WASHINGTON (AFP) – Several Asian countries are pushing ahead with their long held objective of establishing a regional oil market for cheaper supplies, despite warnings such an initiative could backfire.
“If you look at both production and consumption, Asia feels shortchanged,” Debnath Shaw, an Indian diplomat, said Monday at a conference organized by the Center for Strategic and International Studies (CSIS), a Washington-based think tank.
Most of the world’s supplies are controlled by members of the Organization of Petroleum Exporting Countries (OPEC). The main oil consumers — North America, Europe and developed Asia — in turn have formed their own grouping, the International Energy Agency (IEA), to protect their interests.
Being latecomers to the industrialization process, developing countries like India, China and the Southeast Asian economies “find they have no space for themselves” because the so-called oil market “is already divided between the producers and the users,” Shaw said.
For example, Asian nations pay an extra 1.50 to 2.00 dollars for every barrel of oil from a refinery in Saudi Arabia compared to North American and European customers, he said.
An Indian diplomatic officer, Shaw is a visiting fellow at CSIS in Washington. He is conducting research on India’s energy policies and its relationship to other Asian countries.
In the first ever effort to forge an Asian market for crude and products, regional energy ministers met in India’s capital New Delhi in January in an attempt to forge a long-term crude oil supply contract like those that exist in London and New York.
The ministers also mulled strategies for the oil sector that could boost their countries’ stability and security.
Participants included Asian consumer nations Japan, China, India and South Korea, as well as top producers Saudi Arabia, Kuwait, the United Arab Emirates and Iran, classified as West Asian rather than Middle East economies at the talks.
However, Alan Hegburg, a senior fellow at CSIS’s energy program, cautioned that Asian nations would do more damage to the global oil market and investment if they forged a regional grouping.
“There is a global oil market and trade. There is global oil market and investment. It is competitive,” said Hegburg, who once managed political strategic planning for three multinational energy firms Phillips Petroleum, Amoco and BP.
“If you start setting up regional groupings to try to deal with that, you are in danger of doing more damage than leaving it as it is,” he said.
“If you say everything on investment is going to be decided for political reasons, you can actually retard investments. And in oil, we need investments. The entire world market needs investments,” Hegburg added.
According to Hegburg, the Asian initiative was an attempt to “cartelize” the market at a time when the Organization for Economic Cooperation and Development (OECD), a group of mostly wealthy countries, was prepared to cut demand to ensure that there was adequate oil for the rest of the world.
“The Asian regional idea says: we’ll try to cartelize the market, in other words, we’ll take liquidity out of the market,” Hegburg said.
“That’s the danger — you’ll end up having less oil available during a crisis and the price actually goes higher. So that’s my concern about it.”
Hegburg said he knew Asian nations were concerned about the high prices they pay for oil but added that prices were a function of the market and determined by how refiners bought oil.
“It doesn’t get handled by a regional grouping,” he said.
Asian nations make up 35 percent of world oil consumption, but unlike Western economies, do not have their own market for petroleum and petroleum products.
The Western Texas Intermediate benchmark serves as a marker for US markets, while the Brent contracts are a marker for European markets. There is also the Dubai crude marker for Gulf producers.
These contracts act as the benchmark price against which crude is bought or sold.
Shaw stressed that based on his research, an Asian oil market could exist under current arrangements.
“Some of things that the IEA has been asking Asian countries to do, like developing strategic petroleum reserves and things like that, we’ll take help from IEA,” he said.
“I feel there is enough space for an Asian oil market in addition to other arrangements that are already available.”
