Southeast Asia’s Oil and Gas Production May Never Return to Pre-COVID Levels

The Covid-19 pandemic marked the end of an era for combined oil and gas production in Southeast Asia, pushing the region’s production in 2021 to less than 5 million barrels of oil equivalent per day (bepj) for the first time since 1998, a threshold that should not be exceeded again in the future despite the start of new projects in the coming years, according to an analysis by Rystad Energy.

Average daily hydrocarbon production fell to 4.86 million bepd in 2021, from 5.06 million bepd in 2020, and a massive 12% drop from pre-pandemic volumes of 5, 5 million bepd in 2019, according to data from Rystad Energy.

Operators have struggled to recoup production losses triggered by the pandemic as operators slowed activity levels amid unprecedented disruption in oil markets. The decline is expected to continue until the middle of the decade. Although volumes will remain stable in 2022, production will decline an additional 10% by 2025 to around 4.3 million bepd from current levels.

“Liquids production in Southeast Asia has been declining for almost 20 years due to a lack of discoveries and project sanctioning activities in the region. Although new government incentives can help, the region is expected to experience lower production levels in the future, ”said Prateek Pandey, upstream vice president.

In contrast, natural gas production in the region remained stable between 2009 and 2019, at around 20.8 billion cubic feet per day (Bcfd). Despite expectations of an increase in the volume of gas sales that would counteract the 8% drop in production in 2020, volumes are expected to be down around 2% this year compared to 2020, to around 19 Bcfd . This is mainly due to lower production in mature historical projects including PSC Mahakam, MLNG Dua and MLNG Satu, Yetagun.

The volume share of projects under development and existing commercial discoveries is substantial and reflects the rapid execution of projects by the region. Several projects were successfully launched in 2021, including the highly anticipated Rotan field, using PFLNG Dua, which started in March, making Petronas the only operator in the world to produce LNG from two floating facilities. In Indonesia, Eni completed timely development, with Merakes achieving its first gas production in April 2021

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However, despite these successes, Southeast Asia is still plagued by delays and stalled projects. In Indonesia, the resumption of gas production was further delayed after the two major developments – Tangguh LNG T3 and Jambaran Tiung-Biru Unitization (JTB) – were postponed until 2022.

What the future holds

For much of Southeast Asia, more than 60% of production comes from mature blocks – fields producing more than 50% of its resources. The volumes of these blocks are expected to decline steadily over the next few years, with around 60% of production by 2030 likely coming from projects currently in the pre-FID (final investment decision) stage. Consequently, the driving force behind the region’s upstream perspective will be the sanction of new developments.

2020 has been a nightmare year for regional sanctioning activity, with only around 300 million barrels of oil equivalent (boe) of resources from six assets reaching the IDF. As operators tried to move forward in 2021, the region saw more than ten projects securing IDFs, with around 750 million boe in reserves and some $ 3 billion in entirely new investments, with Malaysia accounting for 85% of the total.

Sanction activities in 2022 are expected to remain at similar levels, with FIDs forecast on around 800 million boe of resources in the region, of which 60% in Indonesia and over 35% in Malaysia. Projects operated by majors and NOCs are likely to dominate in Malaysia, while regional players and E&P companies will be primarily the engine of Indonesian developments.

However, FID projects planned for 2022 may still face difficulties in obtaining final approval. Indonesian regulation of gas prices in the domestic market remains a concern for most large pipeline projects. Although incentives are being discussed for blocs such as Kasuri, this remains one of the factors that could further delay progress. Planned developments in production sharing contracts (PSCs) which are due to expire in the short term are also threatened, unless host country governments enter into early discussions on potential extensions.

Southeast Asia is unlikely to see a substantial increase in spending in 2022, with projected investments of around $ 15 billion to $ 20 billion throughout the year. Investments will likely be boosted by increased drilling activity in mature blocks in Indonesia and Thailand, as NOCs take the lead and focus on the most productive blocks.

About 360 million boe of resources were discovered in eight fields in November 2021, exceeding 2020 volumes by 40%. About 78% of the total resources discovered this year in Southeast Asia are gas or gas condensates , while the rest is petroleum. About 84% comes from shallow water, of which about 86% is in blocks mined by the NOC. In line with the trend, over 90% of the region’s volume in 2021 was discovered in the Miocene-Clastic formation.

By Rystad Energy

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