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Global energy companies get drilling on booming gas demand in Asia

Investors eye smaller brownfield and expansion projects to cut costs and risk

A natural gas rig off the coast of Myanmar.

BANGKOK -- With global natural gas prices on the rise, international oil and gas exploration companies have rolled up their sleeves, aiming to drill deeper to get more gas and capitalize on the booming demand in Asia.

More upstream final investment decisions are expected in 2018-2019. The number of project greenlights worldwide has more than doubled compared to 2015-2016, according to Wood Mackenzie, a leading energy research and consulting company.

That matches the situation in Southeast Asia, where Thailand has resumed a long-delayed auction for the Erawan and Bongkot gas blocks in the Gulf of Thailand to secure the continuity of gas supply for the country's power-generating sector. They are brownfield projects whose concessions are due to expire in 2022 and 2023, respectively.

Sources at the Energy Ministry said at least three international oil and gas companies are expected to join the bidding: PTTEP, Chevron and Abu Dhabi sovereign wealth fund Mubadala Investment.

Gas from the two fields provide a combined 2.1 billion standard cubic feet per day, or around 40% of total gas demand in Thailand. Chevron is the production operator of the Erawan block, while PTT Exploration and Production operates the Bongkot block.

In Malaysia, the state energy company Petroliam Nasional Berhad (Petronas) is also slightly increasing capital expenditures for upstream activities in 2018 from last year, according to  upstream CEO Mohd Anuar Taib.

Petronas, like other oil majors, was hit hard by the plunge in oil prices from mid-2014 highs, but sharp cost cuts since then and a modest price recovery that began last year has helped the company boost profits so it can spend more.

Petronas allocated 26 billion ringgit ($6.6 billion) for upstream expenditures in 2018, slightly up from 2017. However, the company did not give a precise comparison.

This is still little more than half the 48.7 billion ringgit spent on upstream activities in 2015.

The natural gas market is undergoing a fundamental transformation. Industry has overtaken the power sector as the driving force behind the growing use of gas, thanks to rising demand in China, developing Asia, the Middle East and the U.S., according to the International Energy Agency.

The IEA's forecast is in line with research by major international oil and gas companies, which have forecast that many countries, particularly in Asia, will shift toward gas-based economies, resulting in a rise in gas demand.

In China, the National Development and Reform Commission, which guides national energy policy, announced on April 25 a goal of boosting reserves to the equivalent of 16% of domestic consumption in 2020, up from less than 6% today.

The World Bank said in its April Commodity Markets Outlook that global natural gas prices will rise by 20% in 2018 and could continue uptrend during 2020-2025, rebounding from the sluggish period during 2015-2016, when demand dropped in line with the weak global economy.

U.S. oil prices also rose above $70 a barrel on Monday for the first time since November 2014, as traders braced for a re-imposition of U.S. sanctions on Middle East crude producer Iran.

That has encouraged international oil companies, such as BP, Chevron, ExxonMobil, Shell, and Total, which have all signaled their intentions to increase the share of gas in their reserves.

This will result in more investment in both the short and long term across the supply chain of natural gas.

India's state energy company, Oil and Natural Gas Corporation, kicked off the $5.07-billion KG-DWN-98/2 project in the Krishna Godavari basin off the east coast of India by spudding (doing the initial drilling) for the first of the planned 34 subsea wells.

The Italian energy company Eni also announced the approval of a development plan for the Merakes field, off East Kalimantan, Indonesia.

The Indonesian government has granted approval just three months after submitting the plan and less than 11 months after Eni started production from its deepwater Jangkrik asset in Muara Bakau, Indonesia.

However the new gas-exploration projects are much smaller in size due to cost-cutting efforts, analysts noted.

"We are seeing significantly smaller projects, alongside a greater appetite for brownfield and expansion projects, and more subsea tie-backs," said Jessica Brewer, a principal analyst at Wood Mackenzie.

"Brownfield developments are popular in the current capital-constrained environment, with less spending and execution risk than a greenfield project, and a faster route to first production," said Brewer, adding that both investors and operators want to see faster cycle times and quicker returns on upstream projects.

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