Oil Spigot Slowing in Asia-Pacific Region : Demand Far Outstrips Supply, Increasing Dependence on Middle East

A recent explosion in demand for oil in the Asia-Pacific region further depletes the area’s dwindling oil reserves and increases its dependence on oil from the Middle East. By the year 2000, the Middle East is expected to be supplying nearly all the region’s oil.

Despite decades of geological research, sizable new oil strikes in Indonesia and Papua New Guinea, and the opening of promising areas in China and the Soviet Union to international exploration, energy experts say the region’s huge appetite for oil makes the search a losing battle.

“Except for onshore China, there are no truly big fields, and China will become a net importer in five years,” says Fereidun Fesharaki, head of the energy section at the government-funded East-West Center in Honolulu.

“The area is now 60% dependent on the Middle East. It will be 90% by the turn of the century.”

A dramatic increase in the consumption of oil by the fast-growing Pacific Basin nations was a big part of last year’s surprisingly strong growth in oil demand worldwide, a phenomenon that is sopping up the oil glut and helping to nudge prices upward.

The Asia-Pacific region is hardly alone in its need for oil from the volatile Middle East, but energy analysts say it is easily the most dependent because of its lack of native oil and proximity to the Persian Gulf.

Must Cut Back

The oil connection is the chief reason for Japan’s big commercial presence in the Persian Gulf and for the complex trade networks already linking the Middle East with such Far East nations as Thailand, which, for example, sells more rice to Iran than to any of its own neighbors.

But the big spurt in oil demand underscores again the need for the region to wean itself from oil, a process that continues but has been slowed by today’s low oil prices, drought, the pell-mell economic growth and other factors.

It has also led to stepped-up exploration for new oil reserves throughout the Pacific Basin, a search with such enthusiastic supporters as Michel T. Halbouty, a well-known Texas oilman and geologist and founder of the Circum-Pacific Council for Energy & Mineral Resources.

Halbouty, 79, of Houston, an outspoken advocate for independent oilmen and early Alaskan oil explorer, started the nonprofit group in 1972 and has become a student of the geology of Northwest China and adjacent parts of the Soviet Union. He calls onshore China--closed to development by outsiders so far--a highly promising exploration area.

The organization of academic, industry and government officials from 40 nations is mapping the entire Pacific Basin, a project billed as the largest of its kind. Just back from a symposium in Costa Rica on Central and Latin American geology, the group meets next in September at what Halbouty describes as the Soviets’ previously off-limits geological science center in Khabarovsk on the northwest China border.

Halbouty preaches the importance of finding oil anywhere outside the 13 member nations of the Organization of Petroleum Exporting Countries, especially those of the Persian Gulf. The idea is that the more non-OPEC oil is found in the world, the less leverage the cartel has.

Used for Internal Demand

But when the appetite for oil grows faster than the oil can be found, as is happening in dramatic fashion in the Asian Pacific, those discoveries can’t change the region’s underlying energy vulnerability.

“The major problem with the large producers of the region is that they are all large consumers themselves,” Fesharaki says. “Indeed, a large portion of the growing production in the region goes to satisfy rising internal demand.”

The big increase in demand of the past two years--about 7% overall, compared to 2.5% worldwide--is laid mostly to the region’s economic growth and the spur of lower prices. But there is more to it than that, notably the march of the automobile in China and other developing nations in the region.

“People are getting off their bicycles and onto motor scooters, and then they’re getting off their scooters and into cars,” says Tom Burns, manager of the economic staff at Chevron Corp. in San Francisco. “When you add the low prices and weak dollar, it has all tended to strengthen demand tremendously.”

In China alone, the growth in the size of the motor vehicle fleet is outstripping the nation’s ability to supply the fuel for it, despite the nation’s emergence as one of the world’s major producers of crude oil.

Mirroring the situation faced by other major oil producers in the Far East, China is expected to experience a nearly 40% surge in oil demand by the year 2000 while its oil output grows just 16%. Barring huge new discoveries, its current role as a net crude exporter will end.

Exports Will Dive

Japan, with none of its own oil production, remains Asia’s biggest oil consumer. And despite its historic leadership in energy efficiency and in diversifying away from oil, the Japanese recorded a 5% jump in oil consumption last year, far above forecasts.

Overall, says the East-West Center, the amount of crude oil available for export from the Asia-Pacific region will tumble 75% over the next decade to 450,000 barrels a day--which would satisfy less than 1% of today’s worldwide oil demand.

Only Brunei is likely to continue as an exporter into the 21st Century, says Fesharaki. Papua New Guinea, where a Chevron-led consortium has made one of the region’s few significant discoveries in this decade, could join the ranks of exporters by that time.

The other major discovery in the Asia-Pacific--a field in Indonesia that could produce 200,000 barrels a day--will only slightly delay the decline of that influential, long-time member of OPEC, Fesharaki says. Also facing steep declines in oil production are Malaysia, the only other exporter in the region, and Australia, whose output only equals its own needs.