Although declining oil production has had an effect on Brunei Darussalam’s recent economic performance, officials insist the reasons for the drop are short term in nature, while the country’s long-term prospects in the sector remain promising. Expansive government plans at home and a cooperation agreement with Timor-Leste abroad should give the sector a welcome fillip as well.
Because Brunei Darussalam is a major energy producer, the hydrocarbons segment has a pronounced impact on the performance of the overall economy. Due to the effects of the drop in oil production and the resulting 7.7% decline in the energy sector in 2013, GDP is estimated to have contracted by 1.4% during the year, following growth of 0.9% in 2012.
Lower production levels resulted in Brunei Darussalam’s crude oil exports falling by 34% in November 2013 year-on-year, according to statistics from the Department of Economic Planning and Development. Figures from the UN’s International Merchandise Trade Statistics indicated that crude oil exports in November 2013 were valued at BN$408.7m ($321.85m), down from BN$623.6m ($491.09m) during the same month the previous year.
The effect on the budget was dramatic. “Following a decline in the average price of oil caused by the global economic crisis and the level of oil production in the 2012/13 financial year, the government’s fiscal balance has been affected… it has declined to 20.4% of GDP, compared to 26.9% of GDP in previous financial year,” said Pehin Dato Abd Rahman Ibrahim, minister of finance II.
According to Pehin Dato Hj Mohd Yasmin, the minister of energy, however, the 7.7% decline in the sector in 2013 was temporary and the result of maintenance work at the oil refinery and offshore platforms. “We are doing a lot of rejuvenating of the offshore platforms. The process is going on, but give it another year or two years and we’ll be back,” the minister said.
Despite the recent drop in output, Brunei Darussalam has long-term plans to boost investment and production in the sector. The government’s recently released Energy White Paper, launched at the Energy Week Exhibition 2014 in late March, lays out several key goals, including a target of attracting $70bn-80bn in international investment by 2035. This increased investment will be a central part of efforts to boost the amount of goods and services provided to the energy sector by local companies, from $400m in 2010 to $7bn by that year. The government’s plan would see the total annual investment doubled from current levels, to around $4bn.
Moreover, the cumulative investment is expected to dramatically boost employment in the energy sector, to an estimated 30,000 people by 2017 and 50,000 in 2035, up from 20,000 in 2010. In line with this, a new book aimed at Brunei Darussalam’s youth was also launched at the Energy Exhibition 2014, which focuses on promoting careers in the energy sector. Support services, another source of employment for nationals, will get a boost too, with the Energy White Paper setting a target of reaching 50% local content for goods and services to the energy sector by 2017 and 80% by 2035.
Reserves look set to rise as well, and production in line with them. According to the Energy White Paper, new reserves totaling 3.5bn barrels will be added by 2035. Pehin Dato Hj Mohd Yasmin said the government aims to boost production levels from the current 372,000 barrels of oil equivalent per day (boepd) – roughly 40% oil and 60% gas – to 430,000 boepd by 2017 and 650,000 boepd by 2035.
Meanwhile, nearby Timor-Leste has reached out to Brunei Darussalam for expertise and support. Timor-Leste has a $15bn petroleum fund and is now seeking partnerships to develop oil refineries and a liquefied natural gas plant.
The anticipated synergies between the two countries – in terms of the provision of facilities and expertise – are expected to provide Brunei Darussalam with ongoing opportunities overseas, even as it works to expand investment, production and employment in the sector domestically.