Surging economic growth in the Far East will push up world crude oil demand steadily in the 1990s despite the current economic downturn.
It will fall to members of the Organization of Petroleum Exporting Countries to meet that increased demand, given the expected decline in nonOPEC production. And because OPEC members in the Persian Gulf region are best positioned to meet the increase, the balance of power in oil markets will shift even more in favor of the Middle East.
Seaborne oil exports from the Middle East will jump almost 30% by 1997 from 1991 levels. There will be a worldwide rise of 16% in the volume of seaborne crude oil trade, with a 29% hike in movements of refined products by tanker.
Those are among the findings of a report by Drewry Shipping Consultants Ltd., London.
Drewry said, "It is expected that 1992 will be a low point in non-OPEC output and that production levels will recover steadily from 1993 onward, although not rapidly enough to match the anticipated rise in demand."
Drewry estimates non-OPEC production in 1997 at 37.1 million b/d vs. 38.1 million b/d in 1991.
Therefore, with non-OPEC production falling by 2.6% between 1991 and 1997, OPEC producers will have the scope to increase their output by almost 32% over the same period."
MAIN FINDINGS
Here are some of Drewry's main findings:
- About 10.22 billion bbl of crude oil and 1.98 billion bbl of refined products were shipped by sea in 1991. By 1997, those volumes will rise to 11.83 billion bbl and 2.55 billion bbl, respectively, although no significant trade growth will occur before 1994.
- Most of the additional crude and products supplies are likely to come from the Middle East. Seaborne exports from the region will rise to 7.52 billion bbl in 1997 from 5.85 billion bbl in 1991.
- Total demand for oil tankers, measured at 198 million dwt in 1991, will rise 13% to 224 million dwt by 1997. Measured employment, including avoidable operating inefficiencies, will rise 13% to 260 million dwt during the same period.
- The 13% increase predicted in oil carrier demand during 1991-97 is less than the forecast growth in the volume of oil trade because geographical changes in the structure of movements are liable to reduce average haul distances.
- The most rapid rise in tanker demand is likely to occur in the 90,000175,000 dwt category. However, this depends on resumption of Iraqi crude oil exports from the eastern Mediterranean and, in the longer term, an increase in Suez-Mediterranean (Sumed) pipeline capacity.
DISRUPTION
The Persian Gulf war and economic recession in major consumer nations stunted the pattern of steady growth in demand for crude and refined products that characterized the 1980s, Drewry said.
World crude oil and NGL production fell slightly in 1991 and will stay at about 62 million b/d in 1992-93.
During 1986-91, increased crude production was matched by a rise in traded volumes. In the 1991-97 forecast period, Drewry expects that for every 3 bbl of additional crude oil production, 2 bbl will be added to world trade flows.
The loss of refined product exports from Kuwait caused by the Persian Gulf war was offset by increased crude trades from the Middle East to Southeast Asia and the Far East, with a local trade building up in refined products. The Mediterranean also became an important source of exports to eastern Asia during 1991 and 1992.
U.S. DEPENDENCY
As oil production declines, Drewry said, the U.S. must rely increasingly on imports. U.S. and Canadian crude imports will rise 20% from 1991 to 7.82 million b/d by 1997. Refined product imports will rise by 23% during 199197 to 1.28 millon b/d.
Latin America, one of the most important U.S. sources of crude and products imports, faces growing local consumption. Imports of crude from Mexico, the Caribbean, and Central America will slide 33% to 980,000 b/d during 1991-97. Refined products imports from Puerto Rico, Trinidad and Tobago, and Aruba also will shrink - to 640, 000 b/d in 1997 from 720, 000 b/d in 1991.
Successful exploration and development in South America, aided by liberalization of the oil industry 'm a number of countries, will reduce that region's crude oil imports requirements, Drewry said, and allow a rise in exports. However, this will not be enough to meet rising demand from North America.
EUROPEAN OUTLOOK
Western European crude oil supplies will come under pressure as North Sea production peaks at 4.84 million b/d in 1995-96, Drewry predicted. This will inevitably lead to a rise in crude imports, although planned refinery capacity additions should see products imports tail off, peaking at 2.9 million b/d and slipping to 2.34 million b/d in 1997.
Eastern Europe's shift from centralized planning has dampened oil demand there, as did removal of price controls and a shortfall in low cost Soviet supplies. Long term, Drewry said, increased investment in refinery upgrades will spur growth in eastern European capacity as product demand there remains flat. That will result in a doubling of the surplus for export during 1991-97, to 740,000 b/d.
In the former U.S.S.R., oil price rises and lack of spending for refinery maintenance could hold back domestic oil consumption considerably the next few years. Problems upstream are being tackled, but current developments are unlikely to come on stream quickly enough to reinstate the region as a major exporter.
C.I.S. crude production will fall to 9.16 million b/d in 1997 from 10.56 million b/d in 1991, with exports for the period dropping to 700,000 b/d from 1.58 million b/d.
Independence from Moscow has encouraged some republics, notably Kazakhstan and Azerbaijan, to take an active role in developing hydrocarbons. It is possible, Drewry said, that a separate oil market will emerge, centered on the Caucasian and Central Asian republics.
MIDDLE EAST, AFRICA
The Middle East is set to dominate the world oil market to a much greater extent as the decade progresses, Drewry said. Crude oil exports will increase 29% in 1991-97 to reach 16.96 million b/d. Exports of refined products could more than double from the depressed level of 1 million b/d in 1991 to 2.2 million b/d in 1997.
Established African exporters will play a bigger role in the crude supply market. New field developments and slow growth in domestic demand will allow African crude exports to rise 23% from 1991 to 5.92 million b/d in 1997.
Little development of Africa's downstream sector is predicted, so products exports are expected to stay at the 1992 level of 740,000 b/d to 1997.
Imports of crude and products in Africa are likely to grow slowly, as gradual economic growth in nonproducing countries leads to additional demand.
SOUTHERN ASIA
Surging economic growth in Asia has that region poised for a boom in crude and products demand.
Industrial demand on the Indian subcontinent is expected to grow rapidly. With little additional refinery capacity expected to go on stream in that region soon, this points to a major increase in products imports. That could be affected by India's plans to sharply boost refining capacity in the decade, with a corresponding 50% rise in crude imports - although India's refinery plans have been dealt setbacks in recent years.
Drewry said products imports in southern Asia could double by 1997 from 1991 levels to 680,000 b/d, even allowing for a 60% rise in crude oil input to local refineries.
Regional crude oil imports will rise from 22 million metric tons/year in 1991 to 36 millon metric tons/year in 1997.
Most additions to world refining capacity are planned in Southeast Asia. This will lead to a marked change in local oil trades.
Southeast Asian imports of crude will rise to 2.34 million b/d in 1997 from 1.84 million b/d in 1991. While refined products output will rise to 2.54 million b/d from 1.84 million b/d in the same period, local demand will soak up most of the extra production.
FAR EAST
Far East crude oil imports are projected to increase by 13% to 1.36 million b/d during 1991-97, mainly to feed new refinery capacity. Yet the rapid pace of economic development in the region could also spur an increase in imports of refined products from 1991's 200,000 b/d to 460,000 b/d in 1997.
It is conceivable that further additions to the region's refining capacity will be announced in coming years, Drewry said, although much will depend on developments in Japan.
While China has significant oil production, it is short of refining capacity. The expected rapid industrialization of China will lead to increased refining investments as crude oil exports and product imports grow. It is unlikely local crude oil production will keep pace with growing demand, so China will have to increase its products imports at a far higher rate.
Any recovery in the economies of Japan and Australasia is likely to be gentle rather than sudden. Both regions should see slow growth in imports of crude and products.
Japan imported 4.14 million b/d of crude in 1991 and will require 4.8 million b/d in 1997. Imports of products will rise to 1.18 million b/d from 1.02 million b/d in the same period. Government regulation of the downstream sector clouds the Japanese picture, Drewry said.
Few additions to capacity are projected in Australia and New Zealand. With the abundance of local natural gas, demand for crude oil will be held at about its current level of 320,000 b/d. Products imports will rise from last year's 200,000 b/d to 800,000 b/d in 1997.
SEA TRADE GAINS
Total seaborne oil trades increased 18.4% in 1986-91 to reach 34 millon b/d. This trend will continue, with a 17.2% jump expected by 1997 to 39.4 million b/d.
Crude oil accounts for 81% of seaborne oil trade, although this is expected to decline as export refineries come back on stream in the Middle East.
The Persian Gulf war sharply cut products trades, which fell to 5.1 million b/d in 1991. By 1997, however, this will have recovered to the prewar level of 7 million b/d.
Organisation for Economic Cooperation and Development (OECD) countries accounted for 72% of total seaborne crude oil imports in 1991, with the developing countries of Southeast Asia accounting for 9% of demand.
The Middle East remains the major source of seaborne oil trade, accounting for 53% of world exports of crude in 1991. West and North Africa together contributed 17%.
The Middle East is likely to be the main growth area in the 1990s, with seaborne exports forecast to rise 25% to 18.34 million b/d in 1997. By that time the region will account for as much as 58% of world crude oil trade.
OECD members took 67% of world seaborne imports of products in 1991. This proportion will remain stable to 1997.
In contrast, the increase in overall refinery capacity in Southeast Asia and the Far East will lead to falling product imports in those regions, although this will be somewhat offset by rapid oil demand growth in China and the Indian subcontinent.
Again, the Middle East, which accounted for 17% of world seaborne exports in 1991, is the main potential growth area. By 1997, the Middle East share could reach 30% as damaged refineries go back on stream and new plants are added.
Drewry noted there has been a strong trend toward producer nation companies taking a bigger share of the seaborne oil trade, particularly in the Middle East and the Caribbean.
Companies such as Saudi Aramco Oil Co. and National Iranian Oil Co. are playing a much larger part in the transport of their crude oil and refined products.
The volume of crude oil sold by exporter nations under term contracts has burgeoned in recent years, with Saudi Arabia and Iran each now selling about two thirds of their production that way.
SUEZ TRAFFIC
There was an increase of cargoes of crude and products using the Suez Canal in 1990-91 because pipeline exports from Iraq were replaced with seaborne exports from Saudi Arabia and the United Arab Emirates.
Northbound Suez traffic in 1991 still was well below 1983-86 levels of 1.59 million b/d. Southbound traffic rose to 280,000 b/d in 1991, short of the 1983 level.
Declining Suez canal traffic is largely due to increased throughput in the 320 km Suez-Mediterranean (Sumed) pipeline from Ain Sukhna in the Gulf of Suez to Sidi Kerir on the Mediterranean coast west of Alexandria.
From 1986 until the 1990-91 Persian Gulf crisis, Sumed throughput averaged about 1.2 million b/d. After the crisis ended Iraqi exports, throughput rose to 1.67 million b/d in 1991.
Plans to expand the Suez Canal's capacity can be expected to result in increased northbound and southbound traffic, Drewry said. The Suez Canal Authority is considering a $1.2 billion program to deepen the canal from its current 53 ft draft to 67 ft. This would allow transit by laden tankers as large as 250,000 dwt, compared with the current maximum of 150,000 dwt. The extent of increased traffic is likely to be affected by volumes of seaborne products exports from the C.I.S. and Mediterranean countries and by freight rates.
When freight rates are high, the time saving offered by the canal becomes more valuable, while owners are prepared to sail around South Africa and save on canal tolls when freight rates are low, as they are now.
Panama Canal traffic continues to decline, reaching 380,000 b/d in 1991. There seems little likelihood of any profound changes in the form or structure of the Panama Canal, Drewry said, although channel widening at the Pacific entrance to the canal is likely to continue.
CARRIER DEMAND
Tanker employment will rise 13% by 1997 from 1991's level to 260 million dwt. This will be highest for 90,000-175,000 dwt vessels because of the expected return of Iraqi loadings in the eastern Mediterranean as well as expansion of the Sumed pipeline.
Demand for 10,000-45,000 dwt tankers will be reined by constrained demand for refined products in main consumer countries. Intraregional demand could increase as new refinery capacity goes on stream.
Tankers in the 45,000-90,000 dwt category will see demand increase in line with overall products demand growth, Drewry said. These will benefit particularly from any increase in long haul trades, such as the forecast eastbound exports from the Persian Gulf.
Similarly, very large crude carriers - more than 175,000 dwt - and ultralarge crude carriers - more than 300,000 dwt - will see demand growth in line with overall oil demand levels.
In the short term, a resumption of supplies from the eastern Mediterranean will shift demand away from the Persian Gulf, but in the long term exports from the gulf will make up the majority of incremental supplies.
FUTURE INFLUENCES
"World oil prices will continue to be the major influence over the shape and pattern of world oil trades," Drewry said. "In the near term, the most significant factor in setting prices will be the market's expectations over the timing and extent of a return of Iraqi supplies to the world market."
In the medium term, the C.I.S. will have a profound effect on the level of demand for OPEC crude and therefore on the ability of OPEC to manage oil prices.
"Over the longer term, there are a number of important factors, such as the level of international investment in the upstream sector, the degree to which natural gas is substituted for crude oil, and the impact of environmental legislation."
A number of factors could disrupt the correlation between oil prices and consumption levels, and therefore oil tanker demand, Drewry said. The factors include expansion of the Suez Canal and introduction of a large environmental tax by the European Commission or other major consumers.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
