APPEC: Asia to prioritize affordability in coming years as it leads oil demand growth

Asian fuel consumers, refiners and crude importers will likely prioritize affordability within the three pillars of energy trilemma in the coming years as the region leads global oil demand growth once again, while demand for cleaner fuels would take longer to be established in many developing nations, delegates said at the Asia Pacific Petroleum Conference 2023 organized by S&P Global Commodity Insights.

Asia is the bright spot in terms of the world oil demand outlook perspective and the region is expected to contribute up to 70% of the global demand growth. With fast growing economies like India regularly posting its key monthly manufacturing PMI at a healthy level of 60 or above, crude and fuel affordability as well as security would need to be prioritized, according to Manoj Heda, executive director of international trade at India's Bharat Petroleum Corp. Ltd., or BPCL.

S&P Global Commodity Insights shared similar views on the Asia's oil demand growth trend.

For 2023 and 2024, S&P Global sees that Asia would regain its leading role by contributing to 64% of the global oil demand growth each year, said Kang Wu, global head of demand research at S&P Global. "Asia's net oil imports will rise to 29.1 million b/d in 2023 from 27.9 million b/d in 2022 and 27.8 million b/d in 2021."

Before the coronavirus pandemic, there was more focus on the sustainability issue but energy security quickly took over the main stage when oil flows were disrupted during the early phases of Russia-Ukraine conflict and sanctions against Moscow. However, affordability has quickly become the top priority and it will remain the primary focus for many years to come for Asia as well as Africa, Prasad K Panicker, chairperson & head of refinery at Nayara Energy, said during a panel discussion at the APPEC conference Sept. 5.

"I wonder how many percentage of population in Asia would be willing to pay huge and increasing prices for the sake of sustainability right now," Panicker said.

India for instance, it's a developing nation that strives to become a developed nation within the next decade or two and that would only be possible when consumers and various industries have access to affordable fuels and refined products, Panicker added.

Energy transition and wider variety of clean fuel options would eventually put downside pressure on benchmark oil prices but only after some decades. For some of the fast growing Asian economies, their main concern is the high prices with OPEC+ production cuts and the ongoing geopolitical tensions posing upside risks in the near-term future, said Disathat Panyarachun, CEO of Thailand's PTT Oil & Retail Business, or PTTOR.

Crude import, trade optimization

In an effort to cater to end-user customers' desire for affordable energy in fast-growing economies in South Asia and Southeast Asia, finding ways to import crude oil and other feedstocks in a most economical manner is crucial for refiners, delegates said during the panel.

"We are trying hard to diversify our [crude import] portfolio and the ultimate goal is to reduce our heavy reliance on Middle Eastern sour crudes," said Disathat Panyarachun, CEO of Thailand's PTT Oil & Retail Business, or PTTOR.

Panyarachun highlighted that the Middle Eastern sour crude market has become expensive as key Persian Gulf OPEC members continue to cut production, making the sweet crude Brent complex economical and attractive.

The Brent-Dubai Exchange of Futures for Swaps, or EFS, spread -- a key indicator of Brent's premium to the Middle Eastern benchmark -- flipped to negative at minus 19 cents/b on Aug. 24, marking the lowest spread since minus 22 cents/b on Oct. 20, 2020, S&P Global data showed.

"This is why we are seeing more light sweet US crude flowing to Asia," said Panyarachun.

Thailand imported 108,532 b/d of WTI Midland crude from the US in the first seven months, almost double the 58,456 b/d received during the same period a year earlier, latest data from the Customs Department showed.

India's Nayara Energy and BPCL operate highly sophisticated refinery complexes, capable of processing more than 130 different crude grades. Among the wide and flexible feedstock cracking options, the Indian refiners would prioritize the most affordable crude grades that would maximize refining economics, according to Heda and Panicker.

Indian refiners are broadly fond of Russian crude because the refining economics are highly favourable. If margins for cracking Russian Urals falters and cost of shipping were to surge, refiners would choose not to buy, Panicker said.

"We look at all types of crude and all the key benchmarks. Whatever that makes good economic sense to us, we would go buy and process that," Heda said, when asked by an audience on India's potential interest in South American crude grades.