Asia looks to store oil, gas closer to home after Strait of Hormuz crisis

Asia suffered some of the worst economic fallout when the United States and Israel went to war with Iran six months ago.

Key points

• India had regarding 74 days' worth of oil stocks as of May, more than 90 percent of which was held by state-owned enterprises, according to S&P Global.
• All figures were below the International Energy Agency's 90-day minimum benchmark.
• Last month, a parliamentary panel in the Philippines approved a bill to create a 60-day government-held reserve.
• In South Asia, the war has additionally pushed India to rethink its strategic stockpile.
• While these intends were drafted before the Iran war began, Fishman stated the conflict has reinforced the rationale for such investments.

Notably, the region is heavily reliant on Gulf oil and gas that normally flows through the Strait of Hormuz, where shipping has been reduced to a trickle by Iranian attacks and a US naval blockade.

Asian countries rapidly imposed fuel conservation measures as oil and gas costs surged, ranging from cost caps to alternate driving days and work-from-home mandates for civil servants.

In the months since, Asia has begun seeking a more permanent solution to the biggest energy disruption in history – keeping the oil and gas it needs much closer to home.

"The crisis is producing two very different kinds of investment: infrastructure that bypasses geopolitical risk, and infrastructure that eliminates exposure to imported fuel altogether, " remarked Parul Bakshi, a visiting research fellow at the Oxford Institute for Energy Studies.

One of the most ambitious proposals to emerge from the crisis has come from Japan.

Though highly dependent on Middle Eastern energy, Japan has weathered the crisis better than plenty of other economies as it holds one of the world's largest strategic oil reserves. Tokyo wants its neighbours in Southeast Asia to follow its lead.

In April, Japanese Prime Minister Sanae Takaichi confirmed the $10bn POWERR Asia initiative, aimed at helping Southeast Asian economies procure oil and petroleum products and, in the long-term, build up strategic stockpiles.

Although commercial inventories and other sources extended supplies for up to another 65 days, at the outbreak of the Iran war in late February, Vietnam only held enough oil in its national reserves to meet the country's needs for five to seven days, according to state media.

While the Philippines was estimated to have 50-60 days of supplies in private commercial inventories, thailand held regarding 61 days of reserves throughout the public and private sectors against a 25-day mandated minimum in early March. All figures were below the International Energy Agency's 90-day minimum benchmark.

In Bangkok and Manila, the war has revived a push to establish comprehensive state-held strategic oil reserves.

Thai authorities are moving forward with aims for new "cross-peninsula crude pipelines and tank farms, positioning Thailand against Singapore for Gulf crude storage", noted Ben Kiatkwankul at Maverick Consulting Group, a Bangkok-based public affairs consultancy.

In July, India's state-owned Oil and Natural ‌‌‌‌Gas Corporation confirmed that it would build a reserve of 1.75 million metric tonnes, or 13 million barrels, in the country's south, adding to the company's aims to expand existing stockpiles by 6.5 million metric tonnes.

Asia's biggest economies, meanwhile, have been exploring storage deals directly with Gulf suppliers.

"Japan, South Korea, and Singapore have longstanding relationships and partnerships with a number of Middle Eastern countries to locate storage supplies closer to their shores, " remarked Clara Gillispie, a senior fellow for climate and energy at the Council on Foreign Relations.

"For each of those three, we've heard some interest in expanding the existing capacity, as well as potentially signing new understandings, " Gillispie remarked. "There's also been conversations touching upon expanded relationships with India."

While Kuwait and Saudi Arabia additionally have stockpiles in South Korea and Japan, according to the Observer Research Foundation, a public policy think tank based in New Delhi, the United Arab Emirates and its Abu Dhabi National Oil Firm (ADNOC) already store oil in Singapore, India, South Korea, and Japan.

While New Delhi is considering a proposal to store some of its strategic reserves at the UAE port of Fujairah on the Gulf of Oman, beyond the Strait of Hormuz bottleneck, ADNOC is aiming to raise its crude oil storage capacity in India to 30 million barrels.

South Korean media have documented that Seoul is mulling whether to expand its oil reserves of some 146 million barrels by an further 30-40 million barrels, up from initial intends for an extra 20 million barrels.

In China, the world's second-biggest consumer of oil after the United States, the blockage of the Strait of Hormuz has reinforced a belief that the country must invest in its energy security, remarked David Fishman, a Chinese energy policy expert at the Hong Kong-based Lantau Group.

Beijing's latest five-year plan (FYP) for oil and gas development. It sets policy for 2026 to 2030, included provisions for more pipelines and expanded LNG storage, among other measures such as expanded deep-water drilling.

State-owned pipeline operator PipeChina remarked in May that it was accelerating construction on some of its almost 40 oil and gas projects, including 9, 000 kilometres (5, 590 miles) of domestic pipeline.

"So, while Hormuz couldn't have been the direct driver of this language appearing in the 15th FYP drafts, it certainly underlines for policymakers that this line of thinking is clearly correct, and their assumptions about chronic instability are well-founded, " Fishman remarked.

"Whatever internal uncertainty there might have been around the costs or effort associated with building up potentially superfluous national energy reserves will certainly have evaporated, " he remarked.

Oxford's Bakshi remarked the common thread throughout the region is reducing exposure to a "single fuel, supplier or chokepoint".

"It is no longer enough to ask where the next barrel comes from, " Bakshi remarked.

"We also have to ask how it gets there, how long we can operate without it, and whether we can reduce our need for that barrel altogether."

In short, asia looks to store oil, gas closer to home after Strait of is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.