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
he Asia-Pacific region has a big
appetite for oil and it has some
of the world’s largest reserves.
enthusiasm about oil and gas prospects
in Asia, industry analysts are increasingly worried about the region’s
need for imports, especially from the
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
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.
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
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
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
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.
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.
The opinions expressed here are not
necessarily endorsed by the EI.
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PETROLEUM REVIEW NOVEMBER 2013