Asian gas gains should cost fuel oil dearly - Petroleum Intelligence Weekly, June 14
What is good news for Asia's natural
gas markets is bad news for the bottom
of the oil barrel. With so much natural
gas being discovered and seeking homes in
Asia, leaving a trail of oversupply and
gas development projects deferred, there
is enough new gas finding takers to replace
crude oil and residual fuel in power and
industry uses. The declining role of fuel
oil has implications for Asian refiners and
traders who have already found that this
market is increasingly dependent on the
buying whims of China. The likes of South
Korea, Thailand, and the Philippines now
deserve watching, too, as they move
increasingly away from fuel oil in favor of
gas. In South Korea, for example, the first
four months of 1999 saw liquefied natural gas
demand soar 30% versus last year, to
5.1-million tons, after dropping 16% the year
before. Oil product demand rose by a
respectable, but lesser, 11%. Fuel oil demand
of 539,000 barrels a day has risen only 5%
this year through March, but still was 20%
below the first quarter of 1997.
In the 1990s, in fact, fuel oil as a percentage
of Asia's oil demand dropped from 24% in
1990 to just over 20% in 1997. Although
rapid oil demand growth from 1990-1997
raised fuel oil use by some 450,000 b/d to
3.96-million b/d, that amount was cut by
some 210,000 b/d in 1998 and will be cut by
another 250,000 b/d over 1999-2001, warns
Alan Troner of Kuala Lumpur-based Asia
Pacific Energy Consultants. The 1998 cuts
were the result of the economic crisis, but
the current erosion is the product of
substitution by gas and, to some extent,
coal.
Overall, natural gas demand is rebounding
much faster than oil demand all over Asia -
led by South Korea, where LNG demand could
grow by 40% between 1998 and 2000.
Whether via LNG or pipeline, growing gas use
also directly affects residual fuel oil
consumption as national policy makers in
South Korea, Thailand, the Philippines, and
even Singapore aim to take more and more
fuel oil out of power generation. The state
Electrical Generating Authority of Thailand is
cutting its use of fuel oil and will steer power
projects toward gas use as the economic
slump eases and electricity demand builds.
Thailand is doing all it can to preserve
existing domestic gas delivery contracts and
gain new ones as new power generation
plants come on stream, including the
1,800-megawatt Ratchaburi plant
{38#14-15}. The Philippines, as a matter of
government policy, is moving from fuel oil to
a combination of coal and gas in its power
mix. And an enormous gas injection should
flow from Royal Dutch/Shell's Malampaya gas
field, due on stream late in 2001. Its gas
serves a 2,700-MW power plant that would
relieve pressure on aging oil-fired facilities.
Two pipelines from Indonesia to Singapore
will start a new era of gas use there, as well
{38#22- 14}. To top it off, if China is able to
free up oil product pricing enough to make
gas prices competitive domestically, it could
stimulate long-delayed gas development.
Competition among prospective LNG suppliers
can only smooth the inroads gas is making.
South Korea and India are lining up new LNG
terminals and stand to dominate the next
growth phase of Asia's LNG market. Demand
projections, however, have shrunk
dramatically during the region's economic
crises, leaving most, if not all, of a series of
grass-roots LNG supply projects either
sweetening sales-terms, or gathering dust on
shelves {37#40-05}. Fereidun Fesheraki of
the Honolulu-based East-West Center told
the Asian Oil & Gas Conference in Kuala
Lumpur that there will be no need for
grass-roots LNG supply facilities until 2010 or
even 2015. E. Kyle Datta, Bangkok-based
vice president of Booz-Allen & Hamilton, says
that over the next five to 10 years there is
only room for some 30% of the planned LNG
capacity as he and others note the long line
of expansions of existing facilities - most
solid among them the Australian Northwest
Shelf project.
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