END OF AN ERA FOR SOUTH- EAST ASIA’S OIL AND GAS SECTOR PLAGUED BY COVID, DELAYS AND STALLED PROJECTS

The Covid-19 pandemic has marked the end of an era for Southeast Asia’s combined oil and gas
production, pushing the region’s output in 2021 to below 5 million barrels of oil equivalent per
day (boepd) for the first time since 1998, a threshold that is not likely to be exceeded again in the
future despite new project start-ups in coming years.

Daily average hydrocarbon production tumbled to 4.86 million boepd in 2021, down from 5.06
million boepd in 2020, and a massive 12% drop compared to the pre-pandemic volumes of 5.5
million boepd in 2019, data by global energy consultants Rystad Energy shows.

Operators have struggled to regain production losses triggered by the pandemic as operators
slowed down activity levels amid an unprecedented disruption in oil markets. The decline is
projected to continue into the middle of the decade. Although volumes will remain stable in
2022, production will drop an additional 10% by 2025 to around 4.3 million boepd versus
current levels.

“Liquids production in Southeast Asia has been on the decline for almost 20 years due to a lack
of discoveries and project sanctioning activities in the region. While new government incentives
may help, the region looks set to experience declining production levels well into the future,”
says Prateek Pandey, upstream vice president with Rystad Energy.

By contrast, natural gas production in the region stayed steady between 2009 and 2019, at around
20.8 billion cubic feet per day (Bcfd). Despite expectations of a rise in gas sales volume that
would counter the 8% fall in production in 2020, volumes are expected to be down around 2%
this year compared to 2020, at about 19 Bcfd. This is primarily due to falling production at
mature legacy projects including Mahakam, MLNG Dua and MLNG Satu PSCs, Yetagun.

The share of volume from projects under development and existing commercial discoveries are
substantial and reflect the region’s timely execution of projects. Several projects were
successfully brought onstream in 2021, including the highly anticipated Rotan field, utilizing
PFLNG Dua, which started in March, making Petronas the only operator globally to produce
LNG from two floating facilities. In Indonesia, Eni completed a timely development, with
Merakes achieving its first gas production in April 2021.

However, despite these successes, Southeast Asia is still plagued by delays and stalled projects.
In Indonesia, a recovery in gas production has been further delayed after the two significant
developments -Tangguh LNG T3 and Jambaran Tiung-Biru Unitisation (JTB) – were postponed
until 2022.

For most of Southeast Asia, over 60% of output comes from mature blocks – fields producing
more than 50% of its resource. Volumes from such blocks are likely to see a consistent decline
over the next few years, with an estimated 60% of production by 2030 likely coming from

projects currently at the pre-FID (final investment decision) stage. Consequently, the driving
force behind the region’s upstream outlook will be the sanctioning of new developments.

The year 2020 was a nightmare for regional sanctioning activity, with only around 300 million
barrels of oil equivalent (boe) of resources from six assets reaching FIDs. As operators tried to
move forward in 2021, the region has seen more than ten projects secure FIDs, with around 750
million boe of reserves and some $3 billion in greenfield investment, with Malaysia accounting
for 85% of the total.

Sanctioning activities in 2022 are likely to remain at similar levels, with FIDs planned on around
800 million boe of resources in the region, of which 60% are in Indonesia and over 35% in
Malaysia. Projects operated by majors and NOCs are likely to dominate in Malaysia, whereas
regional players and E&P companies will primarily drive Indonesian developments.

However, planned FID projects in 2022 may still face challenges in securing the final approval.
Indonesia’s domestic gas price regulation remains a concern for most large gas developments in
the pipeline. Although incentives are being discussed for blocks such as Kasuri, it is still one of
the factors that could further delay progress. The planned developments from production sharing
contracts (PSC) due for current contract expiry in the near term are also at risk unless host
country governments initiate early discussions on potential extensions.

Southeast Asia is unlikely to see a substantial increase in spending in 2022, with investments
projected to be in the range of $15 billion to $20 billion across the year. Investments will likely
be driven by increased drilling activity in mature blocks in Indonesia and Thailand, as NOCs
take the reins and focus on top-producing blocks.