BANGKOK -- Cambodia saw its dream of becoming the eighth oil producer among the 10 members of the Association of Southeast Asian Nations fizzle out in less than six months.
Singapore-based KrisEnergy, which operates the Apsara oil field in the Gulf of Thailand off Sihanoukville, in southern Cambodia, announced on June 4 that it had filed for liquidation. The company said at the time that output had remained less than half its initial estimate of 7,500 barrels a day since it started production on Dec. 29, 2020, leaving it unable to repay its debts.
KrisEnergy's application for liquidation likely was a great disappointment to Cambodian Prime Minister Hun Sen. When the Apsara oil field went into production at the end of last year, he enthused on Facebook: "New Year 2021 ahead, we got a big gift for our nation -- that's the first oil made in our land."
Dec. 29 also marks the anniversary of the end of Cambodia's civil war. The Win-Win Memorial was built in Phnom Penh to commemorate the end of the conflict. The first drop of oil from the Apsara field was enshrined at a museum inside the 50-meter-high memorial. Ironically, the event was held just five days after KrisEnergy filed for liquidation. Hun Sen was absent from the ceremony, which would have been a big moment for him if the Apsara oil field project had gone smoothly.
Japan, too, is part of the tortuous history of the Apsara oil field.
In the 1980s, Cambodia began granting oil and other resource development concessions in its territorial waters to foreign companies to help develop its backward economy. In 1994, Japan Petroleum Exploration, also known as JAPEX, the first oil company to conduct test drilling in Cambodia, found signs of oil deposits based on the volume of organic substances. Idemitsu Kosan, a major Japanese oil refiner, also did a bit of exploration in Cambodia in 1997 but withdrew the following year.
When companies returned their concessions after their projects failed to pan out, the Cambodian government granted development rights to others. In 2005, a partnership between U.S. oil major Chevron and Japan's Mitsui Oil Exploration Co., also known as MOECO, finally hit pay dirt. They found a valuable grade of light crude oil in the area, raising expectations quickly.
But negotiations between the Cambodian government and Chevron-MOECO to develop the site broke down. According to people familiar with the matter, the talks collapsed when the Cambodian government tried to raise taxes and other fees beyond the level of their initial agreement.
Enter KrisEnergy. The Singaporean company took over the development rights from Chevron and MOECO and signed a development contract with the Cambodian government in 2017. KrisEnergy appears to have bet the project would be profitable, even under the strict conditions Cambodia was offering, if it narrowed the scope of its investment. But production failed to reach the company's target, putting the final nail in its coffin. At the end of May, shortly before its bankruptcy, KrisEnergy is said to export about 300,000 barrels of oil to Singapore. That was the first and last shipment of Apsara oil.
Phnom Penh faces a bumpy road as it seeks yet another foreign operator for the offshore oil field. Cambodia imported 2.5 million tons of petroleum products in 2018. That is equivalent to 18.5 million barrels of crude oil, or 50,000 barrels per day. The Apsara field pumps out around 3,000 barrels per day, just 6% of the country's needs. And because Cambodia has no refining capacity, it has no choice but to export the oil from Apsara.
Still, if Cambodia had been able to export even a small amount of crude, it should have been able to "hedge against fluctuations in the petroleum market by that amount," said Hiroshi Suzuki, chief economist at the Business Research Institute for Cambodia.
Will Cambodia's dream of becoming an oil producer vanish as a result of the Apsara oil field project's failure? The answer may lie in waters around the undefined maritime border with Thailand.
Both countries claim sovereignty over a vast area of 26,400 sq. km west of the Apsara oil field located in the central part of the Gulf of Thailand. They have separately granted oil and other resource development rights to companies in the area, which is 12 times the size of Tokyo.
Among the foreign companies with development rights are big names such as U.S.-based oil major ConocoPhillips, Anglo-Dutch energy giant Royal Dutch Shell and French oil major Total, as well as Chevron.
Although no exploration has been conducted yet, the area is widely believed to hold significant oil and natural gas reserves because it is connected to the Erawan and Bongkot fields located just to the west and the south. These have satisfied Thailand's growing energy demand since the 1980s.
The area is also close to important energy markets and there is infrastructure in the area, including a pipeline that reaches Thailand. That means the new field would be able to go into production quickly.
One energy industry official said Western oil majors are unwilling to relinquish their oil and gas fields in the area, as they are "the last resort within the ASEAN region."
Why has such a promising area gone untapped until now?
In 2001, Thailand reached a basic agreement with Cambodia to jointly develop the southern part of the Overlapping Claims Area (OCA) to promote the development of resources, putting aside the maritime boundary issue for the time being.
Thaksin Shinawatra, then Thailand's prime minister, took advantage of his close relationship with his Cambodian counterpart to work on turning the agreement into reality. But Thaksin was ousted in a 2006 military coup.
When relations between the two countries were strained by a territorial dispute over the area around Preah Vihear Temple on the Thai-Cambodian border, there were repercussions for the sea border dispute as well. The Thai government of Prime Minister Abhisit Vejjajiva, a political opponent of Thaksin, unilaterally scrapped the 2001 agreement with Cambodia in 2009. Thaksin's younger sister, Yingluck, came to power two years later and moved to reinstate the 2001 agreement with Cambodia. But the second pro-Thaksin government was removed in another coup in 2014.
At the end of 2019, Thailand and Cambodia agreed to open negotiations for a third time. But the talks have remained in limbo due to the COVID-19 pandemic. The idea of jointly developing the southern part of the OCA has become a hostage to Thailand's volatile politics. Previously the Thai side had been enthusiastic.
As the Erawan and Bongkot fields are heading toward depletion, Thailand has been forced to import expensive liquefied natural gas since 2011 to meet growing demand for fuel at power plants and raw materials for its chemical industry.
At its current rate of consumption, Thailand will only be able to meet 30% of its gas needs domestically in 15 years, down from 70% at present. If Thailand can develop new resources in the OCA and bring them into the country by extending the existing pipeline, it will benefit immensely.
It is obvious that Thailand will benefit more than Cambodia if the two countries return to the negotiating table and can agree on the area's development at an early date, a senior official at the Thai Energy Ministry acknowledged frankly. Thailand has the will, ability and infrastructure to develop the area, as well as strong energy demand.
Cambodia, on the other hand, has neither the capability nor the infrastructure to develop the area, however much it might wish to do so. Strong demand for the field's output is not in the cards in Cambodia: It has no oil refineries, gas-fired power plants or chemical plants. This leaves it little choice but to rely on Thailand for joint development of the area.
One realistic option for Phnom Penh is for Thailand to pay it in cash for the development rights. Fully aware of his position, Hun Sen is trying to extract the maximum concessions from Thailand, while dangling the carrot of a quick deal, which Thailand is eager for.
But the clock is ticking for Cambodia as well, as countries around the world begin decarbonizing their economies. Industrialized countries have started moving toward the goal of becoming carbon neutral by 2050. It seems unlikely that fields that have attracted oil majors will be as valuable in 30 years' time as they are now. Although, strong demand for oil and natural gas will undoubtedly continue for the next 10 to 20 years, time is running out for Cambodia to cash in on its black gold.
Hun Sen has served as Cambodia's prime minister for 36 years and makes no secret of wish to extend his reign. Will his dream of turning Cambodia into an oil producer, which briefly came true, cause him to play his final card? And if so, will it pay off?
The tug-of-war between Cambodia and Thailand over resources in the post-COVID era looks set to continue.