ENERGY High oil prices provide an opportunity to diversify the economy and attract foreign funds
Prospects for power surge

Brunei’s economy remains heavily dependent on the energy sector, which has served the country well since the first commercial production of oil began in 1929. Today, the hydrocarbons sector accounts for about half of Brunei’s gross domestic product (GDP) and makes up the vast bulk of foreign exports with Japan, the country’s single largest market. Oil accounts for 50 per cent of total exports, and natural gas for more than 40 per cent.
A restrained approach, designed to preserve the life of the industry, has resulted in oil output dropping from a peak of 261,000 barrels per day (bpd) in 1979 to around 200,000 bpd today. Despite this, there is a great deal of optimism over prospects for growth.

High oil prices in the past year have presented an opportunity for the government to implement steps to diversify the economic
Moves to open upstream exploration to new companies
base, which is a key strategic objective, as is development of natural gas. It is encouraging foreign investment into the sector, which has been dominated by Royal Dutch/Shell and its various local companies since 1927.
Brunei Shell Petroleum (BSP), a 50:50 joint venture between Shell and the government, is responsible for some 90 per cent of the country’s oil output and is investing to raise production levels. There are currently two onshore oil and gas fields at Seria and Rasau, and seven offshore areas at Champion, Magpie, South West Ampa, Fairley and Fairley-Baram, Egret, Pelican and Iron Duke.

Chris Finlayson, managing director of Brunei Shell Petroleum, says increased production reflects the firm’s strong position

Chris Finlayson, BSP managing director, says that high oil prices have been good for the firm as well as the nation, and that an increase in output will benefit the economy.
“Last year, our production reached 196,000 bpd in terms of oil, and 194 cargoes of liquefied natural gas (LNG) – up from the previous four to five years, which was around 150,000 bpd and 155 cargoes. We want to continue that growth.”
He stresses the success of BSP’s exploration programmes, which have helped to increase reserves and ensure a continuing level of production for the next 20 years. During the past decade, the firm has found more oil than it has produced.

At the end of 1999, Brunei’s proven oil reserves totalled 1.4 billion barrels, while proven natural gas yield reached 390 billion cu metres. “The increased level of production, which we have pursued with the government’s agreement, reflects the very strong position that we have here,” says Mr Finlayson.
However, the government is keen to open upstream exploration to new companies, including in deeper waters, and has offered three blocks for international open tender closing in November this year. Big global energy firms such as BP, ExxonMobil, Conoco, Texaco and Phillips are understood to have expressed an interest.
A second major joint venture was formed recently between the government and TotalFinaElf of France, which is producing gas from its Maharaja Leila field and participating in the new interest in deepwater exploration.

John Perry, managing director of TotalFinaElf Exploration and Production Borneo, welcomes the move to open up the sector. He believes Brunei’s deepwater acreage offers rich potential for E&P enterprises.
“The government recognises that competition is a good thing. When major firms are involved in an oil sector they bring different ideas and a new approach, which stirs the pond and creates further opportunities.”
In the natural gas sector, Shell has helped to pioneer the development of new technology and runs the massive Brunei LNG plant. This became the largest privately-owned and operated company in the country when the whole Shell structure was divided into four parts. The plant is one of the biggest LNG facilities in the world.
Brunei LNG, a joint venture between Shell, the government and Japan’s Mitsubishi, aims to boost production levels through expansion plans that include installation of a new four million tonnes-per-year train at Lamut by 2008. Current output stands at 7.2 million tonnes per year.

Dato Hamdillah, managing director of Brunei LNG, says much of the gas needed to feed a new production train has been identified

Dato Hamdillah Wahab, Brunei LNG managing director, says much of the gas to feed the new production train has already been identified but more work must be done to secure the level needed for the project to go ahead. He says a final investment decision on a new train is expected to be taken in 2004, if not earlier.
Brunei Shell Tankers, another joint venture between Shell and the government, is responsible for delivery of LNG supplies to export markets throughout the Far East. In the domestic market, Brunei Shell Marketing (BSM) sells various oil and gas products through its filling stations and other outlets, supplied from the local 10,000-bpd Shell refinery.

Dato Paduka Mat suny, managing director of Brunei Shell Marketing, expects sales to pick up in the near future

While Brunei is one of the most important energy producers in the Far East, it is only a small consumer market. Dato Paduka Dr Hj Mat Suny, BSM managing director, says the company strives to introduce the best to local customers. After a fall in demand in recent years, as a result of the 1997 economic downturn that led to a drop in industrial activity, he expects sales to pick up in the near future.
“Demand is improving and going back to pre-1997 volumes in terms of sales but there is still some way to go. We are pleased that there is a lot of road construction activity, substantial work at the airport and quite a number of government buildings, so this really helps.”