Will Asia, and especially China, set the pace for the long-term evolution of the oil market? The answer to this question is a simple yes as the continent is already an important player and its role is increasingly becoming more and more so.
In 2008, Asian oil demand (always excluding the Middle East and Japan) was 17.3 million barrels a day (mbd) and it is believed that Asia has already escaped the world recession and resumed growth again to such an extent that its demand this year could be 17.7 mbd. Its oil demand by the year 2030 has been estimated by Opec’s “World Oil Outlook 2009″ to reach the level of 33.1 mbd.
With the high rates of economic growth there and the accompanied urbanisation and modernisation, there is no wonder that the most populous continent in the world is seen to be the most promising region for oil demand growth such that 79 per cent of the world’s incremental oil demand is expected to be from Asia.
But the supply picture is different and Asia, as large as it is, is lacking in indigenous resources and while its oil production in 2008 was no more than 7.6 mbd, it is forecast to be only 8.2 mbd in 2030 according to OPEC.
Therefore, its oil import dependency will increase from 56 per cent in 2008 to 75 per cent in 2030. Of course this poses a strategic dilemma to the majority of the Asian countries and especially China and India where the highest rates of growth are expected. The situation can be further exacerbated if the world economic recovery takes root quickly and the above forecast of demand is adjusted upward as some already expect.
Asian countries are going to all corners of the globe in search of oil supplies and China is using its economic muscle to sweeten its deals whenever it finds it helpful to acquire access to new supplies.
Asian companies of China, South Korea and Malaysia recently won a sizable portion of Iraq’s bid rounds in cooperation and competition with Western companies. Even West African crude is flowing to Asia away from its traditional markets in Europe and North America where oil demand is declining or at best stagnant.
The Middle East will no doubt remain the major supplier of Asian oil markets as it is now. In 2008, out of a total of almost 19 mbd exports from the Gulf, about 12.5 mbd went to Asian markets. Saudi Arabia and the United Arab Emirates are building strategic storage in Asia to take opportunities in a market that is welcoming to such ideas.
At the same time, Saudi Arabia and Kuwait have refining interests in China in joint ventures with others and these are likely to expand in the near future. The refining industry up to the year 2015 is destined to grow faster in Asia horizontally by the addition of 2.8 mbd of distillation capacity and vertically by the addition of 1.8 mbd conversion capacity with a proportionate increase in the capacity of associated units to improve the quality of products significantly.
While the volume of supplies from the Gulf to Asia is, and will continue, to be undisputed, the most dramatic supplies will come from Kazakhstan and Russia.
The Kazakhstan to China pipeline was completed in July 2009 after a number of stages which started in 2003 from western Kazakhstan to eastern China. The line is 2,228 kilometres long and has a current capacity of 200,000 barrels a day which could be doubled in the future. It is now feeding the Dushanzi Refinery in Eastern China since 2006.
The East Siberia to Asia Pacific oil pipeline first stage has just been commissioned and will deliver oil to China’s border. The next stage will eventually reach the Pacific Ocean at a point which could easily serve Japan, Korea and China for a start. The line is 48 inches in diameter and 4,857 kilometres long and will have a capacity of 1.6 mbd. China lent Russia $25 billion (Dh91.75 billion) to build the line for a delivery of 300,000 barrels a day to China for the next 20 years and China will build a spur of 900 kilometres in its own territory to deliver the oil to Daqing.
These massive projects were unthinkable twenty years ago but have become realities now due to the importance of diversification for both producers and consumers.
Oil producers in the Gulf are rightly giving Asian market due diligence. The future is there and all commercial relations must be developed to safeguard the interest of producers and consumers alike.
