Asia-Pacific oil dependence, imports to grow

April 15, 2002
Crude oil production in the Asia-Pacific region has been flat since the mid-1990s. Despite many uncertainties, the region is more likely to see its long-term production decline rather than increase during the next 10 years.

Crude oil production in the Asia-Pacific region has been flat since the mid-1990s. Despite many uncertainties, the region is more likely to see its long-term production decline rather than increase during the next 10 years.

Meanwhile, the share of light sweet crudes in the Asia-Pacific region's total oil production will also continue to decline.

The overall use of crude oil is forecast to increase rapidly in Asia, mainly due to rising refinery runs. Much of the rising crude use in Asia will come from imports, currently 59% of the total Asian crude use and projected to increase to an unprecedented level of more than 70% by 2010.

The dominance of the Middle East in satisfying Asia-Pacific's demand for imports is unlikely to change under any scenario, but the role of the Atlantic Basin crudes is also important, all as a result of the declining regional sweet crudes in Asia.

The Asia-Pacific region has been a big net oil importer for many years. Because China's net imports are increasing fast, to be followed by Indonesia and Malaysia either in this or the next dec- ade, the region will continue to face a precarious crude oil supply balance for years to come.

Demand, import changes

There has been little change in Asia's crude oil markets in recent years. The region continues to produce 7-8 million b/d of crude each year, while the gap between crude use and regional production is met by imports.

What has been changing, however, is the structure of crude oil use and imports. Changes in refinery throughput-the dominant method of crude use in Asia-serves also as an indication of the softness or tightness of the Asian crude oil market.

This article provides an update on Asia's crude oil production, export availability, import requirements, and overall crude oil balance. In addition, the structure of crude production, utilization, and imports is examined in further detail.

Regional oil production

The trademark of Asian crudes is their low sulfur content, although a few streams, mainly located in China's Shengli area fields, contain sour crudes. The low-sulfur crudes in Asia are also divided into heavy (including medium) and light grades.

Australia, Indonesia, Malaysia, Thailand, Pakistan, Papua New Guinea, and some other, smaller countries produce most of the light, sweet crudes. China, Viet Nam, and others are heavy, sweet crude producers, while Indonesia, India, and Brunei produce both.

On an overall basis, heavy, sweet crudes (including medium grades) account for about three fourths of the regional crude production. The share of light, sweet crude, however, has begun to decline since 2000. During the next 5-10 years, despite small output increases in Australia in the short term, the overall share will continue to decline-by more than 5% from 2000.

In 2001, the Asia-Pacific region's crude oil production is estimated to have reached about 7.7 million b/d, about the same as in 2000.

China, Indonesia, Malaysia, India, and Australia are the largest oil producers in Asia. These countries accounted for an estimated 89% of the total regional crude production in 2001, but this figure is down from nearly 95% in the mid-1980s.

During the next 5-10 years, regional crude oil production is expected to decrease to 7.5 million b/d in 2005 and 6.9 million b/d in 2010 under an East-West Center base-case scenario, owing to production decreases in Australia, Indonesia, and Malaysia. Projections of the base-case scenario are based on known fields in the region.

Assuming new discoveries, however, regional production could increase as much as 9.1 million b/d in 2010 under a high-case scenario. Conversely, if the investment is insufficient to ensure enough recovery from known fields, regional production could fall to 5.9 million b/d under a low-case scenario. This range reflects huge uncertainties in countries such as China, Indonesia, Australia, Viet Nam, and Malaysia.

Available oil exports

Crude oil export availability for an individual country is defined as the difference between crude oil production and the country's use of its own crude. Export availability for the total Asia-Pacific region will be the sum of available crudes for exports from all countries in the region.

The current major crude exporters in the region are Indonesia, Malaysia, Viet Nam, Australia, China, Brunei, and Papua New Guinea. Among these exporting countries, Viet Nam exports over 99% of its crude, and it imports all the products it requires.

China, which was the second largest crude exporter in the region during the mid-1980s, became a net oil importer in 1993, and is a huge importer of crude oil today. Australia, currently a sizable crude oil exporter, imports a large volume of Middle East crudes at the same time.

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In 2000, the Asia-Pacific region exported 2.2 million b/d of crude oil. The export availability is projected to decline to 1.6 million b/d in 2005 and to less than 1 million b/d in 2010 (Table 1).

Regional use

Crude oil is used mainly in refineries in Asia, although Japan is also a major user of crude oil for power generation, followed by China. In 2000, the Asia-Pacific region refined 18.1 million b/d of crude oil and burned 300,000 b/d for power generation and industrial use. By 2010, while the volume of direct crude burning is expected to be lower, the total refinery run is projected to increase to 23.1 million b/d (Fig. 1).

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In addition to indigenous production, crude oil imports represent an important part of the overall crude oil usage in Asia, and its importance is growing. The increasing crude oil imports account for much of the projected rise in overall crude oil use in Asia, because of the region's own stagnating crude supply.

Of the 18.4 million b/d of total crude used in the Asia-Pacific region in 2000, about 52% came from the Middle East and 7% from other parts of the world, mainly West Africa, but also Russia, Latin America, and Alaska. Asia-Pacific itself produced 41% of the crude oil it used.

Future crude oil import requirements will be crucially dependent upon refinery construction in the region during the next 10 years.

Based on the East-West Center's survey of regional refining industries, it is obvious that a few countries are continuing with plans to expand their refining and upgrading capabilities.

By 2010, total crude oil usage in the Asia-Pacific region is projected to be 23.1 million b/d-up substantially from 2000. Oil imported from outside the Asia-Pacific region will supply about 70% of the total projected crude usage in 2010. Of that amount, the Middle East will supply 62% of the amount used-up from 52% in 2000-while crude imported from other parts of the world is forecast to supply 8% of the crude used. Asia-Pacific will produce only 30% of its own crude usage requirements.

Middle East supply role

The Middle East plays a dominant role in supplying crude oil to Asia. Of the total crude imports of all Asia-Pacific countries in 2000, the Middle East accounted for 74%; the balance was supplied by intraregional imports and imports from other regions, mainly the Atlantic Basin (Fig. 2).

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By 2010, the Middle East is expected to supply nearly 84% of all Asian country imports, while the share of intraregional imports will decline to 5% and that of other regions will rise to 11%.

Atlantic Basin supplies

In addition to Middle Eastern crudes, imports of Atlantic Basin crudes-mainly those from West Africa-into the Asia-Pacific region have been on the rise in recent years.

In fact, Atlantic Basin crudes account for the majority of crude exports into Asia from non-Middle East sources, as exports from other areas such as Russia and Central Asia remain insignificant.

The attractiveness of Atlantic Basin crudes is their low sulfur content and especially their relatively transparent prices compared with Middle Eastern crudes.

The tightening specifications of refined products in Asia require more sweet crudes. Because the Asia-Pacific region's sweet crudes available for exports will be scarce, however, imports of sweet crudes from Africa-and possibly the North Sea-will increase.

The Asia-Pacific region imported about 1.2 million bo/d from the Atlantic Basin in 2000. Four Asia-Pacific countries were dominant as major importers of Atlantic Basin crudes: India 28%; China 26%; South Korea 22%; and Taiwan 15%. Others imported the remaining 9%.

Except for China, the major importers are heavily influenced by the tighter specification requirements and the inability of the refinery hardware to produce the needed specs with Middle East crudes. For some refiners, the African-North Sea imports availability has meant avoidance of refining investment.

Our analysis indicates that at present there is a floor volume of 0.5 million b/d and a ceiling volume of 1.5 million b/d of Atlantic Basin crudes needed to satisfy the Asian crude diet. The volume is dependent on Brent-Dubai differentials.

By 2005 and beyond, more Russian crudes will become available to Asia, particularly to China. Our forecasts indicate that imports of crudes from the Atlantic Basin and Russia will rise to 1.6 million b/d in 2005 and 1.9 million b/d by 2010, of which 10-15% will be from the North Sea and the remainder from Africa.

Import dependence

Oil import dependence is defined as the share of oil import requirements in the overall oil demand. Here, the overall oil demand is defined as "crude runs plus direct burning of crude plus net product imports."

The concept intends to capture all crude oil and products used in the region. In addition, the overall production is the total of crude oil output plus nonrefinery natural gas liquids and condensate, while oil import requirements are defined as "the difference between the overall oil demand and production."

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Based on the above definition, the overall oil import dependence in Asia is expected to increase rapidly, especially after 2005 (Table 2). In 2000, import dependence was 61%. It is projected to increase moderately to 65% in 2005. However, by 2010, import dependence is forecast to surge to 72%, which will create a very challenging situation for many Asian nations.

Concluding analysis

Crude oil production in the Asia-Pacific region has remained stagnant in the recent past. During 1997-2000, regional crude production was up only 72,000 b/d, while the total crude use (refinery runs plus direct crude burning) was up over 1.8 million b/d.

The increasing gap was met by rising crude imports into the Asia-Pacific region. During the next 10 years, the gap is expected to widen significantly, especially under the scenario of projected regional production decline.

In the meantime, crude export availability from Asian producing countries is also likely to decline, while light, sweet crudes will be harder to find in Asia. With the rising imports, the Middle East will continue to play a dominant role in meeting Asia's increasing hunger for oil, while Atlantic Basin crude imports will increase.

The author

Kang Wu is a fellow at the East-West Center in Honolulu and head of the center's China Energy Project. Wu's research interests and studies include energy economics, energy policies, energy market developments, downstream oil sector issues, and the environmental impacts of fossil energy consumption, with particular emphasis on oil and gas. He specializes in oil and gas sector issues in China and other countries in the Asia-Pacific region. Wu holds a PhD and is the author or coauthor of many project reports, journal articles, conference papers, and other publications.