Asia crisis crimps oil and tanker markets

South and East Asia's crude oil imports will fall by almost 8% this year to 542 million metric tons, while products imports will plummet 22% to 151 million tons.

This reduction in oil trade, accordingly, will also squeeze tanker markets.

So predicts Ocean Shipping Consultants Ltd. (OCS), Chertsey, U.K., which says that, in the near term, South and East Asia will see reduced oil products trade as a result of the region's economic downturn and growing refining capacity.

The analyst noted that Asian refining capacity grew by 2.2 million b/d during 1996-98: "A 1.4 million b/d increase in South Korean refinery capacity has led to a marked change in product trade patterns, with additional exports focused on China and Japan. Increased intraregional products shipments have limited interregional trade growth."

The main factors set to dominate Asian oil trade developments, according to OCS, are: reduced growth in gross domestic product (GDP) and its effects on oil demand; regional refinery expansions; government policies affecting oil trade, particularly in China and India; and regional crude oil production levels, with medium-term declines spurring increased demand for Middle Eastern crudes and low-sulfur crudes from West Africa.

Oil demand

South AND East Asia's oil demand growth is expected to slow from 4% during 1997 to just more than 2.8% in 1998, said OCS.

After this year, demand will rise steadily to more than 5%/year during 2002-04, before slowing slightly to 4-4.8%/year during 2005-10.

"Middle distillate demand growth is set to underpin oil demand growth across South AND East Asia over the forecast period," said OCS, "particularly over the near term, rising from about 361 million tons in 1997, with a 39.4% share of the demand profile, to 648 million tons in 2010 and a 41.3% share. This compares with a current middle distillate share in OECD Europe of around 42.5%."

Gasoline demand is also expected to grow strongly over the forecast period, although a bit more slowly than middle distillates. Overall South AND East Asian gasoline demand is set to rise from just more than 203 million tons in 1997 to 384 million tons by 2010, reflecting a rise in demand share from 22.2% to 24.5%.

Use of alternate fuels for power generation and efforts to curb emissions are expected to limit heavy fuel oil demand. OCS said heavy fuel oil demand will rise from 213 million tons in 1997 to 266 million tons by 2010, with its share of regional demand set to fall from 23.2% in 1997 to 17% by 2010.

Refineries

South and East Asia's refining capacity growth was already slowing prior to the financial crisis, said OCS.

Increased throughput capacity last year of 710,000 b/d was less than half the capacity added in 1996 of 1.48 million b/d, and more than the 590,000 b/d expected to be brought on stream in 1998.

"Construction plans for 1998 concentrate on developments in China, Indonesia and India totaling 590,000 b/d," said OCS, while 1999 is scheduled to add a further 830,000 b/d to overall regional capacity."

The region's pronounced deficit in middle distillates has concentrated recent refinery upgrading on hydrorefining/hydrotreating projects, raising regional capacity by 420,000 b/d in 1997.

"Near-term developments," said OCS, "are currently focused on coking/thermal upgrading, as well as additional hydrotreating capacity. Upgrading plans for 1999 remain focused on catalytic hydrocracking."

Oil trading

During 1998-2000, OCS reckons overall crude oil imports to South and East Asia will increase by 1.5 million b/d to 12.9 million b/d.

The main contributors to this imports rise will be: China, up 300,000 b/d; India, up 250,000 b/d; and South Korea, up 300,000 b/d.

"Overall crude oil import demand between 2000 and 2005 is expected to increase by around 22%, or 2.8 million b/d," said OCS, "with products imports rising just over 38%, or 1.7 million b/d.

"By 2005, crude oil imports are set to reach just more than 15.6 million b/d, while product imports are expected to reach just less than 6.6 million b/d.

"The likely fall in crude oil production levels in China and Indonesia over the medium term-together with higher refinery utilization rates in South Korea, Taiwan, and Indonesia-is expected to underpin medium-term crude oil import growth, drawing heavily on Middle East supplies."

The regional products deficit of 2.3 million b/d in 1996 is expected to fall to 1.3 million b/d in 1998 before rising to almost 3.2 million b/d in 2005 and almost 5.8 million b/d in 2010.

Tanker demand

During 1998-2000, OCS expects regional crude oil trade will rise by 12% to 607 million tons/year, with the Middle East expected to provide most additional supplies.

Crude oil tanker demand is expected to rise by 8.3% during 1998-2000, while crude tanker demand is anticipated to rise a further 14.4% in 2000-05 and another 13.6% in 2005-10.

For products tankers, on the other hand, South and East Asia's reliance on Middle East supplies is expected to decline, with vessel employment falling by 26% during 1997-2000 (see table [99,568 bytes]).

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