Petroleum review-nov-2013-perspective

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Petroleum review-nov-2013-perspective

  1. 1. PERSPECTIVE Tantalising future for Asia-Pacific oil and gas Chris Faulkner, President and CEO, Breitling Oil and Gas. region’s fate. Will they invest the necessary capital to develop their countries’ resources, or will they play it safe? T he Asia-Pacific region has a big appetite for oil and it has some of the world’s largest reserves. However, despite much initial enthusiasm about oil and gas prospects in Asia, industry analysts are increasingly worried about the region’s need for imports, especially from the Middle East. That’s because the region currently consumes about 25% of the world’s oil and about 10% of the world’s natural gas, while accounting for only about 5% of global proven oil and gas reserves. To decrease dependency on imports, the Asia-Pacific region is exploring all options in China, India, Thailand, Malaysia, Indonesia, Myanmar and the Philippines. But developing reserves in these countries is proving difficult, to say the least, and efforts are still in the early stages. This is a region that will take another couple of decades to see any kind of meaningful production. Chinese challenges As the world’s fifth largest oil producer with the world’s most extensive shale gas reserves, China would seem to be the answer to the region’s needs. However, the country has been a net oil importer since 1993. It is also fast on its way to becoming the world’s largest consumer of oil, with the International Energy Agency (IEA) forecasting China’s need for natural gas to triple by 2030. China has understandably been keenly interested in finding ways to exploit its massive reserves, but when it’s not standing in its own way in the form of price caps and disincentives for foreign investment, China has other considerable challenges. Its geology is chief among these. From earthquake-prone to mountainous to remote desert regions to deeper reserves buried under rock that has been known to deform well casings, Energy security concerns there is nothing analogous between China’s rough terrain and the far friendlier geology of reserves that have produced America’s energy boom. Dozens of exploratory shale gas wells have thus far yielded disappointing results, leading China to turn to more experienced foreign partners like Shell. However, the technologies that have worked for the US cannot be directly translated for use in China. Add to that the current lack of infrastructure and other land access issues, and China’s a bit of a mess, at least in the near to mid-term. Many of China’s issues could be addressed with huge infusions of capital, but that’s another difficult piece in the Chinese puzzle. With the bulk of oil and gas controlled by state-owned companies and little incentive for foreign investors, the situation doesn’t look promising. The brightest spot for China is the Sichuan Basin in the south-west, where water is not an issue. Flow rates in the Changning block have been comparable to those in the US. Still, the best outlook for China is for the long-term, when the region has had time to work out its regulatory, infrastructure, technology and investment issues. As in China, exploration and development costs pose a significant challenge in other Asia-Pacific countries. As costs rise, the smaller, independent companies that are more likely to take on the risk of exploration are edged out of the picture, leaving the larger, more riskaverse companies to essentially decide a Meanwhile, the Asia-Pacific’s increasing thirst for oil and gas is of growing concern in world energy markets. Some estimate that 80% of Persian Gulf oil will be consumed by the Asia-Pacific region alone. This shift in the direction of exports from the Middle East poses new and troubling questions. Primary among them is the question of who will provide protection for exports from the Middle East now that the US will no longer have a direct incentive. For decades, the US has used its military might to protect shipping lanes, including those in the South China seas, using the US Navy to ensure safe passage. While this arrangement is still intact, China has had its worries about the level of US commitment on the heels of rebukes over China’s conflicts with Taiwan and North Korea. That’s not to say that the US won’t have a continued interest in protecting oil supplies to the Asia-Pacific region from disruptions that would impact global energy prices, but the level of protection and commitment remains to be seen. With only Japan and Korea involved in the IEA emergency response system, an Asia-Pacific supply disruption could wreak havoc in world markets. Long-term promise If you were to take a snapshot of the oil and gas industry in the Asia-Pacific today, particularly in China, you’d be tempted to pronounce its untimely death. But with the world’s largest reserves, don’t expect this region to give up so quickly. Look for the Asia-Pacific energy boom in 20 to 30 years. G The opinions expressed here are not necessarily endorsed by the EI. Don’t miss out on your magazine! Renew your EI membership now to continue receiving Petroleum Review And if you are not a member yet, why not join to get your free subscription? Renew or join online at www.energyinst.org 2 PETROLEUM REVIEW NOVEMBER 2013

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