Stephen Jones, Vice President of Oil Markets and Downstream at IHS, chaired the Tuesday morning session "Asia and Global Oil Demand: A Pause or Lasting Downshift to Lower Growth?" Each of the panelists agreed that despite short-term headwinds, drivers for long-term oil demand growth still persist in Asia.

Mayank Ashar, Managing Director and CEO at Cairn, began the discussion by focusing on oil demand in Asia broadly and then highlighted trends in India. He noted that by the end of the century, there will be 10 billion people on the plant, 9 billion of which will be Asian. He said that this population growth coupled with GDP growth and urbanization will help oil demand to continue to rise over the next 25 years. Mr. Ashar stated that India will have the highest oil demand growth of all Asian countries, but its import dependence will also increase to 91% by 2040. He stated that "these two pictures cannot coexist" and that high import dependency represents a "strategic vulnerability."

Denie S. Tampubolon, Senior Vice President of Upstream Business Development at Pertamina, gave his perspectives on Indonesian oil demand growth, which Pertamina expects to be 2-3% per year over the next 10 years. He said the recent oil price decline has been an opportunity for the country, as the government has been able to reduce its fuel subsidy burden. He noted that in the next several years, all oil product subsidies are on track to be abolished.

Qian Xingkun, Vice President of China National Petroleum Corporation's (CNPC) Economics and Technology Research Institute, provided CNPC's forecast for China's oil demand to 2020. Using an annual GDP growth assumption of 6.5-7.0% and an urbanization rate of 60% by 2020, CNPC expects oil product demand to increase by 3.4% per year, reaching 608 million metric tons (MMt) in 2020. Demand for gasoline and jet fuel will grow much more quickly than diesel owing to China's economic transition away from heavy industry to more consumer-driven growth.

Ravi Narayanaswamy, Vice President at IHS, presented the IHS short- and long-term oil demand forecast for Asia. Oil demand growth was extremely high in 2015 at 1.7 MMb/d, but by 2016 IHS expects this number to drop to 1.2 MMb/d. Mr. Narayanaswamy noted that growth this year will be tempered because consumers have not directly benefited from lower oil prices since many countries have increased taxes and removed fuel subsidies. Over the next five years, IHS expects demand to be 1.4 MMb/d on average.

One topic that all panelists touched upon was the low level of vehicle penetration in many Asian countries. Mr. Tampubolon stated that in Indonesia, there are only 85 vehicles for every 1,000 people. Mr. Narayanaswamy said that in India the number is even lower, at 20 per 1,000 people. These low base levels leave large room for growth, particularly in gasoline demand. By 2040, IHS expects Indian vehicle penetration to increase to 100 out of 1,000. Still, the total vehicle fleet will be only about one-quarter the size of China's in 2040. Mr. Qian said that CNPC expects Chinese passenger ownership to increase on average by 8-16% per year during 2015-20.

While there are strong drivers behind the oil demand growth story in Asia, one potential risk that several of the panelists mentioned is the rise of alternative fuels. Mr. Qian stated that in China, 85 MMt of oil products will be displaced by alternative energies by 2020, of which natural gas is most likely to displace oil. He said he expects this number to increase to 120 MMt by 2030. Nevertheless, Mr. Tampubolon, Mr. Ashar, and Mr. Qian all presented cautious growth forecasts for alternative vehicles, noting that an enormous amount of infrastructure still needs to be built in order for gas or electric vehicles to account for a significant portion of transportation demand.

Mr. Jones wrapped up the discussion by asking the panelists why the pessimism is so pervasive in the Asian market in spite of all the forecast trends that were presented. Mr. Ashar responded by saying short-term oversupply is creating pessimism, but the "fundamental drivers of [future] demand are unmistakable." The other speakers all agreed on this point.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.