Cheap energy masks downturn (part 1)

Cheap energy is providing a measure of comfort for Asia’s major economies 18 months into the global oil and gas market collapse, as they confront the worrying prospects of slowing growth and deflation.

China rocked global confidence in August when it unexpectedly devalued its currency just weeks after its stock markets began crashing to wipe out US$5.5 trillion worth of shareholders’ wealth. As Japan, South Korea, Taiwan, Vietnam, Malaysia, Indonesia, Singapore and Australia took turns reporting dismal trade and economic growth figures, China’s ill-timed decision to devalue the renminbi (RMB) by a total of 4.65% from 11 - 13 August sparked fears of a repeat of the region’s devastating 1997 financial crisis.

As confidence crumbled in Asia’s China-led economic power, oil prices took another tumble in late August to their lowest levels in over six and a half years, with US WTI crude touching US$37.75/bbl and North Sea Brent crashing to US$42.23. Analysts are debating if Beijing’s actions are part of a long-term market reform strategy or are signs that the government has lost control of the debt-driven economy.

The outlook for liquefied natural gas (LNG) prices in Asia is just as dismal as spot prices still have room to fall after sliding to a low of US$7.395 per million BTU for August delivery, according to reports.

OPEC expects Asia’s oil demand to exceed 30 million bpd for the first time

Asia’s oil demand will grow by 1.8% this year to 30.48 million bpd to account for nearly 33% of the global total of 92.7 million bpd, according to the Organisation of Petroleum Exporting Countries (OPEC). It will be the first of any of the world’s major regions to consume more than 30 million bpd of oil in a single year.OPEC expects Asia’s oil use to rise 1.6% to over 30.97 million bpd in 2016, to help boost the global total to 94.04 million bpd.

China will register demand growth of nearly 2.6% to 11.61 million bpd in 2015, and by a further 2.5% to 11.90 million bpd next year. The combined consumption of Asia’s other emerging economies will increase by 3.5% to 10.83 million bpd in 2015, and by over 3% to 11.16 million bpd in 2016.

Chinese oil consumption growth will remain strong despite a projected slowdown in its economy, said the cartel in its August report on the global oil industry. It expects China’s economic growth to slow down to 6.5% in 2016 from 6.9% in 2015. OPEC expects India to lead the region’s major economies, growing by 7.5% in 2015 and 7.7% in 2016.

Weighing on Asia’s oil outlook, the developed economies of Japan, South Korea, Australia and New Zealand together will experience demand contractions: down 1.5% to 8.04 million bpd in 2015, and by a further 1.6% to 7.91 million bpd the following year.

Part 2 coming soon!

Written by World Pipelines’ correspondent Ng Weng Hoong, and edited from a published article by Stephanie Roker

To read the full version of this article with references, please download a copy of the November 2015 issue of World Pipelines.

Read the article online at: https://www.worldpipelines.com/special-reports/24122015/cheap-energy-masks-downturn-part-1/