BE-1401 CITBE Oil and Gas Production in Brunei

Introduction Brunei is an oil and gas dependent economy Brunei is an oil and gas dependent economy –3 rd largest producer in SEA, avg. 175,000 barrels/day (2008) – 4th largest exporter of LNG in the world according to the most recent stats behind Indonesia, M’sia and Australia. –Crude oil and natural gas production accounts for just over half of GDP and more than 90% of Brunei’s exports Brunei’s economy enjoyed moderate growth in the mid-2000s primarily due to high world oil and gas prices. But recently its growth has fallen sharply Brunei’s economy enjoyed moderate growth in the mid-2000s primarily due to high world oil and gas prices. But recently its growth has fallen sharply

History Petroleum was first discovered in 1929, onshore at Seria. Petroleum was first discovered in 1929, onshore at Seria. More productive offshore reserves were discovered in 1963 at South West Ampa. More productive offshore reserves were discovered in 1963 at South West Ampa. there have been many exports in the past. Our famous camphor was one, timber, cutch, rubber and surprisingly, coal. there have been many exports in the past. Our famous camphor was one, timber, cutch, rubber and surprisingly, coal.

Main Players Brunei Shell Petroleum (BSP) Brunei Shell Petroleum (BSP) –A joint venture owned in equal shares by the Brunei Govt and the Royal Dutch/Shell Group of companies –Chief oil and gas production co in Brunei –Together with its sister companies constitute the largest employer in Brunei after the Govt. –Sister companies are BST (transports LNG overseas), BSM (sells petroleum products at petrol stations), BLNG (liquefies the gas produced by BSP) and BGC (build and manage LNG vessels) Total Total –French oil company became active in petroleum exploration since –Currently produces 13% of Brunei’s natural gas and gas is sold to BLNG for liquefaction and export.

Main Customers (2008 stats) Apart from domestic consumption, Brunei’s oil and gas are exported to other countries Apart from domestic consumption, Brunei’s oil and gas are exported to other countries Australia, Indonesia and Korea were the largest customers for Brunei’s oil exports consuming more than 70% of Brunei’s total crude exports. Australia, Indonesia and Korea were the largest customers for Brunei’s oil exports consuming more than 70% of Brunei’s total crude exports. Other countries include Japan and New Zealand. Imports approx. 7% of Brunei’s total crude exports. Other countries include Japan and New Zealand. Imports approx. 7% of Brunei’s total crude exports. 90% of Brunei’s LNG is sold to Japan under a long-term agreement in % of Brunei’s LNG is sold to Japan under a long-term agreement in 1993.

Issues Non-renewable resources Non-renewable resources –Brunei’s overall oil production has declined in recent years and growth rates have fallen significantly (according to 2008 stats.) –Oil reserves expected to last 25 more years and natural gas 40 more years. (as of 2008) –Crude oil production ranged from 254,000 b/d in 1979 to 150,000 b/d in 1988 but more recently output declined from 219,215 b/d in 2006 to 193,832 b/d in 2007 Urgent need to develop Brunei’s non-petroleum industries Urgent need to develop Brunei’s non-petroleum industries Like many oil-producing countries, Brunei’s economy has followed the swings of the world oil market Like many oil-producing countries, Brunei’s economy has followed the swings of the world oil market –Growing worldwide demand has inevitably driven the world's crude oil price upward. –The oil price hike, however, does bring significant value to Brunei but customers have to deal with the flip side and the negative impact of high prices.

Oil prices and world event 1947-Aug 2009

Crude Oil Vs US$ RECENTLY better prices for oil while the dollar seems to have recovered….

Issues –Effects of volatility in US dollar and world oil prices.  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 Q4 of 2003 and US$33.4 in Q1 of 2003  But what if every dollar increase in the price of a barrel is accompanied by weaker US dollar? There exists vicious cycle. – Oil is priced in US$ >>> US$ weaker >>> Foreign Currency stronger >>> other countries can purchase more oil for the same amount of US$ >>> More demand for oil >> Overall DD for oil rises >> Increase 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 countries have stated that they have reached joint production resolution to the conflict. –Spratly islands.

New Developments Planned deep sea exploration is expected to find significant new reserves. Planned deep sea exploration is expected to find significant new reserves. Petrochemical industry Petrochemical industry –Liang is currently experiencing a major development with the establishment of SPARK. The first major investment at SPARK is the USD450 million Methanol plant developed by the Brunei Methanol Company (BMC), a joint venture between Petroleum Brunei and two leading Japanese companies Liang