Asia's reliance on Mideast oil to deepen: Expert

Asia's reliance on Mideast oil to deepen: Expert

Eileen Ng, Agence France-Presse, Kuala Lumpur

Asia's reliance on Middle Eastern oil will deepen despite its efforts to diversify sources but plans by China to set up a stockpile will help boost energy security in the region, a Japanese oil expert said Tuesday.

Asia currently imports some 62 percent of its oil needs, mainly from the Middle East, but this is expected to rise to 74 percent in 2010, said Nippon Oil Corp. supply and overseas business development general manager Yashushi Kono.

At the same time, Asia accounts for half of the Middle East's crude exports, leading to a mutual dependency between the two regions, Kono told the two-day Asia Oil and Gas Conference here.

He said Asia had turned to Russia and West Africa to expand its supply sources, and a proposed pipeline from the oil-rich coast of Russia's Sakhalin island would bring more oil to the region.

But with 65 percent of global proven oil reserves located in the Middle East, Kono said it was tough for Asia to move away from that region.

Japan now imports nearly 100 percent of its oil needs, of which some 90 percent comes from the Middle East, he said.

"I think diversification has its limits for Asia and Japan," he said.

"Asia may be able to diversify its sources in some ways but the reality is it will have to depend more on Middle Eastern supplies because of the location of oil routes and geographical reasons. I think mutual dependency will deepen in future."

Kono said it was important for Asia to maintain and strengthen relations with Middle East producers to secure a reliable long- term supply.

He said moves by the 10-member Association of Southeast Asian Nations (ASEAN), along with Japan, South Korea and China to explore building a network of storage facilities throughout the region would be useful to cope with any supply disruption and volatile oil prices.

Japan and South Korea have their own national oil stockpiles. China is planning its own reserve facility and currently has inventory of just 31 days, he said.

"I believe the Chinese stockpile plan will be effective in stabilizing oil prices and enhancing energy security in Asia," Kono said.

Japan currently has a total stockpile of 164 days while South Korea has reserves for 91 days, he said.

Nippon, Japan's largest oil distributor, runs two stockpile terminals with a total capacity of 75 million barrels.

He said the company was transferring know-how to China on managing such terminals by training staff from Chinese oil giants Sinopec and PetroChina, and sending its experts there.

"This is private sector collaboration but I think Japan and China are also working on stockpiling cooperation on a government basis," he added.

Asian economies are concerned that crude oil prices averaging over US$35 a barrel this year could shave at least one percentage point off growth.

The Philippines and Thailand are pushing for a regional stockpile facility but Malaysia, a net oil exporter, is not in favor because of the high investment involved.

Analysts have pointed out that an Asian emergency oil reserve, with a capacity of half a billion barrels, could require as much as $15 billion to fill it with crude oil priced at $30 a barrel.

Jeffrey Currie, commodities research chief with Goldman Sachs Int., said it was crucial for China to build an oil reserve to cushion itself against shocks but called for such facilities to be operated by the industry rather than by the government.

"It provides the way to be able to smooth variations and commodity prices. From that perspective, it is a positive but it's (more beneficial) for the industry to build it to give them a mechanism to smooth volatility in prices," he added.