Refinery profits throughout Asia face the risk of collapse, if the present crop of new refinery proposals all go ahead, according brokerage ING Barings. New refining capacity of about 306 million tonnes in Asia has been announced over the past two years, which could lead to a supply surplus of 20 per cent. However, an ING Barings report says such a wave of construction is unlikely to take place, and, instead, there could be a significant shortage, particularly in China, which faces the fastest growing supply deficit. Christopher Chew, author of the report said: 'The threat of overcapacity is perhaps an even more potent threat to investor sentiment than the actuality.' Using a database of announcements of greenfield and refinery expansion projects from the past two years, he weighted the projects according to their chances of proceeding. He then compared supply with demand forecasts, and estimated 123 million tonnes of eventual new refining capacity, adding only 14 per cent to present capacity by 2001, which would be absorbed by regional demand in 2000. China is likely to see the largest increase in capacity, totalling 190.5 million tonnes per annum in 2001, third behind Japan and Korea. The mainland is also expected to be one of the main consumers, with oil demand forecast to grow at a compound annual rate of 5.8 per cent between 1994 and 2001, reaching 213.1 million tonnes by 2001. According to ING Barings, demand will outstrip supply by 22 per cent in 2001, while in the region as a whole, supply will move 2.1 per cent ahead of demand by the same year. Mr Chew said there were still high barriers to entry, leading to the abandonment of many projects. He estimated the minimum economic size of a greenfield refinery to be 6.5 million tonnes per annum, costing about US$1.3 billion, and taking about five years to complete after government approval. Lending is also likely to be a factor, as privatised companies lose sovereign debt guarantees, and banks insist on strict commercial criteria. 'While we believe the risk of overbuilding is now very much smaller than in the past, the sheer rate of demand growth in Asia means the bigger risk could be that of capacity shortages,' Mr Chew said.