World oil market shifts from West to Asia

World oil market shifts from West to Asia

The world's fastest growing region is also getting increasingly dependent on oil. Yojana Sharma of Inter Press Service reports.

HONG KONG (IPS): The center of gravity of the world oil market has shifted from Western industrialized countries to Asia as the region imports more fuel to fire the furnaces of its booming economy.

But Asian governments are worried that this means increasing dependence on the Organization of Petroleum Exporting Countries (OPEC), particularly Middle Eastern producers that supply 75 percent of Asian imports of oil.

Including Japan and Australia, the Asia Pacific is now the second largest oil consuming region in the world with a total demand of 15.9 million barrels per day last year.

By the turn of the century, it is projected to overtake the United States to become the largest oil consumer in the world, says economist Ranjan Pal of Jardine Fleming Brokering in Hong Kong.

But he warns that Asia itself is has become more vulnerable that other regions to threats of higher oil prices or supply disruptions.

Last year, more than 70 percent of the oil consumed in Asia was imported, and the figure is projected to climb to 85 percent by the year 2000. Three-fourth of the imports come from the Middle East, and this may rise to 90 percent by the end of the century.

"In terms of security of supply, Asia will be in an even more precarious situation should there be another disruption like the Gulf War," says Pal.

"OPEC will be critical for Asia and Asia will be critical for OPEC," former OPEC secretary general Subroto also said at the organization's 97th conference in Bali in November.

Fast-growing Asian economies are expected to be instrumental in propping up flagging OPEC oil prices, giving them some bargaining power over the price tag slapped on the commodity.

Conversely, any dramatic rise in OPEC prices could severely affect growth prospects in Asia because the region's own oil production is unable to keep up with its rocketing demand. Last year alone, Asia accounted for almost a quarter of the world's demand for oil but supplied just a bit more than 20 percent of it.

In addition, the supply and demand imbalance is widening rapidly with consumption growing at 4.7 percent a year in the last decade, running far ahead of output growth of 2.7 percent.

"These trends are projected to continue with demand climbing inexorably while production is expected to decline slightly by the year 2000 in the absence of any major new discoveries," notes Pal.

At the end of 1993, Asia had only 4.4 percent of the world's reserves.

In particular, Chinese oil product imports are expected to more than triple over the next decade and its insatiable demand would push oil prices higher throughout Asia says Fereidum Fesharaki, head of energy programs at Hawaii's East-West Center.

China is already the world's fourth largest oil consumer with demand growing at 10 to 15 percent a year, fueled by fast economic growth. Oil-product imports estimated at about 340,000 barrels a day this year are expected to surge to 850,000 by 2000 and 1.4 million by 2005, if no new refineries are opened up in the country.

Refinery development is being hindered by Chinese reluctance to allow foreign investment in the sector. Points out Michael Cannon of the Asia Pacific Energy Center. "There is enough oil in China to make the products that it needs but it is not in the right place."

China has opened up the Tarim Basin in Xinjiang province for development but infrastructure from this area to major industrial areas is poor, and the Tarim Basin project is unlikely to have any major impact on China's oil imports before 2004.

The search for cheap oil imports had led to Chinese involvement in exploration projects in Peru, Papua New Guinea and Thailand as well as to negotiations for longer-term oil contracts with several Arab states.

Meanwhile, the oil crunch is seen in part as contributing in the recent thaw in relations between China and Vietnam. There are indications of an agreement between the two countries on joint exploration of the oil-rich South China Sea after the visit to Vietnam this week by Chinese President Jiang Zemin.

The experts add that the lifting this year of the U.S. trade embargo against Hanoi has led to rapid development of oil resources in Vietnam by U.S.-based oil companies. In October, Vietnam for the first time began selling oil on the international spot market.

Much of Vietnam's oil is sold to Japan to earn valuable foreign exchange. But Vietnam's output of some 130,000 barrels a day is considered too small to make a dent in demand in Asia.

According to Fesharaki, it would be the way China handles its energy sector -- particularly the amount of investment in developing exploration and refining -- that will be crucial not just for China but for the entire Asia-Pacific.