WHAT HAPPENS WHEN OUR OIL WELLS RUN DRY?

What happens when our oil wells run dry?

The stark reality is - the boom time for Malaysia – is over, but it is not all doom and gloom.

September 12, 2012: For decades, oil and gas (O&G) has been our country’s main revenue contributor. In the past, new discoveries propelled our oil production which peaked in the mid-1990s, whereas the recent high fuel prices resulted in good cash flow into the Malaysian treasury.

However, will oil which made Malaysia relatively wealthy continue to gush from our wells?

The stark reality is – the boom time for Malaysia – is over. Let me share the reasons why. Most if not all of the economically attractive fields have been found and developed. Our new discoveries are smaller, more technically demanding, and require more intensive capital investment.

According to data from Petronas, 40 exploration wells were drilled between 1974 and 1978, resulting in the discovery of 1,580 million barrels of oil equivalent (mmboe), adding to our oil and gas reserves.

Some 21 years on, 62 wells were drilled between 1999 and 2003, resulting in 1,200 mmboe. Between 2004 and 2008, 140 wells were drilled and only 1,050 mmboe discovered.

In other words, we are running dry. Oil production is declining at a rate of 1% to 2% per year on average in the coming decade. What does this mean? Well, it basically means that if we didn’t do anything, we expect that our O&G resources will be depleted in another 30 years.

Just imagine the impact of dry oil wells for our country which depends on O&G for almost 40% of its revenue. At the current rate, we are looking at a loss of a staggering RM61 billion per annum!

However, while the situation is serious and needs to be addressed, I can assure you that it is not all doom and gloom.

Sustaining O&G production

I would like to share that two years ago, some 500 of us, civil servants and industry players – came together for an eight-week lab, looked at the issues and recommended a three-prong approach.

We had just one objective – ensure that OGE will continue to power our economy. Our goal: Malaysia as a leading oil and gas producer in Southeast Asia by 2020, with a stable production of 550,000 -600,000 barrels per day.

Our three focus areas are:

• Sustain O&G production. This involves extending the lifecycle of existing resources by optimising exploration, development and production activities.

• Enhance downstream growth (includes creating a regional oil storage & trading hub) and make Malaysia the number one Asian hub for oil field services.

• Diversify by building alternative energy capabilities such as building up solar power capacity and tapping into our hydroelectricity potential.

We have identified three initiatives – enhanced oil recovery (EOR), developing small fields (fields with less than 30 million barrels of recoverable oil) and boosting domestic production.

We have made good progress. For example, in EOR, Petronas has teamed up with Shell Malaysia to carry out two offshore projects in North Sabah and Baram Delta, Sarawak which will employ a new technology which is expected to increase the average recovery factor in the fields from 36% to 50%, compared to the industry norm of 20% to 35%.

In addition, the Petroleum Income Tax Act Amendment Bill which aims to incentivise exploration of marginal O&G fields was approved last year by Parliament.

Becoming the No 1 Asian hub

Now, it is critical that we take advantage of the growth opportunities and improve our O&G downstream business.

To achieve this, we need to become a regional hub for oil storage and trading, capitalising on the strong demand to build oil storage capacity in the Asian region.

Our aim is to increase Malaysia’s oil storage capacity from 3 million m3 currently to 10 million m3 by 2017. Three new terminals will drive the storage capacity: Pengerang Terminal, Tanjung Bin and Tanjung Langsat, Johor.

The Pengerang Independent Deepwater Petroleum Terminal project is a good start for us to become a regional storage hub. Complemented together with Petronas Rapid, an integrated refinery and petrochemical complex, Pengerang is poised to also become a regional hub for oil field services.

Let me give you two reasons why these projects can succeed. Firstly, Pengerang, by virtue of its strategic location at the southern tip of Johor and its natural deepwater, is next to an international shipping lane and close to the petroleum trading centre in Singapore. In short, business is assured.

Secondly, in the petrochemical industry, there are cycles of demand. The next cycle is expected to be in 2016 onwards, and the Rapid project in Pengerang is timed to be ready to meet this peaking demand.

Building alternative energy capabilities

By 2021, we aim to have diversified our energy resources – 5GW of hydro, up to 1,25GW solar and prospective 2GW of nuclear power.

Progress made to date includes introducing the Feed-in-Tariff (FiT) to promote renewable energy, and forming the Malaysia Nuclear Power Corporation (MNPC).

We are also focused on energy efficiency including energy efficient appliances, building insulation and transportation efficiency.

All our initiatives are making good progress and it is critical that we maintain the pace. We have just eight years to go to reach our goal of making Malaysia a leading oil and gas producer in Southeast Asia by 2020.

There are many challenges ahead. Let’s all work together and continue to keep our eyes on the ball.

Dr Emir Mavani is the Director of NKEA Oil, Gas & Energy and Financial Services in Pemandu. He is also sits on the Board of the Malaysian Petroleum Resources Corporation and Malaysia Nuclear Power Corporation.