Wood Mackenzie recently published five issues focusing on project sanctions, exploration, mergers and acquisitions (M&A), energy transition and the IMO 2020 which will affect Asia Pacific’s upstream industry in the year of 2020.
1.Australia leads the Asia Pacific FIDs to a successful year
Asia Pacific will probably see a boost in major sanctions for 2020. Specifically, about $35 billion of new development costs and 4.6 billion barrels oil equivalent (boe) of resource could be approved this year, in comparison to only $5.5 billion and 1.2 billion boe of new projects getting the go-ahead in 2019.
Since there was a lack of project sanction during the last years, Australian project final investment decisions (FIDs) will make their comeback for 2020.
Barossa is closest to the line as new operator Santos looks to backfill the Darwin LNG plant. We expect Woodside to sanction Scarborough to underpin the Pluto Train 2 expansion, and Shell is set to take FID on the Crux field to backfill the Prelude FLNG facility.
…Wood Mackenzie senior analyst David Low noted.
At the same time, the Research director Andrew Harwood added that in Q1 2020, Petronas will be looking to develop its deepwater expertise close to home through Limbayong, offshore Sabah, and the Kelidang Cluster, offshore Brunei.
Given its deepwater ambitions in Mexico and Brazil, the national oil company (NOC) will be keen to demonstrate proficiency in bringing similar domestic projects online.
… Andrew Harwood continued.
With Asia Pacific exploration marking a record year for 2019, it is now expected to switch to delineating some of the major key discoveries over the last year. Furthermore, appraisal drilling at Repsol’s Kali Berau Dalam, Eni’s Ken Bau, PTTEP’s Lang Lebah, and CNOOC’s Yongle 8-3 will turn out to commerciality ahead of development planning.
At the same time, the point of view for pure wildcat exploration seem to be more limited in 2020. Although there are still some well-promising play-openers in New Zealand’s Great South Basin, deepwater Myanmar, offshore North Sumatra and offshore Papua.
Additionally, in Australia it will be a vital year for the Beetaloo and McArthur Basins as it is consider to hold remarkable resource potential which could play a major role in the Australian east coast gas industry.
This could be the breakout year when we find out if all the hype is justified. Origin, Santos and Empire Energy are hoping to get a better understanding of the rock mechanics and well deliverability with their exploration programmes in 2020. Flowrates above 5 million cubic feet per day (mmcfd) would be considered a success.
…said David Low.
In the past years, the investigation in Asia exploration activity shows a global shift in resource capture strategies while pays attention on getting more from the already existing fields.
In 2020, we expect a growing focus on improving recovery rates by NOCs and smaller specialist players. Pertamina will hope to slow declines at Offshore Mahakam via an ambitious drilling campaign and new well and platform designs. PTTEP aims to recover more contingent resources from G1/61 (Erawan) and to lower development costs through synergies with its nearby assets.
3. M&A opportunities aplenty
The pipeline of assets for sale still remain powerful. Vital companies hold $18 billion worth of non-core assets in the Asia Pacific area. As the first priority will be divesting late-life assets, low-return, pre-FID projects and positions with limited growth potential.
For instance, the Chevron’s Indonesia Deepwater Development and Repsol’s PM3 CAA are two key assets which are expected to change hands during this year.
Moreover, in Australia the LNG deals will continue to make headlines in 2020.
Santos’ 2019 acquisition of ConocoPhillips’ northern Australia portfolio will have a catalyst role for further M&A to align equity interests.
SK E&S, part of the Barossa JV, is in line to move first and acquire 25% of Santos’ stake in Darwin LNG and Bayu-Undan. the Japanese participants in Darwin LNG are also expected to farm into the Barossa JV.
4.Upstream market finds its way in the energy transition field
The national energy needs have oftenly surpassed environmental concerns during upstream development decisions.
However, the energy transition awareness has speeded up across the industry, with environmental, social and governance (ESG) criteria growing influencing company’s strategy and investor behavior.
The Asia Pacific asset divestments could also see an increase in 2020, since the international oil companies aim to reduce carbon-intensive assets.
At the same time, on-going projects will focus on carbon capture during development while in some cases, the use of renewables to power upstream operations.
Australian players have already started or are exploring carbon capture and storage and the use of renewables in upstream operations. As momentum grows in 2020 behind ‘green LNG’ as a buyer option, Australian operators will need to demonstrate they are making tangible progress in reducing their own carbon footprints.
…David Low further noted.
With the global upstream market goal to a more sustainable future, Asian NOCs will also need to make a stand in 2020.
“Petronas’ giant 7tcf Kasawari gas field offshore Sarawak is one of the flagship projects to watch. Sanctioned in 2019, we foresee PETRONAS abandoning previous plans to vent the field’s 20 percent+ CO2, in favor of a more ambitious capture and sequestration solution” Harwood added.
5.IMO 2020 impact extends to Southeast Asian gas producers
Coming into force from 1st of January, the impact of the new IMO standards on sulphur content in marine fuel seem to be far-reaching. The reduced demand along with the lower prices of high-sulfur fuel oil (HSFO) result to a direct impact on regional upstream cashflows.
A large amount of gas supplied from Peninsular Malaysia, the West Natuna Sea and South Sumatra is priced with a linkage to HSFO.
An additional point is that over 2,500 mmcfd of gas production is exposed and some of the exposed operators involve Petronas, ExxonMobil, Hess, PTTEP and Medco Energi.
Concluding, the IMO impact on revenues might be neutralized by higher offtake levels- lower HSFO-linked prices which will enhance the pipelines supplier’s competition as they have been under pressure from cheap LNG in recent months.
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