January 7, 2016
Author: Mairdan Halifu, Analyst
Published by:World Oil, February Edition
Southeast Asia is a sub-region of Asia, consisting of the countries that are located geographically south of China, east of India, west of New Guinea and north of Australia. Southeast Asia is one of the most densely populated areas in the world, having more than 600 million inhabitants. The region has experienced rapid economic growth and the energy demand has increased continuously in the past decades. Most of the countries in Southeast Asia rely heavily on oil and gas as their primary source of energy. Oil and gas hereby account for more than 60% of the energy consumption in Malaysia and more than 50% for Indonesia. Exploration and production activity started in Southeast Asia in the beginning of the last century. The current oil and gas production from this region is still considerably lower than from other major producing regions such as the Middle East, North America, and South America. However, Southeast Asia has strengthened its important role in the global energy market, due to the fast growing economies in the region. This article takes a detailed look at the Southeast Asia E&P market.
Resources and production
Southeast Asia is considered rich in oil and gas resources. Figure 1 shows the remaining recoverable resources for South Asian countries. The collective oil and gas resources are approximately 40 billion boe, and nearly 65% of the total resources are gas. As of 2015, Indonesia dominates liquid and gas resources in Southeast Asia followed by Malaysia. The majority of the resources are located offshore.
Southeast Asian countries have an abundance of natural gas resources. Indonesia has the third largest natural gas resource in Asia after Turkmenistan and China. Southeast Asian countries are not only important natural gas producers in the region, but also key producers in the global picture. Indonesia has the highest natural gas production in Southeast Asia. Although domestic natural gas demand has increased exponentially over recent years, Indonesia is still an important LNG exporter globally. According to EIA (The U.S Energy Information Administration), in 2014 Indonesia was the fifth largest LNG exporter in the world after Qatar, Malaysia, Australia and Nigeria. Malaysia was the second largest LNG exporter in the world and the second highest natural gas producer in the region. The third largest gas producer was Thailand, but this country is a net importer of natural gas due to its fast growing domestic demand. Myanmar was the fourth highest natural gas producer in the region; besides its domestic consumption most of its natural gas production is exported to Thailand and recently to China via pipelines. The small wealthy state – Brunei also relies heavily on its hydrocarbon revenues and is an important LNG exporter in this region. The natural gas production from Southeast Asia are estimated at around 21 Tcf/d in 2015. Rystad Energy projects the production will decrease to 18 Tcf/d by 2020. The reduction is mainly driven by the output decline of mature fields in this region.
Indonesia holds the highest amount of liquids resources in Southeast Asia and the recoverable resources are approximately 5 billion boe. Malaysia follows in this area with nearly 4.5 billion boe. Vietnam, Brunei, and Thailand’s liquids resources are 1.5 billion boe, 1 billion boe and 0.9 billion boe respectively. For most of the countries, the resources are primarily located in shallow waters. The expectation is Indonesia with a large resource contribution from onshore.
Total liquids production from the region was around 2.4 Million boe/d in 2015 and is expected to decline to 2.14 Million boe/d by 2020. The decline is mainly driven by the reduction of output from Indonesia and Vietnam. Although Rystad Energy estimates the liquid production will increase for Malaysia and Brunei by 2020, the increase cannot offset the reduction from other major producing countries.
Historically high oil prices have driven the exploration activity in this area. Figure 4 shows the historical discovered resource verses oil prices. One can see that the correlation is quite high from 2009 to 2012. Since 2010, most of the discoveries in this region have been made in Malaysia and Indonesia. In 2012, Malaysia discovered the Kasawari field (~760 million boe) and another four discoveries in offshore Sarawak, in the prolific central Luconia gas province. Indonesia has also discovered several fields with substantial resources like the Sanga Sanga field (~ 298 million boe) in 2010, the Kedung Keris field (~ 110 million boe) in 2011 and the Merakes field (~ 200 Million boe) in 2014. The main discoveries in Brunei have been the Gerongong field (~ 220 million Boe) in 2011 and the Keratau field (~ 150 million boe) in 2013. The discovered resources in 2015 are at its lowest since 2005.
E&P Investment Outlook
Considering the current low oil price, the future capital investment in upstream segment in Southeast Asia is expected to decrease. Figure 5 shows E&P investment from 2010 to 2018. In 2015, the countries that have the highest value in terms of capital investment in the area are Malaysia and Indonesia. One can see that recent oil price plunge have had a negative impact on upstream capital investment. Investment has decreased from about $43 billion in 2014 to $34 billion USD in 2015, a 21% reduction from 2014 levels. Due to the low oil price, Rystad Energy estimates that capital investment will continue to fall in 2016, reaching $27.2 billion, which is about a 20% reduction to 2015.
The future of South East Asian E&P market depends on a number of factors, such as commodity price, government policy, economics, technology, etc. Rystad Energy’s outlook is based on the current status of these factors. We anticipate that oil and gas production from Southeast Asia will decline in the near future. The output reduction is mainly due to production decline from mature fields and low investment in the upstream segment because of low commodity prices. Southeast Asia countries have the highest average breakeven oil price for non-sanctioned projects among other regions in the world (Figure 6). New Southeast Asian projects are less attractive for E&P companies. In the past few years, we have already witnessed important independent E&P companies such as Hess and Newfield Exploration Company exiting the Southeast Asia market because of diminishing interests across the region.
Furthermore, with increasing domestic energy demand from this region, it might force the LNG exporting countries to import LNG, in order to feed the domestic demand while respecting long term export contracts. As an example, we have already seen that Malaysia and Indonesia imported LNG in the recent years. In conclusion, the supply and demand imbalance is expected to worsen in the future. This requires local governments to put in place policies to attract and retain international E&P companies and diversify the energy source to withstand the downturn in the supply market.
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Maierdan Halifu, Analyst
Phone: +47 24 00 42 00
Julia Weiss, VP Marketing
Phone: +47 48 29 87 61
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), Africa as well as South East Asia.