Sam Fletcher
Senior Writer
Petroleum product demand in Asia is projected to rise 584,000 b/d/year through 2030, with China accounting for 58% of regional incremental demand, said analysts at FACTS Global Energy Inc. in Singapore. Gas oil and gasoline will contribute 39% and 20%, respectively, of this regional growth, they said.
Asian petroleum product demand is expected to rise to 38.3 million b/d in 2030 from 26.6 million b/d in 2010. China's oil demand is projected to increase by 6.8 million b/d over the same period.
"China's oil consumption per capita is still relatively low compared with developed countries," FACTS analysts said. "In the longer term through 2030, we project robust demand growth for transport fuels (namely, gasoline, road diesel, and jet fuel)," they said.
Following a pause in 2008, Asia Pacific oil demand growth rebounded over the next 2 years, up 2.1% and 5.1% in 2009 and 2010, respectively. "This was driven by strong economic recovery on the back of moderating crude oil prices," FACTS reported.
Analysts estimated developing Asia's economy (excluding Japan) grew about 9% last year from 5.9% in 2009. "While the economic growth in the region is expected to remain robust this year, a mild deceleration is to be expected after a strong rebound last year, with a projected growth of 7.8% for 2011," they said.
If oil prices rise to the mid-2008 record of nearly $150/bbl, some observers claim 2011 could be repetitious with another collapse in oil demand and a second dip into recession. Fear that political upheaval in the Middle East and North Africa (MENA) could disrupt world oil supplies has reintroduced a "geopolitical risk premium" in oil markets.
FACTS analysts said they expect oil prices may trend lower in this year's second half as the geopolitical condition in the MENA area improves. "We expect Dubai prices to average $104.83/bbl for 2011, up notably from $78.04/bbl in 2010, but the global economy should still be able to handle such a price level," they said, adding, "It is worth mentioning that the global economy is currently in a recovery state, as opposed to 2008 when the US economy was already in recession."
FACTS's latest projection for total Asian oil demand growth this year is 900,000 b/d, down from 1.3 million b/d in 2010. "Apart from slower economic growth, higher oil prices are also impacting demand growth negatively. The latter effect, however, is cushioned to some extent in Asia as fuel prices in many countries are still subsidized by the governments, so it is not surprising that Asia will contribute to 52% of global oil demand growth in 2011, up from 44% last year," they said.
Chinese driven
China is the engine driving oil demand growth in Asia. "Prior to the recent global economic crisis, China contributed on average 70% of Asian incremental oil demand between 2004 and 2007," said FACTS analysts. "While the demand of the rest of Asia contracted by 216,000 b/d and 108,000 b/d in 2008 and 2009, respectively, China continued to post a growth of 215,000 b/d and 637,000 b/d over the same period."
China's real gross domestic product is estimated to have grown 10.3% in 2010 and is projected to grow 9.5% this year, driven by domestic demand. "We expect that petroleum product demand growth will be slower at 5.6% in 2011, down from 10.8% last year, due to lower economic growth as a result of monetary tightening, and the strong growth and high demand-base built during 2010," FACTS analysts reported.
Many analysts expect more aggressive moves by the Chinese central bank to contain inflation. Last October, China surprised the market by raising interest rates for the first time in almost 3 years, lifting the official cash rate by 25 basis points. China has since raised rates three more times; the last being Apr. 5. "However, China will still lead Asia with 510,000 b/d of net growth expected for 2011, contributing to 55% of Asian oil demand growth," said analysts at FACTS.
Despite China's strong growth in recent decades, the country's oil consumption per capita is still relatively low compared with developed countries such as Japan and South Korea. FACTS analysts expect strong growth in petroleum product demand in China through 2020 due to rising income as urbanization continues. China's population is expected to increase by 4.7% between 2010 and 2020, with China accounting for 68% of Asian demand growth in that period.
Beyond 2020, however, FACTS has "drastically" lowered its demand forecast, based on the Chinese government's desire ultimately to cap energy use by 2040. China's petroleum product demand is projected to increase 2.2 million b/d in the decade to 2030, down from 4.6 million b/d in 2010-20.
China's contribution to Asia's demand growth between 2020 and 2030 will be less compared with the previous decade, but still high at about 46%. "As a result of China's strong growth, its share of Asia's total oil demand is projected to increase from 34% in 2010 to 42% in 2030," said FACTS analysts.
Asian demand
Meanwhile, it's obvious the global economic crisis has had a pronounced effect on Asian oil demand. "There was no growth in 2008, but the effects were not equal across all products," FACTS analysts said. Gasoline demand grew through 2008 and 2009 as a result of rising car sales "on the back of low interest rates and targeted fiscal policy measures in some countries," they said. But demand for fuel oil fell because of further contraction in Japan and substitutions in the power sector.
Demand for naphtha, kerosine, and jet fuel fell in 2008 as the region's economy weakened. Demand for kerosine and jet fuel remained weak in 2009 while demand for naphtha rebounded. "The effect on gas oil demand was not immediate, where growth was relatively healthy in 2008, before it started to shrink in 2009," analysts said.
There was growth across all products in 2010. "Increased industrial activities meant that gas oil demand started to come back strongly, albeit from a weak base in 2009," the analysts said. "Naphtha remains the dominant petrochemical feedstock in the Asia-Pacific, and the rapidly growing new capacity in the region has given strong support to naphtha demand," they said. "Gasoline demand continued to grow last year as car sales remained strong."
Economic growth among developing Asian countries is expected to increase to 7.8% this year. But FACTS analysts expect petroleum product demand growth to slow to 3.5% (or 930,000 b/d) because of higher oil prices. "Gas oil will continue to drive the demand growth this year," they said. "Fuel oil demand will post relatively strong and for power generation in Japan as a result of nuclear plant outages."
Longer term through 2030, FACTS analysts project robust demand growth for transport fuels (gasoline, road diesel, and jet fuel). "Gasoline is projected to post an average annual growth rate (AAGR) of 2% (118,000 b/d) during 2011-30 as the demand for private cars continues to rise," they said.
Robust demand growth for jet fuel is expected, with AAGR at 2.8% through 2030 "since no immediate substantial substitutes are available for jet fuel and continued strong demand for international air travel is anticipated," analysts said. "On the other hand, kerosine demand growth has been weak, partly because it is relatively easy to substitute with other energy sources, such as natural gas and LPG, at a lower price. As a result, the demand growth of kerosine is expected to be relatively flat through 2030. Overall, total demand for kerosine and jet fuel is projected to post an AAGR of 1.9% (52,000 b/d) over the same period."
Road diesel demand is expected to grow 3.6% over the same period, but gas oil use in the industrial sector will slow due to substitution. FACTS analysts said, "Overall, we expect to see an AAGR of 2.4% (228,000 b/d) for total gas oil demand over 2011-30."
Because of relatively strong demand growth, the share of gasoline is expected to increase marginally to 19% in 2030 from 18% in 2010. The kerosine and jet fuel share also is expected to increase to 9% in 2030 from 8% in 02010. Demand growth for gas oil is expected to be "fairly strong," increasing to 32% in 2030 from 29% in 2010, they said.
Shares of LPG and other minor products are expected to remain roughly unchanged at 10% and 8%, respectively, while shares of naphtha and fuel oil are expected to decline from 15% and 13% in 2010 to 14% and 10% in 2030, respectively. Demand growth for bunker fuel oil will be moderate, but demand for fuel oil in power generation and the industrial sector is projected to slow through 2030. Overall, fuel oil demand is expected to grow only slightly, with an AAGR of 0.4% (14,000 b/d) through 2030.
The Asia Pacific likely will continue to drive global incremental demand for the forecast period. "Overall, regional oil demand is expected to grow moderately with an AAGR of 2.3% during 2010-20, and then 1.3% growth for 2020-30 with healthy growth in all key products except for fuel oil that is expected to be sluggish," said FACTS analysts. Sharp moderation of growth in the latter period is based on assumption that countries in the region will slow oil demand growth in favor of cleaner fuels.
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