Hungry for more, Part 1

Oilfield Technology correspondent Ng Weng Hoong reveals that despite predictions of a glut, Asia is growing increasingly anxious about oil and gas supplies.

Amid growing predictions of a world glutted with shale and other hydrocarbons, Asia’s growing anxiety over its oil and gas supplies is emerging as a major paradox of the global energy markets.

Instead of being soothed by the record amount of hydrocarbons being discovered and produced worldwide, Asian countries are placing massive bets on new risky upstream ventures while bolstering their militaries to stake claims in disputed resource-rich territorial areas.

Led by China, Asian companies accounted for a large part of the record total of US$ 736 billion invested in global upstream assets between 2010 and last year, according to US consulting firm IHS.

Territorial disputes over large parts of Asia’s maritime waters believed to contain huge oil and gas reserves have become increasingly tense and are expected to escalate. Last year, China unilaterally imposed its own air defence identification zone over a section of East Asia and secured agreements with Russia to exploit the Arctic region while a Filipino Muslim separatist group launched an unsuccessful attack on Malaysia’s Sabah state. At the same time, Japan, China, South Korea, Taiwan and several Southeast Asian countries have intensified competition over ownership of various offshore islands and the resource-rich South and East China Seas.

Japan, is preparing to re-build its dormant military to counter China’s perceived resource and territorial grab. Desperate to make up for the loss of the country’s nuclear energy capacity after the earthquake-tsunami disaster of March 2011, Japanese companies have told Canada they are prepared to underwrite tens of billions of dollars in infrastructure investment to access the oil and gas reserves of Alberta and British Columbia.

Malaysia has pushed into new terrain in Canada, Brazil and Iraq while Indonesia’s state-owned Pertamina has bought a stake in Iraq’s West Qurna-1 field. Thailand’s state-owned upstream firm PTTEP has significantly raised its five-year capital and operating budget to develop new reserves in Mozambique, Myanmar and Australia while Singapore has acquired a piece of Tanzania for its first African project.

Singapore, a small tropical country, has landed an observer role in the Arctic Council as it plots to become a long-term player alongside Russia, China and the West in exploiting the resources of the Arctic region.

Even India, which lost out to China in bidding for a stake in Kazakhstan’s giant Kashagan field, has begun opening up its cheque book to buy into US shale and conventional, as well as oil and gas reserves in Latin America.

In a recent report, the International Energy Agency (IEA) predicted that rising North American oil production over the next five years will inflict a ‘supply shock’ that will prove as transformative of the global markets as Chinese demand over the last 15.

The agency said North American supply will grow by 3.9 million bpd from 2012 to 2018 to account for nearly two-thirds of total forecast non-OPEC supply growth of 6 million bpd.

An 8.4 million bpd increase in world liquids production capacity will far exceed the projected demand increase of 6.9 million bpd.

The IEA said these global shifts will cause oil companies to overhaul their global investment strategies as well as reshape the way oil is transported, stored and refined.

Asian upstream companies more selective in pursuing M&A opportunities

Asian companies will continue to acquire upstream oil and gas assets, but they will be more selective in the face of rising costs, shareholder pressure to grow profits and resource nationalism in host countries, said analysts.

According to IHS, the growing caution, most noted among Chinese state-owned firms, was reflected in the sharp drop in the number and value of global upstream acquisitions last year from 2012’s record value of more than US$ 250 billion.

Last year, oil and gas companies shifted their investment spending from mergers and acquisitions (M&A) to developing the vast inventories of reserves, resources and acreage that they had purchased for a total of US$ 600 billion between 2010 and 2012.

The US$ 136 billion spent on acquisitions was the lowest since the 2008 recession while the worldwide deal count fell by 20% from the 10 year high in 2012, said IHS.

Led by the Chinese, Asian and Caspian regional state-owned companies accounted for half the buyers in the 10 largest deals in 2013.

But reflecting their increased caution, IHS said there were no corporate mergers worth more than US$ 5 billion last year, compared with several large deals that exceeded US$ 10 billion in 2012.

Also, the number of asset transactions fell by almost 15% while the corporate deal count dropped by half.

M&A dealmakers focused on offshore and conventional onshore oil and gas resources last year and slashed their investment in unconventional reserves by more than half to around US$ 40 billion.

Separately, US ratings agency Moody’s said it expects Asia’s state-owned companies to step up overseas upstream acquisitions in 2014 to help meet rising domestic oil and gas consumption amid declining production.

Australia, Indonesia and Malaysia have been experiencing consumption increases at the same time as crude oil production has been falling over the last few years. Indonesia has become a net oil importer with Malaysia expected to follow by the end of the decade.

Part 2 of this article can be reached here.

Part 3 of this article can be reached here.

Adapted by David Bizley

Read the article online at: https://www.oilfieldtechnology.com/exploration/17032014/hungry_for_more_part_1/