Green shift in Asia just got an edge – thanks to Trump

By Yaroslav Marakov | June 14, 2017

President Trump’s decision to walk out of the Paris agreement on climate is still making waves around the U.S. and across the globe. While there are legitimate concerns about the future of our planet, it is important to acknowledge that Trump’s move apparently has some unintentional but positive consequences - at least for the renewable energy sector in Asia.

Trump’s announcement last week was met by understandable enthusiasm from the U.S. shale drillers, who are eager to come back to the global oil market. In the heat of the moment, many observers seemed to have overlooked the extent of the supposed comeback. According to some estimates, by next year the U.S. can add about 1.5 million barrels per day to the global production. This essentially nullifies the recent “landmark deal” between the OPEC countries and Russia on 1.8 million barrel production cuts that was supposed to drive the prices back up. It looks like the oil will stay cheap.

What exactly does that mean for the Asian renewable energy sector? In recent years, we’ve grown accustomed to the idea that the progress of renewables does not depend that much on the oil price volatility. It does not seem to affect the pace of progress in green technology. There are also not many industries with direct competition between these two sectors. Oil still reigns in transportation, despite Electric Vehicles (EV’s) are often cited as the next big thing. Renewables are still more prominent in electricity generation than in personal vehicles, although growth is strong in both areas.

The key competitor for renewables among fossil fuels is actually natural gas - and the Asian market is their biggest battleground. Now, after Trump rolled out his promise of more cheap oil, the gas suppliers have a problem because the price of gas in Asia is traditionally linked to the price of crude.

The natural gas industry already has a handful of troubles in the region. A few years ago, the suppliers have severely overestimated the expected demand for fuel which turned out to be significantly lower, due to the slowing down China but also in highly gas-dependent Japan and South Korea. According to the industry estimate, the regional oversupply of natural gas in 2017 will reach about 54 million tons (about 16% of gas entering market). This supply glut, along with low oil prices, keeps investors from financing new natural gas projects.

Some of the industry leaders expressed hope that the current glut is only temporary and the demand will pick up again by around 2020. But the cheap oil means that the gas sector probably has to prepare for a longer investment drought. Meanwhile, in its report from last year by global think-tank The Brattle Group warned that the declining financial viability of natural gas projects gives a strong edge for renewable energy in Asia, meaning that if the gas suppliers at some point have to slow down their production due to continuing lack of investment, the vacant niche will be easily filled by renewables.

With its $360 billion of expected investment in green energy projects, nations like China are prepared well for the eventual gas supply crunch in the era of cheap oil, prolonged by Trump’s abrupt exit from Paris Accord. But others, like Japan is still overcommitted to natural gas, and needs to think more about balancing out their energy mix. Overall, it looks like the renewables have a good opportunity to make a strong case to directly replace natural gas in Japan specifically. If Japan and also South Korea were to join China in its renewable endeavor, that would give the sector an enormous boost echoing around the world – and hopefully even reaching the Oval Office.

Yaroslav is an MIA student who came to GPS after several years of international news reporting. He is interested in the analysis of political risk in heavily regulated industries, including energy, health, telecommunications, and trade. Yaroslav is also the new Director of Communications at JIPS.

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