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Hungry for more, Part 3

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Oilfield Technology,

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

Sabah crisis sharpens focus on regional territorial disputes over oil and gas reserves

Following last year’s invasion of Malaysia’s Sabah state by a Filipino militia group, another quiet corner of the world risks being sucked into renewed territorial and ethnic disputes fuelled by a growing regional race for oil and gas reserves.

The Malaysian government responded by ordering its military to bomb the group of more than 200 members of the self-proclaimed ‘Royal Army of the Sulu Sultanate’ who briefly holed up in a village near the port of Lahad Datu. At least 70 people, including nine Malaysian security personnel, were killed in the conflict to expel the group linked to the descendants of a former royal family in southern Philippines with claims over Sabah state.

The conflict has the potential to grow as it involves groups with long-standing territorial claims, separatist ambitions and ethnic grievances now enmeshed with the US-led global war on terror, Sabah’s increasing importance as an oil and gas producer and the area’s 600 km proximity to the disputed hydrocarbon-rich Spratly Islands in the South China Sea.

According to BP, Sabah held more than 25% of Malaysia’s proved 5.9 billion bbls of crude reserves, and about 13% of its 86 trillion ft3 of natural gas. Those reserves are due to be revised higher on further investment and discovery of more deepwater fields off Sabah by Malaysian state energy firm Petronas and its international partners.

Shell is a 33% shareholder and operator of the deepwater Gumusut-Kakap oilfield that started production early this year with the potential to reach 135 000 bpd. Shell’s partners include two US companies, ConocoPhillips and Murphy Oil, as well as Petronas. Sabah’s other deepwater field at Kikeh produced more than 40 000 bpd in 2011, with the potential to peak at 120 000 bpd.

Petronas is also planning to start up a number of oil and gas projects in Sabah worth more than RM 50 billion over the next few years. (US$ 1 = RM 3.3).

South China Sea’s hydrocarbon reserves

According to the US Energy Information Administration (EIA), the South China Sea holds an estimated 11.2 billion bbls of crude oil and liquids, and 190 trillion ft3 of natural gas in proved and probable reserves within national territories.

Stretching from Singapore and the Strait of Malacca in the southwest to the Strait of Taiwan in the northeast, the South China Sea is one the most important trade routes in the world and a potential source of hydrocarbons, particularly natural gas. Almost a third of global crude oil and over half of global LNG trade passes through this stretch.

Brunei, Cambodia, China, Indonesia, Malaysia, the Philippines, Taiwan, Thailand and Vietnam each have claims to parts or all the Spratly and Paracel Islands, the surrounding South China Sea and their resources.

Asia’s robust economic growth is fuelling its energy demand growth. The EIA expects the region’s liquid fuels demand to grow at an annual rate of 2.6% between 2008 and 2035, raising its share of world consumption from 20% to over 30%. Over the same period, developing Asia’s natural gas consumption is expected to grow by 3.9% annually to account for 19% of the global market from 10%.

With Southeast Asian domestic oil production projected to stay flat or decline as consumption rises, the region is on the hunt for new energy sources, with the South China Sea emerging as a major prospect.

The EIA acknowledges that its estimates of the South China Sea’s oil and gas reserves are open to revision as much of the area is unexplored and located in disputed territories.

In its 2010 World Petroleum Resources Assessment Project, the US Geological Survey (USGS) estimates the South China Sea may hold between five and 22 billion bbls of oil, and 70 to 290 trillion ft3 of gas in as-yet undiscovered resources. It said these additional resources are not currently considered commercial reserves.

In November 2012, CNOOC presented the most bullish estimate of 125 billion bbls of oil and 500 trillion ft3 of natural gas.

On the other end of the scale, energy consultant Wood Mackenzie believes the South China Sea holds only 2.5 billion bbls of oil equivalent in proved oil and gas reserves.

This wide disparity between estimates reflects the lack of detailed geological research and limited exploration of the region’s deepwater areas.

Rather than undertake unilateral actions in the disputed waters, several regional countries have chosen to co-operate in developing the hydrocarbon resources in the South China Sea.

Malaysia and Brunei settled territorial disputes in 2009 to launch joint exploration efforts, while Malaysia, Thailand and Vietnam have jointly developed areas of the Gulf of Thailand despite ongoing territorial claims.

Indonesia, Vietnam, Malaysia and Brunei have a long history of oil and gas development in the region, and have worked successfully with foreign partners and Western companies in applying offshore technology and building pipeline networks and infrastructure.

Part 1 of this article can be reached here.

Part 2 of this article can be reached here.

Adapted by David Bizley

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