The energy sector is the bedrock on which Brunei's economy is built, representing around 90% of exports and more than 50% of GDP. However, within a generation the economic balance is expected to change. Brunei's identified oil reserves, estimated to be around 1.3bn barrels, could be exhausted within 25 years at present rates of production, while the Sultanate's gas reserves of 335bn cu metres mean existing fields have a production life of 40 years.
This reliance on energy, especially on oil exports, for revenue means that Brunei's economy is exposed to price fluctuations on the international market. Though Brunei cut back production in the past two years to below 200,000 barrels per day (bpd), it easily made up any shortfall due to skyrocketing prices. Now, with the rate for crude having dropped to below $50 a barrel from its peak of $147 in July last year, earnings are expected to be down in 2009.
At the beginning of April, the Asian Development Bank (ADB) predicted Brunei's GDP would shrink by 0.4%, following on from an estimated contraction of 2.7% in 2008.
Though predicting the economy would rebound in 2010, expanding by 2.3%, the ADB warned this was contingent on Brunei's energy production declining by no more than 1% this year and the next.
"The main domestic risk to the growth forecasts is the performance of the oil and gas sector, as well as the level of progress in the Rancangan Kemajuan Negara 2007-12 – the national development plan," the report said.
Even though its reserves are dwindling, Brunei is still looking to develop its downstream energy sector to obtain added value from its natural resources. These include a proposal to build an aluminum smelter to be powered by local natural gas and a large oil refinery, planned as a joint venture between the private sectors of Brunei and Kuwait, and which would use Kuwaiti oil for feedstock.
One project that has long since got off the drawing board and is nearing completion is a $400m methanol processing plant at Sungai Liang that is scheduled to be fully operational in April 2010. The facility, a joint venture between the Brunei National Petroleum Company, which holds a 50% stake in the project, and Japanese firms Mitsubishi Gas Chemical and the Itochu Corporation, will produce 850,000 tonnes of methanol annually, with Petroleum Brunei committed to supplying 14bn cu metres of gas to the plant over a 22-year period.
While this represents a fraction of Brunei's total gas reserves, there have been warnings that while seeking to maximise the returns on its energy wealth projects should be carefully considered, least they drain away a disproportionate amount of reserves.
A recently published study assessing the methanol project, written by finance expert Jefri Salleh, said that the development could have the effect of optimising possible export return from natural gas. However, he also warned enthusiasm for similar projects should be tempered with caution.
"This is not to say, however, that the country's natural gas reserves should be made readily available for more projects like this one, given the risk of accelerating depletion of the country's natural gas reserves," Jefri said.
The energy sector received a boost in mid-March when long-running negotiations between the governments of Brunei and Malaysia finally resolved a dispute over offshore territorial demarcation. This will now allow for exploration of new undersea blocks with potentially rich oil deposits.
The dispute, which had been the subject of talks for more than six years, centred on delineating maritime territorial boundaries. Both Brunei and Malaysia had awarded exploration and production rights to overseas firms in 2003 in the same area off the coast of the island of Borneo.
The two countries have agreed to collaborate in the exploration and exploitation of the contested blocks, though no timeframe has yet been set for work in the region to begin. While there are no guarantees in oil exploration, a 440m-barrel field had been identified at a nearby block in 2002.
Similar successes in the new fields could help extend the life of Brunei's oil industry and see the energy sector continue its role as the mainstay of the country's economy into the middle of this century and possibly beyond.