Geopolitical risk bearing down on global oil markets is increasingly taking hold and weighing on oil prices as Saudi Arabia and Iran jockey for influence and position in the Middle East. These concerns escalated just over a week ago when Saudi Arabia's young Prince Mohammed bin Salman ramped up tough rhetoric over Iran, pledging to acquire nuclear weapons if indeed Iran develops them.
His muscular geopolitical approach in the Middle East and recent talks in Washington with President Trump, pledging to buy more U.S. military hardware, shows that Saudi foreign policy under his helm will be more aggressive, albeit with even more military punch - all factors that spook oil markets and tend to drive prices upward.
In fact, oil prices have already seemingly found a floor with both global-benchmarks Brent crude and NYMEX-traded West Texas Intermediate (WTI) crude prices trading in a low to mid $60s range for an extended period of time. However, given renewed geopolitical risk, that trading average could easily trend upward into the low to mid-$70s range.
All of this of course is not lost on oil and gas exploration and production (E&P) companies, who pulled back their endeavors, particularly more cost intensive offshore drilling actives, during the 2014-2016 global oil price crash.
Now, it seems offshore drilling, at least in some parts of the world, could be poised for a healthy comeback, particularly in the waters of Southeast Asia.
Even as far back as late January, industry analyst Rystad Energy, said that an estimated 50 oil and gas fields in Southeast Asia, with a collective four billion barrels of oil equivalent (boe) resources, would likely be approved for development between 2018 and 2020.
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These fields will require US$28 billion worth of CAPEX from final investment decision (FID) to first production, the consultancy said. The US$28 billion is for greenfield opportunities available to 2020. However, many of these new fields are in later stages of earlier production, with the largest infrastructure already in place; hence so-called brownfield projects.
Going long on Southeast Asia oil and gas
This trend could continue, at least according to oil services provider Baker Hughes GE (BHGE). Earlier this week a BHGE senior executive said that the company was on the hunt for smaller oil and gas projects in the Asia Pacific region to replicate a project in Papua New Guinea (PNG) where it is providing services and financing.
BHGE Asia-Pacific President Visal Leng said that his company sees signs of renewed interest in oil and gas projects in the region, driven by smaller firms. BHGE offers resource assessment through to drilling and production. A Reuters report said that BHGE wants to work with smaller companies looking to develop smaller fields and stranded resources in countries such as Indonesia, Philippines, Malaysia and Myanmar where there is also demand for natural gas to generate electricity.
"We're cautiously optimistic on the (Asia-Pacific) region because projects are slowly coming back. We also see some smaller projects in size, not by NOCs (national oil companies) or IOCs (international oil companies), but by smaller operators," Leng said.
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According to Rystad Energy, FIDs over each of the next three years will be heavily natural gas weighted; while gas makes up some 85 percent of the resources reaching FID over the full period. The largest in 2018 will come from Vietnam, with most of its share coming from the expected approval of the Block B project.
Additionally, most of the gas resources to be developed in Indonesia and Malaysia will be supplied to existing liquefied natural gas (LNG) plants. Brunei, Indonesia and Malaysia have long running LNG projects where new sources of supply will ensure that these projects maintain their long-terms contractual supply commitments. However, Indonesia's situation is more problematic. The former OPEC-member is expected to run natural gas deficits as its economy grows and more of the fuel is used to meet domestic demand.
The Philippines also has natural gas resources and production, mostly in advanced stages of depletion, in the nearby South China Sea, which it calls the Philippine Sea, but to date several smaller domestic and international oil companies have been reluctant to continue E&P activates due to overlapping territorial claims between China and the Philippines.
By Tim Daiss for Oilprice.com
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I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets… More
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