Speech by 2PS Ravi Menon at 1st Asian Youth Energy Summit

SPEECH BY RAVI MENON, 2ND PERMANENT SECRETARY, MINISTRY OF TRADE AND INDUSTRY, AT 1st ASIAN YOUTH ENERGY SUMMIT INTERNATIONAL CONFERENCE CENTRE, NATIONALUNIVERSITY OF SINGAPORE, 31 OCTOBER 2008, 4.45 PM

Energy: Turning Challenge into Opportunity

Ladies and Gentlemen,

1.Good afternoon. I am happy to be here, to join you as you close this inaugural Asian Youth Energy Summit. I would like to commend Energy Carta – for your passion for the environment, for your vision in engaging youth from around Asia, and your commitment to making a positive impact in the world through meaningful discourse and pragmatic action. This is the kind of thoughtful activism from youth that we need more of. May I urge you to continue this journey, to help society make informed decisions based on robust and balanced considerations, for a sound energy future.

The Energy Trilemma

2.Let me begin by posing the energy challenge we face today. It is essentially a trilemma: trying to balance among three often competing ends, namely having energy that is cheap, energy that is diverse, and energy that is clean. We need cheap energy for our economic competitiveness. We need diverse energy supplies for security. And we need clean energy for environmental sustainability. Let me take each of these in turn.

3.First, the era of cheap energy is over. From about 1975 (after the first oil crisis) to about 2003 (on the eve of the Iraq War) – a period of nearly 30 years - oil prices were affordable and oil supplies abundant. Prices ranged between 10 and 30 US Dollars. This helped underpin low inflation, strong economic growth, and rising real incomes globally. Low energy prices meant low transportation costs, which in turn helped to support globalization and spur international trade.

4.The party ended about five years ago. Not because of the US invasion of Iraq – that was merely a trigger event. More fundamentally, the delicate balance between supply and demand began to unravel. Slower growth in production capacity has held back the supply of traditional hydrocarbons, while rapid industrialization and urbanization in China, India, and other emerging markets has fuelled the demand for energy. Oil went from 50 US Dollars per barrel early last year to 100 US Dollars by the end of 2007, and peaked at a record high of nearly 150 US Dollars just three months ago. But then came the explosion of the financial crisis and the spectre of global recession and falling demand. Oil is now trading at about 65 US Dollars .

5.Are the good old days of cheap energy back? We do not know how long oil will stay at 65 Dollars, but we do know that the days of 30 Dollars oil – which the world enjoyed for nearly 30 years – are over. The next one to two years of slower growth will offer some respite on prices, but the fundamental backdrop for the global oil market is one of tightening supply and ever-rising demand. The International Energy Agency projects that global energy demand will increase by more than 50% by 2030 from 2004 levels.

6.Just as low energy prices helped to accelerate globalization, high energy prices could well trigger a reversal. The long-distance supply chains that were viable because of cheap transportation costs will come under threat; so will business outsourcing through data and call centers because these too are energy intensive.

7.Singapore will not be unaffected if these trends occur. A slowdown in globalization will dampen our prospects as a key exchange economy where goods, services, capital, and people flow through. Many sectors of our economy are energy-intensive. Affordable energy is critical for our economic competitiveness.

8.Second, energy security has emerged as a key policy priority in many countries. As we have seen from time to time, geopolitical tensions can quickly tighten supply and drive prices up. More fundamentally, we are observing a shift in the balance of power towards the resource-rich countries which own the majority of the proven energy reserves in the world. They will gain growing influence in the global economy.

9.Former British Prime Minister, Tony Blair, was not exaggerating when he said in 2006 that, “In the future, energy security will be as important as defense.” Access to resources and supply lines have become as critical as protection of national borders and key installations. The security of two critical chokepoints is particularly important – the Strait of Hormuz leading out of the Persian Gulf, and the Strait of Malacca which links the Indian and Pacific oceans. The Strait of Hormuz is just 34 kilometers at its narrowest; that’s smaller than the east-west length of Singapore. The Strait of Malacca is even narrower, just 3 kilometers. About 40% of the world’s oil production flows through these two chokepoints daily. A serious terrorist attack in the Hormuz Straits or pirate attack in the Malacca Straits that blocks shipping can cause severe disruptions in energy supply globally.

10.Similarly in Singapore, we cannot take energy security for granted. About 80% of our electricity is generated from natural gas. And our natural gas supply comes from two countries (Indonesia and Malaysia) via three gas pipelines. Apart from supply disruptions, our neighbors will increasingly require gas for their own domestic needs. Less may be available for Singapore. While we have the capacity to deal with any short-term disruption in the supply of natural gas, our energy security over the long run will depend on our ability to diversify our energy sources. This is why we took the decision to import liquefied natural gas (LNG) to supplement our piped gas. LNG is only the first step. We should not write off any other energy options that can enhance the diversity of our energy supply.

11.Third, the emergence of climate change as a major global challenge has fundamentally altered the energy equation. There is growing scientific consensus that climate change is real, that it is harmful, and that it is mainly caused by the rise in greenhouse gas emissions due to the burning of fossil fuels.Weaning away from our dependence on fossil fuels for energy is going to be very difficult. In fact, the International Energy Agency projects that in 2030, fossil fuels will still contribute about 80% of global energy supply despite strong growth in renewable energy. The quest for clean energy is in many ways the most important quest of the new century.

12.Climate change poses a global commons problem. Any country that unilaterally reduces emissions will incur an economic cost, lose competitiveness, and experience reduced growth. An equitable solution to climate change would thus require collective action from all countries. Although Singapore accounts for only about 0.2% of global emissions, we must be prepared to play our part as a responsible global citizen to address climate change.

13.Our energy policy framework seeks to balance the three objectives that I have just described: namely to ensure economic competitiveness, energy security, and environmental sustainability. The ideal would be cheap, clean energy from diverse sources. But the reality is that there are no easy solutions to this trilemma and careful trade-offs would have to be made when evaluating our energy options.

14.Let’s take solar energy for instance. It has a low carbon footprint and will help diversify our energy sources. And tropical Singapore would seem to be a good location for solar energy. But it is not so straightforward. The fact is Singapore only gets about 4 hours of optimal insolation a day. Our heavy cloud cover also means that solar energy would be intermittent. More importantly, solar energy is expensive – at least by today’s technology. In Singapore, on average, solar energy could cost about two to three times more than conventional fossil fuel based energy. Solar panels are still expensive. And unlike bigger countries such as Germany and Italy which have the space to accommodate large solar farms, Singapore’s dense urban setting and fragmented land parcels mean that we might not be able to reap the full economies of scale.

15.This is not to suggest that we should not consider solar energy. Every energy source currently available presents difficult tradeoffs with respect to the trilemma. We must weigh these carefully and make informed decisions without following fad or fashion. We must also be alert to technological advances that reduce the trade-offs.And there are some areas where the three objectives converge and the trilemma dissolves, such as energy efficiency and conservation. These we should exploit actively.

Clean Energy: Opportunity for Singapore

16.I said earlier that the quest for clean energy is probably the most important quest of this century. Developing alternatives to fossil fuels at competitive prices is the best way to tackle climate change, improve energy security, and sustain economic growth. Indeed, the clean energy industry is seen by many as the “next big thing”, and a key driver of future economic prosperity.

17.Will clean energy take off while oil is still available at reasonable prices and coal supplies still plentiful? Three decades ago, Sheikh Zaki Yamani, the then Oil Minister of Saudi Arabia, made an insightful observation, “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” Just as coal displaced wood without depleting all our forests, and oil displaced coal despite still vast untapped reserves of coal, so too will oil be eventually overtaken by less costly alternatives well before oil reserves run out.

18.Higher energy prices and greater environmental awareness have galvanized a global move towards clean energy. Governments and corporations are placing large bets on clean technology. The global market for clean energy technologies is projected to quadruple to over 220 billion US Dollars in 2016, from 55 billion US Dollars in 2006. Worldwide spending on R&D for clean energy and energy efficiency amounted to 17 billion US Dollars last year[1]. The amount of venture capital and private equity investment flowing into the clean energy sector is third only to the information technology and biomedical sectors.

19.It has now become cool for innovators in other areas to be also involved in clean energy. Take for example Google, which has announced its vision of creating a one gigawatt renewable energy system that is big enough to power a city the size of San Francisco. Or Elon Musk, the co-founder of PayPal, who has developed a battery-powered sports car.

20.The current financial crisis will undoubtedly temper enthusiasm. There may also be difficulty in getting project financing or venture capital. But the underlying logic of clean energy is compelling. China and India will continue to grow, and demand more energy; and concerns with climate change can only increase as global temperatures continue to inch up.

21.Singapore is well-positioned to capture opportunities in clean energy. There are three main areas of potential growth: clean energy manufacturing, clean technology R&D, and energy services. Let me take each in turn.

22.First, clean energy manufacturing. In particular, we are pursuing opportunities in solar energy, biofuels, and fuel cells. We are well-positioned to be a key manufacturer of solar panels given our strong experience in the semiconductor industry and workforce familiar with silicon technologies. Renewable Energy Corporation (REC), a Norwegian MNC, announced last year that it would invest some S$6.3 billion to build the world’s largest integrated solar manufacturing complex in Singapore. When fully developed, it will have a production capacity of up to 1.5 gigawatts, which is about one quarter of Singapore’s current peak demand capacity.

23.We are also well positioned for the manufacture of biofuels. Singapore's proximity and connectivity to Indonesia and Malaysia, which account for 80% of the world’s palm oil supply, has already helped to attract investments from Peter Cremer, Continental and Natural Fuels. Finnish company Neste Oil has committed 1.2 billion Dollars to the world’s largest biodiesel plant in Singapore. Based on the first commercial new generation renewable diesel production technology, the facility will produce the world’s cleanest renewable diesel. Singapore will have a biodiesel production capacity of 1.6 million tons per annum when these projects are completed

24.Second, clean technology R&D. Singapore has intensified its R&D efforts to develop sustainable energy solutions for both domestic applications and the global market. Energy R&D requires skills from disciplines such as precision engineering and materials science - capabilities that our universities have built up over time. The government has committed $350 million for R&D, test-bedding and pilot projects in clean energy, including $170 million from the National Research Foundation (NRF).

25.These efforts have not gone unnoticed.Vestas, the world’s largest supplier of wind power systems, is setting up a $500 million R&D centre in Singapore with 150 research scientists and engineers.

26.Third, energy services and solutions. Singapore is keen to grow as a regional center for carbon price discovery and trading. This strategy plays to our strengths as a sound financial center with strong legal and regulatory systems. Singapore's proximity to large sources of Clean Development Mechanism (CDM) projects in the region has also helped it to anchor premier international emissions trading events here.

27.There are also significant opportunities for energy services companies that provide consultancy and engineering services related to energy conservation and energy efficiency. As Singapore develops best practices in energy efficiency across our industrial, building and other sectors, a critical mass of such companies will emerge – with good track records and the capacity to export to the rest of the world.

28.These are still early days and the energy industry in Singapore is at a nascent phase. What we are trying to do is to create a clean energy ecosystem that includes players ranging from technology providers and energy consultants to financiers and carbon traders. International organizations and non-governmental organizations will also form part of this larger energy community. In this new landscape, opportunities abound for the bold and creative.

Conclusion

29.Let me conclude. Winston Churchill once said that those who build the present only in the image of the past will miss out entirely on the challenges of the future. The drive to meet the triple objectives of economic competitiveness, energy security, and climate change abatement, will transform the shape of the energy industry in future. The clean energy industry has immense potential to grow – both globally and in Singapore. This would mean exciting and wide-ranging job opportunities worldwide for young adults like you – be it in energy R&D, energy solutions, environmental NGOs, or even as policy makers. Summits like these are a good way to prepare for that future, by deepening your understanding and passion about the brave new energy world to emerge. I congratulate Energy Carta once again for organizing this Summit, and wish you the best in your future endeavors.

[1]Global Trends in Sustainable Energy Investment 2008, UNEP/SEFI/New Energy Finance Report