NEW DELHI (KWR) Asia's oil demand growth is expected to slow in 2005, as key markets including China, India, Japan and South Korea appear poised to grow at slower rates as their economies cool and alternative sources of fuel are consumed in place of expensive crude, according to Facts, a US-based oil consulting firm.

Facts chief economist Jeffery Brown said in a report on Asia-Pacific demand that 2004 had been a record year for Asia with oil demand growth of 1.019 million barrels per day (bpd). Brown expects growth from 2005 to 2010 to slow to 600,000 bpd to 800,000 bpd.

China was the driving force behind Asia's demand growth for 2004, contributing 737,000 bpd, equivalent to 72.3% of the region's total increase in consumption, with its "robust economic performance and the corresponding growth in petroleum use in almost every sector of the economy." Brown said that he expects China's incremental demand for oil to slow in 2005 on forecasts of slower economic growth.

He also said China's power shortages in 2004 had temporarily boosted oil demand for power generation. More coal- and gas-fired power plants are scheduled to come on line in China this year, which would significantly impact oil demand for power generation. Over the long run, Brown believes a sustainable growth rate for Chinese oil demand is 350,000 bpd to 400,000 bpd.

Other key countries including India, Japan and South Korea will most likely to post little or negative growth in oil demand, Brown said.

India's oil demand growth has been stagnant, at just 141,000 bpd in 2004. Brown said India's "inter-fuel substitution away from oil, which contributed to slow growth over the period 2000-03, has reached a peak" and demand should increase by between 70,000 bpd and 90,000 bpd from 2005 to 2010.

Japanese oil demand is expected to dip in the coming years, in large part due to its mature economy and shrinking population.

South Korea will follow Japan's footsteps and show a fall in demand, again largely as a result of the country's mature economy. South Korea is expected to have a growth rate of 40,000 bpd this year, according to Facts.

Smaller countries such as Thailand and Indonesia will show continued growth, assuming their governments maintain subsidies on high oil prices. Both countries have been working to reduce subsidies without affecting the local economy. Government officials in Thailand and Indonesia are finding it increasingly difficult to sustain the costs in the current high price environment.

© 2005 Kumar Amitav Chaliha for KWR International, Inc.
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