United States
Energy Information Administration

East Asia: The Energy Situation

The following provides information on the potential energy impact of the East Asian economic crisis, which began in the summer of 1997 and accelerated as the year went by. For the purposes of this report, "East Asia" will be defined to include: China and its Special Administrative Region of Hong Kong (listed separately in this report), Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, and Thailand. Sources for this report include: Bangkok Post, Business Day (Bangkok), Business Times (Singapore), Chemical Week, Coal Week International, Dow Jones, Financial Times, Global Power Report, the Mining Journal, Oil and Gas Journal, Petroleum Intelligence Weekly, Platt's Oilgram News, Singapore Times, South China Morning Post, and WEFA.

BACKGROUND

The economic crisis in East Asia remains a serious concern as of February 1998. To date, the International Monetary Fund (IMF) has arranged more than $100 billion in funding for South Korea, Indonesia, and Thailand, the three countries most affected economically over the past several months. The IMF has prescribed a variety of measures for these economies, including cuts in energy subsidies, deregulation, and privatization of energy industries. Indonesia, for instance, has agreed to phase out subsidies on fuel and electricity as part of its IMF loan package. Thailand's government has put oil and gas privatization on a "fast track."

East Asian economies will not be affected equally in 1998 by the economic crisis which began during the summer of 1997. China, for instance, is expected to see only a slight slowdown in economic growth -- to around 8.4% -- in 1998 (see Table 1). Singapore's economic growth, on the other hand, could slow from more than 7% in 1997 to less than 3% in 1998. Indonesia, Thailand, and South Korea have been the most seriously affected countries in this crisis to date, and could see a contraction of their economies in 1998 (down from 7%-8% average 1990-1996 growth).

East Asia's economic crisis has contributed to a decline in world oil prices in recent months. Since October 1997, oil prices have fallen nearly $5 per barrel as a result of several factors, including the East Asian economic situation, increased world oil production, resumption of Iraqi oil exports, and warmer-than-normal winter weather in the United States and Europe. Oil market analysts currently are estimating that the Asian economic crisis will cause world oil demand growth in 1998 to slow, but are sharply divided as to the severity of the impact. Prior to the Asian crisis, world oil demand had been expected to increase 1.5-2.0 million barrels per day (bbl/d) in 1998. The Energy Information Administration now estimates the demand growth to be lower by about 300,000-400,000 bbl/d (estimates by other analysts range from as little as 200,000 bbl/d to as much as 800,000 bbl/d).

In 1996, the East Asian countries included here collectively consumed 79 quadrillion British thermal units (Btu) of energy - 21% of the world's total - and their energy consumption generated over 1.4 billion metric tons of carbon emissions - 24% of the world's total. Oil is the dominant fuel for each of these countries, with the exception of China (which relies primarily on domestic coal supplies for about three-quarters of its energy needs). As a group, these selected East Asian countries consumed over 21% of the world's oil, 7% of the world's natural gas, and nearly 35% of the world's coal. The high percentage for coal is mainly due to the inclusion of China, which alone accounted for 29% of the world's total coal consumption in 1996.

The economic crisis in East Asia is expected to have a significant effect on the growth of world energy demand because East Asia is one of the few areas of the world where energy consumption has been rising rapidly. During the 1990-96 period, total energy demand for these 10 countries grew at an average rate of 5.5 % per year, compared to the world average of 1.5% per year. Without these 10 East Asian countries, world energy demand would have increased by an average of only 0.5% per year. The average annual increase in energy consumption for these 10 countries as a group exceeded their combined average annual economic growth rate. This also true for each individual country except China, Hong Kong, and Singapore. As the economies of these countries slow or shrink due to the economic crisis, energy demand growth can be expected to slow as well. The economic slowdown could lower the growth in energy consumption in 1998 to 2%, a reduction of about 2 -3 quadrillion Btu from previously projected levels.

The rapid growth in energy consumption in East Asia in recent years has been accompanied by a rapid growth in associated carbon emissions. During the 1990-96 period, total energy-related carbon emissions for these 10 countries grew at an average rate of 4.5 % per year, compared to the world average of 0.6% per year. Excluding East Asia, carbon emissions in the rest of the world declined by 0.5% annually during this period (the modest growth in carbon emissions in western industrialized countries was outweighed by the decline in carbon emissions resulting from a severe decline in Eastern Bloc economies). The slowdown in Asian economic growth, and by extension the growth of energy consumption and associated carbon emissions, could slow the growth in regional carbon emissions to about 2% in 1998.

OIL
Oil demand growth in East Asia has fueled world oil demand growth over the past few years. However, East Asian oil demand growth, which averaged 5.6% annually between 1990 and 1996, is expected to slow down in 1998. Oil consumption could fall both because of the region's overall economic slowdown, and because currency depreciation vis-a-vis the U.S. dollar raises the price in local currency for oil (which is traded in U.S. dollars). As a result, demand growth in the region is likely to be 300,000-400,000 bbl/d lower than forecast before the economic slowdown began.

Most of this decline is expected to come from Indonesia, Thailand, and South Korea, with smaller demand reductions in China and Japan, the two largest oil consumers in the region. China, which has been relatively less affected by East Asia's economic crisis, should see oil demand growth of 7%-8% in 1998, compared to 9% in 1997. Japanese demand is expected to show no growth in 1998, compared with modest 2% growth in 1997. Malaysia and Indonesia, the two net oil exporters in the region (see Table 2), may see a more complicated mix of effects than other countries in the region. On January 16, 1998, the Philippine government announced it would allow oil companies to raise oil prices by an average 8.2% to compensate for the fall of the peso since July 1997. As of January 12, 1998, oil product prices in Thailand had been adjusted 20 times since the country announced a "managed float" of its currency (the Baht) on July 2, 1997.

Petrochemicals/Petroleum Refining
East Asia's economic crisis could adversely affect the world petrochemical industry. U.S., Japanese, and European chemical companies have heavy investments in Asia, particularly in hard-hit Thailand, Indonesia, and South Korea. Furthermore, around one-third of U.S. chemical exports go to the Asia-Pacific region. U.S. chemical exports to these countries reportedly are falling, while negotiations on joint ventures and new manufacturing projects have slowed. Asian chemical companies are liquidating inventories, causing prices of polypropylene and other products to fall. Prior to the economic crisis, forecasters were expecting a moderately good year for petrochemicals in 1998, with a slowdown in 1999 and 2000. Now, analysts believe that the slowdown is likely to begin in 1998. As of early January 1998, Thailand was reassessing two petrochemical projects worth $179 million; however, plans for bigger petrochemical projects in Thailand remain alive.

Asia's oil refining sector was already highly competitive prior to the financial crisis, and responses in this sector have been mixed. Refiners in Singapore, Thailand, Japan, and South Korea have cut planned runs for the first quarter of 1998 by as much as 200,000 bbl/d total. Thailand is increasing product exports in the face of a sharp decline in domestic demand, and Indonesia plans to delay construction of the country's first private oil refinery. Meanwhile, Taiwan is proceeding with plans for a naphtha cracker and oil refinery complex.

NATURAL GAS
Natural gas demand growth in East Asia may be curtailed in the short- to medium-term, but in the long-term, regional gas demand is likely to grow strongly. For the time being, however, East Asian countries are scaling back their plans in this area. South Korean liquefied natural gas (LNG) imports in 1998, for instance, are expected to be 18% (1.3 million tons) less than previously planned volumes. Much of this decline will result from reduced electricity consumption caused by the economic slowdown as well as by an unusually mild South Korean winter. As a result, Korea Electric Power Corporation (Kepco), which accounts for half of South Korea's LNG consumption, plans to cut back on LNG purchases in 1998. South Korea's state gas company (Kogas) already has canceled 15 cargoes, totaling 600,000 tons, for 1998 from Indonesia's state oil and gas company Pertamina. Pertamina already is seeing mounting LNG inventories at its storage facilities in Indonesia, and may be compelled to cut production in the near future if export outlets cannot be found.

Regional governments are cutting back on previous ambitious LNG import plans. In November 1997, Thailand postponed by four years a 2.2-million-metric-ton-per-year LNG purchase agreement with Oman's state-owned LNG company, previously scheduled to come into effect in 2003. Thailand also has delayed purchase of LNG from Indonesia's Natuna field from 2003 to 2007. In December 1997, Moody's Investor Services downgraded the credit rating on Qatar's Ras Laffan LNG Company due to its exposure in South Korean markets, although South Korea still intends to honor its LNG purchase agreements from Qatar.

Billions of dollars of new investment in regional LNG production capacity could be slowed or put on hold given fears that declining LNG demand will leave the projects without a market. One example is the 7.5-million-ton-per-year North West Shelf project, situated offshore northwestern Australia, which had planned to nearly double production (to 14.5 million tons per year) by 2003. This $6.5 billion expansion project had been predicated, however, on rising LNG demand in Japan, and there is now talk of slowing down the previously planned expansion. Other projects which aimed to supply East Asian gas markets but have now been put in doubt include: a Phillips Petroleum expansion plan for an LNG plant in Alaska; a new 3-million-ton-per-year plant to be built in western Canada by 2000; the Malaysia Tiga plant; Australia's offshore Gorgon project; and a plan to build a third gas trunk line from Unocal's Erawan field in the Gulf of Thailand to Ratchaburi, west of Bangkok.

Not all gas projects have been postponed or canceled. Enron, for example, is planning to pursue a variety of energy infrastructure projects in Thailand, including gas pipelines and power plants. Texaco recently began a $25 million drilling program to confirm gas reserves in the Gulf of Thailand. And Nova Corp. of Calgary is negotiating involvement in a gas transmission system in Thailand. South Korea continues -- at a slower pace -- with its plans to lay the infrastructure for future increases in gas consumption. Gas pipeline plans in general appear relatively less affected by East Asia's economic crisis than more expensive LNG projects.

COAL
Short-term coal demand prospects in East Asia have been adversely affected by the region's economic crisis, as general industry, electric power producers, and cement makers scale back production. To hedge against currency turmoil, Asian coal importers also are likely to reduce long-term coal contracts and instead make more spot purchases.

During the first half of 1997, U.S. coal exports to East Asia totalled 6.8 million short tons (mmst), representing 16.7% of total U.S. coal exports. This coal went mainly to utilities in Japan, and to a lesser extent to South Korea and Taiwan. In 1998, U.S. coal exports to East Asia may decline. One positive sign for U.S. coal exporters is that Japan (the main customer) has -- so far -- been less adversely affected than many other countries in the region. On the other hand, Indonesian coal exports could become more competitive with U.S. coal in Asia due to the devaluation of Indonesia's currency (the Rupiah), which makes Indonesian exports less expensive. U.S. coal companies are scheduled to begin price negotiations with Japanese customers in late February for the fiscal year beginning in April.

ELECTRICITY
East Asian governments are delaying infrastructure projects, including electric power plants, due to a shortage of funds. Indonesia has placed several projects on hold for the time being, although it also signed a deal (in late December 1997) for a $1.6 billion power plant to be build on Java. In the long-term it is expected that East Asia's electricity demand will grow strongly.

Reports indicate that South Korean power consumption could fall more than 20% in 1998, particularly in the industrial sector, where many companies are reducing production or closing down. Thailand has cut its power demand forecasts through 2011 substantially, which could result in postponed expansion plans and power purchase agreements. Malaysia's $6 billion, 2.4 gigawatt Bakun hydroelectric project has been on hold since September 1997, although Malaysia's government says it remains committed to the project.

Table 1. Selected Asian Countries At a Glance
	Population, 1997E (Millions)	Gross Domestic Product (GDP), 1997E	Real GDP Growth Rate			Energy Consumption				Carbon Emissions
			1990-96 Average	1998 Forecast		1996		Average Annual Increase, 1990-96		1996 (Million Metric Tons)	Average Annual Increase, 1990-96 (%)
				Pre- Crisis (6/97)	Revised (1/98)	Total (Quad rillion Btu)	Oil Share (%)	Total (%)	Oil (%)
China	1226.3	818.3	11.6	9.2	8.4	37.040	19.9	5.4	7.5	804.8	4.4
Hong Kong	6.5	108.1	4.9	5.1	3.4	0.609	67.7	4.0	7.4	11.3	1.0
Indonesia	209.8	187.0	7.1	7.6	-2.1	3.513	50.4	8.3	4.4	60.9	7.8
Japan	125.7	3324.9	1.8	3.2	0.8	21.370	55.8	2.8	2.2	290.7	1.0
Malaysia	20.5	74.8	8.7	8.3	2.0	1.664	51.6	9.3	7.7	25.7	6.6
Philippines	76.1	54.4	2.7	6.0	3.0	0.977	73.4	5.0	6.3	15.0	4.9
Singapore	3.4	64.5	8.1	7.3	2.5	1.216	95.3	7.2	6.4	21.6	4.4
South Korea	45.9	411.2	7.4	6.0	-2.0	7.158	63.0	11.7	13.2	112.5	10.8
Taiwan	21.7	248.4	6.2	6.1	5.1	3.112	53.5	7.3	6.5	51.2	8.2
Thailand	59.5	138.8	8.2	7.4	-3.5	2.333	61.2	10.9	9.0	43.5	11.2
TOTAL	1795.4	5430.3	3.7	4.9	1.8	78.992	40.3	5.5	5.6	1437.2	4.5

 Sources: U.S. Census Bureau; U.S. Energy Information Administration; and WEFA, Asian Monthly Monitor (6/97), Asia Economic Outlook (11/97), and "Update on the Financial Crisis in Asia" (1/12/98).

Table 2. Energy Highlights for Selected Asian Countries -- 1996
	Petroleum (1,000 barrels/day)			Natural Gas (billion cubic feet)		Coal (Million Short Tons)		Electric Generating Capacity (Million Kilowatts)
	Refining Capacity (1/1/98)	Consumption	Net Imports*	Consumption	Net Imports*	Consumption	Net Imports*	Total (1/1/96)	Nuclear (12/31/96)
									Installed	Planned
China	2,967	3,548	416.7	662.9	-7.8	1,500.1	-49.7	204	2.1	9.2
Hong Kong	--	195	195.0	7.8	7.8	7.5	7.5	10	0.0	0.0
Indonesia	930	845	-779.5	1,136.8	-1,245.9	13.5	-39.8	20	0.0	0.0
Japan	4,966	5,867	5,785.6	2,390.1	2,311.3	144.2	136.9	205	42.4	12.6
Malaysia	371	415	-301.0	627.9	-667.5	2.4	2.3	11	0.0	0.0
Philippines	323	340	337.0	0.4	0.0	3.6	1.6	8	0.0	0.0
Singapore	1,157	527	523.0	53.0	53.0	0.1	0.1	5	0.0	0.0
South Korea	2,540	2,159	2,156.3	457.3	457.3	57.6	52.1	32	9.1	7.7
Taiwan	770	789	784.8	158.2	124.7	32.9	32.7	24	4.9	2.5
Thailand	704	683	586.1	428.4	0.0	23.9	2.8	18	0.0	0.0
TOTAL	11,761	15,368	9,704.2	5,922.6	1,032.9	1,785.7	146.4	537	58.5	32.0**

*Calculated as consumption minus production. A negative number indicates the country is a net exporter.