Driven by energy security concerns, Southeast Asia's oil-producing countries are seeking to revive the upstream industry. Malaysia, Indonesia, Vietnam and Thailand are competing for upstream investments from both local and international companies, according to research by BMI, a Fitch Solutions company. The following is a look at the current state of play:
- Foreign investment inflows into the oil and gas sector of Malaysia in 2022 stood at 287 million ringgit (US$61.7 billion), accounting for 47% of the country's total investment. Foreign investments are expected to rise further in 2024 as the state oil company Petronas is expected to announce new production-sharing contracts (PSCs) for oil and gas blocks offered in the 2023 petroleum bidding round.
International and regional companies, including Shell, TotalEnergies, Inpex Corp and Thailand's PTT Exploration and Production (PTTEP), are reinforcing their commitments to invest in Malaysia's upstream sector by participating in a number of PSC contracts awarded in 2023. Malaysia's thriving upstream oil and gas industry is expected to offer increased exploration opportunities to foreign investors in 2024 and beyond.
- Indonesia appears to be leading the competition with significant commitments from both local and foreign investors. The country has managed to attract new upstream investors, including South Korea-based Posco International, and commitments from existing players since it launched petroleum licensing rounds in 2021 and 2022.
Indonesia saw a spike in investments in the upstream sector, with total investments rising by 10% from $12.2 billion in 2022 to $14.8 billion in 2023. The $3-billion development plan for the Tuna offshore gas field, operated by Harbour Energy, is one of the largest development projects approved by the Indonesian state energy group SKK Migas in 2023.
Eni of Italy is expected to emerge as one of the largest investors in Indonesia's upstream sector following the acquisition of the deepwater Bangka and Ganal gas projects from US-based Chevron. Eni's investments are expected to rise further since the company made new gas discoveries in blocks acquired from Neptune Energy in 2023.
Additional investments from Eni are expected to be allocated to the Geng North-1 field located in the North Ganal Working Area in East Kalimantan. The discovery of significant gas reserves in North Ganal by Eni could encourage other foreign companies to invest in Indonesia.
The largest foreign investment in Indonesia could materialise if Petronas and Inpex proceed with the Masela gas project. The government is expected to offer more blocks in frontier basins and deepwater areas to attract investments in upstream gas exploration and production because tapping unexplored and prospective areas will be key to its ambition to reach oil and gas production targets of 1 million barrels per day of oil and 12 billion cubic feet per day of gas by 2030.
- Vietnam is seeking to improve the competitiveness of its upstream oil and gas industry by offering greater incentives for oil and gas companies to invest.
The country faces a structural decline in oil and gas reserves amid rising energy demand and dependence on imports. The only option now appears to be to ramp up domestic exploration and production activities.
In November 2022, the National Assembly approved amendments to the Law on Petroleum (2008). These amendments include a reduction in the corporate tax rate from 32% to 25%, a halving of the crude oil export tax to 5%, and an increase in the cost recovery rate from 70% to 80% for blocks and fields entitled to special investment incentives.
Additionally, the length of petroleum contracts has been extended from 25 years to 30 years, and projects entitled to special investment incentives can now secure contracts of up to 35 years, increased from the previous 30 years. Such amendments to the law underscore Vietnam's determination to enhance the legal environment.
- Foreign investment in Thailand remains lukewarm towards the upstream sector due to dwindling reserves and the lack of new discoveries. Currently, only two PSCs held by PTTEP are active in Thailand. The acquisition of key upstream assets by PTTEP from Chevron, along with divestments by Shell and TotalEnergies from the upstream industry, was a major setback for Thailand. Chevron and Mitsui Oil Exploration remain the largest foreign players in the country.
Thailand is not in a better position to compete with Malaysia and Indonesia, where upstream industries are recovering quickly. Thailand has limited options but to look into overseas assets in neighbouring countries such as Malaysia, Vietnam, Myanmar and Indonesia. PTTEP is currently ramping up investments in upstream gas projects in Malaysia, alongside existing investments in natural gas and LNG-related upstream projects.
- The Philippines is still struggling to address challenges in attracting upstream investment. The ongoing maritime disputes with China in the South China Sea remain a key obstacle to expanding acreage for exploration and production.
A positive development is the recent decision by a consortium comprising Prime Infrastructure Capital, the Philippine National Oil Company (PNOC), and the Udenna Group's UC38 LLC to invest an additional $600 million to further develop the Malampaya gas field.
However, there are limited prospects for the Philippines to attract significant investments from both local and foreign companies due to the lack of proven oil and gas reserves and maritime disputes with China.
- Myanmar faces an uphill task in attracting foreign investment as the political situation has continued to worsen since 2020. Several foreign companies, including Shell, TotalEnergies and Woodside Energy, have relinquished their upstream investments, while Chevron is seeking to sell its assets in upstream gas projects.
PTTEP, which holds significant equity stakes across various oil and gas projects, has postponed or shelved development plans in offshore blocks where exploration activities have been completed. Despite the potential for growth in oil and gas production, Myanmar could be left with significant stranded gas reserves if foreign companies continue to impose investment sanctions on the country.