Asia takes oil price rally in its stride

By Raj Rajendran

SINGAPORE (Reuters): There is little sign of a massive slowdown in demand as Asia takes the recent oil price rally in its stride, but the region is stepping up efforts to use natural gas instead, analysts said last Friday.

Asia, faced with the prospect of high oil prices for another two or three years, is increasingly turning to piped natural gas and liquefied natural gas (LNG) as long-term alternatives, with coal emerging as a quick and cheap short-term fix.

International benchmark U.S. NYMEX light crude futures, now hovering at US$32.50 per barrel, have risen almost 36 percent since early April when levels were as low as $23.85. Prices hit a nine-year high at $34.37 in March.

Analysts and economists said it was difficult to quantify the impact higher oil prices have had on Asian economies, which are on a robust recovery path after a crippling financial crisis.

But they fear costly energy could shave up to one percentage point off gross domestic product (GDP) growth in some countries.

One consequence of high oil prices is their dampening effect on local currencies as more U.S. dollars are bought to pay for rising energy bills, especially by big importers such as Thailand and Philippines.

"The economies are growing rapidly...the GDPs are turning around like that, it is very difficult to try to factor out the higher oil prices, maybe one percentage point," said John Russel, managing director of Bangkok-based Petroleum Economics Limited (PEL) Pacific.

The increase in revenues that results from higher prices, however, is a godsend to Asia's few oil exporters such as Indonesia, Malaysia and Vietnam, helping swell state coffers.

Analysts said oil demand in Asia had not been hit by rising prices. Most held to forecasts made at the start of the year, which ranged from 600,000 barrels per day (bpd) to one million bpd, taking the year's tally for the region to just over 21 million bpd.

"I haven't come across a fall in demand. I'm keeping my growth forecast unchanged for now," said James Brown, Asia-Pacific oil and gas analyst at Merrill Lynch in Singapore.

Countries which are near proven gas fields such as Singapore, Thailand, Malaysia, Philippines and Indonesia are taking concrete steps to pipe the gas onshore, the analysts said.

By 2001, major power plants in Singapore and Thailand would be fueled by natural gas, leading to a sharp decline in the consumption of polluting fuel oil, they said.

At its peak, Myannmar's Yadana field will pump 525 million standard cubic feet per day (mmcf) of natural gas to the new 3,200 megaWatt Ratchaburi power plant, while Singapore will import 325 mmcf of gas from the Natuna field from April 2001.

Pipelines are also being laid from off Sumatra, Indonesia for the supply of an initial 150 mmcf of gas to Singapore from mid- 2002.

Analysts said despite moves to cut oil use, crude prices will remain high because global oil producers, especially producer cartel the Organization of Petroleum Exporting Countries (OPEC), now have better control over supply.

Oil prices plummeted to $10.35 per barrel in December 1998 but rebounded strongly after producers slashed output by more than 5.1 million bpd to under 75 million bpd, with OPEC producers cutting output by 16 percent.

"There will be a further period of 2-3 years of relatively strong oil prices. OPEC can keep prices within their price band," said Russel.

OPEC had said it would keep rates within a band of $22-28 per barrel.

The analysts said OPEC should be able to do this because there is no major non-OPEC oil source that will come onto the market within the next two-three years.