Enhanced oil recovery to address Malaysia’s falling oil output-

Southeast Asian countries have been increasingly resorting to new strategies to increase their domestic energy production to meet rising demand, and to counter decreasing domestic supplies and increasing reliance on oil imports. Malaysia is no exception. The country has recently embarked on the journey by introducing its first enhanced oil recovery (EOR) project in September 2014.

Energy demand in the Southeast Asian region has gone up two and a half times since the 1990s. The region turned into a net importer of oil from a net exporter in the 1990s. It is predicted that Southeast Asia’s oil imports will rise to over 5 million barrels per day (mbd) by 2035, making it the fourth largest oil importer in the world, behind only China, India, and the European Union (EU). The International Energy Agency (IEA) projects that oil demand in the region will rise from the current 4.4 mbd to 6.8 mbd in 2035.

Efforts to stem the decline in oil production

Malaysia is the second largest oil producer in the Association of Southeast Asian Nations (ASEAN). However, production is declining. The state-owned oil and gas company Petronas, therefore, has stepped up investments in marginal fields, EOR in large mature fields, and exploration of deepwater fields. The Malaysian government has introduced fiscal incentives such as tax benefits and export duty waivers to draw investments in the marginal fields. In addition, the introduction of risk service contracts (RSCs) that offer partners favourable fiscal terms for the development and operation of exploration fields are expected to play a critical role in enhancing oil output in the region. The Malaysian government has introduced up to 100 per cent capital tax allowance in order to offset the higher production cost for oil replenishment.

In terms of existing production, more than one-fourth of Malaysia’s oil production comes from the Tapis field in the offshore Malay basin. However, production has declined due to maturing fields, particularly the large fields in the shallow waters off peninsular Malaysia. In addition, Malaysia’s average oil recovery factor lies between 23 and 26 per cent, which is far behind the 46 per cent North Sea standard.

Malaysia’s EOR efforts are expected to increase the recovery factor of the country’s mature oilfields by around 40 to 50 per cent. Exxon and Petronas have implemented large-scale EOR projects to raise the falling output of the Tapis and nearby fields. Meanwhile, Shell has also undertaken EOR projects in Malaysia’s Sarawak and Sabah regions.

At the same time, energy demand in Malaysia has been rising, upsetting the country’s oil export balance. This has led Malaysia to explore alternative means of enhancing its upstream production via EOR in large mature fields.

EOR efforts

Despite the technical and commercial challenges, Petronas is implementing EOR projects to increase production from Malaysia’s oilfields.

Tapis EOR project: The Malaysian arm of US-based Exxon Mobil Corporation, ExxonMobil Exploration and Production Malaysia, Inc. announced the commencement of the Tapis EOR project in September 2014, with water-alternating-gas injection from the Tapis R central processing platform into targeted wells on the existing Tapis A platform. The project location is 118 miles off Terengganu.

The Tapis EOR project is the first large-scale EOR project in Malaysia that will make use of the immiscible water-alternating-gas process for recovering the remaining oil reserves from the Tapis field. The technique involves water and gas injections alternately over a period of time to enhance the sweeping efficiency of the oil reservoir. The process gradually sweeps the remaining oil to the producing wells, thereby increasing the overall recovery of oil from the field.

The Tapis oilfield is one of the seven mature fields off peninsular Malaysia which are being developed by ExxonMobil and Petronas. In 2008, Exxon Malaysia and Petron signed a production sharing contract (PSC) to invest $2.1 billion in the EOR project at Tapis and six other oil and gas fields at Seligi, Guntong, Semangkok, Irong Barat, Tabu, and Palas. According to the contract, ExxonMobil will be the operator with both the firms having a 50 per cent stake in the PSC.

Baram Delta and Sabah EOR project: Another deal for EOR in the region was signed between Shell and Petronas in November 2011. The two firms will develop EOR projects in different areas, as agreed under the contract. Once again, the deal was part of Petronas’s efforts to increase output from mature oilfields by starting six platform-based water, gas, and chemical injection EOR schemes between 2013 and 2015.

The Baram Delta EOR development will be operated by Petronas and cover the Bokor, Bakau, Baram, Baronia, Betty, Fairley Baram, Siwa, Tukau, and West Lutong oilfields. Shell will carry out the North Sabah EOR development and cover the St Joseph, South Furious, SF30, and Barton fields.

The two firms plan to spend around $12 billion to increase the recovery factor of nine oilfields in the Baram Delta, off Sarawak, and four oilfields in the North Sabah development area. The companies plan to increase the recovery factor of the North Sabah and Baram Delta oilfields from 36 per cent to 50 per cent for extending the life of these fields beyond 2040.

An additional 765 million barrels of oil equivalent (mboe) reserves are expected to be recovered via EOR projects in Southeast Asia, which will add up to an extra production of around 90,000 barrels per day (bpd).

Industry experts have estimated that the per barrel cost for the EOR methods ranges from $12 to $20 per barrel for gas injection to between $20 and $30 per barrel for surfactant injection.

Challenges in EOR implementation

For EOR projects to fructify, the timing of implementation and selection of appropriate technology are important. In addition, it is essential to have access to adequate funds as EOR projects are capital and resource intensive. This is where initiatives by the government such as favourable fiscal terms and incentives to allow interested stakeholders access to smaller fields are significant. Geological conditions, temperature, and salinity in the area where an EOR project is being implemented are also important.

What is more challenging in the case of Malaysia is the fact that all the existing fields are offshore, which makes the EOR process even more complex. There is a possibility that EOR contracts will need to be extended beyond the agreed time frame for implementation. Taking into account the existing framework, Petronas has formulated strategies for technology deployment that reduce the capital and operating costs of the project.

The way forward

It is expected that the EOR projects in Malaysia, increasing the recovery factor by 40 to 50 per cent, could raise Malaysia’s oil reserves by almost 2 billion barrels of oil. Therefore, EOR projects are set to play a key role in an economy with declining oil production. Successful implementation of these projects will make Malaysia a leader in the Southeast Asian region in terms of setting an example for other countries in the implementation of EOR techniques to enhance their oil output.