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March 2016

Issue 118

Asia Pacific
Oil and Gas
BMIs monthly market intelligence, trend analysis and forecasts for the oil and gas industry across Asia Pacific
CHINA

ISSN: 1750-7723

CONTENTS

Shale Gas Target Remains Out


Of Reach
BMI View: China is set to underwhelm in its shale gas production
over 2015-2024. Major growth will be hindered by complex geology,
a deficit in physical infrastructure and diminishing investor interest in
costly shale operations amid sustained weakness in low oil prices. This
will lead to weaker-than-anticipated exploitation of the country's vast
shale gas potential.
Shale To Remain A Small Component
China Natural Gas Production & % chg y-o-y

China............................................................................................... 1
Shale Gas Target Remains Out Of Reach................................................................. 1
Strong Energy Demand Despite Economic Headwinds.............................................. 2

Japan............................................................................................... 3
Nuclear Return To Weigh On Gas Demand.............................................................. 3

South Korea..................................................................................... 4
Gas Demand To Fall Amid Nuclear Resurgence........................................................ 4

India................................................................................................ 5
Rajasthan Redevelopment Plan To Slow Crude Decline............................................. 5
Shale Gas And CBM To Remain Underdeveloped...................................................... 5

Pakistan........................................................................................... 6
Exploration Pipeline Poses Long-Term Reserves Upside............................................. 6

Myanmar......................................................................................... 7
Long-Term Fuels Demand Growth Outlook Remains Bullish...........................................7

Australia.......................................................................................... 8
NWS Expansion Offers Post-2019 Gas Upside.......................................................... 8

New Zealand.................................................................................... 9
Shell's Potential Exit Aligns With Bearish Upstream Outlook...................................... 9

f = BMI forecast. Source: China National Bureau of Statistics, EIA, BMI

China is set to fall short of meeting its stated annual shale gas production
target of 6.5bn cubic metres (bcm) by end-2015, as of the time of writing.
A combination of complex geology, a deficit in physical infrastructure
and diminishing investor appetite for high-cost unconventional projects
amid plunging oil prices have led to weaker-than-anticipated shale gas
output from the nation's two largest producers, PetroChina and China
Petroleum & Chemical Corporation (Sinopec). This will see shale
remain a relatively small component of China's natural gas production
over 2015-2024, stunting the government's plans to replicate the US
shale boom in the country.

Numerous Headwinds To Shale Developments


Despite China's vast below-ground shale gas potential, interest in shale
gas exploration in China has been cooling. While more than 400 exploration wells have been drilled across 19 prospective blocks following the
first and second shale gas block offers held in 2011 and 2012, drilling
results have largely disappointed. Only Sinopec's Fuling field in the
Sichuan basin shows promises of large-scale commercial production.
One of the factors marring shale development in China is the complex
geologic structure of its shale blocks. Moreover, China's shale deposits

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China

Asia

are often located in hilly, water-scarce areas, rendering hydraulic


fracturing (which requires large quantities of water to stimulate flow
rates) and installation of supporting infrastructure more challenging
and expensive compared to that of the US.
China's shale woes have also been compounded by the plunge in
oil prices since H214, which continues to dampen investor appetite
in costly unconventional projects. In fact, in July 2015, ConocoPhillips ended its shale gas joint venture with PetroChina in the
Sichuan basin, citing low oil prices which have rendered commercial
production unfeasible. Given our expectation for the current oil
price weakness to persist through to 2018 (see 'Prices Range-Bound
As Oil Glut Persists To 2018', December 9 2015), it is likely that
China's shale gas production will continue to underwhelm over
the short-to-medium term. Therefore, we believe the government's
stated long-term target to achieve 30.0bcm of shale output by 2020
will not be achieved.
Future exploration prospects have also taken a hit in light of
the April 29 announcement by the government to gradually reduce
subsidies to shale gas developers over 2016-2020. From the current
rate of CNY0.4 (USD0.06) per cubic metre (cu m), the subsidies
will be reduced to CNY0.3/cu m over 2016-2018, and further cut
to CNY0.2/cu m from 2019 to 2020.

Oil & Gas

Strong Energy Demand Despite


Economic Headwinds
BMI View: Sustained crude stockpiling activity, strong car sales
growth and the implementation of policies in favour of greater gas
use will see China remain a sizeable source of crude oil, gasoline
and natural gas demand over 2016-2020.
Despite sluggish economic performance, we maintain our view that
China's demand for crude oil, refined fuels and natural gas will remain strong over 2016-2020. This will be a result of sustained crude
stockpiling activity, strong car sales growth and the implementation
of policies in favour of greater gas use.
Pace Of Consumption Growth To Slow
China Refined Fuels Consumption & % chg y-o-y

Long-Term Shale Gas Production To Grow


While the government's ambitious output target is likely to be
missed, we still anticipate shale output to grow. This will be supported by sustained investment by the state-owned enterprises, which
view shale development as part of a broader national strategy and
thus will likely move forward with further drilling plans, even as
unfavourable pricing dynamics lead international players to delay
or cancel projects.
We also highlight the upside risk to our forecasts from greater
exploitation of China's shale gas potential the Ministry of Land
and Resources estimates that the country could hold about 25.1trn
cu m (tcm) of technically recoverable shale gas resources, more than
five times the country's proved conventional gas reserves. Likely
sources of major production growth include Sinopec's Fuling project
in Chongqing, from which the firm expects production to climb to
10.0bcm by 2017.
Similarly, a June 2014 discovery in the Zhangjiajie prefecture,
Hunan province could pave the way for greater monetisation of
the region's purported 9.2tcm of shale gas-in-place. Furthermore,
the implementation of government policies to encourage greater
gas consumption will prove beneficial for shale prospects in China
(see 'Pricing Reform Boosts Gas Consumption Outlook', November
23 2015).

e/f = BMI estimate/forecast. Source: China National Bureau of Statistics, China General
Customs Administration, Bloomberg, EIA, BMI

Stockpiling To Maintain Crude Appetite


In line with our view that continued stockpiling activity will drive
demand for crude over the next few years regardless of macroeconomic headwinds, we anticipate China's appetite for crude to remain
strong, despite softer fundamental demand (see 'SPR To Drive
Crude Imports', December 9 2015). China is expected to add about
106.9mn bbl of new storage capacity over 2016. This in turn, will
see an upsurge in crude requirements to fill this new capacity over
the coming quarters.
Another factor underpinning stronger demand for crude will be
the granting of more crude import licenses to the teapot refineries in

CHINA RECOVERABLE SHALE GAS ESTIMATES


Province

Recoverable Resource Estimate (tcm)

Blocks Offered In Previous Licensing Rounds

Hubei

9.5

1.55

Jiangxi

0.6-1.1

Hunan

1.5-2.0

Henan

n/a

Zhejiang

n/a

10.48

Jiangsu

Chongqing
Guizhou
n/a = not available. Source: China Ministry of Land & Resources, BMI

www.oilandgasinsight.com

Japan

Asia

the coming months, consistent with the government's ongoing efforts


to liberalise the downstream sector (see 'Eased Import Restrictions
To Improve Downstream Efficiency', July 16 2015).
Passenger Car Sales To Rebound
China Passenger Car Sales & % chg y-o-y

e/f = BMI estimate/forecast. Source: CAAM, BMI

Refined Fuels Consumption Growth To Cool


In contrast, the pace of consumption growth for refined fuels is set
to slow markedly over the next five years. Although the sheer size
the Chinese market will see it remain a sizable consumer of refined
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.
Policy Changes To Support Gas Demand Growth
China Natural Gas Consumption & % y-o-y

Oil & Gas

2015 to increase 3.3% y-o-y, according to data from the China Association 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, supporting 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 five years, as the government continues 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 greenhouse 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
firm 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.

e/f = BMI estimate/forecast. Source: EIA, BMI

This trend looks set to continue over the coming years, as the
Chinese economy continues to shift away from an investmentdriven 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 refined 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 first 11 months of

www.oilandgasinsight.com

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 injunction 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 firm'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)..

South Korea

However, we highlight that continued public opposition to largescale 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 between 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).

Asia

Oil & Gas

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.

Takahama Return Adds Long-Term Downside

Gas Demand To See Steady Downtrend

Japan Natural Gas Consumption & chg y-o-y

South Korea Natural Gas Consumption

e/f = BMI estimate/forecast. Source: EIA, BMI

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 significant
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-Pacific, we highlight that positive gas consumption 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).

e/f = BMI estimate/forecast. Source: EIA, BMI

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 government 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 significant 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,

www.oilandgasinsight.com

India

Asia

in favour of greater contract flexibility. 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 surplus 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 techniques and redevelopment works at some of India's key oil producing 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.
EOR Insufficient To Stem Decline
India Crude Oil Production & % y-o-y

f = BMI forecast. Source: Ministry Of Petroleum & Natural Gas, EIA, BMI

We maintain our view that India's oil production is set to fall


steadily over the next decade as natural declines at existing fields
weigh on overall production. However, we note that implementation of enhanced oil recovery (EOR) techniques and redevelopments 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 annum 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 fields and
limited development of new upstream assets. As such, firms have
been relying on creative measures to sustain output levels at existing
fields 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 firm disclosed plans to drill 450 new
exploration and development wells over the course of the next 12
months, while applying full-field polymer EOR techniques at the
Mangala and Bhagyam oilfields to arrest natural declines. The Rajasthan 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.

www.oilandgasinsight.com

Oil & Gas

Project Economics Favour Cairn


While the continued slump in oil prices dampens firms' 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 greenfield 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 sufficient 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 statecontrolled 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
fiscal 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 flexible 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.
Growing Natural Gas Deficit
India Dry Natural Gas Production & Consumption

f = BMI forecast. Source: National sources, BMI

India's shale gas and coal-bed methane (CBM) will remain underdeveloped as long as alternative energy sources, such as LNG imports 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.

Pakistan

Asia

Untapped Resources Could Satisfy Natural


Gas Deficit
India's yawning natural gas deficit provides the impetus for increasing 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.
Coal To Stay Dominant
India Electricity Generation (TWh)

Oil & Gas

raising the state-set gas prices,may outweigh the potential benefits


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 significant discoveries, which will ensure the country remains dependent on imports. We highlight that the country's strong exploration
pipeline and vast shale resources potential pose long-term upside
risk to our forecasts.
Large Discoveries Needed To Reverse Decline
Pakistan Proven Crude Oil & Natural Gas Reserves

f = BMI forecast. Source: National sources, BMI

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.Development of India's large and untapped shale and CBM technically
recoverable resources, which the US Energy Information Administration 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 sufficient 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 financial capabilities to drive the unconventional sector 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 fields 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

f = BMI forecast. Source: EIA, BMI

We forecast Pakistan's hydrocarbon reserves to decline strongly


over 2016-2025, as extensive tapping of existing reserves will not
be offset by new significant 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 account of rising production, we anticipate these figures 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 performance, 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 refined 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

www.oilandgasinsight.com

Myanmar

Asia

forecasts lie to the upside, supported by the strong pipeline of exploration 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
firms to push forward with development plans at existing discoveries 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 firms
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).

Oil & Gas

MYANMAR

Long-Term Fuels Demand


Growth Outlook Remains Bullish
BMI View: Myanmar's refined fuels consumption is set to nearly
double over 2015-202 4, driven by a strong growth in its vehicle fleet
and air travel growth, which will increase demand for transportrelated fuels in the automotives and aviation sectors.
Transport-Related Fuels To Drive Consumption
Growth
Myanmar Refined Fuels Consumption & % y-o-y

Myriad Headwinds Stunt Shale Development


Further upside risk could also come from greater exploitation of
Pakistan's significant 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 Development 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, significant challenges remain to largescale domestic shale development these include an unfavourable
geology, sharp deficit 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.

e/f = BMI estimate/forecast. Source: EIA, BMI

We forecast Myanmar's refined 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 fleet. Additionally, the
country's expanding tourism sector will drive up demand for jet fuel.

Rising Car Ownership A Boon For Automotive Fuels Demand


A key driver of refined fuels consumption in Myanmar will be the
strong growth in its vehicle fleet over the coming years. According
to figures from the Association of Southeast Asian Nations-Japan
Transport (AJTP) Information Center, the country's total vehicle
fleet is forecast to expand by 18.7% per annum over 2015-2020,
which will increase demand for transport-related fuels. A large
KEY DISCOVERIES IN 2015
Name
TAL Block

Date

Type of Project

Companies

May-15

Natural Gas

Pakistan Petroleum, Pakistan Oil and Gas Development

Chak Naurang South Prospect

Jul-15

Oil

Oil And Gas Development Company Limited

Gambat South Block (2568-18)

Aug-15

Oil, Gas & Condensate

Pakistan Petroleum

Khewari Licence

Sep-15

Gas

OGDCL

Karak Block

Sep-15

Oil, Gas & Condensate

MOL Pakistan Oil and Gas, Mari Petroleum Company Limited

Block 2568-13 (Hala)

Sep-15

Gas & Condensate

Pakistan Petroleum, Mari Petroleum Company Limited

Dhok Sultan Block

Dec-15

Oil

Pakistan Petroleum, Government Holding Private Limited

Source: BMI Upstream Projects Database

www.oilandgasinsight.com

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 international visitors to the country increases amid a gradually improving
political outlook (see 'NLD Landslide A Boon, But Plenty Of Challenges Ahead', November 13 2015). Our data show that total tourist 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 firms such as Singapore-based Puma Energy have already
made inroads into the growing Burmese fuels market. In September
2015, the firm 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 underdeveloped 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 Post2019 Gas Upside


BMI View: The Woodside-led development plan at the NWS project
is aligned with our positive outlook towards Australia's gas production 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
finding 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 December 11 2015 announcement by Woodside Petroleum of its plans to
develop untapped resources at its North West Shelf (NWS) Project.
This will see the firm, 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 fields, 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

Asia

Oil & Gas

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.
Export Projects Underpin Buoyant Gas Outlook
Australia Natural Gas Production & % chg y-o-y

e/f = BMI estimate/forecast. Source: DIIS, EIA, BMI

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 finding buyers for any additional
gas volumes challenging. We expect global LNG demand growth
to remain subdued over the coming years, which may prove insufficient 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 preference for greater contract flexibility (see 'Weak Demand Stifles
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
greenfield plants.

www.oilandgasinsight.com

New Zealand

Asia

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 exploration 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 current 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 firm intends to do, the firm'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 fields
such as the Pohokura, Maui and the Kapuni fields. According to the
Ministry of Business, Innovation & Employment (NZMBIE), these
fields accounted for about 70.0% of the country's total gas output
in 2014, with recent upgrades at the Pohokura field supporting this
figure to increase further in the coming years. Given the fields' critical importance to meeting New Zealand's energy demand, coupled

Oil & Gas

with ongoing production and access to existing infrastructure, it


is likely that normal field operations will continue irrespective of
Shell's decision. That said, we do acknowledge that even in the
event that the firm decides to pare down or even wholly sell-off its
stakes, finding 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.
Natural Declines Inevitable
New Zealand Crude OIl & Natural Gas Production

f = BMI forecast. Source: NZMBIE, EIA, BMI

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 increasingly 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.

Analysts: Marina Petroleka, Christopher Haines, Emma

2016 Business Monitor International Ltd. All rights reserved.

Richards, Mara Roberts, Peter Lee, Charles Swabey

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