Monday, March 26, 2018 06.32PM / By Tim Daiss for Oilprice.com
Geopolitical risk bearing down on
global oil markets is increasingly taking hold and weighing on oil prices as
Saudi Arabia and Iran jockey for influence and position in the Middle East. These
concerns escalated just over a week ago when Saudi Arabia’s young Prince
Mohammed bin Salman ramped up tough rhetoric over
Iran, pledging to acquire nuclear weapons if indeed Iran develops them.
His muscular geopolitical approach in
the Middle East and recent talks in Washington with President Trump, pledging
to buy more U.S. military hardware, shows that Saudi foreign policy under his
helm will be more aggressive, albeit with even more military punch – all
factors that spook oil markets and tend to drive prices upward.
In fact, oil prices have already
seemingly found a floor with both global-benchmarks Brent crude and
NYMEX-traded West Texas Intermediate (WTI) crude prices trading in a low to mid
$60s range for an extended period of time. However, given renewed geopolitical
risk, that trading average could easily trend upward into the low to mid-$70s
All of this of course is not lost on
oil and gas exploration and production (E&P) companies, who pulled back
their endeavors, particularly more cost intensive offshore drilling actives,
during the 2014-2016 global oil price crash.
Now, it seems offshore drilling, at
least in some parts of the world, could be poised for a healthy comeback,
particularly in the waters of Southeast Asia.
Even as far back as late January,
industry analyst Rystad Energy, said that an estimated 50 oil and gas fields in
Southeast Asia, with a collective four billion barrels of oil equivalent (boe)
resources, would likely be approved for development between 2018 and 2020.
These fields will require US$28
billion worth of CAPEX from final investment decision (FID) to first
production, the consultancy said. The US$28 billion is for greenfield
opportunities available to 2020. However, many of these new fields are in later
stages of earlier production, with the largest infrastructure already in place;
hence so-called brownfield projects.
Going long on
Southeast Asia oil and gas
This trend could continue, at least
according to oil services provider Baker Hughes GE (BHGE). Earlier this week a BHGE
senior executive said that the company was on the hunt for smaller oil and
gas projects in the Asia Pacific region to replicate a project in Papua New
Guinea (PNG) where it is providing services and financing. BHGE Asia-Pacific President Visal Leng
said that his company sees signs of renewed interest in oil and gas projects in
the region, driven by smaller firms. BHGE offers resource assessment through to
drilling and production. A Reuters report said that
BHGE wants to work with smaller companies looking to develop smaller fields and
stranded resources in countries such as Indonesia, Philippines, Malaysia and
Myanmar where there is also demand for natural gas to generate electricity.
“We’re cautiously optimistic on the
(Asia-Pacific) region because projects are slowly coming back. We also see some
smaller projects in size, not by NOCs (national oil companies) or IOCs
(international oil companies), but by smaller operators,” Leng said.
According to Rystad Energy, FIDs over
each of the next three years will be heavily natural gas weighted; while gas
makes up some 85 percent of the resources reaching FID over the full period.
The largest in 2018 will come from Vietnam, with most of its share coming from
the expected approval of the Block B project.
Additionally, most of the gas
resources to be developed in Indonesia and Malaysia will be supplied to
existing liquefied natural gas (LNG) plants. Brunei, Indonesia and Malaysia
have long running LNG projects where new sources of supply will ensure that
these projects maintain their long-terms contractual supply commitments. However,
Indonesia’s situation is more problematic. The former OPEC-member is expected
to run natural gas deficits as its economy grows and more of the fuel is used
to meet domestic demand.
The Philippines also has natural gas
resources and production, mostly in advanced stages of depletion, in the nearby
South China Sea, which it calls the Philippine Sea, but to date several
smaller domestic and international oil companies have been reluctant to
continue E&P activates due to overlapping territorial claims between China
and the Philippines.
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