IHS Global Insight Perspective | |
Significance | While only one deepwater field in Malaysia is currently producing oil, the sector is forecast to account for between 30–40% of domestic production by 2020 as a number of other sizeable discoveries are in the development or planning stages. |
Implications | Petronas has been quite successful in spearheading efforts to develop Malaysia as a deepwater hub, and locally based companies are already capable of providing a wide range of services to oil and gas companies. Capacity building, service integration, and further skills and training are required to develop the country's competitiveness as a deepwater hub. |
Outlook | Petronas' renewed strategic focus on boosting reserves and production in Malaysia will support development of the deepwater sector, as will the NOC's offering of new acreage. The development of Malaysia as a deepwater hub will depend not only on new discoveries but how the government chooses to learn the lessons from the Gulf of Mexico oil spill. |
Deepwater Drive
In the midst of the devastating oil spill in the Gulf of Mexico, Petronas Carigali is pushing on with a deepwater oil and gas development drive aimed at transforming Malaysia into a major global deepwater hub. Malaysia currently only has one deepwater producing field called Kikeh. Development of the field was led by Shell and production was launched in 2007. The field is now an important contributor to national output and recent reports suggest it is producing 115,000–120,000b/d of light and sweet crude oil. However, the potential for increased production from deepwater areas is considerable as a number of projects are currently under development. The next project to come on-stream is likely to be Gumusut-Kakap, being developed by Shell, ConocoPhillips, and Petronas, due to produce 135,000b/d of oil from 536 million boe of reserves from 2012. The Kebabangan cluster development offshore Sabah is also under development, and in May 2010 Aker Solutions was awarded a US$27.8-million contract to provide detailed design and engineering work until expected project start-up in 2014. The Kebabangan platform will have an operating capacity of 825mmcf/d of gas and 22,000b/d of condensate and will take supplies from Shell's Malikai project in Block G. Malikai has already entered the front end engineering and design (FEED) stage and will probably be developed through a tension leg platform (TLP) with a maximum capacity of 60,000b/d of liquids and 50mmcf/d of gas.
Development of these fields supports Petronas Carigali's strategy of encouraging deepwater oil service providers to locate their operations in Malaysia. Aker, FMC, INTEC, Malaysia Marine Heavy Engineering (MMHE), Technip, and Cooper are all companies based in Malaysia that have provided support services to deepwater oil and gas investors. Technip, for example, provided pipeline, riser systems, and umbilical installations for the Kikeh field, while FMC provided subsea hardware, installation, and maintenance services. Locally based companies also have the capacity to provide subsea services and produce floating production storage and offloading (FPSO) units and other production platforms for deployment in deepwater. In 2007, the Nam Cheong shipyard helped produced Malaysia's first "dynamically positioned" offshore support vessel, which uses computer control systems to maintain its position. A number of others are now under development. For the Gumusut Kakap project, 66% of the total value of contracts went to locally based service companies according to Petronas suggesting the sector is already capable of performing many tasks.
Technip Group chief executive officer Bernard Di Tullio recently stated that Malaysia was well on track to becoming the fourth largest deepwater oil and gas hub in the world after Houston in the United States, Rio De Janiero in Brazil, and Europe, although a number of challenges remain. Malaysia still needs to build capacity in deepwater oil and gas support services if the country is to fully reap the economic advantages of growing deepwater oil and gas production over the next decade. Malaysia also needs to better integrate port facilities, warehouses, logistics centres, and maintenance and fabrication areas, and improve training to local workers—something which is supported by regulations in Malaysia's production sharing contract (PSC). Malaysia also seeks to encourage greater collaboration between deepwater service companies to promote new technologies and best practices, to improve its competitiveness against other global hubs.
Outlook and Implications
Deepwater oil and gas production in Malaysia is expected to account for between 30% and 40% of domestic production by 2020. Deepwater oil and gas reserves—mainly located offshore Sabah—are also estimated by Platts to account for 65% of undiscovered oil and 43% of undiscovered natural gas. The deepwater resource potential offshore Malaysia looks to be sizeable and the government supports extraction of reserves to maintain Malaysia's position as a regional crude oil and LNG exporter and to enhance domestic supply security.
According to media reports, 16 deepwater oil and gas contracts are currently active in the country and a number of promising discoveries have been made. These include the Ubah Crest and Pisangan oilfields and Kamunsu gas development, which are all currently in the planning stages. Indicative of its new strategic focus on the domestic market, Petronas has now ordered three drill ships between 2010 and 2015, two of which are expected to arrive this year. Malaysia is also offering more deepwater acreage to foreign companies including Block F and Block 2A situated in West Luconia Province. The government has given few indications that the Gulf of Mexico oil spill will stop long-term efforts to extract reserves from deepwater areas. However, the government may choose to tighten oversight of deepwater exploration and development operations, following a future identification of the cause of the well blowout in the Gulf of Mexico, which could slow down efforts to locate new reserves. There are concerns over Malaysia's ability to deal with a large subsea blowout on the scale of what is happening in the Gulf of Mexico, as reports suggest oil-spill response services are only capable of dealing with spills of up to 28,000 tonnes.
Deepwater oil and gas exploration in Malaysia will continue to grow, although the pace of the sector's growth will not only depend on new discoveries but on how the Malaysian government chooses to learn the lessons from the Gulf of Mexico disaster.