By OGJ editors
HOUSTON, Mar. 4 -- Asia's crude oil markets are characterized by moderately flat regional crude production, rising crude imports, and less crude available for export. While the Middle East continues to be the dominant supplier of crude to the region, the role of the Atlantic Basin crudes is also on the rise, all at the expense of the dwindling share of the region's own oil in its overall crude utilization, said researchers Hassaan Vahidy and Kang Wu in a FACTS Inc. Energy Briefs report released in February.
Regional Asia Pacific crude oil production is expected to be flat through 2005 and slowly decline over the next 5-10 years, due to production decreases in Australia, Indonesia, and Malaysia. Base-case projections are based "on known fields with ongoing and planned development activities," FACTS said. Crude production could be higher if new discoveries are considered.
China, Indonesia, Malaysia, Australia, and India are the "Big Five" largest crude oil producers in Asia, accounting for 89% of regional production in 2002, and their dominance is likely to continue in the near future.
Including lease condensate but not other natural gas liquids, higher oil production in China, mostly from higher offshore oil production, and to a lesser extent India and Viet Nam, is responsible for an increase in Asia-Pacific crude production to more than 7.5 million b/d in 2002, up from 7.4 million b/d in 2001, FACTS Inc. said.
China's 2002 crude output, about 3.4 million b/d, is expected to increase continuously at a moderate rate over the long run, but Indonesia's production is declining and is expected to continue to do so. Possible new finds "may not be enough to compensate for the natural decline of existing fields," FACTS said. Barring a sizable increase in upstream exploration activities, Australian production also is likely to decrease in the long term.
Malaysia's crude and condensate production is expected to maintain a level of more than 700,000 b/d through 2005, but may decline afterwards unless new oil fields are developed, and although India's production is now stable, growth will be sluggish later. Its domestic crude is geared to a domestic market well below refinery demand, resulting in sizable imports. "Unless India adopts a more open foreign investment policy in the upstream oil and gas sector, a significant increase in oil production would be unlikely" during the next 10 years, FACTS said.
Exports
With declining production of mostly sweet, light and heavy, waxy crude and a rising internal demand for its own crudes in many of the Asia-Pacific region's exporting countries, export availability may decline faster compared with production.
In 2001 the Asia-Pacific region exported 2.1 million b/d of crude oil, but the region's export availability is forecast to decline to 1.9 million b/d in 2005 and 1.3 million b/d in 2010.
Together, Indonesia, Australia, Malaysia, Vietnam, Brunei, and China account for 96% of all crude exports in Asia, and they market nearly 95% of their exports to other Asian countries within the region. Therefore, the Asia-Pacific region continues to depend to a large extent on crude oil imports from the Middle East, accounting for more than 60% of Middle East exports.
Indonesia, which exported 685,000 b/d in 2001, is the largest Asian exporter. Australia is second. Both face long-term declines in export availability if no new finds are made in the upstream oil sector.
Malaysia's exports are expected to rise by 2005, thanks to a projected increase in oil production. But beyond 2005 production is uncertain, and FACTS researchers forecast a decline.
Viet Nam currently exports over 99% of its crude and imports nearly all its required products, but after completion of its first refinery in 2005-10, its crude exports will decline notably.
China, a net crude importer, exported only 151,000 b/d of crude oil in 2001, much lower than its 208,000 b/d in 2000, and exports in 2002 appear to be down further. In the long term, China's crude production is expected to continually increase at moderate rates, but "high domestic demand will reduce China's crude export availability to negligible levels," FACTS said.
Middle East, other imports
The Middle East supplies about 10 million b/d to its biggest customer, the Asia-Pacific region—more than three fourths of the region's oil import requirements.
This relationship is expected to strengthen even further as Asian crude production plateaus and demand increases, FACTS said. The Middle East will continue to be Asia's preferred supplier because of geographic proximity and absence of alternatives for Asia.
Of the top five oil importers in Asia—Japan, South Korea, India, China, and Taiwan, which make up more than 75% of imports into the region—Japan depends most heavily on oil from the Middle East (85% because of its refining configuration), followed by South Korea 75%, India 75%, Taiwan, and China 56%.
Most crudes from the Middle East have medium-to-heavy gravity and high sulfur content. Almost three fourths of Middle East crude is less than 34° gravity and more than 1% sulfur. West African grades of 35° gravity, imported to Asian countries primarily from Nigeria and Angola, can bridge any gap between changing product specifications and refining infrastructure in the Asian market.
However, on the basis of freight, West African crudes remain at a disadvantage, so volumes of West African imports to Asia are likely to remain at 0.5-1.7 million b/d through the end of this decade.
Almost 60% of Middle East crude sales to Asia are based on a formula pricing mechanism: Generally an average of Dubai and Oman is used as the marker for sales to Asia; Brent is used for Europe bound sales; and West Texas Intermediate is used for sales to the US.
Import dependence
During the next 10-15 years, sluggish oil production growth in Asia is likely as petroleum product demand rises at faster rates. "Base-case projections show that the overall petroleum product demand in Asia is likely to grow at an average annual rate of 2.5% "during 2002-15.
Oil import dependence in the region will rise, especially after 2005. In 2001, the import dependence of the Asia-Pacific region was 62%. It is projected to increase to 65% in 2005 and 70% by 2010, which is equivalent to a net oil import requirement of 17.5 million b/d, up from 12.7 million b/d in 2001.
Oil supplied from within the region is likely to account for less than 30% of the region's oil consumption in the Asia Pacific region in 2010 and beyond. While the Atlantic Basin crudes are likely to play a bigger role in supplying oil to Asia, the dominance of Middle East crudes will continue, FACTS said.
"The increasing level of oil dependence on the Middle East is likely to result in close economic and political-military relationship between Asia and the Middle East. But at the same time, it may well persuade the emerging large buyers, such as China and India, to act more in line with the international community in terms of political ties with the region," FACTS said.
