How the Middle East war is reshaping Asia’s upstream strategy, with Prateek Pandey

Here is the corrected transcript with the proper name spellings throughout: --- # Let's Talk Energy – Transcript --- **[0:00]** *[Intro music]* **Noah Brenner:** This is Let's Talk Energy, your go-to podcast for smart energy insights. I'm Noah Brenner, joining you today from Kuala Lumpur on the sidelines of the OTC Asia conference and in the shadow of the Petronas Towers. Nowhere outside the Middle East Gulf region itself has been impacted more by the ongoing war between the US, Israel, and Iran and the de facto closure of the Strait of Hormuz than Asia, which receives a material amount of the region's oil exports as well as a significant amount of LNG. The loss of that crucial supply has led countries to declare energy emergencies, tapping reserves, rationing supplies, and trying to find ways to reduce demand, such as shortening in-office work. For private companies and national champions alike, the war has reinforced the imperative to find diverse sources of supply that don't have to travel through increasingly fragile choke points in global trade. So, how might companies adjust their future strategies in response to the immediate supply shock created by the war? What's the potential of the region to meet its own growing demand for oil and natural gas? And finally, will more secure regional supplies have to come at a higher cost for consumers? To help us understand how the war in the Middle East is shaping upstream strategies in Asia, we're joined today by Prateek Pandey, who leads Rystad Energy's team analyzing the Asia-Pacific region. Prateek, it's great to have you on the program. **Prateek Pandey:** Thanks, Noah. Pleasure to be here and looking forward to the very interesting chat. **Noah:** Well, let's talk energy. Prateek, I want to start with your view in terms of how executives, politicians, and policymakers are viewing the war in the Middle East in terms of the impact on some of the broad strategic reactions to the shortages that we're seeing in the market today. Give us a flavor of the conversations you've been having over the past month. **Prateek:** We are a region with about 60% of the global population. Of global oil imports, we make a share of about 55 to 60%, and about 70% of global LNG imports — so any disruption to those volumes will have a very significant impact on the region, which is why it is definitely a topic of discussion everywhere across Asia-Pacific. You brought up a couple of good categories where we've been discussing this with the industry: countries or governments, and then companies. For countries, governments, and regulators, the big focus has been — we often say for Asia it is economics and affordability over geopolitics. That has been the motive for the last few years, whether you look at it from the perspective of sanctions on Russian volumes or other areas. Asian countries have prioritized affordable volumes over geopolitics for the last few years. That is now up for a toss, and the priority at this point is more about getting access to the volumes — that's a struggle. Everyone has one question whenever we bring up this discussion: when will this end? That's a difficult one to answer, although we hope it will — as we are expecting, in the timeframe of six weeks from the Rystad Energy analysis. But the other segment you mentioned is the companies. For them, there is a dual energy that I see in the room: there is some excitement about the increased prices, which will of course benefit the balance sheet for 2026, and the other is what follows after this year — how does it impact their strategies and their growth. On the good side, there are a lot of regional players extremely focused on Asia-Pacific. Even if you look at the big independents and even the NOCs, they would have maximum 10 to 20% of their production possibly from the Middle East, but a majority is based either in Asia-Pacific or other regions apart from the Middle East. So it's not as exposed as some of the global players, but it will still have some impact on their strategies going forward. The good thing for the region is we do see interest from IOCs and NOCs returning. They are looking to grow, and in a way the current conflict in the Middle East is also a reminder of why domestic resources are so important for Asia-Pacific. --- **[4:00]** **Noah:** You highlighted the broad exposure, but are there a couple of countries in particular that are perhaps especially dependent when it comes to oil and then natural gas, as we think about the disruption in the Middle East? **Prateek:** If you follow the panic from the country's perspective, Pakistan and the Philippines are probably the ones facing the most heat because of shortage of fuel and because of their significant dependence — both of them are over 95% dependent on Middle Eastern imports for oil. That exposes them significantly. But from the volume perspective, it is of course India and China, which hold significant volume — both of them in the range of 50 to 60% of their crude imports from the Middle East. Even they are struggling to find replacement volumes. Of course, there is no upside that can totally replace the currently impacted volumes from the Strait of Hormuz shutdown, but they're looking for any possible alternates. The challenge is how this current volatility will also impact their economies. The same applies from the gas and LNG perspective. Pakistan again comes at the top of that list — it is about 99% dependent on LNG imported from the Middle East. You can imagine that takes a significant toll. Storage for both crude and gas is minimal in most of these countries, apart from some marginal outliers like Japan and other countries in East Asia, which are above 200 days or above 150 days of storage for crude. Apart from those, most countries are around 50 days or less. They are struggling to get any additional cargoes at this point. Although we're discussing crude and LNG, there is also significant impact on LPG and other fuel products like diesel — shortages we are hearing about from the Philippines as well. Multiple challenges that countries are going through, but those are some names undergoing a bit more struggle currently in the region. **Noah:** I want to talk about the NOCs here and how they are responding. Potentially it's been a short-term shock but a very severe one, and many of them have responsibility for helping to procure and provide some of these fuels. How do you see NOCs responding? What can they do, and could this result in more significant strategic changes down the road? **Prateek:** The NOCs and regulators are definitely the ones taking a step up and looking for any additional barrels from their existing PSCs that are under production. Even if they can manage to ramp up 3 to 5% from any of the top PSCs, that could mean a lot for either their own country or any neighboring country in the region at this point. There are a lot of discussions on that front, and that's where we do see activities moving forward a bit more than what was expected before the conflict — for example, well interventions and well activities to ramp up production potential in existing PSCs. But that's more of an immediate action. When you talk about the mid to long term, there is definitely some discussion about more GSAs that can potentially be signed within Asia-Pacific from the importing countries. What that also brings along is these countries are open to investing in upstream projects or exploration potential within the region, so they can drive these developments, drive the extraction of production volumes, and then secure them from the import perspective as well. That is in a way pushing projects that are due for FID and also bringing up a lot of exploration potential in the region. **Noah:** I'd like to pivot to the IOC perspective. You've got a market that's thirsty for energy, particularly as these economies evolve and expand. How are international players and IOCs seeing the opportunity here in Asia-Pacific? **Prateek:** From the IOC and majors' perspective, they're looking at Asia-Pacific as a gas hub. If you look at what portfolio growth has shown us over the last year or two from most of the majors and large IOCs, they are looking at Southeast Asia, Australia, and PNG as gas portfolio growth drivers — this is why they're getting back. --- **[8:00]** There was a point four or five years ago when we were talking about energy majors and IOCs leaving Asia-Pacific, but that has turned around in the last one to one and a half years. We have seen most of the energy majors also expanding their portfolio. TotalEnergies has done that in a big way across Asia-Pacific, primarily building a gas portfolio and now also looking at some oil opportunities in Malaysia. Shell has done a similar strategy. ENI and BP have shown signs of increasing the portfolio through acquisitions and partnerships with NOCs. So there is a lot of interest from the majors. But there's also another segment from the international players — the independent E&Ps. They have played a significant role in the region because in the last five or six years they have acquired a lot of mature brownfield assets from the majors when they were selling off and quitting these assets. For them it's a great opportunity to further grow — they also hold a big share of oil assets in their portfolio, they will possibly gain a lot more on their balance sheet this year, which will give them an additional appetite to go ahead and do a bit more M&A, field development, and exploration as well in the region. **Noah:** It's still a business at the end of the day, and can these opportunities — close to market, with a security component, less prone to disruption than the Middle East — can they compete globally for investment dollars? How might they compare to other opportunities these IOCs have in their portfolios? **Prateek:** From the IOC perspective, their interest is because a lot of these gas opportunities are not just supplying the domestic market — they are linked to LNG exports, which is what makes the economics more attractive. A lot of these opportunities, from the names I mentioned among the energy majors, are in mature basins. So you have existing infrastructure, time to development or time to first production can be optimized, and you have a significant existing market that is hungry for these volumes in Asia-Pacific. That's a big reason for IOCs to get back and look at these opportunities. There are some frontier or less-explored basins, especially deep-water ones, that are higher cost and possibly not as competitive. But even on that front, we have seen cases within the region where gas projects have reached FID and are selling domestic gas at the same price as LNG world prices. That is a hint at what energy security could cost these countries — and I'm sure the majors are looking at the gas hunger and demand in the region going forward, which is what brings them back. **Noah:** Where are some of the exploration hotspots within Asia-Pacific that could help address some of this? **Prateek:** Indonesia and Malaysia have helped bring back global interest because of some large gas discoveries that have happened in these two countries. We do see more interest from IOCs returning to both. But at this point we have opportunities from across the region — exploration bidding rounds in Brunei and Thailand, frontier exploration opportunities in the Philippines, some blocks awarded to independent players just last year, and PNG and Timor-Leste as well. --- **[12:00]** If I have to highlight a few that will be more of a discussion in the near term, it would probably be the Andaman Basin — not exactly just Indonesia, but a basin across a few countries: Thailand, Indonesia, and India as well — and all these countries are looking at the potential to discover resources. The NOCs in India are going forward and taking a lead on exploration opportunities in the deep-water Andaman Basin. In Indonesia, we've already seen about 7 to 10 TCF of discoveries in the last two to three years from the Andaman Basin. On the same side, Malaysia is trying to do an excellent job of promoting some frontier areas through joint study concepts going forward. You'll be surprised if you look at the kind of players that have shown interest — we have about five to ten players jointly studying these frontier areas in Malaysia. It is indeed a sign that it's not only the mature basins where you might find one or two more big discoveries, but also the frontiers that can shoulder exploration and development growth in the long term as well. **Noah:** If more energy is being produced in the region, is there enough of the pipes and plumbing part of this — the infrastructure — to move it to the places where it needs to go? Or does there need to be an infrastructure build-out as well? **Prateek:** Infrastructure is indeed becoming a huge part of any M&A opportunities or project feasibility studies with operators in the region. They want to study the infrastructure, what available capacity exists, what the demand is in different areas of the domestic market — and that will ultimately impact the valuation and economics of the project. When it comes to domestic market supply, pipeline infrastructure is indeed one of the challenges, specifically in a few countries like Indonesia, where there is a need for more investment to connect supply hubs with demand hubs. Otherwise, most buyers will be dependent on domestic LNG, which will not be cheap or very affordable even if you're getting it from domestic resources. The other part is that if you're thinking about domestic energy, we still need more regas infrastructure. Yes, it takes a bit less time to build that as compared to an upstream development — so it's a bit of a chicken-and-egg situation. Once they see upstream developments moving forward, that's when we will ultimately see the money flowing into regas investments. It's more challenging to talk about pipeline infrastructure because for that you'd ideally want to see a bigger resource size — you would not design or construct a pipeline for just 5 to 10 years of supply. That's an ultimate challenge for governments: they're pushing for more exploration, and once they're certain about the resource size, it would make pipeline infrastructure investments more feasible and economical to move forward. **Noah:** You've mentioned costs — these are higher-cost gas resources, costs are rising. Does this beg the question: do prices need to go up? Is this the end of cheap gas in the region? Should countries and consumers get used to the idea that they're going to have to pay more for these supplies? **Prateek:** In the past we have known domestic supply to be a very cheap source of supply for these countries. Just to put forward a number — there are some countries where domestic gas is sold at about $1 to $2 per MMBTU, an extremely low price compared to LNG volumes. I would say that very cheap tag probably needs to be taken off. --- **[16:00]** We can still call them affordable volumes as compared to global supply or import volumes, but in most countries prices will definitely go up from what we have seen. If I have to put forward a number, it would be possibly 25 to 30% higher than what we have seen historically for domestic gas prices. And there are some simple reasons for that. A lot of the new developments coming up are actually deep-water, or if they're not deep-water, they are sour gas developments — so the development is more challenging, you need more infrastructure, these are more complicated developments, and the market needs to accept this. Because otherwise, if these developments are not economical and are not moving forward, it is definitely a roadblock for investors. **Noah:** Some of these producing and exporting countries in the region also have material and growing gas needs themselves. Are there enough gas molecules to go around — to both maintain exports and meet growing domestic demand? **Prateek:** It's a bit of a dilemma that the exporting countries are undergoing, because there is increasing demand from the domestic market, and at the same time they want to continue with the status of being exporters and continue to export those volumes. The way these countries have maintained that status over the last 50-plus years is that they had enough volumes to supply both the domestic market and for export. To do the same going forward, one priority will be to develop all discovered resources to minimize stranded volumes in the region — and that is a priority we see in action from the regulators' perspective. They are making all the potential policy changes they can to move on all the stuck or more challenging projects that are already discovered but have not been moving for the last few years. The second is: explore more and produce more. In the last five years, we have seen probably fiscal changes and key policy changes in six to seven countries from the region — that is itself a sign that there are efforts to make exploration more attractive and to bring more technical expertise to the region to develop these resources faster. That's the only solution: to have more exploration and enough resources so that you can balance both exports and domestic market supply. Something we also need to keep in mind is that a lot of these developments are actually backed by the countries which are importing these volumes. If you look at the role that companies from Japan have played in LNG developments in the region, they are part of a lot of LNG upstream developments and also the downstream part. So even going forward, as we have to develop a lot of these LNG projects, there is a share from Japanese players, Korean players, and now significant interest from Chinese NOCs to expand in the region as well. They will definitely look to back these projects only if they see these countries as a reliable partner for their energy security going forward. **Noah:** You and I were talking prior to this episode and you mentioned that a client said this situation is "the death of decarbonization in the region" — that decarbonization efforts have fallen much further down the priority list. Do you agree with that? Is that the way things will move forward, or is that overstated? **Prateek:** The way I read that statement is that the priority is definitely affordability. The current prices have hit these economies in a significant way. For developing economies, it's possibly a setback for a few years — not an impact of a few months, but something that will take possibly two to three years to recover from. --- **[20:00]** I think that's the message from the policymakers' perspective: affordability and security are going to be the priority. It's also a reminder that gas is not just a transition fuel for the region — it is also a key factor from the affordability perspective. Something we also need to keep in mind is the economics of renewable energy, because that is something investors are still figuring out in the region. If that works out, I still see things continuing. One point I'll add: a lot of the gas projects I mentioned earlier are sour gas projects, and because of that we have a number of these projects being backed by CCS plans alongside the developments — which is happening in Indonesia, Thailand, and Malaysia. All three countries are moving forward with CCS on a number of gas projects. So even as we go forward with these developments, there are definitely efforts being made. I wouldn't call it the death of decarbonization, but we need to find a more economical way of executing these projects. I often hear that the approach in Asia will be possibly different compared to other continents. **Noah:** Is there a chance that some of these importing countries will choose to increase investments in renewables rather than in gas, particularly if they don't have domestic reserves? **Prateek:** A lot of these countries are already doing it. If you just look from a size perspective, India and China both have been extremely aggressive on renewables, and they are achieving more than their targets for the last few years. When it comes to Vietnam and the Philippines, they are also looking to get the ball rolling and move much faster — there are some challenges on the ground, but they are definitely moving in the right direction. The other point these countries are keeping in mind is that gas is still something they will rely on for possibly the next 20 to 30 years. Oil is not something they see a huge dependence on in the horizon of 20-plus years. But gas is still something they will rely on, and this is where their strategy on long-term import contracts will possibly be revisited after this conflict. Yes, they will focus on investments in renewable energy, but I don't think this will be a path-changing scenario for them. **Noah:** We've seen Asia-Pacific NOCs invest in upstream activities in the Middle East. As those volumes were coming in, they wanted exposure to the upstream there. Do you think that will continue, or might companies be more hesitant to spend their investment dollars abroad in the Middle East versus elsewhere — South America or offshore Africa? **Prateek:** It's something I've also seen a lot of banks bringing up, because they see this as a potential strategy shift within the region. We have to go back and understand why these NOCs were looking at investing in the Middle East. The big reason for their global expansion is they can bring the volumes back home — they have access to a big size of volumes and can import them back to the country. I think that still remains a priority. There are not many other regions where they can grow at the same pace as the Middle East. --- **[24:00]** So from the long-term perspective, that interest remains. But if we are looking at the immediate or mid-term perspective, we can possibly see some of the budget allocation that was for that global expansion focused more on regional efforts instead. What we see happening within the region is NOCs getting out of their home countries but being very keen on expanding across the region. Petronas is a great example — expanding their portfolio in Indonesia, Vietnam, Timor-Leste, and PNG, most of the countries where we see activities growing. We see the same from Pertamina, and PetroVietnam is looking at a similar expansion strategy as well. PTTEP has done that for a few years now. So NOCs, even if they slow down in the near term on outside-Asia expansion, will definitely continue that within Asia-Pacific. **Noah:** Well Prateek, it's been a great and fascinating conversation. Any parting thoughts? Is there anything we've missed that we should be talking about? **Prateek:** From the banking perspective — where do they see more bankable projects going forward? We touched a bit on decarbonization, but I think that's an area where banks are more interested still in gas and gas-plus-CCS opportunities. That is something that players in the region will definitely look to explore going forward. If I have to rank it in the order of priority and preference from the bank's perspective, it would be gas projects with CCS first, and then LNG-associated gas projects. The kind of areas I'm addressing: one is low-carbon developments, the other is energy security within Asia-Pacific — those are the priorities, and that is what brings bankability from their perspective. We do see those two themes being applicable to a lot of portfolio growth for NOCs and majors in the region. **Noah:** Thank you so much for joining us. **Prateek:** It's a pleasure. --- **[28:00]** **Noah:** Let's recap. Energy importers in Asia are bearing the brunt of energy shortages created by the war in the Middle East. And while this shock has only lasted for perhaps a handful of weeks, it could have lasting impacts on energy strategies of companies and countries within the region. NOCs, international oil companies, super majors, and a growing set of independents are all finding attractive opportunities to develop natural gas that's readily absorbed by both the local market as well as LNG exports. Asia-Pacific NOCs who have invested in upstream activities in the Middle East are not going to abandon those efforts, as the region presents an unparalleled opportunity for growth — but we may see a slowdown in such investments in the near term. Thanks for listening to Let's Talk Energy. This podcast is a production of Rystad Energy. Check out the show notes for further analysis on the topics discussed in this episode, and find us on social media — we're Rystad Energy on all your major platforms. Please leave us a review, click that like button, and subscribe. You can also keep up to date on our website, and if you'd like to send us questions or have an idea for a future episode, you can contact us at podcast@rystadenergy.com. Don't forget to join us next week for more Let's Talk Energy. *[Outro music]*