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Asia Oil & Gas
JAPAN
the coming months, consistent with the government's ongoing efforts
to liberalise the downstream sector (
see 'Eased Import Restrictions
To Improve Downstream Efciency', July 16 2015
).
Rened Fuels Consumption Growth To Cool
In contrast, the pace of consumption growth for rened fuels is set
to slow markedly over the next ve years. Although the sheer size
the Chinese market will see it remain a sizable consumer of rened
fuels; we forecast China's fuels demand to see an average growth
rate of 1.8% per annum over 2016-2020, compared with 5.0% seen
over 2011-2015.
This trend looks set to continue over the coming years, as the
Chinese economy continues to shift away from an investment-
driven model to a consumption-driven one. This aligns with our
Country Risk team's expectation for China's economic woes to
persist, which will weigh on Chinese demand for rened fuels over
the next few years (
see 'High Frequency Data: Economy Continues
To Cool', December 3 2015
). Diesel demand growth in particular is
set to underwhelm due to a sharp slowdown in manufacturing and
industrial activity.
Nevertheless, we note that China's gasoline demand will remain
relatively intact amid a broader slowdown in its fuels demand. In
September 2015, the government halved the tax on purchases of
small-cars (vehicles with engine capacity of 1.6 litres or less) until
end-2016, which has led car sales through the rst 11 months of
2015 to increase 3.3% y-o-y, according to data from the China As-
sociation of Automobile Manufacturers (CAAM). Our Autos team
expects this uptrend in sales to persist through to 2020, as consumer
appetite for big-ticket items such as cars gradually recovers, sup-
porting sustained gasoline demand from the transportation sector.
Political Backing Positive For Gas Demand
We retain our positive outlook towards China's gas consumption
growth prospects over the next ve years, as the government con
-
tinues to take positive steps to increase the prominence of gas in its
domestic energy mix. A case in point is the recent slashing of gas
prices for businesses and industrial users, with access to cheaper gas
expected to stimulate greater demand among the country's industrial
users, who even with previously high domestic gas prices accounted
for nearly two-thirds of total gas demand (
see 'Pricing Reform Boost
Gas Consumption Outlook', November 19 2015
).
Furthermore, growing international pressure to reduce green-
house gas emissions will see China introduce several policies in
favour of greater gas use in the power sector, while curbing the use
of more pollutive-fuels such as oil and coal. Moreover, China plans
to stop approving new coal mining projects for three years starting
in March 2016. Although it remains to be seen how effective such
a policy would prove in practice – due to coal's large presence in
the country's total power mix – it is indicative of the government's
rm support behind a shift to cleaner energy sources and thus pose
upside risk to our already optimistic forecasts.
JAPAN
Nuclear Return To Weigh On
Gas Demand
BMI View:
The recent court ruling in favour of Kansai Electric's
plans to restart its nuclear reactors at the Takahama and Oi nuclear
power plants is in line with our downbeat outlook towards Japan's
long-term natural gas consumption outlook, which we forecast to
decline by 2.8% over 2015-2025.
We forecast Japan's natural gas demand to fall in the latter half of
our forecast period to 2025, as the gradual return of nuclear energy
erodes the share of natural gas in Japan's power mix. According to
our data, we estimate that Japan will consume about 129.2bn cubic
metres (bcm) of natural gas in 2016, which will fall to 124.7bcm
by 2025.
Nuclear Return To Alleviate Import Reliance
Our long-held view for nuclear energy to make a gradual return into
Japan's power mix over 2015-2024 was vindicated on December 24
2015, when the Fukui District Court of Japan overturned an injunc-
tion that had stunted the restart of two nuclear reactors at
Kansai
Electric Power Company
's Takahama power plant. Moreover, the
court also rebuffed a request for an injunction to block the restart of
a further two reactors at the rm's Oi nuclear plant, paving the way
for these reactors to recommence operations over the coming years.
This supports our bearish long-term natural gas consumption
forecast for Japan, as a broad energy sector reform being undertaken
by Prime Minister Shinzo Abe seeks to reduce the country's elevated
dependence on imported thermal fuels following the aftermath of
the 2011 Fukushima nuclear disaster (
see 'Nuclear Restarts Will
Reduce Dependence On LNG Imports', July 10 2015
)..
Passenger Car Sales To Rebound
China – Passenger Car Sales & % chg y-o-y
e/f = BMI estimate/forecast. Source: CAAM, BMI
Policy Changes To Support Gas Demand Growth
China – Natural Gas Consumption & % y-o-y
e/f = BMI estimate/forecast. Source: EIA, BMI
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Asia Oil & Gas
SOUTH KOREA
However, we highlight that continued public opposition to large-
scale nuclear restarts will likely see the government to miss out on
its ambitious aim to generate about 20.0-22.0% of total electricity
from nuclear energy by 2030. Nevertheless, we expect to see be-
tween one and three reactors to come back online annually over the
next 10 years. At the time of writing, our Power team expects the
share of nuclear energy in Japan's total generation mix to increase
from 0.5% to 11.6% over 2015-2025 while gas generation falls (
see
'Nuclear Back In The Power Mix, But Opposition To Remain High',
August 11 2015
).
LNG Imports Remain At Risk
While the revival of nuclear generation could help to reduce Japan's
import bill and cut carbon emissions, we highlight that a signicant
decline in Japan's gas requirements could see the country struggle to
consume all of its contracted LNG volumes over the coming years,
especially with a slew of new long-term supply deals signed with
export ventures in the US and Australia set to kick in over 2015-2018.
In such a scenario, Japan could explore the option of re-selling
surplus cargoes back to the export market. While gas off-take could
be limited amid an increasingly oversupplied global LNG market and
a structural slowdown in LNG demand in certain major consumer
markets in the Asia-Pacic, we highlight that positive gas consump
-
tion growth in many of the region's emerging economies, notably
China, could help to absorb some of the excess supplies (
see 'Low Oil
Prices Underline Bearish Production Outlook', December 23 2015
).
SOUTH KOREA
Gas Demand To Fall Amid
Nuclear Resurgence
BMI View:
South Korea's natural gas demand is set to fall by 6.8%
over 2015-2024, as the availability of cheaper power sources such
as nuclear energy and coal erode the share of gas generation in
the power sector.
We forecast South Korea's natural gas consumption to fall by 6.8%
over 2015-2024 from 45.4bn cubic metres (bcm) to 42.3bcm. This
will be a result of the increasing prominence of cheaper power
sources, such as nuclear energy and coal, which will weigh on
gas demand in the power sector. Our subdued outlook is broadly
aligned with the muted view held by the South Korean Ministry of
Trade, Industry and Energy, which estimates that the country's gas
consumption could drop by 5.0% from current levels over the 15
years to 2029.
South Korea's natural gas consumption enjoyed a period of strong
growth between 2011 and 2013, after two large-scale incidents – the
Fukushima crisis in 2011 and the Yonggwang nuclear power plant
scandal in 2012 – brought the safety of the country's existing nuclear
infrastructure into question. This forced the government to ramp-up
reliance on imported LNG to make up for the loss in nuclear power
generation output. However, a gradual reduction in stigma towards
nuclear energy in recent years has led South Korea's gas demand
to contract by 7.0% over 2014-2015, as some nuclear power plants
which were previously shut down resumed operations.
This is a trend we see continuing through to 2024, as govern-
ment efforts to utilise cheaper energy sources for power generation
allows for cost-competitive nuclear energy and even coal to gain
prominence over gas over the coming years. This aligns with our
Power team's view that a signicant pipeline of new nuclear builds
will gradually come online over the coming years, despite the fact
that public sentiment towards nuclear still remains rather downbeat
(
see 'Coal-Heavy, But Small Wind Gains', December 1 2015
).
Long-Term LNG Deals Remain At Risk
While we expect South Korea to remain a sizeable importer of
LNG over the next decade, projections for diminishing gas demand
suggests that the country will have less appetite for the traditional
long-term, large-volume gas contracts with international suppliers,
Takahama Return Adds Long-Term Downside
Japan – Natural Gas Consumption & chg y-o-y
e/f = BMI estimate/forecast. Source: EIA, BMI
Gas Demand To See Steady Downtrend
South Korea – Natural Gas Consumption
e/f = BMI estimate/forecast. Source: EIA, BMI
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Asia Oil & Gas
INDIA
in favour of greater contract exibility. Furthermore, we highlight
that falling gas demand increases the risk of an oversupply in the
domestic market, which could see South Korea seek to re-route sur-
plus cargoes or renegotiate existing deals (
see 'LNG Deal Provides
Short-Term Reprieve', November 12 2015
).
INDIA
Rajasthan Redevelopment Plan
To Slow Crude Decline
BMI View:
Greater implementation of enhanced oil recovery tech
-
niques and redevelopment works at some of India's key oil produc
-
ing assets will help to partially slow the rate of decline in India's
domestic crude oil production. We currently anticipate production to
decline at an average rate of 1.1% per annum over the next 10 years.
We maintain our view that India's oil production is set to fall
steadily over the next decade as natural declines at existing elds
weigh on overall production. However, we note that implementa-
tion of enhanced oil recovery (EOR) techniques and redevelop-
ments of existing projects will help to partially slow the rate of
decline. At the time of writing, we forecast India's crude oil and
liquids production to decrease at an average rate of 1.1% per an-
num over 2015-2024, from 845,720 barrels per day (b/d) in 2015
to 772,860b/d in 2024.
India's crude oil production has been on a persistent downtrend
since 2011, largely due to natural declines at mature elds and
limited development of new upstream assets. As such, rms have
been relying on creative measures to sustain output levels at existing
elds in order to meet growing domestic demand.
One such measure is set to be
Cairn India
's USD760mn EOR
and redevelopment programme in Block RJ-ON-90/1, Rajasthan.
On December 15 2015, the rm disclosed plans to drill 450 new
exploration and development wells over the course of the next 12
months, while applying full-eld polymer EOR techniques at the
Mangala and Bhagyam oilelds to arrest natural declines. The Ra
-
jasthan block is already one of India's largest oil producing provinces
with average daily production of about 300,000b/d of crude oil, or
equivalent to about 27.7% of India's domestic crude oil production in
2015. Cairn estimates that its programme could increase the block's
production by nearly two-thirds in the coming years.
Project Economics Favour Cairn
While the continued slump in oil prices dampens rms' appetite
for expensive projects, we remain positive towards Cairn's project
given favourable project economics. Crucially, redevelopment works
within the block will be able to leverage off existing infrastructure,
which will help to reduce cost and make the project more attractive
compared to greeneld developments. As such, although an exact
project timeline is not available, we have accounted for the likely
uptick in production from Rajasthan in our forecasts.
Long-Term Decline To Persist
However, while the additional volumes will offer some support to
output over the coming years, it will not be sufcient to reverse the
long-term downtrend in India's overall oil production. Despite a strong
pipeline of exploration projects in India, bringing new production
sources online remains challenging due to bureaucratic delays and
continued oil price weakness. Moreover, the country's largely state-
controlled upstream segment deters large-scale foreign investment.
In this respect, incremental reforms enacted under Prime Minister
Narendra Modi poses small upside risk to our forecasts. For instance,
in November 2014, the government passed a law to provide greater
scal and regulatory stability and allow for the monetisation of several
discoveries that had been previously deemed stranded (as the operator
failed to notify the government of the discovery within the requisite
time period). Additionally, more exible licensing terms under the
new open acreage licensing policy (OALP) have been designed to
entice greater international oil company participation in future block
offers, though this will hinge on whether the government is able to
introduce a fair and attractive revenue-sharing model for licensees.
Shale Gas And CBM To Remain
Underdeveloped
BMI View:
India's plans to develop its large and untapped coal bed
methane and shale resources will be hindered by low state-set gas
prices and cheap energy alternatives.
India's shale gas and coal-bed methane (CBM) will remain under-
developed as long as alternative energy sources, such as LNG im-
ports and coal, continue to be competitively priced. Nevertheless,
Prime Minister Narendra Modi's government is exploring ways to
attract investments into India's unconventional resources, to ease a
mounting dependence on imported fuels.
EOR Insufcient To Stem Decline
India – Crude Oil Production & % y-o-y
f = BMI forecast. Source: Ministry Of Petroleum & Natural Gas, EIA, BMI
Growing Natural Gas Decit
India – Dry Natural Gas Production & Consumption
f = BMI forecast. Source: National sources, BMI
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Asia Oil & Gas
PAKISTAN
Untapped Resources Could Satisfy Natural
Gas Decit
India's yawning natural gas decit provides the impetus for increas
-
ing production from untapped resources. We forecast natural gas
consumption to grow at an average of 4.9% per year, far higher than
the 0.6% average annual growth rate of natural gas production. As
such, the shortfall in domestic production will more than double from
25 billion cubic metres (bcm) in 2016 to 56bcm in 2025, demanding
rising imports of LNG.
According to reports, India aims to raise the share of natural gas
in the energy mix to 20.0% by 2020, up from 6.0% in 2013. This
dovetails with the pledge India made at UN COP21 to reduce carbon
intensity – up to 35.0% by 2030 compared to 2005 levels. Devel-
opment of India's large and untapped shale and CBM technically
recoverable resources, which the US Energy Information Adminis-
tration estimates to be 2,700bcm and anywhere between 250bcm and
2,600bcm, respectively, would help the country meet these targets,
while softening reliance on imported LNG.
Technical And Pricing Challenges Remain
However, it is unlikely that the domestic shale and CBM resources
will be developed on any scale sufcient to substantially reduce
the country's reliance on LNG imports. First, very little is known
about the geology; early exploration will be high cost and entail
high capital outlays. Indian national oil companies have neither the
technical nor nancial capabilities to drive the unconventional sec
-
tor independently and substantial private sector involvement would
be needed. Furthermore, high population densities, infrastructural
bottlenecks, water constraints and environmental concerns are all
barriers to exploration and development.
Second, the domestic price cap on natural gas has stunted
investments in the upstream sector. Various pricing reforms are
under review, but price increases are highly sensitive politically.
For example, a price reform that would have allowed a portion
of output from deepwater, ultra-deepwater and high-temperature,
high-pressure elds to be sold at market prices has been stalled since
2014 (
see 'Stalled Price Reform Reinforces Bearish Gas Outlook',
June 25 2015
).
Third, ample cheap alternative energy supplies such as LNG
imports and coal will undercut the impetus for the government
to revise these gas prices. In such a situation, the political cost of
reforming the domestic price cap mechanism, and consequently
raising the state-set gas prices, may outweigh the potential benets
in the shorter term.
As such, coal will undoubtedly stay as the dominant fuel in India's
energy mix due to its cost-competitiveness. Despite concerns over
carbon emissions and pollution, its share of the national electricity
generation will decline only marginally from 66.6% to 65.9% over
the next decade, whereas the share for natural gas will rise from
12.3% to 12.7%. Given that energy affordability is a priority, the
prospect of broader coal-to-gas switching remains limited.
PAKISTAN
Exploration Pipeline Poses
Long-Term Reserves Upside
BMI View:
Pakistan's proved crude oil and natural gas reserves
will remain on a downtrend over 2016-2025. This will be a result
of extensive tapping of existing reserves amid a dearth of new sig
-
nicant discoveries, which will ensure the country remains depend
-
ent on imports. We highlight that the country's strong exploration
pipeline and vast shale resources potential pose long-term upside
risk to our forecasts.
We forecast Pakistan's hydrocarbon reserves to decline strongly
over 2016-2025, as extensive tapping of existing reserves will not
be offset by new signicant discoveries. At end-2015, the country's
total reserves were estimated at around 400mn barrels (bbl) for
crude oil and 707.9bn cubic metres (bcm) for natural gas by the
US Energy Information Administration (EIA). However, on ac-
count of rising production, we anticipate these gures to decline to
151.6mn bbl and 423.8bcm, respectively, by the end of our forecast
period in 2025.
Pakistan Will Remain A Net Importer
A combination of factors, including positive economic perfor-
mance, growing shift to oil-based fuels in the transportation sector
and improving gas pipeline connectivity will lead a 34.8% and
11.0% increase in Pakistan's rened fuels and natural gas demand,
respectively, over the next decade. As this growth collides with
diminishing reserves and an unimpressive production growth
outlook, Pakistan will remain dependent on imports through our
forecast period to 2025.
Nevertheless, we highlight that the long-term risks to our reserves
Coal To Stay Dominant
India – Electricity Generation (TWh)
f = BMI forecast. Source: National sources, BMI
Large Discoveries Needed To Reverse Decline
Pakistan – Proven Crude Oil & Natural Gas Reserves
f = BMI forecast. Source: EIA, BMI
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MYANMAR
forecasts lie to the upside, supported by the strong pipeline of ex-
ploration projects in Pakistan's prospective acreages. According to
our Upstream Projects Database, there are currently 16 projects in
the exploration phase together with seven discoveries (albeit small)
made in 2015 alone, any of which could uncover additional reserves
and boost domestic supplies.
The Pakistani government has been actively trying to incentivise
rms to push forward with development plans at existing discov
-
eries amid slowing upstream activities due to low oil prices. On
September 1 2015, the government hiked gas prices for domestic
consumers and industrial users. This in turn allows it to pay rms
more for gas and thus, encourage greater investment in the country's
upstream segment even as global prices remain persistently weak
in line with low oil prices (
see 'Price Hike No Panacea For Gas
Shortfall', September 9 2015
).
Myriad Headwinds Stunt Shale Develop-
ment
Further upside risk could also come from greater exploitation of
Pakistan's signicant shale oil and gas reserves. According to a
joint study conducted by the Ministry of Petroleum and Natural
Resources (MPNR) and the US Agency for International Develop-
ment in 2014, Pakistan's recoverable shale reserves were estimated
at around 58.0bn bbls for oil and 6.0trn cubic metres for gas, most of
which are dispersed across the Sembar and Ranikot formations in the
Lower Indus basin. However, signicant challenges remain to large-
scale domestic shale development – these include an unfavourable
geology, sharp decit in physical infrastructure and scarcity of local
water resources, which drive up project cost and undermine potential
investment in shale-related projects in the Pakistani upstream.
MYANMAR
Long-Term Fuels Demand
Growth Outlook Remains Bullish
BMI View:
Myanmar's rened fuels consumption is set to nearly
double over 2015-202 4, driven by a strong growth in its vehicle eet
and air travel growth, which will increase demand for transport-
related fuels in the automotives and aviation sectors.
We forecast Myanmar's rened fuels consumption to increase at an
average rate of 6.0% over 2015-2024, from 45,300 barrels per day
(b/d) in 2015 to hit 74,390b/d by 2024. This increase will be a result
of an upsurge in demand for automotive fuels, notably gasoline and
diesel, from the transport sector, underpinned by solid economic
performance and strong growth in its vehicle eet. Additionally, the
country's expanding tourism sector will drive up demand for jet fuel.
Rising Car Ownership A Boon For Automo-
tive Fuels Demand
A key driver of rened fuels consumption in Myanmar will be the
strong growth in its vehicle eet over the coming years. According
to gures from the Association of Southeast Asian Nations-Japan
Transport (AJTP) Information Center, the country's total vehicle
eet is forecast to expand by 18.7% per annum over 2015-2020,
which will increase demand for transport-related fuels. A large
Transport-Related Fuels To Drive Consumption
Growth
Myanmar – Refned Fuels Consumption & % y-o-y
e/f = BMI estimate/forecast. Source: EIA, BMI
KEY DISCOVERIES IN 2015
Name Date Type of Project Companies
TAL BlockMay-15Natural GasPakistan Petroleum, Pakistan Oil and Gas Development
Chak Naurang South ProspectJul-15OilOil And Gas Development Company Limited
Gambat South Block (2568-18)Aug-15Oil, Gas & Conden-
sate
Pakistan Petroleum
Khewari LicenceSep-15GasOGDCL
Karak BlockSep-15Oil, Gas & Conden-
sate
MOL Pakistan Oil and Gas, Mari Petroleum Company Limited
Block 2568-13 (Hala)Sep-15Gas & CondensatePakistan Petroleum, Mari Petroleum Company Limited
Dhok Sultan BlockDec-15OilPakistan Petroleum, Government Holding Private Limited
Source: BMI Upstream Projects Database
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AUSTRALIA
part of this trend will be driven by a growing appetite among the
Burmese consumers for big ticket items such as cars, alongside
a solid economic performance – which will see yearly real GDP
growth average 7.7% over the next decade (
see 'Economy Poised
For Take-Off', December 8 2015
).
Jet Fuel Demand To Increase
Moreover, demand for jet fuel in Myanmar is anticipated to nearly
double over the next 10 years, as the number of inbound interna-
tional visitors to the country increases amid a gradually improving
political outlook (
see 'NLD Landslide A Boon, But Plenty Of Chal
-
lenges Ahead', November 13 2015
). Our data show that total tour-
ist arrivals to Myanmar will see average annual growth of 11.5%
over 2015-2020, which in turn will contribute to greater need for
aviation fuels in the three international airports: Yangon, Mandalay
and Naypyidaw.
Some rms such as Singapore-based Puma Energy have already
made inroads into the growing Burmese fuels market. In September
2015, the rm entered into a joint venture (JV) with state-owned
enterprise
Myanma Petroleum Products Enterprise
to import
and distribute jet fuel to the country's 11 airports. The JV will also
invest up to USD77mn to improve the country's vastly underdevel-
oped fuels pipeline network (a major hindrance to domestic fuels
consumption growth), posing further upside risk to our already
upbeat long-term outlook towards Myanmar's jet fuel demand
growth, which we forecast to increase from 2,570b/d in 2015 to
4,220b/d by 2024.
AUSTRALIA
NWS Expansion Offers Post-
2019 Gas Upside
BMI View:
The Woodside-led development plan at the NWS project
is aligned with our positive outlook towards Australia's gas produc
-
tion growth to over the next four years, which we forecast to see
average annual growth rate of 11.0% over 2015-2019. We highlight
that an increasingly oversupplied global LNG market could render
nding buyers for new gas volumes challenging.
We maintain our positive view for Australia's gas production over
2015-2019, which we forecast to see average annual growth of
11.0%, from 65.2bn cubic metres (bcm) in 2015 to 101.4bcm in
2019. This growth will be underpinned by a ramp-up in output from
gas developments associated with large LNG export projects set to
come online over the next two to three years.
Australia's already positive short-to-medium term natural gas
production outlook received a further boost, following the Decem-
ber 11 2015 announcement by
Woodside Petroleum
of its plans to
develop untapped resources at its North West Shelf (NWS) Project.
This will see the rm, together with joint venture (JV) partners
BHP
Billiton
,
BP
,
Chevron Australia
,
Japan Australia LNG
and
Shell
Australia
invest approximately USD2.0bn over the coming years
to develop gas resources in the Greater Western Flank.
The development plan – dubbed the Greater Western Flank Phase
2 (GWF-2) Project – will involve the drilling of eight additional
wells in the Lady Nora, Pemberton, Sculptor, Rankin, Keast and
Dockrell gas elds, targeting combined 2P gas resources of about
45.3bcm across the area. The outlook for the project remains bright,
given existing production facilities and infrastructure will reduce the
time and cost needed to bring commercial production online. The
JV estimates the project will take about three to four years.
The completion of the GWF-2 project will further boost output
from the NWS project, which is already Australia's largest oil and
gas development project with annual production capacity of about
22.2bcm, or equivalent to 34.0% of the country's total gas output
in 2015.
Finding Buyers Could Prove Challenging
That said, we highlight that the growing oversupply in the global
LNG market – partly driven largely by Australian mega LNG
export ventures – could render nding buyers for any additional
gas volumes challenging. We expect global LNG demand growth
to remain subdued over the coming years, which may prove insuf-
cient to absorb the barrage of new supplies coming online through
to the end of the decade (
see 'Oil And Gas: Key Themes For 2016',
December 11 2015
).
This will keep a lid on prices and feed buyers' growing prefer-
ence for greater contract exibility (
see 'Weak Demand Sties
LNG Growth', November 11 2015
). Growing competition in the
LNG export market, coupled with sluggish domestic gas demand
growth in Australia, could potentially weigh on the JV's decision
and delay progress. Though project economics, leveraging existing
infrastructure, will make the development more attractive than new
greeneld plants.
Export Projects Underpin Buoyant Gas Outlook
Australia – Natural Gas Production & % chg y-o-y
e/f = BMI estimate/forecast. Source: DIIS, EIA, BMI
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NEW ZEALAND
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NEW ZEALAND
Shell's Potential Exit Aligns
With Bearish Upstream Outlook
BMI View:
Shell's potential exit from its exploration plays in New
Zealand's frontier basins aligns with our bearish outlook for the
country's long-term crude oil and natural gas growth prospects.
We forecast oil and gas production to fall by 37.3% and 10.1%,
respectively, over 2015-2024.
Supermajor
Royal Dutch Shell
's potential exit from its explora-
tion plays in New Zealand's frontier basins aligns with our bearish
outlook towards the country's long-term hydrocarbon production
forecasts over the next 10 years. Following an initial period of
steady growth, we expect both domestic production of crude oil
and natural gas to begin to fall from 2017 and 2021, respectively,
as natural declines begin to weigh on overall output while the cur-
rent slowdown in exploration limit opportunities to discover new
sources of production growth.
On December 10 2015, Shell announced that it is embarking on
a strategic review of its upstream assets in New Zealand, as part of
a broader multi-year divestment plan as it streamlines its businesses
in response to the current low oil prices. While it remains unclear
exactly what the rm intends to do, the rm's recent disengagements
from high-risk, non-core ventures in the Arctic and several oil-sand
projects in Canada suggest that Shell's strategy of moving away from
projects which it deems to be unpalatable amid the current lower oil
price environment could very well be replicated in New Zealand.
Production To Continue At Key Fields
At present, Shell has a sizable presence in the New Zealand upstream,
with majority stakes in the country's largest gas producing elds
such as the Pohokura, Maui and the Kapuni elds. According to the
Ministry of Business, Innovation & Employment (NZMBIE), these
elds accounted for about 70.0% of the country's total gas output
in 2014, with recent upgrades at the Pohokura eld supporting this
gure to increase further in the coming years. Given the elds' criti
-
cal importance to meeting New Zealand's energy demand, coupled
with ongoing production and access to existing infrastructure, it
is likely that normal eld operations will continue irrespective of
Shell's decision. That said, we do acknowledge that even in the
event that the rm decides to pare down or even wholly sell-off its
stakes, nding potential suitors could prove challenging, as New
Zealand's small domestic consumer base and remote location from
export markets offer little opportunities for material growth and
limited investor appeal.
Exploration Slowdown To Increase Imports
In contrast, Shell's potential exit from its exploration ventures in the
Great South and the New Caledonia basins offshore Southland and
North Island, respectively, could exacerbate an already downbeat
outlook for exploration prospects in New Zealand. This will see
New Zealand's heavy reliance on production from the Taranaki
basin deepen over the coming years, rendering the country increas-
ingly dependent on liquid fuels imports to meet domestic demand
over the coming years (
see 'Exploration Slowdown Deepens Import
Dependency', May 27 2015
). At the time of writing, our data show
that New Zealand's import requirements will grow by 35.5% over
2015-2024, from about 64,080 barrels per day (b/d) in 2015 to
86,810b/d in 2024.
Natural Declines Inevitable
New Zealand – Crude OIl & Natural Gas Production
f = BMI forecast. Source: NZMBIE, EIA, BMI
