Offshore gas to grow at same pace
Pam Boschee
International Editor
Oil production in the Asia-Pacific region is expected to increase from 3.48 MMb/d in 2003 to 6.7 MMb/d in 2009, a jump of 92.3%, according to forecasts by MacKay Consultants of Scotland. Gas production is expected to increase 124%, from 151 bcm in 2003 to 339 bcm in 2009.
The increase in gas production reflects the development of markets resulting from the switch from oil to gas for generation of electricity. The growth of pipeline infrastructure is also adding new markets.
The region is expected to claim about 35% of global offshore drilling in 2009, up from 30% in 2003, says Mackay. Total offshore capital expenditure can be expected to increase by $9.8 billion from 2003 to $30.6 billion in 2009, the company adds. Offshore production expenditure is projected to account for $19.7 billion (+82.3% from 2003) of the total; offshore development expenditure, $8.6 billion (+13.1% from 2003); and offshore exploration expenditure, $2.2 billion (-4.4% from 2003).
Offshore China production grows
China was the world’s second-largest consumer of petroleum products in 2004, surpassing Japan for the first time in 2003, with total demand of 6.5 MMb/d. China’s oil demand is projected by the EIA to reach 14.2 MMb/d by 2025, with net imports of nearly 11 MMb/d.
Accounting for nearly 40% of world oil demand growth over the past four years, with year-on-year growth of 1 MMb/d in 2004, Chinese oil demand is a key factor in world oil markets. Although about 85% of Chinese oil production capacity is located onshore, offshore oil development is a high priority.
Recent offshore oil exploration has centered on the Bohai Sea area, east of Tianjin, which is believed to hold more than 1.5 Bbbl in reserves, and the Pearl River Mouth area.
ConocoPhillips is producing about 20,000 b/d from its Peng Lai find in block 11/05. It is planning to invest $1.8 billion over several years to further develop its holdings in the Bohai Sea, with eventual production goals of 140,000 b/d.
Chinese National Offshore Oil Co. (CNOOC) brought its Luda heavy oil field in the Bohai Sea into production in early 2005 and is now producing about 40,000 b/d.
Husky Oil andCNOOC are currently producing about 50,000 b/d from the Wenchang 13-1/13-2 blocks in the Bohai.
In February, Kerr-McGee signed a production-sharing contract for deepwater block 43/11, southeast of Hong Kong. Kerr-McGee is funding 100% of the exploration costs, but CNOOC has farm-in rights for a 51% stake in the development phase if oil is discovered.
In a move to gain more leverage in bidding for overseas oil assets,CNOOCsays it will explore oil and gas offshore Kazakhstan with China National Petroleum Corp. (CNPC), in their first overseas team play.
Unproven reserves in the northern Caspian Sea, where Kazakhstan has the right to produce oil and gas, total 13.45 billion tons, according toCNOOC. In June, Kazakhstan’s Energy Minister Vladimir Shkolnik said that he expected to hold the first tenders for rights to develop offshore oil blocks in the northern Caspian Sea in 2006.
Kazakhstan produces 1.3 MMb/d and expects its crude oil output to soar to 3.5 MMb/d by 2015, which would put it among the top 10 global producers.
China-Japan disputes
China’s quest for additional oil has driven ongoing disputes with Japan over hotly contested offshore natural gas and oil fields. Japanese reconnaissance data suggests that China may already be tapping into East China Sea disputed territory.
China has completed at least one new drilling platform in the East China Sea and may already be tapping into natural gas and oil fields, escalating a dispute with Japan over the rights to billions of dollars worth of offshore reserves.
A second Chinese drilling platform in the area also appears nearly complete, officials say, and Japan has detected signs that CNOOC is close to finishing a pipeline to the platforms that would connect them to the Chinese mainland.
In July, Japan granted a license to Tokyo-based Teikoku Oil Co. to conduct its own exploration in the area - including in disputed offshore fields. Japanese officials say they will allow Teikoku to proceed into the East China Sea, perhaps with an escort of Japanese coast guard vessels, if the two nations cannot reach a negotiated settlement in the near term.
Japan has suggested that the two sides settle the dispute by agreeing to co-develop energy in the East China Sea. Last month in Tokyo, China and Japan discussed the proposal, but the two sides disagreed on the areas of cooperation.
Australia
INTEC Engineering is currently working with Eos, a joint venture between Kellogg Brown & Root and WorleyParsons, on the front-end engineering design of the Papua New Guinea (PNG) gas pipeline project. INTEC is principally responsible for the offshore and landfall sections.
INTEC has established a team of engineers to Brisbane in Queensland to work within the Eos project team and alongside ExxonMobil’s project team.
The PNG gas project involves tapping large reserves of natural gas in PNG’s southern Highlands and transporting the gas via pipeline over 3,000 km to Australia. The pipeline will be the longest in the Southern Hemisphere, says INTEC.
The initial scope involves converting the existing Kutubu oilfields to gas production and developing the participants’ respective equity shares in the Hides gas field.
A new 600 MMcf/d gas conditioning facility will be integrated with an existing plant at Kutubu and a new gas pipeline system constructed from the PNG Highlands to connect with the Australian gas pipeline system.
Project pipelines include a 120-km Hides to Kutubu system and a 500-km gas sales pipeline to the PNG-Australian border, which will meet up with the Australian pipeline extending through Queensland. The project also plans to install a 499-km gas branch pipeline from Weipa in Queensland across the Gulf of Carpentaria to Gove in the Northern Territory.
PNG gas project participants are affiliates of ExxonMobil, Oil Search, MRDC (a PNG company representing landowner interests), and Nippon Oil Exploration. Esso Highlands Ltd. is the operator and is the designated operator for both the oil and gas assets after First Gas. APC, a consortium led by AGL and Petronas, will own and operate the Australian pipelines.
Most of Australia’s oil reserves are located offshore of the northwestern and the southeastern parts of the country and are estimated at 3.5 Bbbl. The two largest areas with petroleum reserves are the Bass Strait off southern Australia, with 1.8 Bbbl, and the Carnarvon Basin off Western Australia, with 1.1 Bbbl.
ConocoPhillips plans to develop two fields in the Timor Sea, Zoca and Coleraine, with reserves at 150 MMbbl. The Mutineer/Exeter oilfield in the Carnarvon Basin, with estimated reserves of 101 MMbbl, is expected to reach full production in 2006.
Production at Santos Ltd.’s Casino site (200 bcf of gas) offshore southern Australia is slated to begin in 2006.
Other Australian offshore projects updates include:
• Australia’s Santos Ltd. has been awarded exploration permit NT/P69, located in the Timor Sea adjacent to exploration permit NT/P61, which contains the recent Caldita gas discovery.
Exploration permit NT/P69 is in the Bona- parte Basin offshore Northern Territory, approximately 310 km north-northwest of Darwin, and contains the previously discovered Lynedoch gas resource.
Both the NT/P69 and NT/P61 permits are jointly held by a wholly-owned Santos subsidiary, Santos Offshore Pty Ltd (40%), and an affiliate of ConocoPhillips (60% and operator).
• Chevron Corp.’s subsidiary Chevron Australia Pty. Ltd. plans to sell LNG from the offshore Australia Gorgon project to Japan.
Chevron Australia has signed a heads of agreement with Tokyo Gas Co. Ltd, a major Japanese utility company, for the purchase of 1.2 million tons per annum of Gorgon LNG beginning 2010 over a 25-year period.
• Clough Ltd. and joint venture partner, AMEC Plc, have signed an engineering services contract (ESC) with Woodside Energy Ltd. of Australia.
Under the agreement, Clough AMEC will perform a three-year contract with an option for Woodside to extend the project for a further five years. Work will begin immediately with activity projected to increase to approximately $25 million of revenue per annum by January 2006.
• Horizon Oil plans to proceed with the development of offshore New Zealand’s Maari field, in which it holds a 10% interest.
In September, the joint venture filed a petroleum mining permit application with the New Zealand Department of Economic Development. The permit, which will grant Horizon Oil and its partner’s production rights for a period of 25 years, was expected to be granted early this month.
The Maari field lies approximately 80 km offshore Taranaki in 100 m of water. The field was discovered in 1983 and is fully appraised, with four wells drilled on the structure.
The primary reservoir and the initial focus of the development plan is the Moki formation, which flowed over 3,650 b/d in the Maari-1 test. Estimated proven and probable reserves in the Moki formation are approximately 50 MMbbl of recoverable oil.
India’s new deals
India imports nearly 70% of its oil needs, consuming more than 2 MMb/d in 2004. The Indian government forecasts that by 2025, the country’s daily oil consumption will be nearly quadrupled at 7.4 MMb/d.
Between 1990 and 2000, South Asian oil consumption, led by India, grew by nearly 75%. India’s oil consumption is forecast to increase another 33% by 2010, reaching 2.8 MMb/d.
India provides the majority, about 819,000 b/d in 2003, of South Asia’s oil production. India’s offshore Bombay High field accounts for about one-third of total Indian oil output.
India is attempting to meet its oil demand through several measures. It will receive 100,000 b/d of oil beginning in 2007 from the Sakhalin-1 oil and gas fields in Far East Russia and will recover its $2.7 billion investment in less than three years time. The Sakhalin-1 fields, where India’s Oil and Natural Gas Corp. Videsh Ltd. has a 20% stake, began producing oil and gas last month (see related story starting on page 46).
ONGC Videsh plans to ship around 700,000 bbl of oil from the Sakhalin-1 fields to India every 70 days from April 2006. This will be India’s first shipment of equity crude oil from the Russian fields, officials say.
In mid-August, India and China held a first round of strategic energy discussions in Beijing to explore ways to cooperate in the acquisition of overseas oil and gas assets, and are reported to be exploring options in Africa, Central Asia, Latin America and Russia.
BP, Chevron and ExxonMobil are reportedly in talks with Reliance Industries, India’s largest private sector gas explorer, about the area in the Krishna Godavari basin in the Bay of Bengal.
Energy experts estimate that the field, India’s largest gas discovery in 30 years, is worth $4 billion. Reliance discovered the field in 2002 and subsequently sold a 10% stake in it to Canadian firm Niko Resources.
However, experts say that Reliance had little experience in deepwater exploration and was eager to bring such expertise into this area.
Although production is unlikely to begin before 2008, the project is potentially highly lucrative.
According to energy analysts Wood Mackenzie, the field holds an estimated 6,000 bcf of proven and probable reserves, while the ultimate yield could potentially be twice as large.
Transocean Inc. won a three-year contract for drilling operations offshore India from Oil and Natural Gas Corp. (ONGC) of India. The ultra deepwater drillshipDiscoverer Seven Seas is expected to complete its current three-year contract with ONGC by February 2007 and commence the new contract by the end of May 2007, following an estimated 90-day planned shipyard program.
Revenues of approximately $345 million could be generated over the three-year contract period, excluding revenues for comprehensive services that include well planning, operations support and logistics management.
The drillship is one of 32 high-specification rigs in the Transocean Inc. fleet, 13 of which are fifth-generation deepwater floaters. The rig can operate in water depths of up to 7,000 ft.
Thailand’s PTT
Thailand’s oil industry remains dominated by PTT, formerly the Petroleum Authority of Thailand. PTT Exploration and Production (PTTEP) is its main upstream subsidiary. Although PTT underwent a partial privatization in 2001, with 32% of its equity sold, the Thai government retains a 68% stake in PTT.
In July, PTTEP and Mitsui Oil Exploration Co. Ltd. signed an agreement with a group of sellers consisting of Pogo Overseas Production BV and Pogo Producing Co. to jointly acquire all the shares of Pogo Group in Thailand. PTTEP Offshore Investment Co. Ltd. (PTTEPO), a subsidiary of PTTEP will take a 25% stake in petroleum concession blocks B8/32 and 9A in the Gulf of Thailand. The rest of the equity will be held by Chevron, the operator, 51.66%, Mitsui Oil Exploration Co. Ltd. 16.71%, and Palang Sophon Two Co. 6.63%.
While Block 9A has no production at present, block B8/32 will generate immediate revenue stream from petroleum sales and will increase petroleum proved reserves by 52 MMboe. Production of crude oil from this block, coupled with the crude oil from Nang Nuan project, which started production last May, and the increased gas production from Bongkot project, located 400 mi south of Bangkok in the Gulf of Thailand, will result in an increase of PTTEP’s petroleum sales from 144,000 boe/d to 150,000 boe/d.
PTTEP continues to expand its business in Southeast Asia. PTTEP International Ltd., a subsidiary of PTTEP, signed a farm-out agreement for 40% equity in block B offshore Cambodia with Resourceful Petroleum Ltd.
In July, PTTEP signed a contract with PT Medco E&P Merangin to return to Indonesia as a partner with 39% equity in block Merangin I, south of Sumatra, where there is potential for crude oil. In Myanmar, PTTEP signed a production-sharing contract to become 100% holder and operator of offshore block M11.
PTTEP recently entered a technical evaluation agreement with Bahrain Petroleum Co. (BAPCO), the national oil company of Bahrain, to conduct studies on petroleum potential in offshore block 1 and block 2 with the understanding that a successful study would lead to an exploration production sharing agreement with BAPCO and the government of Bahrain.
One of Thailand’s most active areas for gas exploration is the Malaysian-Thailand Joint Development Area (JDA) located in the lower part of the Gulf of Thailand and governed by the Malaysia-Thailand Joint Authority. JDA covers blocks A-18 and B-17 to C-19. A 50-50 partnership between Petronas Carigali and Triton Energy Ltd., a subsidiary of Amerada Hess, is developing the Cakerwala field with estimated reserves of 2 tcf in block A-18, while PTTEP and Petronas Carigali also share equal interests in the remaining blocks.
PTT has agreed to purchase 390 MMcf/d of gas over 10 years from the Cakerawala field, the first JDA field to come onstream, beginning in 2006. Natural gas will be delivered to Malaysia prior to then.
In September, PTTEP awarded a $110 million contract to a subsidiary of J. Ray McDermott SA for the Arthit processing platform (APP) in the Gulf of Thailand. The project scope includes procurement, fabrication, transportation, installation, hook-up and pre-commissioning of the APP topsides, equipped with production and processing facilities, weighing about 17,600 tons. Fabrication work began in the third quarter at J. Ray’s Batam Island fabrication facility. Installation of the structure will be performed by J. Ray’s marine vessels using float-over technology.•
