Most economies in Southeast Asia (SEA) have seen a decline in oil and gas (O&G) production over the last five years. Malaysia, Thailand and Vietnam all reported a decline in production in 2017 as compared to 2016; the only exception has been Indonesia. This can be attributed primarily to maturing O&G fields in the region and the preference among larger oil corporations for US shale projects, which provide quicker returns, over their SEA counterparts. These corporations have been steadily exiting the region. As per Wood Mackenzie, they have sold O&G fields worth almost 800 million barrels of oil equivalent (mboe) since 2014.

The fields are being purchased by smaller regional players with a higher appetite for risk. These include firms like the Japanese JXTG Nippon and Mitsubishi, the Kuwait Foreign Petroleum Exploration Company, and Indonesian Medco Energi. As per Wood Mackenzie, these independent oil companies (IOCs), along with other local or regional players, have bought over 600 mboe worth of reserves from the larger players who have exited the region.

However, the demand for oil and gas from the region has been increasing continuously, not least because of rapid industrialisation. This poses a new type of challenge for the region – ensuring energy security by providing a continuous supply of O&G while managing its own O&G production, which has been continuously declining. This is required if they intend to control their imports and keep their current account deficit in check.

Increasing imports for the region

The SEA region has moved from being a region self-sufficient in oil in 2000 to being a net importer of 2.1 million barrels per day (mbd) of crude in 2016. This was a result of strong demand growth of 2.4 mbd coupled with a 0.2 mbd increase in refinery capacity in the region. The demand for oil products showed a more rapid increase. Oil product demand stood at 6 mbd in 2016, which is an increase of more than 60 per cent since 2000, primarily driven by the increasing demand for gasoline.

As per the International Energy Agency (IEA), SEA’s net crude oil imports are expected to more than double by 2040 as the region adds new refining capacity. Many projects have been proposed to expand the region’s refining capacity from 4.8 mbd in 2016 to 7.7 mbd by 2040, an increase of over 60 per cent. This will push SEA’s net crude imports to 5.5 mbd by 2040 from 2.1 mbd in 2016.

For natural gas, Indonesia and Malaysia were the region’s main players accounting for around two-thirds of the 220 billion cubic metres (bcm) of gas production in 2016. Both countries are also major exporters of liquefied natural gas (LNG).  On the other hand, Thailand and Singapore were the region’s main gas importers with imports of 16 bcm and 12 bcm, respectively, in 2016. The Philippines and Vietnam, which were self-sufficient in gas until 2016, are expected to soon start importing LNG as demand increases faster than domestic production. Going ahead, natural gas will play an important role in driving sustainable development in the region, with increased use in power generation, and in the transport sector, where its use is expected to increase by almost four times during the period 2016 to 2040. However, with domestic production expected to decrease from 188 bcm in 2016 to 185 bcm in 2040, imports are expected to increase.

As per the IEA, this increase in imports due to the increase in demand and a decrease in domestic supply would push the region’s annual net import bill to over $300 billion in 2040. This will be equivalent to around 4 per cent of the region’s total gross domestic product (GDP). The major contribution is expected to come from oil. Net imports of oil are expected to increase to 6.9 mbd in 2040, requiring an annual outlay of $280 billion by 2040. This is why rebooting O&G production in the region has become imperative.

Rebooting the regional production

While the SEA is a mature oil-producing region, there is still a significant potential to boost output. The region is rich in O&G reserves. Together, Indonesia, Malaysia, Thailand, Vietnam and Brunei hold over 26 per cent of the oil reserves and over 35 per cent of the gas reserves in the Asia-Pacific region. The region has many deepwater areas that are relatively unexplored and are thought to hold significant reserves. Considering this, the region must plan to uncover these reserves and boost domestic production if it intends to become self-reliant in energy.

However, this is not without its share of challenges. Efforts to increase production are often constrained by legal and resource ownership challenges, restricted infrastructure capabilities and availability of limited funding due to the sectorwide decrease in capital expenditure seen lately. O&G exploration activity in the region has actually been on a decline. Just 37 exploration licences were granted in 2014, the lowest number in a decade.

To take an instance, Vietnam has significant proven oil reserves of 4.4 billion barrels. These are larger than those of both Indonesia and Malaysia. However, the country’s oil production actually declined to 16.1 million tonnes in 2017. This is half the production in Malaysia and slightly less than a third of the production in Indonesia in the same year. The main reason is that the largest producing fields in Vietnam, namely, Bach Ho, Rong and Rong SE, are all seeing a decline in production. Besides, existing market conditions have limited efforts to develop new fields. The country saw nine areas being explored in 2013 and 2014. However, this number dropped to just three in 2015. What is required is that the most promising areas for exploration such as the Cuu Long, Nam Con Son and Malay basins located in offshore southern Vietnam be explored.

One alternative that governments in the region could consider is to throw open bidding for all O&G blocks to IOCs rather than reserving some blocks for national oil companies (NOCs). This would give the IOCs a chance to invest in the region’s development. They could either partner with the NOCs or act independently to develop O&G assets in the region. This could lead to a revival in production from the region as the IOCs could better use their available manpower and economic resources to boost production, a process that has already begun in a sense. IOCs are acquiring stakes in operational oilfields from major players. These include acquisitions such as the Conoco Phillips’ 40 per cent interest in the South Natuna Sea Block B by Medco Energi and the entire equity stake in Newfield Malaysia Holding by Sapura Energy. The production from these conglomerates and IOCs has more than doubled from 260,000 barrels of oil equivalent per day (boepd) prior to 2008 to more than 675,000 boepd in 2018. Today, these companies account for about 12 per cent of the region’s production. What is required is to provide the required regulatory support and nurture this growth in domestic production.

The governments could also take measures such as providing tax incentives and adding flexibility in regulatory frameworks to boost exploration activity. For example, Indonesia revised the regulations on import duties and tax treatment during the exploration phase in 2016. Similarly, Thailand approved changes to energy laws and allowed companies to have production sharing or service contracts with the government in 2016 in a bid to attract international energy firms and investors. Governments need to continue such measures to attract more global O&G players.


SEA historically has been a region that has been self-reliant in oil and gas. This, however, is changing as the region tries to manage fast growing economies with declining O&G production and limited exploration. This would require concerted effort from both governments and the private sector to bring more deepwater reserves to production and offset the decline in production. Given the heavy investments being made in developing refinery capacity will lead to a sharp rise in the demand for oil, the exploitation of deepwater reserves becomes imperative to ensure that these investments do not lead to burgeoning oil imports that could adversely affect the current account deficits of the countries in the region.