Oil and Gas have been two main workhorses of economies for most of modern history. Being able to secure supply of energy resources has been at the core of economic success and sustainable growth. Southeast Asia is not an exception. The region is abundant in gas resources. For instance, Indonesia and Malaysia hold 13th and 14th positions for the volume of proven gas reserves. As for the oil, the situation is a bit critical as ASEAN only has 13 billion barrels of proven oil reserves which is around 1% of the total world reserves. Compared to the Asian-Pacific region, ASEAN controls over 40% of oil and gas resources in the region and generates over $48 billion revenues from exports, annually.
It is believed that the untapped potential for gas production is much higher. Offshore East Natura block holds 13tcm of gas reserves which is still undeveloped. Baram Delta is another place which is believed to hold big reserves of gas, though still unproven. Thailand’s reserves are located in the Gulf of Thailand which has increased its production during recent years. The region also has shale gas deposits in North Sumatra which are already being explored by several companies. Last but not least, ASEAN is one of the world’s main suppliers of liquefied natural gas (LNG). Singapore and Malaysia are expected to become LNG trade hubs as they have more untapped potential for LNG development in West Papua and Sulavesi.
Despite huge potential in gas production there still remains much to be done. First, since most of ASEAN countries heavily depend on oil imports (Phillipines, Singapore and Thailand are the most oil dependent countries in ASEAN), rising oil prices, in the long term, present a threat to their development. In January 2015, World Bank released Commodity Forecast Price Data which forecasts a steady increasing trend of oil prices reaching $104 /barrel by 2025. Second, developing new gas and oil fields and enhancing production efficiency requires huge amounts of investment and human capital. Third, a temporary fall in oil prices discourages many exploration & production groups which cannot operate profitably at USD$50/barrel which further distracts the energy sector from reaping long run benefits from oil and gas exploration.
The situation is that ASEAN oil & gas is competing against the 2 biggest oil companies in the world (ARAMCO and Rosneft). Due to the economics of scale, those companies can afford to operate at current world prices being so low. The world oil market is oversupplied with ARAMCO refusing to reduce production levels. They will fight to keep oil prices low so they do not lose market-share to the US suppliers fighting for ASEAN supply along with Rosneft (Russian) who supplies huge amounts of crude oil to China, who then distributes oil throughout ASEAN. This means that ASEAN E&P will have to reduce costs and margins by improving production efficiency in order to find new reserves and to stay competitive (profitable) in the short run.
In order to cope with energy security issue associated with rising oil prices in the long term, falling oil prices in the short term and need for investment in existing and alternative energy source technologies ASEAN governments work together under the AEC agenda to provide right incentives to domestic and foreign investors. There are also country-level investment promotion strategies pursued by governments which target energy sector. For example, Thailand is now re-thinking their “Block Auctions” strategy to attract foreigners into the gulf of Thailand looking for oil, with the world oil prices being so low. Thailand Board of Investment (BOI) also introduced “Seven-Year Investment Strategy” on January 1, 2015. One of the main target sectors for the new policy initiative is energy sector where it provides tax and non-tax incentives to the investors and supports the development of alternative energy sources and improvements in production efficiency of the existing ones.
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