Watershed year in Asia
Nuclear sabre-rattling shook Asia's security foundations, but 2017 heralded breakthroughs for EVs and LNG
Parts of Asia felt like a tinderbox ready to light for much of 2017. North Korea's Kim Jong-un grabbed the world's attention with a series of muscle-flexing nuclear and missile tests. The US, under its neophyte leader Donald Trump, was all too eager to engage in the tit-for-tat one-upmanship, culminating in a mission that saw American bombers buzz the DMZ for the first time since the 1950s. Most unsettling was the bombastic war of words between Kim and Trump, which seemed to push the peninsula perilously close to another war. Meanwhile, China continued pushing its spurious claims over the vast majority of the oil-and-gas-rich South China Sea, agitating relations with Japan, Vietnam, the Philippines and others that stake claims to the waters.
So long as those wars stay cold, though, the year will come to be seen as a watershed for Asia Pacific's energy industry on a couple of important fronts.
China and India, the oil market's great growth hopes, both signalled that they plan a pedal-to-the-floor push into electric vehicles (EVs).
China's leadership said it wanted the country to be a world leader in EV technology as it eyed a potential revolution in transportation that aligns with an overriding political imperative to clean up the country's toxic air. From 2018, Beijing said it expected 8% of all new vehicles to be EVs or hybrid electric vehicles, rising to 12% by 2020. The government even floated the idea of banning the sale of fossil-fuelled cars by 2040, echoing similar proposals from the UK and France.
Because foreign manufacturers are forced to work in partnership with the domestic automotive industry in exchange for access to the world's fastest growing car market, China will quickly acquire lucrative EV know-how, or so the theory goes. Home-grown specialists like BAIC and BYD sold just as many EVs as Tesla or BMW. The number of plug-in EVs cruising China's roads topped 1m in 2017, the first country to hit the milestone.
Supercharging the EV momentum, Indian prime minister Narendra Modi set out even more ambitious goals. He wants all-EV transport on the roads by 2030—that's cars, buses, trucks, scooters and rickshaws. It's a monumental and likely unachievable ask. Currently, just 1% of India's fleet of 200m vehicles are EVs. But the ambition was made clear, and the government hopes it has found a shortcut to electrification with the development of battery-swapping rather than battery-charging infrastructure.
While EVs may be prowling Asia's streets of the future, petrol still rules the road. For all the electric talk, Chinese oil demand still rose during 2017—by end year, it was expected to hit 12.4m barrels a day, 4.6% more than in 2016. In 2017, India's thirst for oil actually grew faster than China's, with Platts forecasting demand would end the year up 7% higher than in 2016, at 4.13m.
Elsewhere, Australia continued its march towards global liquefied natural gas superpowerdom, rivalling the world's top exporter Qatar. Chevron's $45bn Wheatstone LNG megaproject shipped its first cargo, while its Gorgon project continued to ramp up exports. Australia's total liquefaction capacity jumped by a third compared with 2016, to 88bn cubic metres.
But Australia's export ambitions were complicated by a domestic gas-supply crisis. In February 2017, a heat wave swept through much of South Australia and New South Wales provinces, prompting a surge in demand that the domestic gas supply wasn't able to cope with. Blame was quickly laid at the lap of LNG exporters, said to be cashing in on sales abroad and leaving Aussies to sweat it out. Subsequent negotiations with regulators produced an October deal that will see exporters divert gas to the home market in the case of future domestic supply crises.
Asia's LNG buyers, meanwhile, continued to take advantage of sagging global gas prices. Lower prices spurred renewed, albeit modest, demand growth in both Japan and South Korea, the region's largest buyers. China's LNG demand roared back in 2017 after a disappointing few years, rising by nearly a third. India pushed ahead with new regasification projects. Bangladesh, Pakistan and other smaller buyers signed up for floating, storage and regasification units, opening new markets to hard-pressed LNG exporters.
A growing regional economy will continue to need more fuel. In October, the IMF raised its GDP outlook for Asia for 2017 as a whole, seeing growth coming in at a healthy 5.5%. Even North Korea's economy seemed to clipping along nicely. Only geopolitics—and the whims of Kim and Trump—darkened the outlook as 2017 wore on.
This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here