The APS Conference - The Asian Energy Perspective.

The following are excerpts from a presentation made at the 12th Annual APS Conference by APS Energy Group President Pierre Shammas:

"In this series of strategy conferences we always project twelve years ahead, not only in order to look into the future but also to evaluate the significance of the current situation and its likely effects over the coming years. Our annual projections have helped us look into the past and draw from it those lessons which will have implications for the future.

"We in APS Energy Group perceive two alternative scenarios for world oil demand by 2011: either a steep decline in oil demand caused by another main source of energy, a possibility which we do not expect within this time span; or a big rise in oil demand fuelled by rapid economic growth in the Asian/Pacific basin.

"We see a major problem: There is only one waterway between the Middle East and the Far East - the Strait of Malacca - which is narrow and heavily congested.

"For many years, energy importing governments and companies have been worried by the steadily increasing congestion along the Strait of Malacca and by the likely outcome of this. The congestion keeps increasing and a major accident in the coming years could cause an energy crisis.

"Would the recent arms race in South-East Asia cause military hostilities in that area or a blockade of the strait? And if so, what will happen to the Asian and Far Eastern economies? People in South-East Asia and in the Far East were beginning of ask such questions before the Asian economic crisis hit them in mid-1997.

"The crisis has caused a major fall in Asian demand for oil, gas liquids and liquefied natural gas (LNG), important sources of energy and industrial feedstocks for that part of the world.

"We in APS Energy Group issued a study of the Asian/Pacific oil market in April 1995. We foresaw two economic recessions in that area to occur in the period between then and the year 2010. The study concluded that, in the event of two recessions, Asian/Pacific demand for oil by 2010 would reach 28.8 million b/d, compared to less than 20 million b/d in the first quarter of 1995.

"We concluded that, in the event of only one recession, oil demand in the Asian/Pacific basin would have exceeded 30 million b/d by 2010. If no recession were to occur between April 1995 and 2010, Asian/Pacific demand for oil would have grown to 38 million b/d. Imagine the effects of those weights on traffic along the Strait of Malacca by 2010 and thereafter (see table overleaf).

"The Middle East will account for the bulk of oil supplies to Asia/Pacific. Supplies from the Russian Far East and west of Suez will not be very significant. Asian/Pacific dependence on oil from the Middle East by 2010 will have grown to more than 20 million b/d, from 4.8 million b/d in 1983 and about 9 million b/d in 1993. Supplies from areas other than the Middle East in 1993 did not exceed 145,000 b/d, although volumes from West Africa increased significantly in the more recent years.

"Added to the weight of oil supplies moving from the Middle East to markets beyond the Strait of Malacca are increasing volumes of gas liquids (NGLs & LPGs) and LNG, and all sorts of non-petroleum goods. These volumes will be rising rapidly soon after economic recovery has settled in the region.

"We expect the Asian economic recovery to begin by late 2001, and a rapid rise in petroleum demand will begin in 2004. The pressure of demand will then begin to weigh heavily on Middle East petroleum producers.

"For many years, oil producing governments in the Middle East have been worried that a closure of the Strait of Malacca, for whatever reason, would badly affect their economies. They knew that, sooner or later, the Asian/Pacific market will grow rapidly. By 2010, this will have become by far the biggest market in the world for oil, NGLs/LPGs and LNG.

                   THE ASIAN/PACIFIC OIL MARKET 1983-2010
                                   ('000 b/d)
MAXIMUM PRODUCTION*   1983     1990     1993     2005     2010
Australasia            470      620      550      500      500
Brunei                 175      145      175      175      175
China                 2135     2785     2900     2800     2500
India                  510      685      560      600      600
Indonesia             1420     1540     1530     1500     1500
Malaysia               420      625      650      650      600
Papua New Guinea         -        -      125      300      500
Vietnam                  -       80      125      400      500
Other Asia              75      135      160      200      200
Total                 5205     6615     6775     7125     7075
MINIMUM CONSUMPTION*
Australia              590      700      715      850     1000
China                 1705     2255     2965     5000     6000
Hong Kong               90      155      170      240      350
India                  755     1200     1295     3800     4500
Indonesia              450      645      790     1560     2500
Japan                 4390     5305     5455     5190     5000
Malaysia               195      270      305      520      700
New Zealand             80      105      125      120      120
Philippines            205      235      290      470      700
Singapore              215      370      420      700      850
South Korea            500     1025     1635     2740     3500
Taiwan                 300      540      625      810      900
Thailand               230      410      560     1100     2000
Vietnam & Other Asia   360      480      740      500      700
Total                10065    13695    15920    23600    28820
Asian/Pacific Dependence on Oil from the Middle East & Other Areas:
                      4860     7080     9145    16475    21745
*  Source: APS Energy Group, Nicosia, April 1995.