2004 Oil Price Hike

Industry analysts have long predicted that there will come a point when global oil production will no longer be able to keep pace with global demand for oil which now stands at a record 82.4 million barrels per day.

Growing worldwide demand has inevitably driven the world's crude oil price skyward that once peaked at a record high of over US$50 per barrel in 2004, and according to analysts the high price could perhaps remain through 2007.

This comes as no surprise as the predicted worldwide oil demand growth will go up to 60% in the next 25 years with an `economically buoyant' Asia leading the rise.

Surging energy prices are seen as a potential threat to global economic recovery with the early victims of the oil price hike being the American motorists who have to come to terms with high gasoline prices and the aviation industry where travellers pay higher airfares.

The oil price hike, however, does bring significant value to Brunei but customers have to deal with the flip side and the negative impact of high prices. So whilst Brunei enjoys the benefits in the short-term, the country needs to ensure the long-term sustainability of its business and excessively high oil prices are detrimental to that.

Worldwide Demand

The surging worldwide demand is fuelled primarily by the economic growth in China, which has surpassed Japan as the world's largest consumer after the US and will need more than 10 million barrels of crude oil a day by 2030 from about 6.3 million barrels per day as reported by the International Energy Agency.

While the worldwide demand for oil continues, Liquefied Natural Gas (LNG) will play a bigger role, which according to the US Minerals Management Service Director has sharply increased in the past decade because natural gas is a clean burning fuel source.

In fact, the demand for gas is projected to exceed the demand for oil by 2020, with LNG needs in China will reach 20 million tonnes annually by 2015, and demand in India touching 12.5 million in the same period.

Japan is expected to be the major LNG importer in the region with 73 million tonnes of import in 2015, while the United States and South America should also emerge as major importers by then.

This shows that the market demand for natural gas or LNG should rise very dramatically in the next 10 years or so years to come. Indeed Brunei has already exported its LNG to South Korea and Japan for over a decade, and the strong global demand could mean big demand for Brunei LNG.

Recently Brunei marketed its petroleum to China and India, among others - meaning that the Sultanate already has a foothold in the major energy markets of the future.

Brunei And Oil Gas Export

Brunei crude oil is exported to various countries including several ASEAN member countries e.g. Indonesia, Singapore and Thailand.

In year 2002, Thailand is the main export destination for Brunei Darussalam's crude oil, i.e. 27.28% of the overall export.

This was followed by Australia (17.3%), South Korea (16.11%), China (12.46 %), Japan (12.23%) and others such as USA, New Zealand, Indonesia, Singapore and Philippines.

According to a Brunei Economic Bulletin report, it stated that oil and gas exports in the first quarter of 2004 were $1,828.9m.

This was an increase of 4.7 % from the fourth quarter of 2003, which recorded $1,746.5m.

Petroleum exports (crude and condensate) increased by 4.8%in the first quarter (Q1) of 2004 on a quarterly basis, an increase by 9.7 % from Q1 of 2003.

The increase was due to the higher oil prices, which recorded an average price of $35.6 per barrel in 2004 Q1 compared to $32 in the Q4 of 2003 and $33.4 in Q1 of 2003.

The LNG exports in the first quarter of this year also showed an increase of 4.5% compared to Q4 2003, according to the quarterly magazine produced by the Department of Economic Planning and Development (JPKE).

The report also states that it must be noted though the essential supply of oil in the country will never simply come to an end as is the case for any other commodity when supply declines, the price increases, and where available, lower-cost substitutes will become more attractive.

Brunei Oil Reserves

Brunei Shell Petroleum (BSP) - a Brunei Government Royal Dutch /Shell joint-venture - made an important new oil discovery three kilometres offshore in the Seria North Flank and a previously un-drilled part of the field last October 2004, after 75 years since it first oil strike in 1929.

There are up to 20 similar structures in the area, said Mr Mark Carne, Managing Director of BSP. He estimated total recoverable oil of up to 100 million barrels from the whole of the Seria North Flank.

BSP is now proceeding to accelerate further exploration, appraisal and development of Seria's North Flank.

It said additional reserves will be booked once technically and economically matured project plans are approved.

Brunei Shell Petroleum (BSP) a Brunei Government Royal Dutch/Shell joint venture was for years the only oil producer and operates the country's only oil refinery, till a second consortium was set up in the early 80s between Total Fina Elf and locally based Jasra International Petroleum.

Total Fina Elf owns 60% of the consortium that operates in Block J, followed by BHP Billiton with 25% and Amerada Hess with 15%. The Block K group meanwhile consists of Shell (50%), Conoco (25%) and Mitsubishi (25%).

Brunei's Oil And Gas Industry

The key players in the country's oil and gas industry are BSP, BLNG, Block B Joint Venture, Brunei Shell Marketing (BSM), Brunei Shell Tankers (BST), and Brunei Gas Carrier (BSC) according to the Petroleum Unit of the Prime Minister's Office in their paper at the Global LNG Summit in Washington DC last December 2003.

The biggest of the four is BSP, which is responsible for the exploration and oil production and natural gas as well as oil refining and crude oil trading.

BLNG, meanwhile, concerns with liquefying the gas it buys from BSP as well as arrangements of its transport and sale to customers in Japan and South Korea.

BST charters tankers to BLNG to transport gas to Japan while, BSM markets petroleum products, such as gasoline, diesel, lubricants, and jet fuel. BSM also manages the import and distribution of lubricants, chemicals and bitumen into the country.

The government's interest in the oil and gas industry comes under the auspices of the Petroleum Unit formed in 2001, with the objective, amongst others, to strengthen and to push to jointly spearhead the development of local petroleum industry and to play an active role in the exploration and development of the petroleum industry.

The Petroleum Unit also accelerates economic development based on the domestic petroleum industry.

With the Sultanate's plan for economic diversification away from the dependency on oil and gas as well as natural gas, the Petroleum Unit has allocated a 1 TCF of gas reserve for the domestic downstream project such as the Sungai Liang Industrial Park whereby it requires gas to run the industrial park. --Courtesy of Brunei Year Book