The Ukraine Crisis and Global Energy Security: Its Implication to MalaysiaPublished on Wednesday, September 21, 2022
On September 14th, 2022, The Institute of Energy Policy and Research (IEPRe), Universiti Tenaga Nasional (UNITEN) organized a public lecture entitled ‘The Ukraine Crisis and Global Energy Security: Its Implication to Malaysia’. The speaker of this public lecture is Prof. Dr. Ken Koyama, the Chair in Energy Economics of Energy Commission at UNITEN. Prof. Dr. Ken Koyama is also the Chief Economist and Senior Managing Director of The Institute of Energy Economics, Japan (IEEJ). The public lecture was held at Building BA, UNITEN, and streamed online via MsTeams.
The public lecture commenced with welcoming remarks from the Deputy Vice-Chancellor of UNITEN, Yang Berbahagia Prof. Dato’ Ts. Dr. Mohd Zamri Yusoff. Subsequently, Prof. Dr. Ken Koyama initiated his lecture by highlighting that carbon neutrality and decarbonization efforts have begun earlier before the occurrence of the Ukraine crisis. However, as the Ukraine crisis evolve, energy security became a critical matter to all countries around the world. Before the Ukraine crisis, a significant decline in energy prices was observed due to the COVID-19 pandemic. Amid the pandemic, many countries around the world announced their pledge to achieve carbon neutrality by 2050. As the impact of the pandemic lessen in the second half of 2021, energy prices began to rise. The increment was also due to the reduced surplus supply capacity due to power sector liberalization and the side effect of decarbonization as variable renewable energy (VRE) became unreliable or inoperative. Prof. Dr. Ken Koyama reiterated that after the lowest crude oil price was recorded in mid-April 2020 due to the pandemic, OPEC Plus coordinated a production cut which eventually succeed in increasing the oil price. The hike in overall energy prices became substantial as the Ukraine crisis emerged in 2022.
In January 2022, the International Monetary Fund (IMF) produced a downward revision of the global GDP. OPEC Plus responded with the decision to increase the oil production and maintain the oil price of USD80 per barrel. At the same time, the extreme European gas price hike was observed, resulting in the gas price of approximately USD600 in crude oil equivalent. This is a great concern to the global economy as there is no replacement for European gas. The United States is actively focusing on liquefied natural gas (LNG) export surpassing Qatar, and Australia. In comparison to the Malaysian LNG export which is based on long-term contracts, the US LNG is versatile and flexible. The US LNG became great potential to combat the global gas shortage, depending on the rate of growth of its investors.
Prof. Dr. Ken Koyama presented three potential scenarios for the oil and gas market which are the high geopolitical risk but without major disruption scenario, the large-scale supply disruption scenario, and the cease-fire and gradual stabilization scenario. Although the third scenario is preferable, Prof. Dr. Ken Koyama mentioned that even if the military operations cease, the oil and gas market will still be affected by global geopolitical tensions. Another impactful element to consider is the coal price. Coal is a very dominant energy fuel in many countries in Asia, including Malaysia. In 2022, the coal price topped USD400 per tonne. It is projected that the coal price may remain at USD300 per tonne in 2023. In brief, the Ukraine crisis is a combination of military invasion and economic sanctions which affects the global energy market. This is imminent as a number of the western countries including the US, Europe, and Japan have improvised their economic sanctions to include the energy sector sanctions on Russia. Under these circumstances, there are serious concerns over Russian energy export availability in three ways which are the sanctions hinder Russian export, the crisis disrupts physical energy infrastructure, and Russia itself reduces its energy supply.
The impact of the crisis is limitless due to the importance of Russia, having the largest gas reserve in the world, the second largest gas producer, and exporting the majority (24%) of gas in the world. Russia is also leading the global oil export (12%) while being the third largest coal exporter in the world after Australia and Indonesia. It is also important to note the energy interdependence between Russia and Europe, and the dependence of Western countries on Russia, particularly Germany, Italy, France, and the United Kingdom. The US and Canada remained less dependent on Russia, as they are both net energy exporters. In his presentation, Prof. Dr. Ken Koyama highlighted the similarities between the Ukraine crisis and the 1st oil crisis (1970) which include the rising global energy prices before the crises, the high level of dependence on specific import sources, the combination of the two factors (war and sanction/embargo), and finally the serious concern for “physical shortage” of energy.
Prof. Dr. Ken Koyama emphasized the need to reduce the dependence on Russia or fossil fuels by enhancing the energy mix policy to promote renewable energy (RE), energy efficiency (EE), and nuclear power. As the implementation of policies requires time, another approach would be to find other fossil fuel sources (countries other than Russia). Other important approaches include enhancing emergency response measures, securing necessary investment for sufficient supply, revisiting the importance of stable base-load power supply such as nuclear, and to also address the new risk of the military attack on nuclear facilities. The focus of the global energy market is shifting to Asia, as the US-China conflict continues to instigate geopolitical instabilities. It was also highlighted that the priority of energy security may deviate from cost minimization or energy efficiency, towards self-sufficiency, diversification, and strategic alliance. This may also affect decarbonization efforts and the selection of energy options to favour domestic options based on availability and accessibility. Hence, this may alter the efforts of carbon neutrality. Before concluding his lecture, Prof. Dr. Ken Koyama shared the challenges faced by Japan under the emerging global energy landscape. The 45-minute lecture was followed by a Q&A session. Among significant questions raised by the attendees include:
- What is the impact of the Ukraine crisis on the establishment of the ASEAN gas hub? How would the crisis affect the regional gas market?
- What is the implication of the Ukraine crisis on the role of existing RE capacity towards the energy security of the European Union?
- Can we consider the carbon neutrality target as a threat to energy security? In your opinion, what can Malaysians do to move forward to achieve both carbon neutrality and energy security?
- What would be the best policy design to achieve energy security and carbon neutrality, amid the Ukraine crisis?
- How does the global energy crisis affect Malaysia’s energy export?
- How important is cyber security in ensuring the security of the electricity supply, particularly during the Ukraine energy crisis?
Key takeaways for Malaysia include putting energy security, stability, and affordability as a priority to support the Malaysian economy, pursuing long-term planning to achieve decarbonization and carbon neutrality with a pragmatic approach, and protecting and maximizing the national interests via international cooperation. As power demand grows to support electrification, the critical issues of electricity supply include VRE’s intermittency and the power system reform, while there is the need to also pay attention to the risks of cyber-attacks and the supply of critical minerals.
The slides for the public lecture can be downloaded here.