Shelved by Covid-19 demand destruction and low oil prices, three deepwater, stranded gas projects in Southeast Asia are in doubt, while prospects for offshore wind in the region continue to grow
Three high-profile deepwater stranded gas plays in Southeast Asia are facing an increasingly uncertain future after being shelved due to Covid-19 demand destruction and low oil prices.
Petronas’ Kelidang cluster in Brunei and Malaysia, Inpex Corporation’s Abadi gas field development and Chevron’s Indonesia Deepwater Development (IDD) would have resulted in EPC awards totaling upwards of US$10Bn in 2020. Chevron is now evaluating ‘strategic alternatives’ for its 62% owned and operated interest in the IDD.
“Will these three projects ever see the light of day?” questioned Westwood Global Energy Group head of offshore Thom Payne. Speaking during Westwood Global Energy’s webinar APAC Offshore Update, Mr Payne said the three projects could reappear in the forecast picture if market conditions improved. Westwood Global Energy forecasts spending of US$26Bn in EPC awards in the region over the five-year period from 2020 to 2024.
In 2021, these awards will be led by potential FIDs on Sapura Energy’s SK304-Jerun in Malaysia and PTTEP’s Zawtika in Myanmar. Improving oil prices could underpin positive FIDs on Petronas’ Limbayong in Malaysia, Shell’s Rosmari/Majoram in Malaysia and Woodside’s Shwe Ye Htun in Myanmar in 2022-2023, said Mr Payne
These projects will have a “significant upside” if the market and price of oil continues to recover. Mr Payne said the projects would require a ‘laundry list’ of floating production platforms, fixed platforms, subsea trees and rigid and flexible pipelines. Most of the US$26Bn in awards will probably be on the backend of Westwood Global Energy’s forecast period.
“Contractors may be forced by the operators to lower their rates”
National oil companies Petronas, Pertamina and PTTEP have all slashed their 2020 spending guidance by 20 to 25%, anticipating a slow market recovery into 2021.
Gas continues to be a driver in Southeast Asia. In September, SapuraOMV Upstream, a joint venture between Sapura Energy Berhad and Austria’s OMV Aktiengesellschaft, announced stable production from its operated Bakong gas field project in Malaysia under the SK408 Production Sharing Contract (PSC). Under a sales agreement with Petronas, SapuraOMV Upstream and its SK408 partners will supply gas from Larak, Gorek and Bakong fields to the Petronas LNG complex in Bintulu, Sarawak.
SapuraOMV’s partners under SK408 PSC are Sarawak Shell Berhad (30%) and Petronas Carigali Sdn Bhd (30%).
Drilling contractors under pressure
After Mr Payne set the scene, Westwood Global Energy senior rig analyst Paul Ezekiel provided a more granular view of the Southeast Asia rig market, outlining some of the pressures that drilling contractors are facing from operators in the form of unfavourable contract terms.
“There is work out there,” said Mr Ezekiel, “It’s just slow.”
He said there were 122 requirements in the region totalling 30,000 days, with 24 outstanding tenders and another 62 projects with some level of rig interest.
Mr Ezekiel said after starting the year at over US$90,000, day rates have weakened due to low oil prices and excess capacity in the market. “Contractors may be a little bit hungry and they may be forced by the operators to lower their rates. We are well aware that operators are calling contractors in for re-negotiation. The typical phrase is ‘sharpen your pencils, gentlemen.’”
“There is work out there, it’s just slow”
He also pointed out that national rig owners will get a preference for work. “From what we hear, rates will be US$75,000 to US$80,000 going forward. Contractors have to be conscious of their operating costs. Once the oil price rises the demand will pick up again. Attrition may speed up the process. We are already seeing tenders saying that they will not accept cold-stacked rigs or rigs warm-stacked more than 12 months,” added Mr Ezekiel. Things are no better for a ‘dour’ floater market, where day rates are about US$140,000.
Fair winds for offshore renewables
While the offshore oil and gas market remains challenged, the outlook for offshore wind in Asia and Southeast Asia is bullish. Spotlighting up and coming offshore wind markets in Southeast Asia, Westwood Global Energy research manager Michelle Gomez said Taiwan has a potential capacity of 147 GW, with 128 MW currently installed, while Vietnam’s potential capacity is even greater at 160 GW and installed capacity of 99 MW.
In Taiwan, the 589-MW Changfang Xidao windfarm received FID in February by Copenhagen Infrastructure Partners (CIP), with the 109-MW TPW Changhua to be commissioned in H2 2020.
Momentum is also picking up in Vietnam, where offshore wind is “primed to become an optimal source of power” for the country’s energy system,” due to its many advantages such as high scalability, predictability, flexibility and low environmental impact, according to the Global Wind Energy Council (GWEC).
Vietnam’s first offshore windfarm in the Mekong Delta region, the 99-MW Bac Lieu wind power project, came online in 2013.
In August, two contracts were awarded for new projects: the first saw AFRY awarded an owner’s engineering services assignment for the Tra Vinh offshore windfarm, a 48-MW project offshore Tra Vinh Province, Vietnam. This project is owned by Truong Thanh Tra Vinh Wind Power JSC, an affiliated company of Sermsang Power Corporation (SSP), one of Thailand’s fastest growing independent power producers.
AFRY will provide owner’s engineering services for the implementation phase of the project, having previously supported Sermsang as technical advisor in the feasibility study phase, EPC bidding process, and energy yield assessments for this project.
AFRY’s assignment includes project management services, an engineering design review, as well as monitoring onshore and offshore construction, installation and commissioning works for the windfarm, including the substation, transmission line and connection to the power grid. The project’s target commercial operation date is October 2021.
Elsewhere, Techwise Singapore has been awarded a contract by PowerChina Huadong Engineering Co Ltd to support construction of the Binh Dai offshore windfarm.
Binh Dai is offshore Ben Tre Province, approximately 100 km south of Ho Chi Minh City. The capacity of the offshore windfarm will be 310 MW, with 74 wind turbines to be installed in phases.
Techwise will support the project EPC contractor, PowerChina Huadong Engineering, on project management, design and engineering and marine assurance during loadout, transportation and offshore installation of the wind turbines.
The project will be run from Techwise’s Singapore office, with support from local personnel in Vietnam and China.
In July, CIP, on behalf of its CI New Markets Fund I, together with local partners Asiapetro and Novasia, signed a memorandum of understanding with Binh Thuan People’s Committee to develop a 3.5 GW offshore wind project in Vietnam.
The La Gan offshore wind project is off the coast of Binh Thuan and is one of the first large-scale offshore wind projects in Vietnam.
With an estimated capex of up to US$10Bn, the project is expected to create significant income and jobs for both Binh Thuan and Vietnam. CIP said successful co-operation between itself, Asiapetro, Novasia and Binh Thuan province could also serve as a precedent for attracting other foreign investors in offshore wind projects in Vietnam.