Oil Substitution in ASEAN: Problems and Prospects

Abstract

The increase in the price of internationally traded oil that took place during the 1970s gave rise to widespread problems of economic and energy adjustment throughout the world. In the oil-importing countries, oil imports made increasing claims on export earnings and caused balance-of-payments problems. In addition, the coupling of the energy system and the economic system led to accelerated infla tion, and lower economic growth rates, and almost every aspect of economic activity was affected because of the escalation in oil prices. Thus, reducing oil demand has become a matter of great urgency for these countries. The oil exporting countries, on the other hand, were beneficiaries of the rise in oil prices. However, they were faced with the problem of rapid growth in domestic oil demand resulting from the sudden increase in national income and, in many of these countries, the setting of domestic oil product prices at levels substantially lower than international levels. These countries have now also realized the need to reduce domestic oil demand, both for the purpose of channelling more of the oil produced for export and for conserving this depletable resource for the long-term future. The present uncertainty surrounding the world oil supplies is expected to remain unchanged in the foreseeable future. Internationally traded oil will con tinue to be the main balancing fuel to meet fluctuations in energy demand, and sudden changes in the price of oil due to scarcity or glut would in the future, as in the past, adversely affect economic growth.1 This further reinforces the need to reduce oil use and diversify the sources of energy supply, particularly in the coun tries which are highly oil-dependent. There are two possible ways of reducing oil use: to use it more efficiently, and to increase the use of alternative energy sources. This paper is concerned with the latter. More specifically, it is concerned with the problems and prospects of switching away from using oil as an energy source, or to find an oil substitute, in ASEAN.