At the heart of the Asia-Pacific region, two key oil and gas producing countries are straining to meet rapidly rising internal demand and maintain oil exports.
In the ambitious plans of both countries, natural gas plays a central role.
Indonesia, a member of the Organization of Petroleum Exporting Countries, may have trouble maintaining oil exports much past the turn of the century. But growing exports of liquefied natural gas will help take up the trade slack.
In Malaysia, which exported a net 305,000 b/d of oil in 1989, economic growth exceeds 8%/year, electricity consumption 10%/year, and oil demand 8%/year. Production growth hasn't nearly kept up.
Both countries, therefore, have taken steps to boost exploration and production. Both have record levels of activity under way by international companies.
INDONESIA'S CHALLENGE
Indonesia's status as an oil exporter is in jeopardy because of the maturity of its fields and its rapid internal demand growth.
Natural field declines reduce the country's production by an average of 10%/year. Domestic oil consumption, meanwhile, has increased more than 6%/year during the past 3 years.
Last year, average crude and condensate production increased to 1.41 million b/d from 1.34 million b/d in 1988. Total crude and condensate exports increased to 292 million bbl from 277 million bbl in 1988.
But those increases countered the longer term trend. Net crude, condensate, and product exports increased a total of about 1.6 million bbl last year to 297 million bbl but remained well below totals of 347 million bbl in 1986 and 314 million bbl in 1987.
The reason net exports fall short of recent peak levels: growing product imports, especially diesel and jet fuel for which demand growth is strong.
The government has responded to production maturity and a rising internal call on output with adjustments on both sides of the equation.
Last May, it increased domestic fuel prices by an average of 15.27% in an effort to moderate consumption and reduce government budgetary pressures. It was the first price increase since May 1984.
A year earlier, the government had adopted a free market crude pricing system backed by international production sharing contractors for export and domestic tax purposes. The aim of that move was to reduce the fuel subsidy in the state budget and to prepare for free market product pricing.
Indonesia also has taken steps to soften its tough production sharing contract terms. It offered incentive packages in August 1988 and February 1989.
And this year it reorganized the state oil company, Pertamina, and launched a partial privatization program in an attempt to improve efficiency.
ACTIVITY JUMPS
The efforts, along with political stability and the country's generally high prospects, have been sufficient to attract foreign companies to Indonesian upstream work. At midyear, 50 non-indonesian companies held a record 84 exploration-production contracts with Pertamina.
The U.S. Embassy in Jakarta reports that from January 1987 through last April, Pertamina had signed 47 production sharing contracts, exceeding the previous most-active 4 year periods of 1967-70 and 1979-82. Through April this year alone, the company had signed nine contracts and extended two contracts for 20 years each.
Of the contracts in effect, 57 are straight production sharing contracts. In addition, there are 20 joint operating agreement contracts, covering areas once operated exclusively by Pertamina; most of them have been signed in the past 2 1/2 years. Other operating agreements include two contracts of work, two technical assistance contracts, and three enhanced oil recovery contracts.
Exploration and production activity is returning to levels prevalent before the crude oil price crash of 1986.
Oil companies, not counting Pertamina, budgeted $3.325 million dollars for Indonesian operations this year, up $900,000 from actual spending last year. If this year's budgeted amount is spent, it would be the highest outlay since 1983.
Contractors budgeted 157 exploratory wells this year-70 onshore, 83 offshore, and four under contracts of work-compared with 108 drilled in 1989. The budgeted total would be highest since the 157 drilled in 1986, although still well below a recent high of 264 exploratory wells in 1983.
In September, Baker Hughes Inc. tallied 52 active rigs in Indonesia, 23 of them working offshore. In September 1989, 49 rigs were at work.
The Directorate General of Oil and Gas reported 25 of 72 wildcats drilled in 1989 had hydrocarbon shows, 15 of them in Sumatra.
THE PRODUCTION GAIN
The embassy sees last year's 5% crude and condensate production gain as a temporary reversal of a general decline that began after 1977, when output peaked at 1.7 million b/d.
Gains came from start-ups of Intan oil field by Maxus Southeast Sumatra Inc. and Kurau field by Hudbay Oil (Malacca Strait) Ltd. and from Caltex Pacific Indonesia PT's Duri steamflood project, where production reached 140,000 b/d at yearend 1989. Duri output will reach 250,000-300,000 b/d by 1995.
Also, Mobil Oil Indonesia Inc. increased condensate output from Arun field by 9,000 b/d to 124,000 b/d as gas flow increased to supply a 1.5 million ton/year LPG plant completing its first full year of operation in 1989. After processing, dry gas feeds the Arun LNG plant or is reinjected.
The embassy expects production to gain 50,000 b/d each this year and next. Duri output will continue to rise, and new fields will come on stream.
Conoco Indonesia Inc.'s Ikan Pari field, which began flow in September 1989 to replace Kepiting field, will boost South Natuna Sea Block B output to about 10,000 b/d this year, up 1,000 b/d. And a 1989 Conoco strike on the block, possibly containing 200 million bbl of oil, might start up by mid-1991 at 50,000 b/d, phasing up to 100,000 b/d when fully developed.
Marathon Petroleum Indonesia Ltd. brought its Kakap KF field on stream in Natuna Sea last February at 4,800 b/d. The field is expected to flow at a peak rate of 40,000 b/d for several years.
Another recent development is Conoco's small Wiriagar field in Irian Jaya, expected to flow 3,500 b/d this year and next before declining rapidly.
Amoseas Indonesia Inc. is bringing Anoa field on stream on Natuna Sea Block A at an initial rate of 25,000 b/d.
Maxus soon will start up its Widuri discovery, the country's largest since the early 1970s, and Enterprise Oil Ltd. will bring Camar field on stream at a rate of 25,000 b/d in mid-1991. Stanvac Indonesia PT and Hudbay are developing several small fields.
Beyond the next few years, however, Arun condensate production will decline along with oil production from existing and many new fields. Without major discoveries, the longer term outlook is for a steady oil output decline.
EMPHASIS ON GAS
That's largely why Indonesian plans increasingly concentrate on natural gas.
In 1989, gas production, including gas stripped of liquids and reinjected, totaled 1.975 tscf, maintaining a 7%/year growth rate that began in 1982.
More than 47% of the country's production is nonassociated gas from Mobil's Aceh Province fields feeding the Arun LNG and LPG plants and nearby fertilizer plants. The Sanga Sanga fields in East Kalimantan, formerly operated by Huffco Indonesia and now by Virginia Indonesia Co., provide 23% of the total, fields operated by Pertamina 13%. Associated production from production sharing contract fields accounts for the rest.
Most gas output-55% of production and 78% of marketable volumes-went into production of 18.7 million metric tons of LNG in 1989. Japan took 90% of the LNG sales, Korea the rest. Taiwan has a contract for 1.5 million tons this year.
The government projects an increase in domestic gas demand to 6.8 billion scfd in fiscal 1993-94 from 5.1 billion scfd in 1989-90, mainly in industrial, power, petrochemical, and fertilizer markets.
The gas export market will increase as well, with Japanese demand for LNG rising to an estimated 46.3 million tons/year in 2000 from 32.8 million tons in 1988 and with consumption growing in Korea and Taiwan.
Indonesia wants to extend existing LNG sales contracts and sign new long term contracts covering 6 million tons/year to expand LNG output to 26 million tons/year.
Plans call for addition of a sixth and possibly a seventh LNG processing train at PT Badak Indonesia's complex at Bontang, East Kalimantan. The government is considering expansion plans for the six-train, 11 million ton/year Arun facility and possible grassroots construction near gas fields in South Natuna Sea. A concern about Arun expansion is the lack of recent discoveries able to replace existing reserves in the area after current sales contracts begin expiring in 1997.
A key to future gas projects will be development of Natuna gas field off Natuna Island, where reserves are estimated at 45 tcf with carbon dioxide content of 70%. Esso Indonesia, operator, apparently has determined how to handle the CO2 and plans to develop the field, the largest known gas accumulation in Indonesia.
The company is studying options that include a grassroots LNG plant on Natuna Island and pipelines to destinations including Batam Island, Singapore, the Duri steamflood, the Arun LNG facility, and Java.
MALAYSIAN ACTIVITY
Like Indonesia, Malaysia is trying to maintain oil exports in the face of rising internal demand.
The country's robust economy pushed domestic oil consumption last year to 221,000 b/d from 208,000 b/d. Most of the increase was in demand for diesel, motor gasoline, and fuel oil for power generation.
But production is rising, and the outlook is good. Through the first 7 months of 1990, output averaged 606,000 b/d vs. 570,000 b/d in the same period of 1989. And Malaysian upstream activity has mostly recovered from its lull of the mid-1980s.
Companies considered the country one of the most difficult in which to work until 1985, when it eased its participation terms. Since then, and since recovery of the oil market, international companies have returned.
In September, 14 rigs were working in Malaysia, all of them offshore. That compares with 11 in the same month a year earlier. In 1985-87, the annual rig count averaged eight.
Ye Tan Sri Datuk Azizan Zainul Abidin, president of state owned Petroliam Nasional Bhd. (Petronas), reported in September that the country had let 34 production sharing contracts involving 40 companies from 16 countries.
Recent discoveries have boosted natural gas reserves to 57 tcf from 53 tcf. That's critical because increased gas use is a central part of the government's plans.
Oil flow will increase soon. Petronas early next year will bring Dulang oil field on stream at a rate of about 20,000 b/d. Flow will rise to 70,000 b/d later, offsetting declining output in older fields.
The field, developed with a 1 million bbl floating storage system in 246-262 ft of water off eastern Peninsular Malaysia, has 170 million bbl of reserves. Oil is 38 gravity with 0.08% sulfur content, but it is somewhat waxy.
Petronas also is completing a basic study of exploration areas in water deeper than 200 m.
It probably won't be able to offer any of the areas for exploration until at least the end of next year.
GAS PROJECT
Central to Malaysia's plans to increase gas use is the Peninsula Gas Utilization project, which will supply major electricity generating plants in Peninsular Malaysia and Singapore.
Pipeline construction is under way, and Petronas has awarded contracts for construction of two related gas processing plants. The company expects the system to be fully operational by the end of 1992.
Next May, it will test two sectors of the system from Kerteh to the western coast. The following October it will test the entire system, extending to Johor Bahru.
Gas and liquids from the project will feed several planned petrochemical plants. The first will be a joint venture MTBE/propylene plant, construction of which has begun.
Petronas holds 60% of the joint venture company building the facility, MTBE Malaysia Sdn. Bhd. Neste Oy owns 30% and Idemitsu Petrochemical Co. Ltd. 10%.
The $360 million plant, in Kuantan, Pahang Darulmakmur, will be able to produce 300,000 tons/year of MTBE, which may be expanded to 500,000 as more propane and butane become available and markets develop. Target MTBE markets are refineries in Malaysia and Singapore, with the rest exported to the U.S., Taiwan, Korea, Thailand, and Australia.
Methanol feed will be shipped from Sabah Gas Industry in Labuan to a port at Kuantan adjacent to the plant site.
The MTBE/propylene plant is to be completed by the end of 1992. An 80,000 ton/year polypropylene plant will come on stream in mid-1993.
Also planned is an ethylene complex to use ethane from the gas project. It will have capacities of 400,000 tons/year of ethylene and 300,000 tons/year of polyethylene. Petronas is discussing proposals for plants to make ethylene derivatives.
Petronas also plans to expand its LNG plant in Sarawak, adding two trains to the three now in place by 1994-95 and another by 1997. Capacity will increase by 7.5 million tons/year of LNG.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.