The outbreak of Covid-19 led the world into an unforeseen crisis. The oil demand in the Southeast Asian region witnessed a decline of nearly 2 per cent. The fall in oil demand accounts for nearly three-quarters of the total decline in energy consumption. In comparison to oil, natural gas displayed far greater resilience and the region’s proven natural gas reserves witnessed an increase of nearly 8 per cent.
Developments in the oil sector
- According to BP Energy Statistical Review of World Energy 2021, the region’s proven oil reserves amounted to 10.9 billion barrels at the end of 2020. The figure was recorded at 11.1 billion barrels in 2019, 13.9 billion barrels in 2009 and 10.8 billion barrels in 1999. Brunei, Indonesia, Malaysia, Thailand, and Vietnam are the five countries that are well endowed with crude oil reserves. Myanmar is the most unexplored nation. Of the latest proven reserves of 10.9 billion barrels, the maximum share belongs to Vietnam (40 per cent), followed by Malaysia (25 per cent), and Indonesia (22 per cent).
- Crude oil production from the region has been falling since 2016. In 2020, the total crude output of the ASEAN region was 2,074 thousand barrels per day (bpd), the lowest recorded since 2016. The year-on-year reduction in 2020 was approximately 9 per cent. The consistent fall in output can be attributed to maturing and ageing fields, together with the reluctance of exploration and production players to spend on exploration of new fields due to low crude prices. Country-wise, the maximum output has come from Indonesia, followed by Malaysia, Thailand, Vietnam, and Brunei. Over the past five years, the shares of these countries in the total oil output has remained almost the same.
- The region’s crude oil consumption rose consistently between since 2015 and 2019. However, consumption fell in 2020. In 2020, crude oil consumption stood at 5,430 thousand bpd. During the five-year period 2014-19, ASEAN’s crude oil consumption increased at a compound annual growth rate of 2.5 per cent, increasing from 5,803 thousand bpd in 2015 to 6,404 thousand bpd in 2019. In terms of country-wise shares, the largest consumer is Singapore (24 per cent), closely followed by Thailand (23 per cent) and Indonesia (22 per cent).
Developments in the natural gas sector
- According to BP Energy Statistical Review of World Energy 2021, the region’s proven natural gas reserves stood at 3.9 trillion cubic metres (tcm) in 2020. The figure was 3.6 tcm in 2019, 5.8 tcm in 2009, and 5.1 tcm in 1999. Brunei, Indonesia, Malaysia, Thailand, Vietnam, and Myanmar are the six countries that are well endowed with natural gas reserves. Of the latest proven reserves, the maximum share belongs to Indonesia (37 per cent), Malaysia (26 per cent), and Myanmar (11 per cent).
- As in the case of crude oil production, natural gas production from the region has been falling since 2015. In 2020, the natural gas output of the ASEAN region was 208 billion cubic metres (bcm), the lowest recorded since 2015 with a year-on-year reduction of nearly 7 per cent. The consistent fall in output can be attributed to maturing and ageing fields, together with the reluctance of exploration and production players to spend on exploration of new fields due to low crude prices (which has a lagged effect on gas prices). Country-wise, the maximum output has come from Malaysia, followed by Indonesia, Myanmar, Thailand, Brunei, and Vietnam. Over the past five years, the share of these countries in total gas output has remained roughly the same.
- The region’s natural gas consumption increased from 162 bcm in 2018 to 166 bcm in 2019 and then decreased by 8 per cent to 152 bcm in 2020. The rise in consumption followed a period of continuous fall from 2015. In terms of country-wise share, the largest consumer is Thailand (31 per cent), followed by Indonesia (27 per cent) and Malaysia (25 per cent). Gas consumption in Malaysia was affected by an increase in the consumption of coal because it has become increasingly economically competitive relative to natural gas for power generation.
Impact of Covid-19
The outbreak of the Covid-19 pandemic affected oil and gas upstream and downstream activities in the ASEAN region. Low oil and gas production in 2020 was due to a decline in demand brought about by the pandemic. Further, crude oil prices dropped due to low demand attributed to severe restrictions on movement and economic activities during the pandemic, and the consequent slowing down of the global economy.
Many projects related to deep-water drilling projects, opening of bid applications, oilfield development and the closing of oil refineries were delayed. The low demand and delayed projects resulted in unfavourable financial conditions, strict operational spending and preservation of liquidity. Plunging oil and gas prices made it attractive to stockpile liquid natural gas and find storage to hoard crude oil until fuel prices rose again. Several oil and gas companies have reported large net losses due to a decline in revenues owing to fall in consumption and supply chain constraints.
Oil firms responded to the challenges by cutting capital and operating expenses, especially new investments in production and exploration that may not be significantly profitable. ASEAN energy companies tightened their financial policies through measures such as cutting investment and disposing of money assets to protect their bottom lines.
At present, numerous countries are going through an economic slowdown/recession, which has had a negative impact on oil prices, pushing Brent to its lowest levels in over 30 years. The oil price (dated Brent) averaged $41.84 per barrel in 2020 – the lowest registered price since 2004. On September 28, 2021, the price of Brent crude touched $80 per barrel for the first time since October 2018 before reversing those gains and dropping once again. Low oil prices result in cuts or delays in investment in the sector, especially on new projects, which will reduce the number of potential growth opportunities in the region for some time.
The impact of the pandemic has been increasingly pushing companies to restructure their supply production strategies and diversify their supply chains. Energy firms are expected to progressively adapt to the evolving new normal while safeguarding their financial sustainability. These companies are likely to leverage a more digitally connected enterprise, both across their plants and across corporate functions.
To assist the region’s oil and gas industry and ensure energy security, ASEAN governments should prioritise building the required infrastructure to maintain domestic oil and gas output.