LNG prices to clean up the environment and shift to gas based power generation in a big way. However, the downside, as pointed out by Frost & Sullivan, of low gas price is the likely delay or cancellation of some LNG production projects in Australia and East Africa, which may not be viable without a significant cost reduction.

Solar power

Tumbling oil prices will have little impact on renewable energy including solar power. APAC will remain a strong market or solar, according to Frost & Sullivan, with demand led by China, India and Japan. However, specific segments within the solar market such as distributed PV in China and utility scale solar projects in Japan are likely to suffer setbacks.

The solar capacity boom in developing Asia is expected to cause a panel supply shortage towards the end of this year, a first in six years. As a result, the production capacity of leading manufacturers is bound to increase. Market consolidation with M&A among manufacturers set to continue during this year as well. Competitive advantage for market players would be based on product innovation and differentiation.

Investment areas

Asia Pacific’s growing demand for electricity due to rapid urbanisation is likely to increase investments in the transmission and distribution (T&D) sector by 9% this year. Japanese grid restructuring and Australian grid privatisation would be the major investment areas for power utilities. Krishnaswamy has said that he also expects a high possibility of M&As in T&D equipment business. “Large multinational manufacturers will look for opportunities to acquire regional players to meet the local component requirements and also develop competitive advantage, through a local presence.”

Electricity and energy storage

Frost & Sullivan has said that energy storage systems (ESS) are increasingly finding their way into the T&D utility infrastructure. Electricity market deregulation in several countries including Japan and Australia will further exasperate this trend. Japan and Korea will continue to develop and test bed integrated utility scale ESS solutions. Their key focus now is to build an efficient ESS ecosystem for global exports.

Despite strong interest from the industry, incentives and government support is needed to sustain the ESS development phase in the region. Immediate opportunities for ESS are likely to be in Singapore, Korea and Japan. Long term market investments and opportunities are likely form China and India as they work towards smart city projects. Smart energy is evolving in the Asian region with the use of digital technology through advanced metering infrastructure, distribution grid management, and demand response thereby establishing an intelligent and integrated T&D system.

Edited from press release by Claira Lloyd

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