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Oil and Gas Production in Oil and Gas Production in BruneiBrunei

IntroductionIntroduction Brunei is an oil and gas dependent economyBrunei is an oil and gas dependent economy

– 33rdrd largest producer in SEA, avg. 175,000 largest producer in SEA, avg. 175,000 barrels/day (2008)barrels/day (2008)

– 4th4th largest exporter of LNG in the world according largest exporter of LNG in the world according to the most recent stats behind Indonesia, M’sia to the most recent stats behind Indonesia, M’sia and Australia.and Australia.

– Crude oil and natural gas production accounts Crude oil and natural gas production accounts for just over half of GDP and more than 90% of for just over half of GDP and more than 90% of Brunei’s exportsBrunei’s exports

Brunei’s economy enjoyed moderate growth Brunei’s economy enjoyed moderate growth in the mid-2000s primarily due to high world in the mid-2000s primarily due to high world oil and gas prices. But recently its growth oil and gas prices. But recently its growth has fallen sharplyhas fallen sharply

HistoryHistory

Petroleum was first discovered in Petroleum was first discovered in 1929, onshore at Seria.1929, onshore at Seria.

More productive offshore reserves More productive offshore reserves were discovered in 1963 at South were discovered in 1963 at South West Ampa.West Ampa.

there have been many exports in the there have been many exports in the past. Our famous camphor was one, past. Our famous camphor was one, timber, cutch, rubber and surprisingly, timber, cutch, rubber and surprisingly, coal. coal.

Main PlayersMain Players Brunei Shell Petroleum (BSP)Brunei Shell Petroleum (BSP)

– A joint venture owned in equal shares by the Brunei Govt A joint venture owned in equal shares by the Brunei Govt and the Royal Dutch/Shell Group of companiesand the Royal Dutch/Shell Group of companies

– Chief oil and gas production co in BruneiChief oil and gas production co in Brunei– Together with its sister companies constitute the largest Together with its sister companies constitute the largest

employer in Brunei after the Govt.employer in Brunei after the Govt.– Sister companies are BST (transports LNG overseas), BSM Sister companies are BST (transports LNG overseas), BSM

(sells petroleum products at petrol stations), BLNG (sells petroleum products at petrol stations), BLNG (liquefies the gas produced by BSP) and BGC (build and (liquefies the gas produced by BSP) and BGC (build and manage LNG vessels)manage LNG vessels)

TotalTotal– French oil company became active in petroleum French oil company became active in petroleum

exploration since 1986. exploration since 1986. – Currently produces 13% of Brunei’s natural gas and gas is Currently produces 13% of Brunei’s natural gas and gas is

sold to BLNG for liquefaction and export.sold to BLNG for liquefaction and export.

Main Customers (2008 Main Customers (2008 stats)stats)

Apart from domestic consumption, Brunei’s Apart from domestic consumption, Brunei’s oil and gas are exported to other countriesoil and gas are exported to other countries

Australia, Indonesia and Korea were the Australia, Indonesia and Korea were the largest customers for Brunei’s oil exports largest customers for Brunei’s oil exports consuming more than 70% of Brunei’s total consuming more than 70% of Brunei’s total crude exports.crude exports.

Other countries include Japan and New Other countries include Japan and New Zealand. Imports approx. 7% of Brunei’s total Zealand. Imports approx. 7% of Brunei’s total crude exports.crude exports.

90% of Brunei’s LNG is sold to Japan under a 90% of Brunei’s LNG is sold to Japan under a long-term agreement in 1993.long-term agreement in 1993.

IssuesIssues Non-renewable resourcesNon-renewable resources

– Brunei’s overall oil production has declined in recent years and Brunei’s overall oil production has declined in recent years and growth rates have fallen significantly (according to 2008 stats.)growth rates have fallen significantly (according to 2008 stats.)

– Oil reserves expected to last 25 more years and natural gas 40 Oil reserves expected to last 25 more years and natural gas 40 more years. (as of 2008)more years. (as of 2008)

– Crude oil production ranged from 254,000 b/d in 1979 to Crude oil production ranged from 254,000 b/d in 1979 to 150,000 b/d in 1988 but more recently output declined from 150,000 b/d in 1988 but more recently output declined from 219,215 b/d in 2006 to 193,832 b/d in 2007219,215 b/d in 2006 to 193,832 b/d in 2007

Urgent need to develop Brunei’s non-petroleum industriesUrgent need to develop Brunei’s non-petroleum industries Like many oil-producing countries, Brunei’s economy has Like many oil-producing countries, Brunei’s economy has

followed the swings of the world oil marketfollowed the swings of the world oil market– Growing worldwide demand has inevitably driven the world's Growing worldwide demand has inevitably driven the world's

crude oil price upward.crude oil price upward.– The oil price hike, however, does bring significant value to The oil price hike, however, does bring significant value to

Brunei but customers have to deal with the flip side and the Brunei but customers have to deal with the flip side and the negative impact of high prices. negative impact of high prices.

Oil prices and world eventOil prices and world event1947-Aug 20091947-Aug 2009

Crude Oil Vs US$Crude Oil Vs US$RECENTLYRECENTLY better prices for oil while the dollar seems to have better prices for oil while the dollar seems to have

recovered….recovered….

IssuesIssues– Effects of volatility in US dollar and world oil prices. Effects of volatility in US dollar and world oil prices.

As an example of changing oil prices- higher oil prices with average As an example of changing oil prices- higher oil prices with average price of US$35.6 per barrel in 2004 Q1 compared to US$32 in the price of US$35.6 per barrel in 2004 Q1 compared to US$32 in the Q4 of 2003 and US$33.4 in Q1 of 2003Q4 of 2003 and US$33.4 in Q1 of 2003

But what if every dollar increase in the price of a barrel is But what if every dollar increase in the price of a barrel is accompanied by weaker US dollar? There exists vicious cycle.accompanied by weaker US dollar? There exists vicious cycle.

– Oil is priced in US$ >>> US$ weaker >>> Foreign Currency stronger Oil is priced in US$ >>> US$ weaker >>> Foreign Currency stronger >>> other countries can purchase more oil for the same amount of >>> other countries can purchase more oil for the same amount of US$ >>> More demand for oil >> Overall DD for oil rises >> Increase US$ >>> More demand for oil >> Overall DD for oil rises >> Increase the price in US$ (how price of oil is denominated on world markets).the price in US$ (how price of oil is denominated on world markets).

Disputes over oil exploration areas Disputes over oil exploration areas – between Malaysia and Brunei but both between Malaysia and Brunei but both

countries have stated that they have reached countries have stated that they have reached joint production resolution to the conflict.joint production resolution to the conflict.

– Spratly islands.Spratly islands.

New DevelopmentsNew Developments

Planned deep sea exploration is expected Planned deep sea exploration is expected to find significant new reserves. to find significant new reserves.

Petrochemical industryPetrochemical industry– LiangLiang is currently experiencing a major development with the is currently experiencing a major development with the

establishment of SPARK. The first major investment at SPARK establishment of SPARK. The first major investment at SPARK is the USD450 million Methanol plant developed by the Brunei is the USD450 million Methanol plant developed by the Brunei Methanol Company (BMC), a joint venture between Petroleum Methanol Company (BMC), a joint venture between Petroleum Brunei and two leading Japanese companiesBrunei and two leading Japanese companies