Fall in Asian fuel oil imports likely

SINGAPORE, AUG. 5. Asia's appetite for fuel oil imports will wane in the next four years as rising regional supplies outpace crawling growth in demand, industry sources said.

Incremental demand for fuel oil will hinge largely on additions to power generation capacity and availability of alternative fuels, they said. Although power requirements in two of the world's most populous nations -- China and India - are expected to spurt, a large chunk of new generation capacity will use natural gas.

"Gas is becoming increasingly available to power-deficit Asian economies, and as it is introduced, oil is the fuel most commonly displaced," said Mr. John Vautrain, vice president at consultancy firm Purvin & Gertz in Singapore.

Apart from environmental advantages of cleaner-burning natural gas, it also is cheaper than fuel oil and is sold under long-term contracts offering greater security of supply, he said.

Recent industry estimates suggest that Asian fuel oil imports will contract to just over 9.90 lakh barrels per day (bpd) in 2005 from 1.05 million bpd in 2001. Regional demand will rise a slim 2.4 per cent to 3.42 million bpd in 2005 from 3.34 million bpd this year, estimates showed. But demand growth is expected to lag a rise in regional production - seen this year at just below 3 million bpd and increasing to 3.16 million bpd in 2005. The lag will also mean lower import requirements in the next four years.

Industry experts said China, the region's biggest consumer of fuel oil, would show the largest decline in imports as it beefs up refining capacity to 270 million tonnes per year (tpy) by 2005 from the current 230 million tpy.

Chinese fuel oil imports are expected to drop off by some 73,000 bpd by 2005 from 220,000 bpd in 2000. Similar capacity expansion in India could leave an exportable surplus of up to 1.16 lakh bpd, estimates show.

Power, gas key to demand

Gas is expected to make big headway in China and India in coming years, but the viability and timing of the plethora of projects on the drawing board remain a key uncertainty.

China is planning its first liquefied natural gas (LNG) import terminal by 2005, while India is aiming to get an LNG industry up and running by 2003.

But this year's global economic slowdown could weigh on both demand and investment in the near term, experts said.

Experts saw little threat to fuel oil from orimulsion, which is burnt for power generation in Italy, Canada and China. State- owned China National Petroleum Corp recently signed a 30-year supply deal with Venezuela state oil firm PDVSA for orimulsion starting in 2004 and Singapore's PowerSeraya has a 10-year supply deal with a PDVSA unit starting in 2004.

Analysts said the tar-like substance is a long way from grabbing market share in Asia. "Orimulsion is not the fuel for Asia," said a Singapore-based analyst.

Supplies dwindle

Fuel oil for ships, also known as bunker fuel, accounts for about 40 per cent of Asia's total fuel oil consumption and will remain a large part of the market, analysts said.

But refiners may also opt in the future to process more fuel oil into higher-value refined products, directing supplies away from the base markets such as bunkers and power generation.

- Reuters

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