Southeast Asian Producers Want To Tie Their Future to Region’s Growing Energy Demand
Asian markets continue to represent the leading edge of global economic growth, and with many of the international oil companies divested from the region, Southeast Asian operators in particular see themselves well positioned for the future.
Southeast Asian operators sit in the middle of the world’s fastest growing economic region where energy demand is expected to double over the next 20 years. But this picture of growth has been juxtaposed with the region’s declining oil and gas production—most of which comes from offshore fields—that has left it increasingly reliant on imports from overseas suppliers.
The degree to which operators in Malaysia and Indonesia can help counter this trend was the focus of an executive panel last week at the International Petroleum Technology Conference (IPTC). While acknowledging that the region is marked by challenging geologies and mature offshore fields, the executives spoke highly of what the future holds.
Several things underpin their optimism, not least of which is the region's rising demand for natural gas. Coupled with the spread of low-carbon energy agendas in Asia, this dynamic could also make proximity-to-market an attractive differentiator for operators there.
Emeliana Rice-Oxley, the vice president of exploration at Malaysia’s Petronas, said at the conference that when stacked against the global portfolio Southeast Asian reservoirs are often considered “mature or immaterial since the hydrocarbons in these basins have been produced continuously for a very long time.”
“However, it is important to note that significant potential remains,” she added before listing a number of recent discoveries made by Petronas and its partners in Malaysian and Indonesian waters. Among them was a well off the coast of Sarawak that was drilled into a 260 ft-tall gas column by Thailand’s PTTEP which owns an 80% operator-stake while Petronas owns the remaining 20% interest.
The renewed emphasis on projects closer to home comes after Petronas spent the past 5 years spending about 60% of its exploration budget on fields outside of Southeast Asia. In the next 5 years, the company will nearly reverse this ratio by spending 55% of its exploration budget inside its home region.
A key component of Petronas' plans hinge on the rising need for electricity across Asia. Rice-Oxley noted that natural gas already represents 60% of Southeast Asia’s power plant needs “and I think this will continue to drive upstream activities.”
The Malaysian operator is among those ambitioning toward a net-zero carbon footprint by 2050 and sees gas as a bridge fuel.
One enabling technology that Petronas is counting on to build that bridge profitably is floating LNG (FLNG). In 2019, the company was the 5th-largest exporter of LNG, shipping about 1.2 Tcf or 7% total LNG cargos delivered that year.
This year, the company became the world’s first to own and operate two FLNG facilities. Both units currently supply Southeast Asian markets and are considered by Petronas to be essential in making remote and marginal gas fields competitive.
Kanok Intharawijitr, the executive vice president of the exploration group for PTTEP, echoed his colleague in saying there remain “huge resources” offshore Malaysia, which has become a major focus area for the state-run operator. Last month, PTTEP announced the company’s largest-ever gas discovery was made offshore Malaysia in a well that showed an initial flow rate of 50 MMscf/D.
Intharawijitr highlighted during his remarks that the makeup of the Southeast Asian operator landscape is considerably more local after many western international oil companies spent the past few years divesting from the region.
“This created a great opportunity for a small company like PTTEP,” he said about the wave of exits, one of which resulted in Houston-based Murphy Oil selling its Sabah gas fields offshore Malaysia to PTTEP for $2.1 billion in 2019.
Different owners tend to bring different perspectives. This is important to the future of Southeast Asia since Intharawijitr said many of the region's untapped prospects are relatively small in volume, a fact that demands “new eyes, and a new philosophy” to realize the potential economics.
For PTTEP, that means the company may be more willing than others to try and squeeze profits from a marginal asset. “We’re not always looking for the big return—a small return is OK for us,” he said with a chuckle.
Indonesia Seeks “Fast Track” to 1 Million B/D
Malaysia is not the only place where a new way of thinking is being used to get better results.
After peaking at 1.5 million B/D in the 1990s, Indonesia’s output slid below 700,000 B/D in 2020. In response, the government has introduced a number of new policies that it hopes will boost production back up to 1 million B/D by 2030—enough to meet about half of projected domestic demand.
“With a decline of about 20–30% a year, it’s quite challenging,” acknowledged Jaffee Suardin, the deputy of planning at SKK Migas, a government agency tasked with marketing Indonesia’s state-owned resources. His remark helps frame why the group has recently adopted this three-word mantra for its effort: “massive, aggressive, efficient."
“All the proposals that we are asking from investors should include massive activity, and if it's massive and aggressive, we know the economic part of it could be challenging,” said Suardin.
The aggressive approach is hoped to result in more than 260 new Indonesian wells drilled by years’ end. The pace will have to pick up big time, though, to meet the 1 million B/D goal. Considering the rate of decline from its existing fields, SKK Migas estimates Indonesia might need as many as 1,000 new wells drilled annually by 2030.
Regarding efficiency, the state agency is promoting its new “fast track” model that evaluates the economic potential of a project while it is still in exploration mode. If the government likes what it sees, Suardin said it may take the extraordinary step of offering “flexible and competitive” terms early on in the process.
SKK Migas has made other recent moves to modernize. Last year, it also did away with the traditional fees associated with accessing pre-auction block data à la carte. To make it easier for potential bidders to find something worth investing in, it now uses a membership model that, much like a streaming video subscription, allows exploration companies and other investors to scan all the data at their pleasure.
A different perspective to the topic of exploration data was raised by Sophie Zurquiyah, the CEO of CGG. The opportunity she highlighted suggested that Southeast Asian competitiveness might be boosted by embracing more of the multiclient seismic surveys that have become a norm in other mature basins such as the North Sea and US Gulf of Mexico.
She spoke to the efficiency gains operators elsewhere have realized by sharing the costs and workload of acquisition and processing. In general, a collaborative approach to seismic surveying yields a sharper picture of the subsurface, leaving fewer questions about the continuity of long faults or specific layers of rock.
“Where it works well is where we have predictable lease rounds, where the block size is a bit smaller and there longer periods of exclusivity to market the data from a service company,” she added. “And, in that sense, it’s been a bit more difficult to make that model work in Asia.”
While progress may be needed on this front, Petronas is among the operators who have recently funded multiclient surveys in frontier offshore areas in the region. Petronas is also in the middle of a 5-year contract with CGG which has established for the operator an advanced imaging center at its headquarters in Kuala Lumpur.
Rice-Oxley shared images of old seismic data that after being reprocessed revealed a stark difference in resolution of the geologic structure and layering. She said the newly developed seismic processing techniques have played a role in a number of recent discoveries; this includes the Kali Berau Dalam discovery drilled by Reposol and Petronas which was celebrated as Indonesia’s biggest gas find in 18 years.
The discovery made 2 years ago was a manifestation of Rice-Oxley’s call for explorers in the region to “challenge dogmas” that may be holding back creative development solutions.
While Southeast Asia's reservoirs are often noted as complex and shaped by harsh tectonics, making predicting their potential "much more difficult compared with other regions," she explained those same disadvantages are also "why some big discoveries continue to be made, even after almost 150 years of exploration."