The Southeast Asian market represents one of the most dynamic oil and gas markets in the world. The oil and gas production and consumption patterns in the Association of Southeast Asian Nations (ASEAN) region have shown significant developments in the last one year. The region is one of the fastest growing energy consumers in the world driven by a rapidly expanding economy and a growing tourism sector. However, oil and gas production in the region has been unable to keep pace with the demand generated by these factors, which has made the region resort to importing oil and gas to fulfil its needs.

The region has also seen international oil companies (IOCs) divest their stakes and move to other economies that offer higher returns, have less complex market structures and offer shorter time frames for project development. According to Wood Mackenzie, IOCs have divested more than 600 million barrels of oil equivalent (mboe) of Southeastern Asia oil and gas assets since oil prices fell in 2014. However, a group of East Asian and Middle Eastern conglomerates have moved in to fill the gap. These include companies such as JXTG Holdings, Inc., Mitsubishi, Kuwait Foreign Petroleum Exploration Company, Medco Energi, Saka Energu, KrisEnergy, Sapura Energy, etc., that have acquired oil and gas resources in the region. Since 2013, these rising new players have acquired over 600 mboe of resources in the region.

Oil and gas reserves

According to the BP Statistical Review of World Energy 2018, the four major oil and gas producers in the region, namely, Indonesia, Malaysia, Thailand and Vietnam, together held a total of 11.5 billion barrels of oil reserves at the end of 2017, which is almost 24 per cent of the total oil reserves in Asia Pacific. However, the countries located in the region have a low reserve-to-production (R/P) ratio when compared to the global average of 50.2. Vietnam has an R/P ratio of 36 as compared to its peers Indonesia, Malaysia and Thailand, which had an R/P ratio of 9.2, 14.1 and 2.1 respectively.

In the case of natural gas, the four nations together hold 229.4 trillion cubic feet (tcf) of gas reserves, which are more than one-third the total natural gas reserves in the Asia-Pacific region. As compared to oil, countries in the region have a higher R/P ratio for natural gas. Vietnam has the highest R/P ratio of 68.3 followed by Indonesia, Malaysia and Thailand at 42.9, 34.9 and 5.2 respectively.

Out of the major economies in the region, Vietnam has the highest R/P ratio for both oil and natural gas. The country has significant proven reserves of 4.4 billion barrels, larger than those of Indonesia and Malaysia.

Production scenario

As stated earlier, the region has been experiencing a decline in oil and gas production as major domestic oil producers and IOCs previously operating in the region have moved away to other regions such as the US that offer comparatively higher returns and shorter project development time. During 2017, oil production from major Southeast Asian economies, barring Indonesia, showed a decline. Production of oil by Malaysia, Thailand and Vietnam declined from 32.6 mt, 17.5 mt and 18 mt in 2016 to 32.2 mt, 16.8 mt and 16.1 mt, respectively, in 2017. However, oil production by Indonesia increased from 43 mt to 46.4 mt during the same period.

Similarly, production of natural gas from major Southeast Asian economies declined. The sole exception was Malaysia, where there is a transition economy from oil towards gas. Production of natural gas from Indonesia, Thailand and Vietnam declined from 70.7 billion cubic metres (bcm), 40.4 bcm and 10.2 bcm in 2016 to 68 bcm, 38.7 bcm and 9.5 bcm respectively in 2017. Production of natural gas from Malaysia increased from 75.6 bcm to 78.4 bcm during the same period.

Oil and gas producers in the region are now planning to increase production from the region. This is being done through the discovery of new fields and increasing production from existing fields. Spending has so far been driven mainly by state oil companies such as Thailand’s PTTEP and Vietnam’s PetroVietnam, which need to produce more oil and gas to ensure their countries’ energy security. With oil prices back above $60 per barrel (it touched $70 a barrel in October 2018), there is a renewed appetite for producers to spend and increase their production.

Companies are also undertaking enhanced oil recovery (EOR) projects and drilling deeper in search of more oil resources. For example, PETRONAS Malaysia is implementing 10 EOR projects to extend production from some of Malaysia’s oldest oilfields.

Consumption trends

Energy consumption in Southeast Asia has been consistently increasing, driven by the growth rate of economies in the region and a growing tourism sector. Oil consumption in 2017 in Indonesia, Malaysia, Thailand and Vietnam increased by 4.1 per cent, 0.5 per cent, 2.9 per cent and 5 per cent respectively to reach 77.3 million tonnes of oil equivalent (mtoe), 36.9 mtoe, 63.9 mtoe and 23 mtoe respectively. Consumption of natural gas in 2017 increased in Indonesia and Malaysia by 2.4 per cent and 1.9 per cent to 33.7 mtoe and 36.8 mtoe respectively. However, consumption of natural gas in the same year in Thailand and Vietnam decreased by 0.9 per cent and 8 per cent to 43.1 mtoe and 8.1 mtoe respectively.

Oil demand in Southeast Asia is expected to increase significantly in the years ahead because of the increase in demand for mobility in the region. There is also expected to be significant demand from the petrochemical feedstock industry. The installation of new refinery capacity in the region has not kept pace with the rapidly increasing demand for oil in the region, making the region a net importer of oil. However, in the near term, planned refinery expansion projects in Indonesia, namely, the Balikpapan refinery and the Cilacap refinery are expected to increase refinery production from the region and reduce oil imports.

The region is also seeing new onshore and floating regasification terminals coming up to meet the increasing demand for gas from the region. While the region also has various bilateral pipelines in operation today, an important task that remains is to integrate them into a harmonised regional pipeline network. The Trans-ASEAN Gas Pipeline project, which attempts to achieve this, could help bring important energy security benefits for the region. The role of natural gas is expected to increase going ahead, considering the growing emphasis on sustainable development and climate change. It is the only fossil fuel whose use is expected to increase in power generation. Its use in transport is also expected to increase in the future.

Conclusion

The oil and gas industry in the Southeast Asian region presents an interesting picture. A region that was historically a major producer and exporter of oil and gas is slowly becoming an importer of these natural resources. The region is also developing very fast, thus creating even more demand for oil and gas. In such a scenario, what is needed currently is to bring the proposed investments in the region’s upstream and downstream sectors to production, so that the growing oil import bill that the region is staring at can be curtailed. What is also needed in parallel is to create an oil and gas pipeline infrastructure across the region so that the ASEAN members can increase their dependence on each other and ensure the region’s energy security.