Oiling the Wheels

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Brunei Darussalam's crucial energy sector, the foundation of the country's wealth, is expected to get a series of boosts, with major developments both upstream and downstream.

Though oil output has fallen below 200,000 barrels per day (bpd), in part due to a scaling back of production to prolong the life of existing fields, the energy sector remains crucial to Brunei Darussalam, contributing more than 90% of state revenue and accounting for some 95% of total exports.

However, output could well increase in the coming years as new deposits are brought on-line, with the newest being the Bugan field, being developed by Brunei Shell Petroleum and located some 20 km off the coast. While the company has not provided details on the deposit size, first identified in the 1990s, Brunei Shell has described it as holding potentially significant reserves of both oil and gas. Initial pumping from the field could begin as early as this month.

Momentum is also gathering for the construction of a second oil refinery in Brunei Darussalam to supplement the capacity of the existing facility at Seria in the Belait district. However, unlike the Seria plant, the proposed new refinery would not process feedstock from the Sultanate's own fields but utilise imported crude with the aim of exporting all of its production.

The second refinery project is being pushed forward by PetroBru, a private Bruneian company, which on August 20 presented the findings of a feasibility study for it. If approved by the government, the new refinery, with a processing capacity of 200,000 bpd, would be constructed at Pulau Muara Besar (PMB), the massive port and industrial centre being developed by the Brunei Economic Development Board.

The feasibility study found that the project was viable, with numerous advantages to building a new refinery, in particular Brunei Darussalam s strategic location astride the main East-West trade route, allowing the facility to target the increasing demand for energy security, especially in the North Asia market.

"Based upon the study's assessment of regional target markets where the demand for refinery products is forecast to grow, Brunei Darussalam is well positioned to supply the regional market deficits by setting up an export-oriented refinery facility," the study said.

Work on building the $4.3bn refinery could begin in 2013 and would, according to Mohd Zeman Noordin, PetroBru's CEO, not only fulfill the growing demand for refinery products in both regional and global markets but also support "the government's drive in the development of the petrochemicals industry".

PetroBru's plans received backing from Dato Paduka Timothy Ong, the acting chairman of the BEDB, who said the setting up of an integrated oil refinery and storage facility in Brunei Darussalam would provide another unique opportunity in the country's effort to extend the oil and gas industry chain, particularly in downstream.

Indeed, the focus of Brunei Darussalam's energy sector is in processing oil and gas products away from direct extraction. One of the offshoots of Brunei Darussalam's hydrocarbons sector is the firm QESS Energy Support Services (QESS), set up in mid-2003 to provide drilling, marine and other ancillary services to the Sultanate's oil and gas industry.

According to Haji Awang bin Haji Ali, the managing director of QESS, the government has been supportive in the development of local small and medium-sized enterprises in the oil and gas industry, though continued support is imperative if Bruneian companies are to compete regionally and globally.

"Easier access to capital and financial assistance are imperative for service companies to grow, especially given the high capital requirements in the oil and gas industry," he told OBG. "Additionally, benefits can come from pioneer status for companies that venture abroad, as well as reduced tax incentives."

While Brunei Darussalam already has a substantial pool of service contractors relative to the size of the country, Haji Ali believes there is the potential for the country to capitalise even further on its expertise in the oil and gas industry.

"Brunei has a long history and technical expertise in this industry and should become an innovation hub for the South-east Asia region," he said. "Brunei Darussalam can further develop its capabilities as a repair and maintenance centre for Borneo. Much of this business is going to Singapore at the moment, so we are trying to develop this expertise here through the QESS Well Services Complex."

One of the major downstream developments in Brunei Darussalam's energy sector is the construction of a $450m plant to produce methanol. Located in the Sungai Liang Industrial Park, the facility is being developed by a consortium consisting of the Brunei National Petroleum Company and Japanese firms Mitsubishi Gas Chemical Company and the ITOCHU Corporation.

Construction work on the complex, Brunei Darussalam's first petrochemical plant, is due to be completed in the last quarter of 2009, with production to start soon after. Most of the plant's 850,000 tonnes annual capacity is destined for the export market, in particular Japan, and when fully operational, methanol production will become the Sultanate's third-largest industry, behind the long-standing revenue earners of oil and gas.

With the potential to provide employment, as well as establishing sub-industries that have ready markets both in Brunei Darussalam and abroad, there could be an increasing interest in the energy services sector in the Sultanate, complementing the ongoing efforts to maintain existing production and bring new resources on-line.

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