Wood Mackenzie: What to Watch for in 2015 in APAC's Upstream Sector

Four Sub-regional Energy Themes to Watch in 2015

China – National Development and Reform Commission (NDRC) and gas price reform

The Chinese outlook for both gas and oil output remains healthy. China’s gas production grew by 12 percent in 2014, and new projects such as Fuling, Anyue and Liwan 3-1 will continue to support volume growth. Sustained lower oil prices will impact NOCs’ spending and oil & gas production, with marginal onshore legacy oil fields and associated enhanced oil recovery (EOR) programs likely the first to see cuts. However, Wood Mackenzie believes investment in gas production will remain strong due to high domestic prices. The Chinese Government's resolve to complete its domestic price reform will be tested this year as it unifies existing City Gate prices with higher incremental City Gate prices. Increased prices will support supplier profitability but may have negative consequences for overall China gas demand.

South-East (SE) Asia - Changing the exploration record

In 2014, discovered volumes fell for the fourth straight year in SE Asia, with 1.5 billion barrels of oil equivalent (boe) of new oil and gas, 13 percent lower than in  2013. Reversing this trend remains one of the region’s greatest challenges. In Indonesia, the land and building tax exemption was a positive start from a new Government, but tougher decisions await, particularly on production sharing contracts (PSC) renewal policy and revising terms to encourage new exploration. Wood Mackenzie expects Malaysian Sarawak to remain an exploration hot spot, with SapuraKencana, Shell and Petronas all drilling prospects. Malaysia was the main source of significant new volumes in 2014, accounting for 71 percent of the region’s discovered resource. Exploratory activities will also begin to ramp up in Myanmar, as new PSC awardees begin work programmes, encouraged by a likely fall in seismic costs.

India- Domestic gas pricing decision

India’s upstream sector was buoyed by the 2014 election of a government that promised investor friendly policies. However, decisions regarding the new gas price policy decision have struggled to appease both upstream investors and end users. Clarification of the domestic pricing policy, due in 2015, is the key event to watch for. Wood Mackenzie believes the Government may change its stance and extend the gas price premium to include fields discovered prior to November 2014. This will provide a boost to operators holding significant volumes of undeveloped gas and improve the attractiveness of the tenth New Exploration Licensing Policy (NELP X) bid round.

Australia- LNG project delivery

First LNG is expected from several projects in 2015, adding around 40 million tons per annum (Mtpa) to Australia’s LNG export capacity when fully ramped up. Delivering smooth start-ups and meeting existing timelines and budgets remain the primary challenges but some cost relief will be derived from a weakening Australian dollar. January saw first LNG produced from QCLNG, with GLNG, APLNG and Gorgon LNG all forecast to begin production in the latter half of the year.


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