(EnergyAsia, June 5 2014, Thursday) — Asia must better plan and prepare for potential oil shocks and supply disruptions as its rapid energy demand growth shows no signs of slowing down, said two recent studies.
US ratings agency S&P said Asia’s energy deficit will continue to rise with its energy imports reaching a record 40% of the world’s in 2012, up from around 30% two decades ago while its share of global energy exports has remained stuck at around 17% over the same period.
UK-based Chatham House said Asia’s economies are at growing risk of an energy supply shock as it now relies on the Middle East for 75% of its oil.
Led by China, Japan, South Korea and India, the region’s dismal energy trade pattern stands in sharp contrast against its overall trade over the two-decade period, said S&P.
Asia’s share of the world’s total exports has risen from around 25% to 33% while its import share has also followed a similar upward trend.
“The Asia-Pacific is an energy-short region and is becoming increasingly so,” said S&P in its report on the energy trade of the region’s 13 largest economies. Their combined GDP has risen from 24% of the world’s in 2003 to 30% last year.
“Reflecting its relatively poor energy endowment, the Asia Pacific is increasingly turning to countries outside the region to supply its rising energy needs. Central Asia, Africa and Latin America have recently gained market share in Asia-Pacific,” it said. The region is increasingly sourcing its oil, gas and coal supplies from Central Asia, Africa and Latin America.
Oil, the largest component of the region’s energy trade, has accounted for the lion’s share of the increase in trade shares over the past two decades, said S&P.
“The commodity constitutes about three-fourths of the total energy trade on both the import and export sides. Most of the expansion in energy trade in our 20-year sample occurred in the past decade, particularly in 2002-2007 when global prices were rising quickly, although the trend continued through 2012,” it said.
In US dollar terms, the region is running an increasingly large energy trade deficit. Its oil trade deficit rose seven-fold over the 20-year period to US$720 billion in 2012 while the gas deficit, starting from a lower base, rose more rapidly to US$120 billion, said S&P. The coal trade deficit has remained relatively at US$23 billion.
S&P said that none of the 13 countries survyed reported an energy trade surplus, meaning none was completely energy self-sufficient.
Nine of the economies were found to be net energy importers while four were net energy exporters. Their energy trade balances ranged from Singapore’s deficit of 17% of GDP to Malaysia’s 6% surplus of GDP. The unweighted average was 4.4% of GDP, almost entirely reflecting the trade in oil.
In US dollar terms, Japan and China dominated Asia-Pacific with energy trade deficits of US$288 billion and US$284 billion, respectively, in 2012, each about one-third of the region’s total. India and Korea each ran an energy trade deficit of about US$130 billion. China and India were mainly oil stories while, in Japan and Korea, gas constituted one-third and one-quarter of their energy imports, respectively.
Malaysia’s large energy trade surplus was almost fully accounted for by its export of natural gas and LNG while Vietnam’s energy surplus is expected to disappear soon. Indonesia and Australia had energy surpluses of about 2% of GDP, with coal and gas exports offsetting their oil imports.
S&P said these four energy-exporting nations reported a combined energy trade surplus of about US$70 billion in 2012.
Singapore, South Korea, China and Thailand have remained at the top for the deficit countries. But in US dollar terms, China share of the region’s energy trade has risen significantly to more than 30% of net energy imports in 2012, from about 10% in 2002.
In its report, Chatham House warned that Asia has still not built up sufficient oil reserves or alternative supplies despite the threats of worsening geopolitical conflicts in the Middle East. In 2012, Iran threatened to close down the key Strait of Hormuz shipping route in response to any likely attacks from the US and Israel.
“Asia is more at risk from disruption of Middle East oil supplies than is either Europe or the US, yet as a whole it is less prepared to deal with such an upheaval,” said John Mitchell who authored “Asia’s Oil Supply: Risks and Pragmatic Remedies”.
Mitchell, a former BP employee, discussed five measures in in his report to help Asia mitigate an oil shock by:
• Establishing a process involving the International Energy Agency (IEA), China and India to facilitate a very rapid and convincing announcement of a coherent response to any major disruption in Middle East oil supplies;
• Further developing schemes by which exporting national oil companies hold stocks in importing countries;
• Clarifying the policies of crude and oil-product exporters for allocating supplies between domestic consumption, exports and bunkers when those supplies are curtailed by disruption, especially in Asian product-exporting countries;
• Developing mechanisms to target a rapid release of emergency stocks to companies affected by force majeure disruptions; and
• Promoting government and industry cooperation at the national level to ensure continuity of supply to consumers in the event of disruption.