Asia’s post-COVID outlook – top predictions from ADI for the elusive new normal

22 January, 2021 · 5 minutes

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refinery industry engineer wearing protective face mask

As the world charts its journey to post-pandemic recovery, industries are on the lookout for signs of market trends to come. Here’s what to look out for.

All roads lead to China

The roadmap to recovery points heavily towards China. The first country to be hit by the pandemic, the global superpower also seems to have set a precedent for strong bounce-back, especially when it comes to the fuel market. Resurgence of transport demand means that, along with India, China will account for around 70% of total Asian oil demand in 2021. The country’s fossil fuels industry is the only one in the Asian region expected to make a recovery to pre-pandemic levels before the third quarter of next year.

Renewed economic confidence has motivated the market to expand in new directions. As the growing demand for petrochemicals marks a shift in the fuel supply chain, China recently announced the launch of the 800,000 b/d Zhejiang Petroleum & Chemical (ZPC) refinery this year. The project is one of a series of Chinese “mega” plants and refineries due to come into operation over the next couple of years, adding to a total of 1 million b/d additional capacity across the nation, and bringing its share of CDU (crude distillation unit) capacity across the APAC region to 50%.

“China is seeing a predicted recovery to pre-COIVD levels, even in jet fuel”, says a senior VP at Argus Consulting. These ebullient predictions could help boost regional trade, and cement Asia’s place on the global map as the next hub of the energy transition. It could also intensify intra-regional competition. Market analysts warn that China’s dominance could risk  squeezing out other Asian refiners in smaller economies, such as the Philippines.

Low carbon economies

2020 was the year to reset and re-evaluate, and for the oil and gas industry a time to re-assess the role of the traditional fossil fuels. As sustainability rises to the top of the agenda, almost all of the major operators have pledged to cut carbon emissions, including BP’s ambitious aim to offset all planet-warming emissions by 2050. Governments are also setting green goals. In Asia, China, Japan and South Korea, which together account for 20% of world oil demand, have all announced carbon neutrality targets.

Across Asia, the region still contributing over 45% of global greenhouse gas emissions, the pandemic has accelerated operators’ sustainability journey. Virtual working could mean a long term reduction in commuting and air travel, meaning fuel operators may have to consider reinventing their business models, shifting towards petrochemicals, green energy supplies, or introducing circular material flow. New technology could also help downstream business leaders streamline their current business operations. Increasingly, technology solutions are geared towards helping downstream operators reduce waste emissions and implement a cleaner, more efficient refining process.

Digital twin continues to dominate

A key player in this new digital landscape is digital twin: the virtual simulation technology which has seen a revival over the past few years. Shell’s  announcement last year of their pioneering digital twin project in their Singapore Paulu Bukom refinery, marked the region as an innovation hub. Globally, the digital twin market is predicted to garner revenue of US $52,081.0 million at a CAGR of 41.3%, from 2020 – 2027, a growth led by APAC, with anticipated regional revenue of US $13,020.0 million.

New AI and machine learning algorithms are moving the next frontier of digital twin technology from predictive, to prescriptive, or even probabilistic digital twin: where virtual simulations can analyse the various risk factors in potential scenarios and suggest the best course of action. If 2020 was the year that technology helped businesses manage challenges, 2021 will be where it helps them address those risks before they even happen.

A vehicle for change

Even when transport re-emerges, a new vehicle will be in pole position.  Across the world, electric vehicles are on the rise, with global sales surging by 80% year on year in September 2020.

Here too, China is an Asian trailblazer. China’s Society of Automotive Engineers announced in October 2020 that EV sales in the country are expected to soar to 20% of all overall new car sales by 2025, and to 50% by 2035.

In Southeast Asia, public and private sector are following suit, with the Thai Government announcing a package of incentives last November to promote the manufacturing of electric vehicles.

“A lot of the major operators, Shell, BP, are considering EV charging stations as a key part of their business’s next steps”, says Melissa Low, Research Fellow at the Energy Studies Institute. As electric vehicles charge the energy industry’s next phase, integration of different fuel sources and business models could be the key for traditional fossil fuel operators to shift gear, and maintain a competitive market position.

The new age of fossil fuels

However, that fear that this spells the end for fossil fuels is unfounded. More than 85% of APAC’s regional energy consumption comes from fossil fuels. For traditional downstream operators, recovery doesn’t mean total reinvention. It’s the resourcefulness to employ the technologies, tools, and training available to build resilience around your existing assets, which will set regional – and global – leaders apart.

During these uncertain times, Asia – the region Chinese Premier Li Keqiang once described as “an engine of the world economy” – is revving up for full power. The world will be watching to see which direction it takes.  

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Originally published 22 January, 2021, updated 11 February, 2021

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