the new Asian tigers? – the countries that will drive demand in 2016

Over recent decades China has grown to be a dominant force in the global economy, and now consumes over 23% of all energy consumed on Earth[1]. The result is an economic climate where, to repurpose an old phrase, a sneeze form China means that the rest of the world catches a cold.

Yet whilst much of China’s recent economic growth has been driven by heavy manufacturing, the Middle Kingdom is now in the process of rebalancing its economy towards less energy-intensive service industries. This, combined with its much publicised recent economic slowdown, is likely to lead to reduced energy consumption as consumer spending and confidence drop. But whilst the Chinese economy struggles, are there other nations who might step in to plug the gap?

Even though China might have black clouds on its horizon, those of a more bullish persuasion can look elsewhere in Asia towards countries where energy consumption looks likely to increase. One such example is Malaysia, whose government has committed to lifting the country into the high-income bracket by 2020 through an extensive program of infrastructure investment and governance reforms[2]. These policies appear to be working, and the country is estimated to have achieved a median growth of 5.5% in 2015[3]. The Malaysian government has also used low oil prices to phase out energy subsidies which, in the past, have resulted in wasteful energy consumption, created serious market distortions and deterred investment[4].

As domestic consumption increases, the country’s role in international markets will change as it becomes increasingly reliant on imports, and the IEA predicts that Malaysia’s import dependence will rise to over 40% by 2040[5]. Indeed in 2014, the government of Malaysia surprised its people by announcing that declining production had led to the country becoming a net importer of oil[6]. As this development continues, it is highly likely that demand for imported petrochemicals will similarly increase through 2016 and beyond.

There is a similarly positive economic outlook in Indonesia, where low prices have boosted the south-east Asian country’s economy and led to an increase in infrastructure investment and an upgrade to its manufacturing base (alongside a regulatory overhaul aimed at encouraging foreign investors)[7]. This spike follows consistent growth in energy consumption over the past decade, which grew by 43% between 2003 and 2013[8]. As Indonesia’s industrialisation continues, it will also consume increasing amounts of fossil fuels as it expands its electricity and transportation sectors.

Indonesia’s energy consumption is tied closely to its economic performance and, on the available evidence, this is likely to lead to an increase in demand over the course of a strong year. After an initially slow start in 2015, public spending and capital expenditure looked to be picking up steam ahead of 2016, particularly as the Indonesian government looks to remove inefficient bureaucracy[9].

It will also be worth keeping a watchful eye on Vietnam, whose government is looking to accelerate a programme of economic liberalisation and improved ties with the West. Still primarily an agrarian economy, Vietnam is looking to modernise and become a more industrialised nation[10]. To accommodate this, the country requires greater access to energy, and demand for oil and gas in 2015 was estimated at 16.4 million tonnes (an increase of 6% compared to the previous year). Last year, around 50% of Vietnam’s oil and gas was imported from abroad, and this percentage is likely to increase further alongside greater consumption[11].

There is also evidence that the decline in oil and gas prices has had a positive impact on Vietnam, with lower petrol prices serving to stimulate consumption, which will in turn increase demand further. As such, some have estimated that Vietnam will become a net importer of crude oil and natural gas from 2019 and 2017, respectively.

Whilst it is difficult to predict quite how much of this slack the smaller Asian nations will take-up, there is certainly evidence that demand will be surprise many observers. If early evidence is to be believed, China may well be set for a disappointing year, yet there are other players in the region that are well worth watching.

[1] http://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2015/bp-statistical-review-of-world-energy-2015-china-insights.pdf
[2] http://www.reuters.com/article/malaysia-economy-plan-idUSL3N0YC1J620150521
[3] http://www.bloomberg.com/news/articles/2015-05-15/malaysia-s-economic-growth-eased-last-quarter-on-export-decline
[4] http://www.nytimes.com/2015/02/04/business/low-energy-prices-offer-opening-for-subsidy-cuts.html?_r=0
[5] http://www.iea.org/textbase/npsum/weo2014sum.pdf
[6] http://www.thestar.com.my/business/business-news/2015/01/21/clearing-the-air-treasury-sec-gen-malaysia-net-importer-of-crude-oil-petroleum-products-since-2014
[7] http://www.theworldin.com/article/10569/asia
[8] https://www.eia.gov/beta/international/analysis.cfm?iso=IDN
[9] http://www.focus-economics.com/countries/indonesia
[10] https://www.eia.gov/todayinenergy/detail.cfm?id=22332
[11] http://en.nhandan.org.vn/business/economy/item/3872002-oil-price-outlook-in-2016-and-impacts-on-vietnam%E2%80%99s-oil-industry.html