Economic Update

Published 19 Aug 2016

A rising tide of new investments are expected to underpin growth in Brunei Darussalam’s recovering energy industry, against a backdrop of increasing oil and gas output.

Several contracts have been awarded for Brunei Darussalam’s offshore fields – which could deliver 3.5bn barrels of oil by 2035 – offering opportunities for operators throughout the energy value chain.

A boost for service providers

New offshore discoveries in the South China Sea, first announced by the Ministry of Energy in 2014, are expected to prolong Brunei Darussalam’s hydrocarbons production past the lifespan of its maturing fields.

In a bid to develop these fields, Brunei Darussalam’s oil and gas industry has opened tenders valued at more than BN$3bn ($2.2bn) since the beginning of the year, according to data issued by the government in June.

Calls have also been made for service providers, with tenders ranging from the provision of IT, security and support services, to construction and maintenance, along with the supply of advanced technology, training, seabed sampling and other exploratory analysis.

Malaysian service operator Icon Offshore, which is looking to raise its profile in Brunei Darussalam, won a $27m contract last year through its subsidiary Icon Bahtera to provide offshore support vessels.

Earlier this year, another offshore services provider, Indonesia’s Wintermar Offshore Marine, inked a five-year contract with Brunei Shell Petroleum valued at $5.5m to serve coastal platforms as part of the company’s broader move to expand international operations.

Engineering and construction awards

International firms are also looking to secure contracts to develop key infrastructure.

In mid-June US-based engineering and construction firm McDermott International announced it had been awarded a major contract for the transportation and installation of pipelines and associated infrastructure.

The contract, issued by Brunei Shell Petroleum, is for work on the Fairley and Ampa offshore fields, and includes laying more than 30 km of pipeline, according to Hugh Cuthbertson, vice-president for Asia at McDermott International.

“Brunei Darussalam has significant long-term plans to increase investment and production in its energy sector,” he said in a company statement in June. “The successful installation of these new pipelines in the Ampa and Fairley fields is expected to help ensure production continuity of the mature reserves.”

Rising output

Output from Brunei Darussalam’s oil and gas segments rose strongly in the first quarter of the year, fuelling the 3.6% year-on-year (y-o-y) GDP growth registered for the period, according to data issued by the Department of Economic Planning and Development at the end of June.

Oil and gas accounts for up to 90% of government revenue and more than 50% of Brunei Darussalam’s total GDP.

Total oil production increased from 124,500 barrels per day (bpd) in the first quarter of 2015 to 135,200 bpd in the first quarter of this year, and Brunei Darussalam’s liquefied natural gas (LNG) saw daily production rise from 914,300 British thermal units (Btu) in the first quarter of last year to 1m Btu this year.

While the fall in global energy prices meant that overall income was slightly down at the end of last year, the first quarter saw earnings from the energy sector rise by 7.6% y-o-y in constant prices.

Rebound to boost earnings

Brunei Darussalam’s energy revenue is set to rise further beyond 2016 as oil prices continue their modest recovery from a 13-year low earlier this year.

In the first quarter Brunei Darussalam saw oil prices drop to $35 a barrel, down from $44 at the end of the 2015. According to projections issued by the World Bank in June, crude oil prices are expected to average $41 a barrel for this year and increase to an average of $50 a barrel in 2017, on par with crude trading prices in early July.

To some degree, however, the revenue boost Brunei Darussalam will enjoy from its oil sales could partially be offset by weaker LNG prices, with the World Bank saying oversupply in the global LNG market will keep prices low in Asia – the country’s main market – as well as in Europe and the US.

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