Southeast Asia is heading towards an energy deficit driven by declining production and reserves, and rising demand.
S&P Global Platts Analytics expects SE Asia’s oil demand to rise by 1.2 million b/d to 5.9 million b/d by 2025. Meanwhile, the International Energy Agency in its 2017 Southeast Asia Energy Outlook said that the region will be short of fossil fuels by 2040.
How will SE Asia meet its rising crude oil demand? Mriganka Jaipuriyar, Platts Associate Editorial Director for Asia and Middle East Oil News and Analysis, examines the region's response to this challenge ahead.
Welcome to the Snapshot, a series examining the forces shaping and driving commodity markets today.
Southeast Asia is heading towards an energy deficit driven by declining production and reserves, and rising demand. The IEA in its 2017 Southeast Asia Energy Outlook said that in total the region will be short of oil, gas and coal by 2040. This deficit will dictate energy trends for the whole region, including trade flows, investments and policy making.
According to S&P Global Platts Analytics, Southeast Asia’s oil demand is set to rise by 1.2 million b/d to 5.9 million b/d by 2025.
Several Southeast Asian countries are planning refining capacity expansions to meet this demand. Vietnam is bringing on stream a 200,000 b/d refinery in the first quarter of next year. This will be followed by Malaysian Petronas’ 300,000 b/d RAPID refinery project which is slated to come online in 2019.
And though timelines may be shifting in Indonesia, national oil companyPertamina is still targeting to expand its refining capacity to 2 million b/d by around 2025 via green-field projects and expansion at existing plants.
Based on these expansion plans, Platts Analytics estimates that net product imports by Southeast Asian countries will stay stable or even post modest declines in the years ahead, butnet crude oil imports are expected to rise by 1.5 million b/d to 3.5 million b/d in 2025.
This begs the question – How will the region meet its rising crude oil demand?
The good news for Southeast Asian governments is that the global oil markets are flushed with supplies and oil producers are looking for demand security as much as buyers are looking for supply security.
It is this search for a demand base that has prompted the Saudis, Russians and Kuwaitis to invest in downstream projects in the region.
Kuwait Petroleum Corp is a stakeholder in Vietnam’s new upcoming refinery and will be meeting almost all of the refinery’s crude needs; Saudi Aramco has taken equity in the RAPID project and will be supplying at least half of the refinery’s needs; and Russian oil giant Rosneft has set up a joint venture with Pertamina for a 300,000 b/d green-field refinery in Indonesia.
But governments in Southeast Asia need to be careful. They may have secured their supply needswith these investments, but this does not insulate their economies from global oil price fluctuations. That will only come from downstream price deregulation, and boosting energy efficiency and diversification.
Until next time on the Snapshot, we’ll keep an eye on the markets.