Asian leaders seek security for oil supplies

Jun 22, 2004 02:00 AM

Thailand's foreign minister has called for Asian governments to develop long-term plans to ease energy shortages. Rapidly increasing demand for energy, driven largely by China's booming economy, has driven prices up, and caused anxiety in a region whose own oil reserves are dwindling.
Meeting with officials from 22 nations in the Chinese port city of Qingdao, Thai Foreign Minister Surakiart Sathirathai said Asia needs to make tough decisions to ensure its energy supplies in the future.

Earlier, Thailand became an example of what Asian countries hope to avoid. In January, the government began spending $ 4 mm a day to shield consumers from high oil prices, but the prices remained high for longer than expected. Government analysts in Bangkok downgraded the country's economic growth forecast by a percentage point, to between 6 and 7 %.
In response to the forecast, the government sought to reduce gasoline consumption by forcing gas stations to close between 0000 and 0500 local time. Officialsalso announced plans to increase taxes on gas-guzzling vehicles, and to turn off billboards at midnight to save electricity -- drastic steps not seen since the oil crises of the 1970s.

Asia has hosted a number of energy meetings recently, after the price of oil reached a 20-year high on June 1, in part due to terrorist acts in Saudi Arabia. The agendas at each meeting have been dominated by concerns over Asia's oil supply and threats of terrorism.
Asia hosts some of the world's fastest-growing economies, and like most of the world, the region is heavily dependent on oil from the volatile Middle East. Southeast Asia has oil resources of its own, mostly in Indonesia. But Indonesia's old oil wells are drying up, and the country has not invested in new drilling projects. The country became a net oil importer for the first time this year, leaving Malaysia and tiny Brunei as the region's only net oil exporters.

Merrill Lynch oil analyst Mario Traviati, based in Singapore, says diminishing reserves aren't the only factor in Asia's oil equation.
"What's happening at the moment is the industry under-invested in the refining area since the Asian financial crisis," he says. "And now the demand is very, very strong. Basically, there's a shortage."
Cyn-Young Park, an economist at the Asian Development Bank, says China and India, with a third of the world's population, are largely responsible for that demand. India, she says, recently switched to a more oil-dependent energy policy, while China has grown faster than economists expected.
"China is growing very fast. Oil imports have grown by 25 % for the last two years," she says.

Oil prices dropped from their peaks early June, thanks to OPEC's announcement that it would increase production. But at a meeting in Kuala Lumpur, an OPEC official warned that terrorism could cause prices to edge upward again. Several recent acts of terrorism in Saudi Arabia have caused oil prices to rise. Mr Traviati says the attacks on oil supply lines to Asia could have an even more widespread effect.
"The region is relying more and more on the Middle East for their crude and one of the concerns we have, is a potential terrorist threat in the Malacca Straits."

A quarter of the world's maritime trade and about half of the world's crude oil pass through the Strait of Malacca, which narrows to 1.5 nautical miles at one point. Bordering Malaysia, Singapore and Indonesia, the Strait is already infested with pirates, and experts say oil tankers passing through such a narrow artery make an attractive target for terrorists.
The main shipping lane could easily be blocked by sinking a freighter or turning an oil tanker into a floating bomb. Earlier this year, a chemical tanker was hijacked in the Strait. And though the hijackers abandoned ship an hour later after doing no damage, the incident raised concerns about the vulnerability of shipping.

Thailand has for six years considered bypassing the Strait altogether by building an oil pipeline across its narrow southern isthmus, from the Indian Ocean to the Gulf of Siam. The government revealed that it was in talks about the project with a major Chinese energy company.
Proponents say such a pipeline would increase security and lower the cost of shipping oil from the Middle East, and lower shipping time to China, the world's second largest oil importer, by as much as a week.

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