The energy-rich sultanate of Brunei in Southeast Asia hopes to double oil and gas production over the coming decades but faces hurdles that include falling commercial viability, maritime boundary disputes and Opec-imposed output limits.
Energy production in the tiny enclave on the island of Borneo has the potential to climb as high as 800,000 barrels of oil and gas equivalent a day as new geological surveys, extraction techniques and pipeline routes unleash growing reserves, a top official has said.
But the plunge in international crude prices has thrown Brunei’s plans into doubt — and highlighted how lower market rates threaten to leave some oil-dependent countries with “stranded assets” deemed uneconomic to exploit.
Mohammad Yasmin Umar, energy minister, told the FT that Brunei’s energy production could rise from 400,000 barrels of oil and gas equivalent today beyond the previously projected 600,000-plus by 2035 to as high as 800,000.
But he acknowledged this aim could be jeopardised by the world oil price depression — and by possible longer-term trends such as the electric car’s “takeover” from combustion-powered vehicles in rich countries.
“We have to do something with the oil that we have,” he said, adding: “It will be interesting.”
Brunei’s energy production prospects were “very good” because the latest seismic techniques were revealing both new reserves and extra deposits in existing fields, the minister said. Pipeline network improvements would also make production from some known fields commercially viable for the first time, he added.
He stressed future production increases would be permitted only if companies replaced any tapped deposits with fresh reserves. “The oil operators know that,” said the minister, a former naval officer. “This one we don’t negotiate — or the future generations will curse me.”
A fall of more than half in the benchmark Brent crude oil price since June 2014 has hurt Brunei’s energy-dependent economy. The sultanate’s annual gross domestic product dropped more than a quarter in total in 2015 and 2016, according to the International Monetary Fund, although it predicts a partial rebound this year. Average prices achieved by Brunei for both oil and gas more than halved over the same two-year period.
Brunei Shell Petroleum Company, a 50-50 partnership between the government and Royal Dutch Shell, has been the dominant energy producer since the British imperial era and accounts for about 90 per cent of the sultanate’s oil and gas revenues. It did not respond to a request for comment on the minister’s remarks.
The minister played down concerns about China’s territorial ambitions, which include claims to offshore areas where Brunei’s oil industry operates. An international court in The Hague last year rejected China’s claims to most of the South China Sea, but Beijing has dismissed the ruling and continued to build its military presence in other disputed parts of the region.
Repsol of Spain said this month it had suspended drilling in a South China Sea oil block licensed by Vietnam but located within the boundary of China’s territorial claim, known as the nine-dash line. China had called for an end to the exploration work.
Brunei’s Mr Umar said his country had always been on good terms with its neighbours, including China. Companies from the People’s Republic are active in port, petrochemicals and bridge-building projects in the sultanate.
A further potential constraint on Brunei’s energy ambitions is the production curb imposed by the Opec international oil cartel to prop up prices. While the sultanate is not an Opec member, it has agreed to honour the group’s limits until at least the end of the first quarter of next year.
Brunei has a policy to lessen its economic dependence on energy exports, but Mr Umar admitted efforts were in their early stages. Oil and gas still provide well over half of annual gross domestic product, having accounted for almost two-thirds before the world market price falls.