Asia 'must speed up liberalization' to woo oil investors

Asia 'must speed up liberalization' to woo oil investors

Eileen Ng, Agence France-Presse, Kuala Lumpur

Asia must speed up its economic liberalization to woo energy investment and ensure sufficient and affordable long-term supplies in a turbulent world market, oil experts said at a key regional conference here Monday.

Asia's appetite for energy is expected to soar in line with its economic growth but experts warned at the Asia Oil and Gas Conference that current high oil prices and the region's heavy reliance on oil imports from the Middle East could impede growth.

Despite OPEC's move to raise oil production, most predicted prices would remain high at least until the end of uncertainties such as the June 30 transition of power in Iraq and the recall election in Venezuela on Aug. 15.

"Asia's soaring growth is straining the energy bridge ... around the globe, experts are worried that Asia's soaring tiger could come in for a hard landing because of energy supply concerns," said Dave O'Reilly, chief executive of U.S. oil major ChevronTexaco.

The region must develop a strong investment climate by accelerating its progress towards opening up markets, building adequate infrastructure and ensuring the sanctity of contracts and better cooperation from national oil companies (NOCs), he said.

O'Reilly said according to the International Energy Agency, Asia was expected to account for up 40 percent of the growth in world oil demand between now and 2025, and must seek to tap its own enormous oil resources.

China, Indonesia and Malaysia rank among the world's top 25 oil producers. Together with Australia and Brunei, they account for more than 36 billion barrels in proved reserves.

However, Indonesia, an OPEC member, recently became a net oil importer and has to introduce new incentives to attract investment and reverse its production decline, he said.

"Governments need to unwind the spools of red tape, regulations and antiquated policies that have choked off power development" to ensure predictability in terms of supply, delivery and trading to help overcome volatility in global oil prices, he added.

He predicted global oil prices would moderate only when "it becomes clear that supply and demand are in better balance."

Malaysian Prime Minister Abdullah Ahmad Badawi, in his keynote address read by his deputy Najib Razak, said Asia's energy demand was expected to soar in line with its projected economic growth of six percent a year by 2010, double the world's average growth rate.

Last year, Asia imported 64 percent of its oil needs with demand reaching 22 million barrels a day and this is expected to grow at an average annual rate of 3.2 percent, nearly three times higher than that of industrializing nations, he said.

"Driven by strong demand from China, oil consumption in developing Asia is projected to reach 32 million barrels per day by 2025, more than double the region's total consumption in 2001," he said.

Gas is also becoming an important alternative, with annual average demand expected to increase by an average 3.5 percent to reach 151 trillion cubic feet by 2025, he said.

Singapore Institute of International Affairs secretary Eric Teo Chu Cheow said restricted trading regimes due to tight control by NOCs and geopolitical risks were hampering investment in the region.

"The greatest dilemma for Asia is to create a balance between national interests and opening up to lure investors in terms of production," he told AFP on the sidelines.

Teo said continued instability in the Middle East would "keep prices high for some time" and warned this could provoke a slowdown in the global economy in the second half of 2005.

"The $40 a barrel range will continue for some time. I don't see that coming down," he said.

Robin West, chairman of U.S.-based consultancy group PFC Energy, said violence in the Middle East had created growing interest in energy projects in Asia, especially China, but the region must deregulate its markets.

Although regional NOCs have ventured abroad and begun gaining market power, he said, they were not ready to invest billions of dollars in oil production and exploration nor take high risks, and must work more openly with global oil companies.