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Industry Report - Oil & Gas - August 2011
A Company and Industry Analysis August 2011
CONTENTS
Current Environment
• SectorOverview
• SectorPerformance
• LeadingCompanies
• MergersandAcquisitions
Industry Prole
• IndustryOverview
• OilandGasProductionand
Consumption
• IndustryFocus
• PolicyandRegulatory
Environment
Market Trends and Outlook
• Asia-PacictofocusonCoal
BedMethane
• RegionalFuelPricesRise
• ShaleGasintheAsia-Pacic• MarketOutlook
Country Proles
• Australia
• China
• India
• Indonesia
• Japan
• SouthKorea
Currency Conversion Table
The Scope of this Report
Key References
Comparative Data
Reports Coverage
Current Environment — Key Points
• Overayearafterthedeepestrecessionindecades,theAsia-Pacicregioncontinuedtoleadthe
globaleconomicrecovery,generatingstrongdemandforglobaloilandgas.
• Asia-Pacicoildemandgrew2.1%and5.9%in2009and2010respectivelywithChinabehind
70%oftheincreaseinoildemand.
• SouthKoreawastheoneregionalcountrythatsaw itsoildemandfall.Accordingto theKorea
EnergyEconomicsInstitute(KEEI),oilisexpectedtoaccountfor39.5%ofSouthKorea’stotalenergydemandin2011,comparedwith53.2%in2000.
• Thesharepricesofleadingcompaniesdidwelloverthepastsixmonths.ThetoptenleadingAsia-
Pacicoilandnaturalgascompaniesbyrevenuessawtheirsharepricesrisebyanaverageof9.2%
overthesixmonthstoMay31,2011.
• TheindustryalsosawarunofM&Aactivityoverthepastsixmonthsasoilandgascompaniesin
theregioncontinuedtheirpursuitofunconventionalenergyassetsbothathomeandabroad,aswell
asmakingstrategicalliances.
Industry Prole — Key Points
• AlthoughnewdiscoveriesofoilandgasarebeingmadeintheAsia-Pacicregion,reservesare
depletingduetothemassivesurgeindemandfromdevelopingeconomies.
• Theregionhas less than4%oftheworld’sprovenoilreserves,leavingitwith fewoptions to
increaseorevenmaintaincurrentlevelsofproduction.
• TheAsia-Pacic had proved reservesof 45.2 billionbarrelsbythe end of2010. Oil and gasconsumptionintheregionsurpassedthatofNorthAmericain2007.
• Totalnaturalgasproduction intheregionin2010was399.4milliontons,an increaseof4.9%
comparedwiththeproductionof380.8milliontonsin2009.
• Consumptionofnaturalgaswasup5.3%fortheperiod,from1.2billiontonsto1.27billiontons.
Market Trends and Outlook — Key Points
• Thedeclineofconventionaloilandgasreservesoverthepastdecadehaselevatedtheimportance
ofunconventionalresources in theenergysector.Coalbedmethane (CBM) isonealternative
energysourcetoutedtobeinlinetoreplaceoilandgas.
• Therecoveringglobaleconomy,strongenergydemandandanumberofmajorglobaloilproducing
countries’reducedproductionandexportslevelshaspushedupfuelpricesacrosstheAsia-Pacic
overthepastfewmonths.
• Nuclearenergy,naturalgas,coal,biofuelandotherrenewablesareamongthealternativesourcesofenergyexploredbytheregion.Onealternativesourceclosetomasscommercializationinthe
regionisshalegas.
• AccordingtotheADB,oilwillsupplyapproximately27%of theAsia-Pacic’senergydemand
overthenexttwodecades,withanannualgrowthof2.2%.
• Thedemandfornaturalgasusewillincrease3.6%ayeartofulll14.5%oftotalenergydemand.
1
Asia-Pacific
Oil & Gas Sectors
Adding Value to Information Since 1900
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Industry Report - Oil & Gas - August 2011
Publisher
Jonathan Worrall
Director
John Pedernales
Managing Editor
Peter O’Shea
Research Analyst
Norman Tan
Website:
http://webreports.mergent.com
Customer Service:
1800 342 5647 or 704 559 7601
email: [email protected]
Sales Enquiries:
Tim Worrall - Asia-Pacific Sales Manager+61 422 721 844
email: [email protected]
2
Copyright Statement
Copyright 2011 by Mergent, Inc. All Information contained herein is
copyrighted in the name of Mergent, Inc. and none of such information may be
copied or otherwise reproduced, repackaged, further transmitted, transferred,
disseminated, redistributed or resold, or stored for subsequent use for any
such purpose, in whole or in part, in any form or matter or by any means
whatsoever, by any person without prior written consent from Mergent.
http://www.mergent.com
Disclaimer
All information contained herein is obtained by Mergent, from sources believed
by it to be accurate and reliable. Because of the possibility of human and
mechanical error as well as other factors, however, such information is
provided “as is” without warranty of any kind. NO WARRANTY, EXPRESS
OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF
ANY INFORMATION IS GIVEN OR MADE BY MERGENT IN ANY FORM OR
MANNER WHATSOEVER. Under no circumstances shall MERGENT have
any liability to any person or entity for (a) any loss or damage in whole or
in part caused by, resulting from, or relating to, any error (negligent or
otherwise) or other circumstance involved in procuring, collecting, compiling,
interpreting, analyzing, editing, transcribing, transmitting, communicating
or delivering any such information, or (b) any direct, indirect, special,
consequential or incidental damages whatsoever, even if Mergent is advised
in advance of the possibility of such damages, resulting from the use of, or
inability to use, any such information.
The Asia-Pacific Industry Reports are
published by Mergent, Inc., headquartered in
Fort Mill, South Carolina, USA. Each
industry sector report is updated every six
months. Mergent, Inc., a leading provider of
global business and financial information on
publicly traded companies, operates sales
offices in key North American cities as well as
London, Tokyo and Melbourne.
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3
Current Environment
Overayearafterthedeepestrecessionindecades,theAsia-
Pacicregionledtheglobaleconomicrecovery,generating
strongdemandforglobaloilandgas.Theregionrebounded
swiftlyduringtherstquarterof2010,andwasexpected
tocontinueleadingtheglobalrecoveryovertheshortterm.
According to the International Energy Agency (IEA),
developingnon-OrganizationforEconomicCo-operation
andDevelopment(OECD)Asianeconomiesledtheglobal
recovery,withmanyalreadyoutofrecessioninearly2010.
ChinaandIndiawerethetwocountriesthatwereamongtheleastaffectedbytheglobalrecession,andtheycontinuedto
leadworldeconomicgrowthandenergydemandgrowth,
whileJapanwasstillinthemidstofrecovery.
Crude oil prices rose as demand improved due to the
improving global economic environment that fueled
regionaldemand.Asia-Pacicoildemandgrew2.1%and
5.9%in2009and2010respectively.China’sdemandwas
thekeybehindthegrowthinoildemand,with70%ofthe
demandincreasein2010comingfromthecountry.Notall
countriesgeneratedstrongerdemand.SouthKoreawasthe
oneregionalcountrythatsawitsoildemandfall.According
to the Korea Energy Economics Institute (KEEI), oilisexpectedto account for39.5%ofSouthKorea’s total
energydemand in2011, comparedwith53.2% in2000.
Thisdemand isexpected todeclinefurtherto 38.6%in
2013.Thecontinueddeclineinoilconsumptionwasdueto
anincreaseintheuseofnaturalgasandnuclearpower.
Leading oil and gas companies in the region did well
nancially,benetingfromtherecoveringglobaleconomy,
whichledtogainsincrudeprices.Higherglobalcrudeoil
productionmorethanoffsettheeffectsoflowerworldwide
reneryoutputanddomesticreningmargins,leadingto
higherrevenuesandnetincome.Thesharepricesofleading
companiesalsodidwelloverthepastsixmonths.ThetoptenleadingAsia-Pacicoilandnaturalgascompaniesby
revenues,accordingtoMergentresearch,sawtheirshare
pricesrisebyanaverageof9.2%overthesixmonthsto
May 31, 2011.Of the ten, seven saw their shareprices
nishhigher,whilethe remainingthreeendedtheperiod
weaker.
TheindustryalsosawarunofM&Aactivityoverthepast
sixmonthsasoilandgascompaniesintheregioncontinued
theirpursuitofunconventionalenergyassetsbothathome
andabroad,aswellasmakingstrategicallianceswithother
oilandgascompaniesfromotherregions.Somecompanies
alsoinvestedinalternativeenergysourceslikesolarpower,
biofuelandnuclearenergyinanefforttodiversifyingtheir
revenuesstreamsfromtheircorebusinesses.Oneobvious
businesssectorforoilandgascompaniestoventureinto
istheenergysector.Asoilandgaspricescontinuetosoar,
puttingdownwardpressureondemand,andascrudeoil
and gas resources continue to deplete, other sources ofenergywillgaininmarketshareandreplaceoilandgas
Manyoilandgascompaniesthereforecontinuedtoinvest
intheenergysectoroverthepastfewmonths.
Thedeclineofconventionaloilandgasreservesoverthe
pastdecadehaselevatedtheimportanceofunconventional
resourcesintheenergysectorastheindustrystrugglesto
meetforecast demand.Coalbedmethane (CBM) isone
alternativeenergy source touted tobe inlineto replace
oil and gas, withAustralia the leader in the usage and
commercialization of the energy source. Among the
sources explored are nuclear energy, natural gas, coal,
biofuelandotherrenewables.Oneotheralternativesourceclosetomasscommercializationintheregionisshalegas.
ShalegasisinapositiontoaddtotheAsia-Pacic’sfuture
energysuppliesgoingforwardandhelptocuttheregion’s
relianceonimportedenergy.
Sector Performance
Worldwide natural gasmarkets continued to experience
a reduction indemand over the past six months due to
the economic recession, continuing a two-year trend.
This,combinedwitha faster-than-expectedexpansionin
unconventionalgasintheUS,resultedinglobaloversupply.
However,aftersomeinitialdownwardpressure,gaspricesmade a recovery. The share performances of leading
companies were largely unaffected by this.The top ten
leading Asia-Pacic oil and natural gas companies by
revenues,accordingtoMergentresearch,sawtheirshare
pricespickupbyanaverageof9.2%overthesixmonths
toMay31,2011,whencrudeclosedatUS$100.59/bblon
theNewYorkMercantileExchange(NYMEX)onMay27.
Oftheten,sevensawtheirsharepricesnishhigher,while
theremainingthreeendedtheperiodweaker.
Sector Overview
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4
Current Environment
Thestrongestperformerduringtheperiodonceagainwas
PetronasDaganganBhd (KLSE:PETD),whichhad the
bestperformanceduringthesecondhalfof2010aswell.
TheMalaysianstate-runoilcompanystartedtheperiodat
RM11.41(US$3.81)onDecember1, andfell slightly to
itsperiodlowofRM11.39(US$3.81).Itthenrosesteadily
over the next three months, hitting its period high of
RM16.50(US$5.52)onMarch31,apricethatitreached
againtwicemoreonApril5andApril7.
Petronas’sharepricefellslightlytoRM15.30(US$5.12)
onMay3,beforeendingtheperiodatRM16.30(US$5.45)
pershare,nottoofarofffromitsperiodhigh.Petronas’
sharesrosebyatotalof32.9%overtheperiod.Thestrong
share performance was due largely to solid nancial
performancesofthecompanyoverthepastyear.
Another companywhoseshare prices did well over the
periodwasSantosLtd (ASX:STO).Santos’ share price
startedtheperiodatitsperiodlowofA$12.25(US$13.09)
onDecember 1.It then rose steadilyover the next four
consecutivemonths and hit its period high ofA$16.49(US$17.69)pershare.Santos’sharepricesthenunderwent
aslightcorrection,decliningtoA$15.19(US$16.29)per
shareatthestartofMayorMay2,beforeroundingoffthe
periodatA$14.76(US15.83)pershareonMay31.
Thestrongshareperformancecameonthebackofweaker
nancialperformance due to interrupted production and
drillingactivities of the company’s interests offshore of
WesternAustralia,hitonnolessthanveoccasionsasthree
cyclonesandtwotropicallowshitthearea,suggestingthat
investorshavefaithinthefoundationsandfutureofthe
company.Overall, the company’s shares roseby 20.5%
overtheperiod.
Thecompanywith theworst performing stock over the
periodwasIndianOilCorp(BSE:530965).Thecompany’s
sharepricestartedtheperiodatRs.384.55(US$8.65)per
shareonDecember1andhitaperiodhighofRs.385.75(US$8.68)twodayslater.IndianOilCorp’ssharepricethen
fellthefollowingtwomonthstoaperiodlowofRs.293.05
(US$6.59)onFebruary25.Itthenpickedupoverthenext
twomonths toreach Rs.343.30 (US$7.72) per shareon
May2,andendedtheperiodloweratRs.328.30(US$7.39)
onMay31.
Leading Companies
Allleadingmajoroilcompaniescontinuedtheirclimbback
fromrecession,andsignicantrisesinnetincomeof2010
andtherstquarterof2011.Theybenetedasarecovering
globaleconomyspurredgainsincrudeprices,andhigherglobal crudeoil productionmore thanoffset the effects
oflowerworldwidereneryoutputanddomesticrening
margins,leadingtohigherrevenuesandnetincome.
China National Offshore Oil Co Ltd (CNOOC) (HKSE:
883)
China’s largest offshore oil company, China National
Offshore Oil Company Ltd (CNOOC), reported total
Table 1: Key Asia-Pacic Oil and Gas Major Stock Performances
Company Ticker Closing Stock Prices
Change (%)December 1, 2010 May 31, 2011
China Petroleum & Chemical Corp (Sinopec) HKSE: 386 HK$7.15 HK$7.66 7.1
PetroChina Co Ltd HKSE: 857 HK$9.56 HK$11.28 18
China National Offshore Oil Co Ltd (CNOOC) HKSE: 883 HK$16.79 HK$19.60 16.7
Indian Oil Corp BSE: 530965 Rs384.55 Rs328.30 (14.6)
Hindustan Petroleum Corp BSE: 500104 Rs431.50 Rs380.50 (11.8)
Oil and Natural Gas Corp Ltd (ONGC) BSE: 500312 Rs313.83 Rs281.05 (10.5)
Caltex Australia ASX: CTX A$12.95 A$14.12 9
Woodside Petroleum Ltd ASX: WPL A$40.76 A$46.63 14.4
Santos Ltd ASX: STO A$12.25 A$14.76 20.5Petronas Dagangan Bhd KLSE: PETD RM11.41 RM16.30 42.9
Average Rise/Fall (%) 9.2
Source: Mergent analysis
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5
Current Environment
unaudited revenues of RMB48.51 billion (US$7.51 billion)fortherstquarterofthisyear.Thiswasayear-
on-yearincreaseof26.6%.Thecompanyreportedtotalnet
productionof85.2millionbarrelsofoilequivalent(BOE)
forthequarter.Itsaveragerealizedoilpricealsorose32.7%
for the period to US$99.98%. CNOOCmade ve new
discoveriesandsucceededin drillingsix appraisals over
thequarter. Italso ranits Jinzhou25-1offshoredrilling
projectsuccessfullyandlinedupanumberofotherprojects
tobecarriedoutovertherestoftheyear.Thecompany
purchaseda33.3%stakeinChesapeake’sNiobraraproject
fortheperiod.
Indian Oil Corp Ltd (IOC) (BSE: 530965)
State-owned Indian Oil Corp (IOC) reported a great
year nancially in 2010. The company reported its
highest ever gross turnover, reporting Rs.3.29 billion
(US$74.03million). Its prot after taxwas up 138.9%
year-on-year to Rs.74.46 billion (US$1.68 billion) for
2010. IOC saw its overall salesof petroleum rise3.9%
fortheyear,surpassingtheoverallindustrygrowthrate.
IOC’scapacityutilizationwas102%,withthecompany
successfully commissioning a number of projects,
including the expansion of the Panipat and Haldia
reneries,theupgradingoffuelqualitiesinitsreneries,
andtheexpansionofitsmarketingandpipelinenetwork.
IOC’s earnings per share (EPS)for 2010 was Rs.30.67(US$0.69), a slight decline from the EPS of Rs.42.10
(US$0.95)reportedfor2009.
Petroliam National Bhd (Petronas) (KLSE: PETD)
Malaysia’sstateoilandgascompany,Petronas,enjoyeda
goodnancialyearin2010,postinga14.4%increasein
revenuesforthescalyear(FY)10/11.itsrevenueswent
upfromRM210.8billion(US$70.47billion)inFY09-10
toRM241.2billion(US$80.63billion)inFY10/11,driven
byhighercrudepricesandvolumesold.Itsgrossprot
fortheyearwasuptoRM97.8billion(US$32.7billion)
fromRM82.4billion(US$27.6billion),ariseof18.7%.OverallprotfortheperiodwasRM63billion(US$21.1
billion)comparedwithRM45.5billion(US$15.2billion)
over FY09/10. For 2010, Petronas made crucial oil
and gas discoveries offshore of the Malaysian state of
Sarawak. The company oversaw the successful drilling
oftheNC3wildcatwellinMarch2010andtheSpaoh-1
wellinDecember.Petronasexpectedtodrillmorethan50
explorationwellsoffshorearoundMalaysiaoverthenext
threeyears.
Mergers and Acquisitions
Asia’snationaloilcompanies (NOCs)drovea revivalof
oilandgasM&Aactivityoverthepastsixmonthsintheir
pursuitofunconventionalenergyassetsbothathomeand
abroad, aswell asmaking strategic alliances with other
oiland gascompaniesfromother regions.Anumberof
theregion’sleadingoilandgascompaniesalsoinvested
inalternativeenergysourceslikesolarpower,biofueland
nuclearenergyinan efforttodiversifyingtheirrevenues
streamsfromtheircorebusinesses.Gradually improving
nancingconditions,therelativelyhighoilpriceandthe
needsofAsianNOCs and the majors togain access to
reservesdrovetherevival.
Inanefforttodiversifytheirbusinessandrevenuestreams,
one obvious business sector for oil and gas companies
toventureintoistheenergysector.Asoilandgasprices
continuedtosoar,puttingdownwardpressureondemand,
andascrudeoilandgasresourcescontinuedtodeplete,
othersourcesofenergygainedinmarketshareandreplaced
oilandgas.Manyoilandgascompaniesthereforeinvested
intotheenergysectoroverthepastfewmonths.
OnecompanythatdidsowasIndianOilCorporationLtd,
which entered into a joint venture with Nuclear Power
CorporationofIndiaLtdinJanuarytosetupnuclearpower
plantsacrossthecountry.Duringthesamemonth,IndianOilalsosignedamemorandumofunderstandingwithclean
energycompanyLanzaTechtocollaboratetoproducefuel
gradeethanol.Anothercompanywithinvestmentsin the
energysectorwasSouthKorea’sS-Oil,whichacquireda
33.4%stakeinHankookSilicon,aproducerofthecore
element needed in the production of solar energycells,
poly-silicon.
Apartfromtheenergysector,oilandgascompaniesinthe
regionalso investedin otherbusinesssectors. InMarch,
Indian oil and gas conglomerate Reliance Industries
announced ithad formed anew jointventurewithD.E.
ShawGrouptoformanancialservicesbusinessinIndia.ThedealwillseeD.E.Shawcontributeitsinvestmentand
technologicalexpertiseandcombinethemwithReliance’s
operational knowledge and extensive presence in the
countrytoofferacomprehensivearrayofnancialservice
in India.The dealcame asbothpartiesattempt tostake
a claim in the edging nancial services sector in the
country.
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Industry Profile
Althoughnewdiscoveriesofoilandgasarebeingmade
in theAsia-Pacicregion, reservesaredepletingdue to
themassivesurgeindemandfromdevelopingeconomies.
Whilethereareconsiderableoilandnaturalgasreserves
in the Asia-Pacic, most notably in India, Indonesia,
Malaysia, China and offshore Western Australia, long-
term energy demand growth is expected to surpass the
region’s own production capacity. It is inevitable that
developingcountriesin theregionareexpectedtobethe
dominantconsumersof theworld’senergysupplies,andmostproducerswillbecamenetimportersratherthannet
exportersoverthecomingmonths.
The region has less than 4%of the world’s proven oil
reserves,leavingitwithfewoptionstoincreaseoreven
maintaincurrentlevelsofproduction.Theregionhaslarge
coal reserves, making coal the primary energy source
inChinaand India. For the restof the region,crude oil
isthe energysourceofchoice.Oilis expected to retain
its position as the world’s foremost source of primary
energyconsumptionoverthenexttwodecades.Although
industrializedcountriescontinuetoconsumemoreoilthan
developingcountries, the gap is narrowing. Developingnationsareexpectedtoconsumeanamountequalto94%
of the total amount of oil consumed by industrialized
countriesby2025.
Petroleum-based fuels used for transportation are also
poisedforstronggrowthindevelopingAsia.Chinaisthe
keymarketthatwilldrivegrowthinregionalconsumption,
followedbyIndia,ThailandandIndonesia.Energyusefor
transportationin China is expected to increaseby5.3%
annuallybetween2001and2025,whiledemandinAsia’s
other developing countries will also experience strong
growth as rising standards of living result in increased
automobile ownership. India’s rapidlygrowingeconomyiscausinggrowingdemandforenergyaswell,whileSouth
KoreaandJapanareexpectedtoreachthesamelevelby
2015.
Oil and Gas Production and Consumption
AccordingtotheBPStatisticalReview2011,oilproduction
hasbeenonaplateauforwelloveradecadeandcontinued
tobe soin 2010.Net oil imports are increasing as the
regionrushestomeetrisingdemand.TheAsia-Pacichas
provedreservesof45.2billionbarrelsbytheendof2010.
HavingsurpassedNorthAmericabackin2007,thelevelof
oilandgasconsumptionintheAsia-Pacicisthehighestin
theworld,thankstoitsbriskeconomicexpansion.Ledby
ChinaandIndia,oilconsumptioninAsia-Paciccountries
roseby5.3%to27,237barrelsperday(b/d)in2010from
25,866b/din2009.
Natural gas production and consumption in the Asia-Pacicalsorosein2010.Totalnaturalgasproductionin
theregionin2010was399.4milliontons,anincreaseof
4.9%comparedwiththeproductionof380.8milliontons
reportedin2009.Consumptionofnaturalgaswasup5.3%
overtheperiod,from1.2billiontonsto1.27billiontons.
ThelargestenergyconsumerintheregionisChina.The
country’senergyconsumptiongrew11.2%overtheyear,
displacingtheUSastheworld’slargestenergyconsumer.
In2010,China’s oildemandcontinuedto grow, leaning
heavily onoil imports tomeet its needs. The country’s
net oil importswereup14.6%, or680,000 b/d in2010.
AccordingtotheChinaPetroleumandChemicalIndustry
Association(CPCIA),oilimportsmadeupmorethan55%ofalloilconsumptioninChina.
Data from the CPCIA also shows that from January to
June2010theapparentvolumeofChina’soilconsumption
reached220millionstons,anincreaseofmorethan15%
compared with the previous year. In the same period,
China’s oil import dependency grew bymore than 4%
comparedwith2009.Inaddition,theapparentvolumeof
China’scrudeoilconsumptionreached215milliontons,
anincreaseofnearly19%,andChina’scrudeoilimport
dependencyreachedmorethan54%,anincreaseofnearly
6%comparedwiththepreviousyear.Thecountryremained
theleadingcrudeoilproducerintheAsia-Pacicdespitedecliningproduction. However, its crudeoil production
isexpectedtodeclineatanaverageannualrateof3.7%
between 2010 and 2020. Despite this, the country will
producemorethanthricethatofthenextlargestproducer,
Malaysia,in2020,accordingtoIEAstatistics.
India’sconsumptionpickedup 6.6% from441.1Million
Tonnes ofOilEquivalent (mtoe) in2008to 468.9mtoe
in2009.Indonesiaalsoreported3.1%growth,from124.7
Industry Overview
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Industry Profile
mtoeto128.2mtoeforthesameperiod.Indiaisexpectedtoemergeasthesecondlargestcrudeoilconsumerinthe
Asia-Pacicby2013.Indiaiscurrentlythethirdlargestoil
consumerintheAsia-PacicafterChinaandJapan.Driven
bystronggrowthinGDP,Indiaisexpectedtowitnessthe
largest oil consumption growth rate in the Asia-Pacic
between 2010 and 2020. On the other hand, Japanese
crudeoilconsumptionisexpectedtodeclineatanaverage
annualrateof0.7%withinthesameperiodatthecountry
continuestoremaininaneconomicplateau.
The region is also rich with coal, which is a crucial
energysourceinanumberofcountries,includingChina,
Australia, India, and Indonesia. Coalconsumption grew
onlyinChinaandIndiatosupporttheirinfrastructureand
industrialprojects,whosegrowth,ifcombined,wasmore
thanenoughtocounterbalancethedeclinesintherestofthe
world.IntheAsia-Pacic,coalsuppliesmostenergyneeds
inChinaandIndia,butonly23%oftherestoftheregion’s
need.CoalconsumptionintheAsia-Pacicisexpectedto
doubleinthenext20years,butitisunlikelythatitwillbe
abletokeeppacewiththeregion’stotalenergyneeds.
Industry Focus
The Role of Biofuel in the Asia-Pacic Energy Market
Biofuel is a reasonably new energy source that hasincreasinglygainedprominenceoverthepastfewyears.
It isproduced bothdirectlyand indirectlyfrom organic
materialorbiomass,whichincludesanimalandagricultural
wastesandplantmaterialslikecassava,rice,cornandso
on.Moreefcientbiofuelprocessingtechniqueshavebeen
developedrecently,makingtheenergysourcecheaperand
moreefcient,aswellaswideningtherangeofmaterials
used.Asfossilfuelpricesandthelevelofenvironmental
consciousnessgrow,biofuellookspoisedtoincreaseits
shareintheglobalenergymarket.
According to the International Energy Agency (IEA),
biofuel is expected to provideup to 27%of all globaltransportationfuelby2050.GivingtheAsia-Pacicbiofuel
a boost over thepastfewmonths was the commitment
by the European Parliament to reduce emission levels
for commercial vehiclesin theEU.TheEURenewable
Energy Directive saw the goal of having 20% of the
region’senergycomefromgreenandrenewablesources
by 2020. This has opened up opportunities for biofuel
producersintheAsia-Pacic,whichisinanadvantageous
positionduetolowercostsandtheexistenceofinitiatives
todrivetheenergysource.Ithasalsofueledfundingfromgovernmentsandinvestmentfromtheprivatesectorinto
thetechnology.
TheAsia-Pacic ishometo onekeybiofuelsource,the
Jatropha plant. Jatropha is a hardyplant that can grow
on tough soil conditions and currently, a 2,000 hectare
plantationisbeingdevelopedinMalaysia.Thepossibility
of having 700 sq km Jatropha plantation is also being
discussed InChina earlythis year.Chinahas also been
developing and experimenting with a range of other
biofuel, including ethanol and biodiesel. BiofuelsAsia
expectsthedemandforbiofueltoincreasebyanaverage
of20%-30%overtherestofthedecade.Othercountries
activelydevelopingthetechnology includeAustraliaand
Indonesia.The technology isexpected toplay a role in
aidingtheregionmeetitsfutureenergydemandandbeless
dependentonoilandgasimports.
Policy and Regulatory Environment
Offshoredrillingisacrucialcrudesourcetotheoiland
gasindustry,andwithnewonshorediscoveriesdeclining
steadily over the past decade, offshore sources have
become increasingly important to the world’s energy
supply. Offshore drilling represents approximately 50%
ofalloffshorecapexwithintheglobalE&Pbusiness.The
Asia-Pacic oil and gas industry has been no laggards,spendingapproximatelyUS$88billionoverthepastve
yearsonoffshore drilling. Spending surgedin 2006and
continued throughout 2007, before declining slightly in
2008andsharplyin2009.Theforecastforoffshoredrilling
expenditureforthisyearthroughto2013isgrowthata
slower rate, and isexpectedto reachUS$108 billionby
2015.An estimatedUS$75billionwasspentonshallow
waterdrillingintheAsia-Pacicoverthelastveyears.
This represents 85% of all drilling expenditure in the
region.
Oneyear after theBPoilspilldisaster, offshore drilling
policiesformanyoilproducingcountriesaroundtheglobehavebeen permanently changed. FormanyAsia-Pacic
countrieshowever,muchoftheiroffshoredrillingpolicies
remain the same. Some, likeAustralia, have continued
withtheiroffshoreoperations,citingthereasonthattheir
existing offshore safety and environment policies are
efcientenough.Theprospectsfortherecoveryindrilling
numbers vary considerably across geographic regions,
withdeepwaterdrillingcontinuingtobethemaindriver
forexpandinglevelsofactivityinthemarket.
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Industry Profile
AsAsia-Paciccontinuesto develop botheconomicallyand in population, the region’s demand energy will
inevitablyincrease.TheregionisalreadyhometoChina,
thelargestenergyconsumerintheworld.Theregionhas
beenexploringothersourcesofenergytomeetitsdemand.
Nuclearenergywastoutedasonepossiblesourceformass
expansionbeforetheJapanFukushimaDaiichinuclearleak
ledtomanycountriesshelvingplansfortheenergysource.
Coalisthelargestenergysourceintheregionasidefromoil
andgas,whiletheregionisalsoexperimentingwithother
sourceslikebiofuelandshalegas.China,India,Australia,
IndonesiaandMalaysiahavebeenexploringthepotential
ofbiofuel,whileChinaalsohasaninternationaldealwith
theUStojointlydevelopandinvestinshalegas.
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Market Trends & Outlook
Conventionaloilandgasreserveshavebeenindeclineover
thepastdecade,elevatingtheimportanceofunconventional
resources in the energy sector as the industry struggles
tomeetforecastdemand.CBMiswidelyregardedtobe
oneof thebest immediate resources to limit thedecline
ofconventionalgasvolumesandisbecomingincreasingly
mainstreamwithintheupstreamoilandgassector.With
theexceptionofAustralia,whereCBMhasdemonstrated
andprovenitsperformanceasaproducingplay,mostof
Asiaisstillexploringthepotentialofthisunconventionalresource. However, growing demand and favorable
geological factors favorAsia’s efforts to commercialize
unconventionalgas.
China has showed the greatest amount of progress in
accessinganddevelopingCBMresourcesamongallAsian
countries. The country has signicant CBMexploration
acreage in various basins, and three producingprojects.
ChinahasthemostadvancedCBMindustryintheregion,
with established CBM production and huge potential
forgrowth.According toChina’sMinistry ofLandand
Resources,thecountrymayhaveabout1,000trillioncubic
feet(Tcf)ofCBMresourcesinplace,with350Tcfofitsresources deemed as recoverable. These resources are
distributedmainly in theShanxi andShaanxi provinces,
Inner Mongolia and the Yunnan-Guizhou Plateau,
particularly in the Ordos, Qinshui, Junggar and Erlian
basins.
India also holds signicant prospects for commercial
recoveryofCBM.Thecountryishometothefourthlargest
provencoalreservesandisthethirdlargestcoalproducer
in the world. Indian conglomerate, Reliance Industries,
hasvecoalbedmethaneblocksinthestatesofMadhya
Pradesh,RajasthanandChhattisgarh.Thecompanyhopes
toextractgasfromtheseblocksandexpectstodrill100wells in the next ve years to a depth of up to 1,700
meters.
InIndonesia,theCBMpotentialisestimatedat450Tcf
inplacewiththemost signicant reservesin the South
Sumatra (183Tcf),Barito (102Tcf),Kutei (80Tcf) and
CentralSumatra(53Tcf)basins.Indonesia ispromoting
CBM exploration and production by opening the rst
CBMbidround,changinglegislationthatregulatesaccess
toCBMreservesandbyprovidingincentivestoinvestors.
Asof January2010,20 CBM PSCs had been awarded.
Indonesia,ChinaandIndiahaveeachputinplacepolicies
andregulatoryframeworks,includingscalincentives,to
encouragedevelopmentofCBMandforeigninvolvement
inthesector.
Regional Fuel Prices Rise
The recovering global economy and energy demand,aswell as the reduced production and the exports of a
numberofmajorglobaloilproducingcountrieshaveled
to fuel prices rising over the past year. Oil prices past
US$100 perbarrelin February, thehighestpoint in two
andahalfyears,duetoinvestorconcernovertheMiddle
Eastunrest.InAustralia,althoughshieldedbythestrong
Australiandollar, averagehouseholdexpenditureon fuel
wasexpectedtorisetoA$65(US$69.73)aweekin2011
—A$10(US$10.07)morethanayearago.Petrolprices
areexpectedtohitA$2.00(US$2.15)perliterthisyear,
puttingthecountryatriskofhigherination.
InJulythisyear,Chinaraiseditsfuelpricesforthesecondtime in three months, increasing wholesale petrol and
dieselpricesbyUS$53pertonbycuttingsubsidies.The
risecameasthecountryattemptedtooffsetglobalcrudeoil
priceincreases.Thecutinpetrolanddieselsubsidieswas
alsotheChineseGovernment’sattempttosteminationin
itsrapidlyexpandingeconomy.AnotherAsianeconomic
powerhouse, India, saw its state-run fuel retailers raise
petrol prices by 4.5% in January this year, the second
riseinamonth,asitsattemptedtostarveoffinationas
well.Thecountry’smajoroilretailers,IndianOil,Bharat
PetroleumCorpandHindustanPetroleumCorpraisedtheir
pricesbyUS$0.05perliter,followingtheir5.5%increase
inDecember.
InIndonesia,theGovernmentwasencouragedbycertain
quarters inJuly thisyear toraise fuel prices bycutting
subsidies in the state budget and limiting consumption.
The call came as some argued that the present subsidy
systemhadopenedthecommoditytoabuseintheblack
market,wherethesubsidizedpetrolissoldabroad.Black
marketabuseofsubsidizedpetrolwasthereasongivenby
Indonesia’s neighborMalaysiawhen it decided to raise
Asia-Pacic to focus on Coal Bed Methane
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Market Trends & Outlook
petrol prices almost every single monthso far in2011.Inanefforttoeasetheensuingpressureofinationand
criticism fromthe populace,the Government introduced
alowergradeofpetrol,calledRon95,whichissoldata
cheaperrateandmoreimmunetopricehikes.
SouthKorea was one country thatwent inthe opposite
directionfromtheirregionalcounterpartsinpetrolprices
over the past few months.The country has seen its oil
demand decline over the past decade.According to the
KoreaEnergyEconomicsInstitute(KEEI),oilisexpected
toaccountfor39.5%ofSouthKorea’stotalenergydemand
in 2011, compared with 53.2% in 2000. As such, the
Governmenttooktheinitiativetoreducepetrolpricesin
thecountryinanefforttobringdownination.Leading
renersinthecountrystartedcuttingfuelpricesinApril
this year.Top rener SKEnergy reduced its petrol and
diesel prices byUS$0.10 a liter over the threemonths
endedAugust.Threeother renersare setto followSK
Energyandanalystforecastthatthepriceslashcutcostall
fourrenersatotalofUS$643million.
Shale Gas in the Asia-Pacic
The majority of countries in the region have growing
economies, which drives energy demand. Falling new
productionand risesin global crudeoil prices have led
toAsia-Paciccountriesseeking out alternative sourcesof energy.Among the sources explored include nuclear
energy, natural gas, coal, biofuel and other renewables.
Onealternativesourceclosetomasscommercializationin
theregionisshalegas.Shalegasisinapositiontoadd
totheAsia-Pacic’sfutureenergysuppliesgoingforward
andhelptocuttheregion’srelianceonimportedenergy.
Currently, China, India and Thailand, among other
countries, alreadyconsumemoregasthan theyproduce.
Thegapissettowidenunlesstheycanboostproduction
ofthisunconventionalgasresource.Recentbreakthroughs
inhydraulicfracturingtechniquesandtheadoptionofnew
technologies haveallowedChinato start developing itsownshaleplays.China’s currenttechnically recoverable
shale gas reserves are estimated to be at around 1,275
trillioncubicfeet(Tcf),anamountthatislargerthanallthe
shalegasreservesofboththeUSandCanadacombined.
The Ministry ofLand and Resources announced at the
beginningof2010thatChinahadplanstoboostitsshale
gasproductioncapacityby530billioncubicfeet(Bcf)to
1.059Tcfannuallyto easegas shortages in thecountry.
China’s natural gas supply is frequently in shortage,
especiallyineasternandcentralChinawherenaturalgasdemandhassurged.
TheChineseprivatesectorhasalsoplayedaroleinthe
development and commercialization of the resource.
Chineseoiland gascompanieshave beenworkingwith
foreign shale gas companies in order to improve their
own technologies and help accelerate the development
ofChina’sshale gasplaysgoing forward.Thecountry’s
largest oil company, PetroChina, sought Shell’s help to
developanothershalegasblockinthesouthwesternpartof
theSichuanBasin,whileanotheroilandgasgiantSinopec
heldtalkswithBPtojointlydeveloptheunconventional
resourceinSichuanProvince.
IndiaisanotherfrontierintheAsia-Pacicforshalegas
development. India’s hugeshale depositsare located on
theGangeticplain,Assam,Gujarat,Rajasthanandinmost
coastalareas.Thecountryhasbeenworkingtogetherwith
theUStondwaysforeconomicexplorationofthegas.
January ofthisyearsaw a landmarkin Indiawhen the
country’soilandgasgiantONGCfoundshalegasinan
exploratorywellnearDurgapur,makingittherstAsian
countrytodiscovershalegas.
Indonesia,meanwhile, plans to tender theonshoreshale
gasreservesintheeasternpartofthecountry,estimated
at1,000Tcf,fordevelopmentbyyear-end2010.Lookingahead, Mergent expects governments and national oil
companieswithprovenshalegasreserveswillcontinueto
seekallianceswithwesternmultinationalswellversedin
theextractionandprocessingofshalegas.Thecurrentshale
gasrevolutionintheAsia-Pacicisalsobecomingaway
todiversifyenergysuppliesintheregionatatimewhen
cuttingemissionsisincreasinglybecomingapriority.
Market Outlook
TheAsia-Pacichasalargeandgrowingdemandforoil.
This, combinedwith sharply limited domestic supplies,
posesamajor challengefor theregion’senergysecurityandeconomicgrowth.Theregionisheavilydependenton
importstomeetitslargeandgrowingdemandforoil,andis
alsoparticularlydependentonoilimportsfromtheMiddle
East,which perhaps themost volatileand unpredictable
regionoftheworld.
Thereis aglimmerof hope for a changeforthe region
goingahead,withagrowingvolumeofRussianoilheading
forAsiaviaanewlyopenedterminalatKozminoonthe
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Market Trends & Outlook
PacicOcean.Apipeline,duetobecompletedby2014,will link the port to oil-rich East Siberia, nearly 5,000
kilometers inland, eventually raising the export ow to
1.6millionbarrels perday (bpd).Russia,which hasthe
world’slargestgasreserves,iskeentodiversifyitsexports
awayfromEuropebybuildingpipelinesandsellinggas
overseasintheformofLNG.
As theAsia-Paciceconomycontinues todevelop, it is
inevitable thatdevelopingcountriesinthe regionwillbe
thedominantconsumers of theworld’s energysupplies.
Many oil and gas producers may became net importers
rather thannet exportersover thedecade.The region is
increasinglybecomingahotbedofoilandgasactivityto
fuelasitpositionsitselftomeetrisingenergyneeds.
Mergent envisages that therewill be further uptrend in
upstream acquisitions byAsian national oil companies,
particularlyinunconventionalresourcesandinLNG.Oil
and gaswill continueto remain the dominantsourceof
energyintheAsia-Pacicoverthenext25years,according
to the ADB, despite signicant progress in developing
renewable and other alternative energy sources. It is
estimated that coal,oil and natural gas will still supply
80%oftheregion’senergysupplyin2030,drivingupCO2
emissions.
AccordingtotheADB,oilwillsupplyapproximately27%of all Asia-Pacic’s energy demand over the next two
decades,withanannualgrowthof2.2%.Naturalgasuse
willincrease3.6%ayeartofulll14.5%oftotalenergy
demand. The growth innaturalgas demand isexpected
tobebydemandgrowthinboomingChineseandIndian
economies, as well as the demand for cleaner energy.
This strong growth ofoil and gas demandwill provide
the impetus for huge investmentsin the midstream and
downstreamsectorsoftheAsia-Pacicinthenextdecade.
Coal is also an important energy source for the region,
llingintheenergygapsthatoilandgasleaves.Theuseof
coalwillrise2.1%annuallyoverthenexttwodecadesto
supply38.3%oftheAsia-Pacic’senergyneedsby2030.
Newand renewableenergysourcesare forecasted tobe
theregion’sfourthlargestenergysourceby2030andwill
supplying anestimated11%of theregion’s total energy
needs. However, the ADB forecasts a slow uptake of
renewableenergyatonly1.3%annuallyoverthenexttwo
decades.Therearestillsomepositivesignsforrenewable
energy expansions, despite the pessimistic outlook, the
ADB believes there is a compelling case for increased
investmentinlow-carbonpower.Basedoncurrenttrends,oil imports to theAsia-Pacic are expected to increase
substantially,andnearlydouble2005levelsby2030.This
is detrimental to the region’s energy security andAsia-
Pacicwillverylikelyexplorenewandrenewableenergy
sourcesoverthenextfewyears.
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Country Profile Australia
AustraliaisoneofthefewcountriesintheOECDthatisa
signicantnethydrocarbonexporter.Thecountryexports
approximately two thirds of its total energy production.
The country has a considerable amount petroleum and
naturalgasreserves.OilproductioninAustraliapeakedin
2000andhassteadilydeclinedsincethen.Gasproduction
inAustralia,meanwhile,continuestogrow,meetingboth
domesticandexportdemandviaLNGsales.Thecountry
alsohasotherenergysources,mostnotablycoal.According
to theEIA, asof Junethis year,Australia remained theworld’slargestcoalexporter.
Australia’sprospectsforexpandingtheseenergyexportsin
thefuturearepromisingasAsiandemandforbothcoaland
LNGis risingalongwithAustralia’sproven naturalgas
reserves.Havingastablepoliticalenvironment,substantial
hydrocarbon reserves, and proximity toAsian markets
makesAustraliaanattractiveplaceforforeigninvestment.
AlthoughAustraliaexportscrudeoilandrenedpetroleum
products,itisanetimporterofoil.Hydrocarbonexports
accountedfor19%oftotalexportrevenuesin2009.
AccordingtostatisticsreleasedbytheEIAearlierthisyear,
Australiahad3.3billionbarrelsofprovenoilreservesas
ofJanuary1,2010.Oilproductiontotaled589,000bbl/d
in2009,ofwhich81%(476,000bbl/d)wascrudeoil.The
countryexpectsacontinueddeclineinoilliquidsproduction
isexpectedoverthenextdecade.Acoupleofsignicant
offshore projects, the Pyrenees andVan Gogh projects,
came online inWesternAustralia in the rst quarter of
2010.Bothhavesincemadeasignicantcontributionto
oilproductioninthecountry.
Pyreneeshas a production capacityof 96,000 bbl/d and
VanGogh has a production capacity of 150,000 bbl/d.
TheseprojectsareexpectedbytheAustralianBureauof
AgriculturalandResourceEconomics(ABARE)toboost
oil exports by 7%over 2010-2011, in line with higher
production,aidedbytheKipperandTurumeldsstarting
upinthebeginningof2011at10,000and11,000bbl/d,
respectively.Theseadditionstoproductionareexpectedto
offsetthefallinoutputinothereldsatleastintheshort
term.
Sector Overview
Table 2: Historical Australian Oil and Gas Production (mmbls, bcf)
Source: Australian Petroleum Production and Exploration Association
2000
1200
1600
800
1800
1000
1400
600
300
200
50
1993 20011997 20051995 20031999 20071994 20021998 20061996 20042000 2008 2009
250
100
150
0
Liquids (oil, condensate, LPG) (mmbls) Gas (sales gas, LNG) (bcf)
Oil Sector
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Country Profile - Australia
There were 31 new exploration areas in ve offshore basinswereofferedforbiddingin2010,withclosingdates
ineitherNovember2010orMay2011,dependingonthe
explorationstatusanddataavailableintheseareas.TheEIA
estimatesAustraliahadnet oilimports ofapproximately
360,000bbl/din2009.Thehighproportionofimportsas
ashareoftotaloilproductionalsoreectsthelocationof
themajorityofAustralia’soilproductionoffitsnorthwest
coast,whichisclosertoAsianreneriesthantoAustralia’s
domesticreneries,locatedonitseastcoast.
Natural Gas Sector
According to the EIA,Australiahad 110Tcfofproven
naturalgasreserves asof January2010.Australia isthe
12thlargestholderofnaturalgasreservesintheworldand
was the fourth largest exporterof LNG intheworldin
2009.Thiswaslargelyaresultofincreasedexplorationand
developmentofitsunconventionalaswellasconventional
gassources.Naturalgas production inAustraliareached
1.5Tcfin2009andisonarisingtrend,withsignicantnew
projectscomingon-streamintheshorttomediumterm.
The majority of Australia’s natural gas production is
converted into LNG for export aswell as for domestic
consumptionbecausethe distancebetweenAustraliaand
itskeynaturalgasexportmarketsinAsiamakespipeline
trade virtually impossible.AustralianLNGexportshaveincreased by 48% and they are expected to continue
toincreaseovertheshorttomediumtermoverthepast
decade.Japanistheprimarydestinationfortheexports,followedbyChina,SouthKorea,India,andTaiwan.
Leading Companies
Santos (ASX: STO)
Santosdidnotdowellnanciallyaswellasinproduction
over Q1 of this year. Santos’ total sales fell 4%, from
13.6mmbo for the rstquarterof 2010 to13.1mmboe
forthecurrentquarter.Thecompanyreportedrevenuesof
A$501million(US$537.42million)—2%lowerthanthe
revenuesofA$511million(US$548.15million)reported
fortherstquarterof2010.
The results were largely affected by adverse weather
conditions thatwereunfavorable to the drillingprocess
and production of the company.The average rainfall at
Moombaoverthequarter,combinedwithoods,affected
productioninthecompany’sinterestintheCooperBasin.
Santos’ production and drilling activities offshore of
WesternAustraliawerealso interrupted on no less than
veoccasionsasthreecyclonesandtwotropicallowshit
thearea.
Woodside Petroleum (ASX: WPL)
Woodside Petroleum reported nancial and productiondeclinesfortherstquarterof2011.LikeSantos,abnormal
levelsoftropicalcycloneactivityinthenorthwest,where
Table 3: Australia’s LNG Exports for 2009
Japan, 65%
Taiwan, 2%India, 5%
S. Korea, 7%
China, 20%
Source: Energy Information Administration
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Country Profile - Australia
thecompany’skeyproductionwellsarelocated,alsohitWoodside. Higher commodity prices during the quarter
also adversely affected the company’s sales volumes.
Woodside’s production forthe rst quarter of2011was
15.6 mmboe — 19% lower when compared with the
productionof19.2mmboereportedfortherstquarterof
2010.Itstotalsalesfell18%overthesameperiod,from
18.7mmboeto15.3mmboe.Thecompany’stotalrevenues
declinedtoUS$998millionfortherstquarterof2011,a
dropof3%fromtheUS$1.028billionreportedfortherst
quarterof2010.
Market Outlook
Looking ahead,Australia is poised to overtakeNorway
tobecome the thirdlargest gas producer amongOECD
nations by 2035, driven mainly by the booming LNG
sector.Australiangasproductionisprojectedtogrowatan
averagerateof4.2%ayearuntil2035,makingitoneofthe
fastestgrowingsectorsintheworld.Bythen,Australia’s
gasoutputwillonlybesurpassedbytheUSandCanada.
Australia’s gas output is expected to eclipseMalaysia’s
by 2020 and Indonesia’s by 2025.The two nations are
currentlythelargestgasproducersintheAsia-Pacicand
majorLNGexporters.Crudeoilproduction,ontheother
hand,isexpectedtodeclineby28%overthe2010-2020
period.Australiancoalproductioniscurrentlynearitspeakandoverthesameperiod,isexpectedtoincreasebyonly
anaverageof0.6%annually.
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Country ProfileChina
China is the world’s most populous country and the
second largestoilconsumerbehindtheUS.Thecountry
hassurpassedtheUSintermsoftotalenergyconsumed
and rising oil demand and imports have made China a
signicantplayerinworldoilmarkets.Chinawentfrom
beinganetoilexporterintheearly1990sandbecamethe
world’sthirdlargestnetimporterofoilin2006.
Oil consumption growth in China accounted for about
a thirdof the world’s oil consumption growth in2009.
The use ofnaturalgas inChina has also grownrapidly
inrecent years, withChina looking to raisenaturalgas
importsviapipelineandLNG.Chinaisalsotheworld’s
largestproducerandconsumerofcoal,supplying74%of
China’s total energyconsumption requirements in2008.
Thecountrystillhaslargequantitiesofcoalreservesyet
tobedeveloped.
Oil is the second largest source of China’s energy
consumptionandaccountsfor15%of thecountry’stotal
energyconsumption.Despitemakinganefforttodiversify
itsenergysupplies,hydroelectricsources(7%),naturalgas
(4%),nuclearpower (1%), andother renewables (0.2%)
make up relatively small amounts of China’s energy
consumptionmix. TheEIA forecasts coal’s share of the
energymixwill fall to62%by 2035due toanticipated
increasedefcienciesandChina’sgoaltoreduceitscarbon
intensityorcarbonemissionsperunitofGDPbyat least
40%from2005levelsby2020.
Oil Sector
Oil consumption in China has continued to grow at a
solidpace,drivenbystrongeconomicgrowthandmaking
the country’s ranking as one of the world’s top energy
consumers.Chinaconsumedanestimated8.3millionbbl/d
ofoilin2009,upbynearly500millionbbl/dfromyear
earlierlevels.TheEIAforecastsChina’soilconsumption
will continue to grow during 2011, with oil demand
reachingalmost9.6millionbbl/din2011.
TheEIA alsoestimates China’s netoil imports reached
4.3 million bbl/d in2009,making it the second largest
net oil importerin theworldbehindtheUSandforthe
rsttimesurpassingJapan’simports.Afteryearsofrapid
growth, the rate of consumption growth is expected to
slowdownin2011.AccordingtotheChinaPetroleumand
ChemicalIndustryFederation(CPCIF),China'scrudeoil
consumptionisprojectedtogrowby6.6%thisyear,down
froma13.1%growthin2010.
AccordingtostatisticsreleasedbyChina’sNationalBureau
ofStatistics,China’scrudeoiloutputclimbed8.8%year-
on-yearto17.76millionmetrictonsor4.2millionbarrels
per day inOctober 2010.The country produced168.06
millionmetric tonsof crudeoil for the rst tenmonths
of2010,6.1%morethaninthesameperiodoflastyear.
AccordingtoEIAdata,Chinahadprovenoilreservesof
20.4billionbarrelsasofJanuary2010,upoverfourbillion
barrelsfromthepreviousyear.TheCPCIFalsoforecast
thatcrudeoiloutputwouldgrowbyapproximately4%in
2011.
Natural Gas Sector
AccordingtotheEIA,Chinahad107Tcfofprovennatural
gas reserves as of January 2010.The CPCIF estimates
naturalgas consumptionwill continueto growata fast
pace of about15%, down slightly from the natural gas
consumption rategrowthof 15.9% in2010.Natural gas
is the fastest growing fuel in China’s energy mix, but
demand consistently outpaces supply in the country.
Natural gas still represents a small proportion (4%)
of total energy consumption in China. However, with
demandforthe relativelycleanfuelrisingrapidly,China
is increasingly resortingto LNGimportswhile building
itsgasinfrastructure.NaturalgasconsumptioninChinais
expectedtorisetoover10%by2020inlightofincreasing
LNGimportsaswellasdomesticdiscoveries.
China’spotentialwealthofunconventionalgasresources
suchasCBMandshalegashasspurredtheGovernment
toseekforeigninvestorswithtechnicalexpertisetoexploit
thesereserves.Chinaisestimatedtohaveover1,000Tcf
of geological CBM reserves, with 350 Tcf recoverable
reservesandonlysixTcfsofarofprovenreservesby2010.
Despitefacingseveraleconomicandlogisticalchallenges
toproducingCBM,theGovernmentsupportandforeign
Sector Overview
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16
Country Profile - China
participation is spurring production of the resource.However,hurdleslikelimitedaccesstoland,theghtfor
miningrightsandstatecontrolsongaspricesremain,and
itwillbesometimebeforeChinabecomesasignicant
playerinunconventionalgas.
Leading Companies
China Petroleum & Chemical Corporation (Sinopec)
(HKSE: 386)
Asia’slargestrener,ChinaPetroleum&ChemicalCorp,
enjoyedaverygoodyearbothnanciallyandinproduction
in2010.ThecompanyreportedtotalrevenuesofRMB1.97trillion(US$304.76billion)—41.7%higherthatthetotal
revenuesofRMB1.39trillion(US$215.03billion)reported
over2009.
Itsnetprotrose24.7%,fromRMB57.857billion(US$8.95
billion)in2009toRMB72.125billion(US$11.16billion).
Sinopecdiscovered270milliontonsofoiland35.8(billion
cubicmeters)bcmofnaturalgasinprovenreservesin2010.
Italsoproducedatotalof42.56milliontonsofcrudeoil
and12.5bcmofnaturalgasduringtheyear,bothofwhich
were the highest levels ever producedby the company.
Sinopecalsoimproveditscrudeoilproductioncapacityto
5.92milliontonesfortheyearanduppeditsnaturalgas productioncapacityto7.1bcm.
PetroChina (HKSE: 857)
PetroChina continued to perform stronglyover the rst
quarter of this year. The company reported net prot
of RMB37 billion (US$5.72 billion) and basic EPS of
RMB0.20 (US$0.03). This represented an increase of
13.9% compared with the rst quarter of 2010. The
companyproduced219.1millionbarrelsofcrudeoilinthe
rstquarterof2011,anincreaseof4.3%ascomparedwith
therstquarterof2010,whileitsproductionofmarketable
naturalgasroseby7.1%to639.3billioncubicfeet(bcf).
Forthequarter,PetroChinarealized325.7millionbarrels
ofoilandnaturalgasequivalentoutput,representingan
increaseof5.2%.Ofthe325.7millionbarrels,26.6million
barrelswereoverseasoilandnaturalgasequivalentoutput.
Thiswasanincreaseof5.4%ascomparedwiththerst
quarterof2010.Itsexplorationandproductionoperations
operating prot rose 38.8% to RMB45.865 billion
(US$752.62million)fortheperiod.
Market Outlook
China iscurrently at theforefrontofefforts toboost its
use of new low-carbon energy technologies, including
alternativevehicles.Fortherestofthedecade,thecountry’s
use of renewable energy sources such as hydro, wind,
solar,geothermal,biomassandmarineenergyisexpected
togrowfurther.TheChineseGovernmentisexpectedto
investapproximatelyUS$205billionin2035inrenewable
energysourcessuchasbiofuel,upfromUS$57billionin
2009.
Asaresult,theIEAforecaststhecountrymayseeadecline
intheoveralloildemandgrowthratein2011.Overthelongerterm,however,theIEAforecastsChina’sdemand
will endup growing 75% between 2008 and 2035, far
higher than the growth of 36% in overall international
energyuse.Littleisalsoexpectedtochangeintheoverall
mixofenergyuseinChina,andoilisexpectedtoremaining
themostpopularenergyusein2035,followedbycoal.
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17
Country ProfileIndia
TheIndianoilandgasindustryhasbeeninstrumentalin
fuelingtherapidgrowthofthecountry’seconomyoverthe
pastdecade.Indiawasthefourthlargestoilconsumerin
theworld,aftertheUS,ChinaandJapanin2009.India
isa signicant consumerof energy resources due toits
higheconomicgrowthratesandover15%oftheworld’s
population.Accordingto theBP2010StatisticalReview
ofWorldEnergy,India’soilreservesclimbed55%in2010
from2009to9billionbarrels.
Indiahadanestimated1.075trillioncumofprovednatural
gasreservesasofJanuary1st,2010,accordingtostatistics
releasedby theMinistry ofPetroleumand NaturalGas.
Imports satisfy much of India’s growing energy needs
as thecountry doesnot havesufcient domesticenergy
resources. In addition to pursuing domestic oil and gas
explorationandproductionprojects,Indiaisalsostepping
upitsnaturalgasimports,particularlythroughimportsof
LNG.
Oil Sector
According to the BP 2010 Statistical Review ofWorldEnergy, India’s oil reserves climbed 55% in2010 from
2009toninebillionbarrels.Thiswasthesecondlargest
amount of reserves in the region after China. India
producedroughly880thousandbbl/doftotaloilin2009
fromover3,600operatingoilwellsandsawasubstantial
riseincrudeoilproductioninthersthalf2010,buoyed
bytheproductionincreaseintheprivatesector.Basedon
Ministry of Petroleum and Natural Gas data, crude oil
productionpickedupto3.186MMTtoApril2010from
2.85MMTreportedinApril2009,anincreaseof5.5%.
India is increasingly dependent on imports to meet its
petroleum demand, thanks to the combination of risingoilconsumptionandrelativelyatproduction.Indiawas
thesixthlargestnetimporterofoilintheworldin2009,
importingnearly2.1millionbbl/d,orabout70%,ofitsoil
needs.TheEIAexpectsIndiatobecomethefourthlargest
netimporterofoilintheworldby2025,behindtheUS,
China,andJapan.Thecountrygetsapproximately70%of
itscrudeoilimportscomefromtheMiddleEast,primarily
fromSaudiArabia,followedbyIran.Indiaisexpectedto
increaseitscrudeoilimportsfromMiddleEastinthenext
fewyearstofuelitsmassiveupcomingreningcapacities.
Natural Gas Sector
AccordingtotheEIA,Indiahadapproximately38Tcfof
provennaturalgasreservesasofJanuary2010.TheEIA
estimates that India produced approximately 1.4 Tcf of
Sector Overview
Table 4: Crude Oil production (MMT) – Performance
Month / PeriodPlannedTarget
ActualProduction
%achievement
Surplus(+)Shortfall(-)
Vis-à-vis target
Surplus(+)Shortfall(-)
Over last year
April 2011 3.015 3.186 105.7 5.7 11%
April 2010 2.850 2.870 100.7 0.7 -
Source: Ministry of Petroleum and Natural Gas
Table 5: Natural Gas Production (MCM)
Month / PeriodPlannedTarget
ActualProduction
%achievement
Surplus(+)Shortfall(-)
Vis-a-vis target
Surplus(+)Shortfall(-)
Over last year
May 2010 4,619.5 4,585.6 99.3 -0.7% +34.4%
April-May 2010 8,975.4 9,102.5 101.4 +1.4% +43.5%
April-May 2009 6,341.5
Source: Ministry of Petroleum and Natural Gas
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18
Country Profile - India
naturalgasin2009,a20%increaseover2008productionlevels.ThebulkofIndia’snaturalgasproductioncomes
from thewesternoffshore regions.Data releasedby the
Ministryof PetroleumandNaturalGas shownaturalgas
production forApril-Mayperiod in2010rose43.5% to
9,102.5millioncubicmeterscomparedto6,341.5million
cubicmetersin2009.Gasproductionwasalsoupby1.4%
asagainstthesetproductiontargetof8,975.4millioncubic
metersforApril-May2010.
AccordingtoEIAestimatesreleasedearlierin2011,India
consumedroughly51.27billioncumofnaturalgasin2009,
anincreaseof22.95%comparedwiththeconsumptionof
41.7billioncumreportedin2007.Naturalgasdemandis
expectedtocontinuetogrowconsiderably,largelydriven bydemandfromthepowersector.Naturalgasisexpected
to be an increasingly important component of energy
consumption as the country pursues energy resource
diversicationandoverallenergysecurity.Despitemajor
newnaturalgasdiscoveriesinrecentyears,Indiacontinues
toplanongasimportstomeetitsfutureneeds.
Leading Companies
Oil and Natural Gas Corporation (ONGC) (BSE: 500312)
Indian’s state-owned Oil and Natural Gas Corporation
(ONGC) reported consolidated gross sales ofRs.122,764.04 crore (US$27.622 billion) for the year
endedMarch31,2011,comparedwithconsolidatedgross
salesofRs.106,174.73crore(US$23.89billion)reported
for the 12months endedMarch 31, 2010.Itsnet prot
also rose fromRs.19,403.53 crore (US$4.37 billion) to
Rs.22,455.93 crore (US$5.05 billion) over the period.
ONGCmadetwosignicantdiscoveriesovertheyear.The
rstwastheexploratorywellVadtal#3in thecompany’s
NELPBlockCB-ONN-2004/2,which isproved tohave
theproductioncapacityof22.5cubicmetersofoilperday
andgasproductioncapacityof3,758cubicmetersperday.
Anotherwasthecompany’ssuccessfuldevelopmentofthe
NorthKadi#461wellinitsWesternOnshoreBasin,which
churnedoutoilatarateof17cubicmetersdaily.
Reliance Industries (BSE: 500325)
Reliance Industries is India’s largest conglomerate by
market capitalization. The company reported stellar
nancial results for the 12 months ended March 31,
2011. The company’s total turnoverwas up 29% from
thecomparable2010periodtoUS$58billion.Reliance’s
exportsalsowentupby33%toUS$32.9billionoverthe
period,anditscashprotrose24%toUS$7.7billion.Thecompany’snetprotreachedUS$4.5billionfortheperiod,
anincreaseof25%.Theresultswerethebesteverreported
bythecompanyforafullscalyearandweredrivenbythe
improvingglobaleconomyaswellasnewmarketdemand
for energy. The company also made some acquisitions
andenteredintoa numberofstrategicjointventuresand
alliancesoftheperiod.
Market Outlook
According to the IEA, India’s fuel demand is expected
togrowby3.2%in2011,higherthantherevised2%rise
expectedin2010.TheIEAforecastsIndia’sfueldemand
will growby107,000bpd to3.43million bpd in2011.TheIEAbelievesthatastheIndianeconomycontinuesto
growoverthelongerterm,thecountry’sfueldemandwill
becomemoresensitivetoglobalcrudeoilprices.Thiswill
nodoubtleadthecountrytoexploreenergyalternatives
foroilandgasandsetthestageefciencygainsandmore
rationalenergyuse.Asasteptowardsthatdirection,India
iscurrentlyseekinginvestmentsofuptoUS$4.5trillionin
itsenergysectorinanefforttocutcarbonemissionsaspart
ofaglobalinitiativetoreduceglobalwarmingby2050.
India’spercapitaemissionislowcomparedtotheUSand
China,althoughitisprojectedtoincreaseby10%by2050.
Indiawould have to shift from coal-based economy to
othersourceslikewind,solar,hydroandnuclearpowerifitistomeettherequirementsoftheglobalinitiative.
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19
Country ProfileIndonesia
Indonesia ranks 20th among the world’s oil producers
and accounts for approximately 1.2% of world’s total
production, according to the BP’s Statistical Review of
WorldEnergy2010,makingitasignicantplayerinthe
internationaloilandgasindustry.Indonesiabecameanet
oilimporterinlate2004followinganumberofyearsof
declining oil production and increases in consumption.
This,alongwiththedownwardspiralofoilpricesin2008
and2009,ledtheGovernmenttoscalebackitsdomestic
fuel subsidy in2008 and totemporarily withdrawfromOPEC.
Accordingtothecountry’sMinistryofEnergyandMineral
Resources,Indonesianoilandgasdevelopmentstalledin
2010,withstaterevenuefromthesectorfallingUS$6.36
billion,down25%on2009,anddirectinvestmentfalling
to US$12.18 billion from a targeted US$13.77 billion
target.Thekeyreasonbehindthedeclinewasthefailure
bytheGovernmenttondnewinvestorsformostofthe40
oilandgasblocksofferedin2008.
Oil Sector
OilproductioninIndonesiahasslumpedinrecentyears,
withupstreamoilandgasregulatorBPMigasloweringits
estimatefornationaloilproductionto917,000barrelsper
dayfor2010,down5%frominitialprojections,citingthe
prospectofshutdownsandregulatoryhurdles.Thenatural
declineinoutputduetothedryingupofoileldsisnotthe
onlythreattooilproductioninthecountry.Theindustry’s
output was also affectedby unplanned shutdowns, land
acquisitiondifcultiesandrestrictionsfromenvironmental
lawsoverthelastyear.
TheIndonesianEnvironmentMinistrylookedto enforce
a new environment law that allows the Government tocanceltheoperatingpermitofanycompanyfoundtobe
breachingthetermsofitsenvironmentalimpactassessment.
As a result, the law has become a stumbling block in
Indonesia’seffortsto attractfreshinvestment todevelop
newelds.Manyofitsremainingunexploitedeldsare
inremoteareasorunderdeepwater,requiringhighlevels
of investment and specialized technology. Indonesiahas
provenoilreservesof4.05billionbarrelsasofJanuary1,
2010.AsIndonesia’soilproductionhasfallen,thecountry
hasattemptedtoshifttowardsnaturalgas,especiallyfor
powergeneration.
Natural Gas Sector
AccordingtotheBPStatisticalReviewofWorldEnergy
2010, Indonesiarankedseventhinworldgasproduction.
Morethan70%ofthecountry’snaturalgasreservesare
locatedoffshore,withthelargestreservesfoundoffNatuna
Island,EastKalimantan,SouthSumatra,andWestPapua,according to the Indonesian Government. Increasingly
competitiveLNGmarkets,newpipelineexports,aswell
asgrowingdomesticdemandaretransformingIndonesia’s
gasindustry.
Although Indonesia’s natural gas productionhas picked
upinrecentyears,thecountryisfacingadecliningglobal
LNG market share to emerging LNLG producers in
Qatar, Australia,Algeria and Malaysia. The Indonesian
Government has outlined plans to start development of
shalegasin2011.Indonesiahasasubstantialamountof
shale gasreserves.According todata from theBandung
Institute of Technology, Indonesia has potential shale- basedgasreservesofupto1,000Tcf.
Leading Companies
PT Medco Energi Internasional Terbuka (JSX: MEDC)
PT Medco Energi is Indonesia’s largest private oil
company,withvariousexplorationandproductionblocks
inIndonesia,Cambodia,Oman,Yemen,Libya,Tunisiaand
theUS.Thecompanyperformedwellnanciallyin2010,
reportingtotalrevenuesofUS$929.9million.Thiswasan
increaseof39.2%fromthetotalrevenuesof667.8million
reportedfor2009.Thecompany’snetincomealsosurged331.9%fortheperiod,fromUS$19.2milliontoUS$83.1
million.ThiscamedespiteslowerLPGsalesfortheyear,
whichfellfromanaverageof45.2MTperdayto42MT
perday.The strongnancialperformancewasaided by
thehigheraverageoilprices,whichrosefromUS$63.98
perbarreltoUS$81.47perbarrelfortheyear,anincrease
of27.3%.PTMedcoEnergi’sproved reservesdeclined,
however,fortheyear,fallingfrom235.5MMBOEin2009
to201.4MMBOEin2010.
Sector Overview
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Country Profile - Indonesia
PT Energi Mega Persada (ENRG)(JSX: MEDC)
PT Energi Mega Persada is Indonesia’s second largest
publicly listed oil and gas rm. The company reported
earningsbeforeinterest,tax,depreciationandamortization
(EBITDA) ofRp.194.68 billion (US$19.47million) for
the rst quarterof2011, anincrease of374%fromthe
EBITDAreportedfortherstquarterof2010.
The company reported a net prot of Rp.14.3 billion
(US$1.43 million) for the same quarter, a marked
improvementfromthenetlossofRp.21.7billion(US$2.17
million)thatit reportedfortherstquarterof2010.The
positive nancial results were driven by the increase
in realized selling prices and higher production rates.
Productionwasgivenashotinthearmwhenthecompany’s
PagerunganoilledinEastJavaandBentuPSCgasblock
inRiau,Sumateracommenceditsrstproduction.
Market Outlook
Once a major oil exporter, growing domestic needs, a
slumpinproductionandtheinabilitytotapintonewelds
fast enough has turned Indonesia into a net importerof
crudeoilinrecentyears.Inabidtostemasteadydecline
in production that has intensied the need for imports,
Indonesiahasofferednewexplorationrightsandnancialincentivesforoilandgasinvestors.Althoughencouraging,
theincentivesaresaidtobeinsufcientand,lookingahead,
thecountrywillneedtolooktoothersourcesofenergy.
Indonesia is looking to use more renewables and is
targetingby2025tohaveanenergymixof30%fromgas,
20%fromoil-basedfuels,30%fromcoal,andtherestfrom
renewablessuchasgeothermalandsolarpower.Indonesia
hashundredsofactiveandextinctvolcanoes,givingitthe
potentialtoproduceanestimated27,000MWofelectricity
fromgeothermalsources.However,thatpotentialremains
largelyuntappedbecauseofthehighcostsofproducing
geothermalenergy.
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Country ProfileJapan
Japanisthethirdlargestoilconsumerintheworldbehind
theUSandChinaandthesecondlargestnetimporterofcrude
oil.Itisalsotheworld’slargestimporterofLNGandcoal.
Japaneseoildemandhasbeendecliningforyears,withthe
country’sfallingpopulationfocusingonconservationand
greenerfuels.TheMinistryofEconomy,TradeandIndustry
(METI)forecastthattotaloildemandwoulddeclinebyan
averageof3.5%ayearuntilthescalyearendinginMarch
2015.Inlightofthecountry’slackofsufcientdomestic
hydrocarbon resources, Japanese energy companiescontinuedtoactivelypursueparticipationinupstreamoil
andnaturalgasprojectsoverseasoverthelastsixmonths,
providingengineering,construction,nancial,andproject
managementservicesforenergyprojectsglobally.
The overcrowded rening industry is expected to see a
change after new regulations for reners to boost their
ability toprocess heavyoil into lighter oil productsby
March2014byeitherbuildingnewresiduecrackingunits
orbycuttingdowntheircapacities.Thecountry’sshrinking
domesticmarketoffersrenerslittleincentivetoinvestin
costlynewunitstomeetthetradeministry’sdirective.The
JapaneseGovernmentlookedtonarrowthegapbetweenJapan’sheavyoilcrackingratioofabout10%ofrening
capacity,withratiosofaround19%inEurope,theUSand
someAsiancountries.
Oil Sector
Japan hasvery limiteddomestic oilreserves, amounting
to44millionbarrelsasofJanuary2010,accordingtothe
EIA. Japan’s domestic oil reserves are concentrated
primarily along the country’s western coastline. The
country reliesheavily on imports,especially those from
theMiddleEast,tomeetlocaldemand,makingJapanthe
world’sthirdlargestnetimporterof oil.Japanmaintains
government-controlledoilstockstoinsureagainstasupplyinterruptionandthecountryhastotalstrategicoilstocks
of590millionbarrelsattheendofApril2010.Japanis
thethirdlargestpetroleumconsumerintheworld,behind
theUSandChina,consuming4.4millionbbl/dofoilin
2009.However,oildemandinJapanhasbeendeclining
since2005.Thecountry’sindustrialsectorisalsoshifting
tonatural gas use. Fuel substitution isoccurring in the
residential sector as high prices have cut demand for
keroseneinhomeheating.
Japanhad 738Bcf ofproven naturalgas reservesas of
January2010,accordingtotheEIA.Approximately50%
ofJapan’sdomesticgassupplyisproducedinitslargest
naturalgaseld intheMinami-Nagaoka on thewestern
coast of Honshu, where 125 Bcf of natural gas was
produced in 2009. Japan relies on imports to meet its
naturalgasneedsduetoitslimitednaturalgasresources.
Japanistheworld’slargestimporterofLNGand,inthe
rsthalf2010,whereitsLNGimportsreachedarecord
becauseofthehugeincreaseinthepurchaseofthefuel.AccordingtodatafromJapan’sMinistryofFinance,the
purchaseofthecleanerburningfuelroseto34.68million
metrictonsinthesixmonthsthroughtoJune2010from
31.65milliontonstheyearearlier.Importsfellabout8.7%
inthersthalfof2009fromthepreviousyearbecauseof
theglobalrecession.
Leading Companies
JX Holdings (TYO: 5020)
JXHoldingsisJapan’slargestrener.Thecompanyreported
totalnet salesof¥9.6trillion(US$119.04billion)forthe12months endedMarch 31,2011. Itsoperating income
reached¥334.402billion(US$4.15billion)forthenancial
year,withtotalnetincomefortheyearof¥311.736billion
(US$3.96billion).ItsbasicEPSfortheperiodwas¥125.35
(US$1.55).In Januarythisyear,thecompanyannounced
thatitsafliateNipponOilExploration(NOE)hadmadea
gas-condensatediscoveryinBlock16-2offshoreVietnam.
VietnamisoneofNOE’skeyE&Pareasand,apartfrom
Block 16-2, NOEX also has interests in Block 5-1b/c
offshore Vietnam, which is currently in the exploration
phase.The JXHoldings afliate also has an interest in
Block15-2,hometotheRangDongandPhuongDongoil
elds,whicharecurrentlyintheproductionphase.
Idemitsu Kosan (TYO: 5019)
Idemitsu Kosan is involved primarily in petroleum
products, petrochemical products, oil exploration and
production, coal, and other businesses. The company
reportednetsalesof¥3.659trillion(US$45.37billion)for
theyearendedMarch31,2011—17.6%higherthanthe
netsalesof¥3.112trillion(US$38.59billion)reportedfor
thecomparableprior-yearperiod.
Sector Overview Natural Gas Sector
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Country Profile - Japan
Its operating income surged 189.6% over the period to¥128.771billion(US$1.6billion),whileitsnetincomewas
upalmosttenfoldto¥60.683billion(US$752.47million)
from ¥5.977 billion (US$74.12 million). The bullish
nancialresultwasduelargelytotherecoveryofoverseas
economies,improvingoilandgasdemand,aswellasthe
bottomingoutofdomesticconsumerspending.Higheroil
pricesalsofavoredthecompanynancially.
Market Outlook
Likemanyofitsregionalcounterparts,oneimportanttarget
forJapangoingaheadistoreduceitsrelianceonenergy
imports, especially from the politically unstableMiddle
East.Thecountryshouldcontinuetolooktowardsoffshoremethanehydratestoshoreupitsenergysecurity.Japanhas
beenworking towards this unconventional source since
itconrmed40Tcfofmethanehydratesinthesouthern
Sea of Kumano in 2007. Commercial test drilling for
controversialfrozenmethanegasalongitscoastisslated
tobeginthisyear,withplanstobegincommercialoutput
ofmethanehydratesby2018.
Japan is estimated to have enough methane hydrate in
itsseaoorsedimentstoprovideenergyequivalentto 90
years of thenation’s natural gasusagetoday.However,
manyscientistsandenvironmentalistsareconcernedabout
theenvironmentalimpactoftheenergysource.Methaneitselfisagreenhousegas,whichis21timesasdamaging
ascarbondioxideandanyleakagefromwellscouldbea
majorenvironmentalproblem.
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Country ProfileSouth Korea
SouthKoreaisoneoftheworld’slargestenergyconsumers.
Thecountryhas nodomesticreserves,making itoneof
the world’s top energy importers. The country is the
fthlargestimporterofcrudeoilandthesecondlargest
importerofbothcoalandLNGintheworld.LNGaccounts
forabout15%andcoal25%,whileoilproductsmeet45%
ofthecountry’senergyneeds.Oilaccountedforthelargest
portionofSouthKorea’sprimaryenergyconsumptionin
2009.However,itssharehasbeendecliningsincethemid-
1990s,whenitreachedapeakof66%.
Havingnointernationaloilornaturalgaspipelines,South
KoreareliesexclusivelyontankershipmentsofLNGand
crudeoil.SouthKoreaishometosomeofthelargestand
mostadvancedoilreneriesintheworldandthesetanker
shipmentsofLNGandcrudeoilarereneddomestically.
State-ownedoil,gas,andelectricitycompaniesaggressively
soughtoverseasexplorationandproductionopportunities
overthelastsixmonthsinanefforttoimprovethenation’s
energysecurity.
Oil Sector
SouthKorea,Asia’sfourthlargestbuyerofoilandthetenth
largestconsumerofoilintheworld,consumedovertwo
million bbl/din 2009.The country iswholly reliant on
importstomeetitsdemand,asithasnoprovendomestic
crude oil reserves. InMay 2010, the country increased
its crude imports by 21.5% as reners expanded fuel
productiontomeetinternationalorders.Accordingtothe
MinistryofKnowledgeEconomy,duringthesameperiod,
itsimportsroseto75.3millionbarrelsfrom62.0million
theyearearlier.
The majority of SouthKorea’s crude oil imports comefrom theMiddleEast, with thePersianGulfaccounting
fornearly75%ofits2009totaloilimports.Theindustrial
sector accounts for more than half of South Korea’s
oil end-use consumption, largely due to its signicant
petrochemicalindustry.SouthKoreahad2.7millionbbl/d
ofcrudeoilreningcapacityatsixfacilitiesasofJanuary
1,2010, accordingto the EIA, and has the sixthlargest
reningcapacityintheworld.
Natural Gas Sector
SouthKorea,theworld’ssecondlargestbuyerofLNGafter
Japan,increasedimportsofthefuelinthersthalfof2010tomeetrisingdemandfrompowerproducersandtobuild
winterstockpiles.SouthKoreasawitsnaturalgasdemand
Sector Overview
Table 6: South Korean Oil Imports by Source, 2009
Others, 26%
Saudi Arabia, 27%
Iraq, 6%Qatar, 6%
Iran, 8%
Kuwait, 13%
UAE, 14%
Source: Energy Information Administration
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Country Profile - South Korea
risebacktopre-recessionlevelsoverthesecondhalfof2010.Purchases climbed to2.74millionmetric tons in
October2010from2.47milliontonstheyearearlier.The
improvedsalesdataindicatedarecoveryofconsumption
topre-recessionlevels.ThecountrypaidUS$516.84aton,
equivalentto aboutUS$9.82permillionBritish thermal
units(Btu),anincrementof13%fromtheyearearlier.
The state-run KoreaGas Corp expects the nation’s gas
demand toincrease by11%betweenOctober2010and
March2011asaneconomicrecoveryboostsconsumption.
SouthKorea uses onaverage approximately 70% ofits
LNG during the period because ofthe spike inheating
needsduringthewintermonths.Thecountryhasmulti-year
contractsforpurchasesofLNGfromcountriesincludingQatar, Russia, Indonesia, Oman, Malaysia, Australia,
Indonesia,BruneiandYemen.
Leading Companies
SK Energy (KSE: 96770)
SouthKorea’sleadingenergyprovider,SKEnergy,reported
thatitsthirdquarterrevenueandoperatingprotrose11%
and 296%year-on-year to stand at KRW10.167 trillion
(US$1.017billion)andKRW325billion(US$32.5million)
respectively.Itsnetincomerose36%toKRW343.8billion
(US$34.38 million) from the same period in 2009. SKEnergy’s quarterly operatingprot wasup signicantly,
by 296% year-on-year, to KRW325 billion (US$32.5
million), mainly due to the turnaround ofits petroleum
businessandafavorableperformancefromtheexploration
andproductionbusiness,inspiteofaweakperformanceby
itspetrochemicalbusiness. SKEnergy’soverall revenue
growthforthequartercomparedtothesameperiodofyear
2009waslargelydrivenbythehigherproductpricesfrom
riseincrudeoilpricesandhigheroperationrates.
S-Oil Corp (KSE: 10950)
S-Oil,SouthKorea’sthirdlargestoilrener,reportedmuch
improvednancialresultsof2010.ThecompanyreportedrevenuesofKRW20.53trillion(US$2.053billion)forthe
year, compared with the KRW17.424 trillion (US$1.74
billion)it reportedover 2009.Itsoperatingincome rose
from KRW349 billion (US$34.9 million) to KRW813
billion (US$81.3 million) for the period, while its net
incomewasupfromKRW273billion (US$27.3million)
toKRW705billion (US$70.5million). S-Oil completed
itsOnsanReneryExpansionProjecttowardstheendof
Maythisyear.AtotalofKRW1.3trillion(US$130million)
wasspentontheproject,withthepost-expandedrenerycapable of producing 1,600,000 tons of para-xylene,
600,000tonsofbenzene,andvariousotherpetrochemical
products.
Market Outlook
South Korea is one country that has been successful
in itsefforts toweanitselfoff itsheavydependenceon
oil.Accordingto theKorea EnergyEconomicsInstitute
(KEEI),oilcouldaccountfor39.5%ofSouthKorea’stotal
energydemand in2011, comparedwith 53.2% in2000.
Thisdemand isexpected todeclinefurtherto 38.6%in
2013.AccordingtotheKEEI,thecontinueddeclineinoil
consumptionwillbeduetoanincreaseintheuseofnaturalgasandnuclearpower.Otherfactorsaffectinglong-term
demand include more stringent efciency standards, as
wellasapopulationthatwillbegintodeclinein2019.
SouthKorea’sLNGdemandis set togrow in2010 and
2011,ledbystrongdemandfromthepowersector.The
KEEI estimates South Korea’s LNGconsumption grew
approximately20%to29.8millionmtin2010,withfurther
growthof10.3%to32.9millionmtexpectedin2011asthe
countryattemptstomeetstrongerpowerdemandattributed
tothestrongconsumptionbypowerutilitiesthataccountfor
30%oftotalcountry’stotalLNGdemand.SouthKoreanoil
andcompanieshavealsoupgradedmanyoftheirreningfacilities,increasedtheirupstreaminvestment,andbegun
investinginalternativeenergyprojects.
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Currency Conversion Table
Sources: Federal Reserve Bank of New York, Bank Indonesia
Currency exchange rates as of July 8, 2011
Currency Unit Units per US$ US$ per Unit
Australian Dollar (A$) 0.9322 1.0727
Chinese Yuan (RMB) 6.4645 0.1547
Hong Kong Dollar (HK$) 7.7818 0.1285
Indian Rupee (Rs) 44.4100 0.0225
Indonesian Rupiah1
(Rp) 8,567.0000 0.0001
Japanese Yen (¥) 80.6400 0.0124
Malaysian Ringgit (RM) 2.9915 0.3343
South Korean Won (KRW) 1,056.9000 0.0001ISIEmergingMarketsPDF in-jaipuriaimdemo from 110.234.16.130 on 2011-11-08 07:33:41 EST. DownloadPDF.
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The Scope Of This Report
This reportdiscusses theoiland gassector in theAsia-Pacic, focusingon themarkets inAustralia, China, India,
Indonesia,JapanandSouthKorea.Thereportexaminesthecurrentenvironmentaswellasglobalandregionalaffairs
thatinuencethedevelopmentofthevariousindustrysegmentsusingavailabledata.Keynancialresultsofleading
publiccompaniesandothermajorplayersintheindustryarealsoprovided.
Researchanalystsdrawonarangeofcredibleindustryandcompanydatasourcesaswellasnewsandinformation
servicestoresearchandanalyzethecurrenttradingenvironment,industrylandscapeandmarkettrendsandoutlookfor
aparticularsector.Primarysourcesareused,unlessotherwiseindicated,andincludecompanydata,e.g.annualreports
andcompanynancialresults;macroeconomicandtradedata;dataandinformationfromglobalandcountryregulatory,
industryandtradebodies;governmentdata;andreportsfromindustryorganizationsandprivateresearchorganizations.
Industriescoveredbytheindustryreportsaredenedbystandardindustryclassicationsystemsandleadingcompanies
areidentiedonthisbasis.SICsrelevanttotheindustryinclude:1311(CrudePetroleumandNaturalGas);1321(Natural
GasLiquids);1381(DrillingOilandGasWells);1382(OilandGasExplorationServices,GeophysicalMappingand
Surveying,OtherOilandGasFieldExplorationServices);1389(OilandGasFieldService,NEC);2911(Petroleum
Rening);3533 (Oil andGasFieldMachinery andEquipment); 4612(Crude PetroleumPipelines); 4613(Rened
PetroleumPipelines);and4619(Pipelines,NEC).
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Key References
GlobalBP Statistical Review of World EnergyAcomprehensiveguidetoenergymarketstatistics.http://www.bp.com/centers/energy
Energy Information Administration (EIA)AstatisticalagencyoftheUSDepartmentofEnergy.http://www.eia.doe.gov
International Energy Agency (IEA)Anintergovernmentalbodycommitted toadvancingsecurityofenergysupply,economicgrowthand environmentalsustainabilitythroughenergypolicycooperation.http://www.iea.org
Organization of Petroleum Exporting Countries (OPEC)Comprisedof11oildevelopingcountries,OPEC’sprimarymissionistostabilizeoilpricesandhelpproducersachieveareasonablerateofreturnontheirinvestments.http://www.opec.org
Australia
Australian Bureau of Agricultural and Resource Economics (ABARE)AgovernmenteconomicresearchagencythatprovideseconomicanalysisandforecaststoenhancethecompetitivenessoftheAustralianagricultural,mineral,energyandforestryindustries.http://www.abare.gov.au
Australian Bureau of Statistics (ABS)Australia’snationalstatisticalagency.http://www.abs.gov.au
Australian Institute of Petroleum (AIP)Arepresentativeof Australia’s petroleum industry.http://www.aip.com.au
Australian Petroleum Production and Exploration Association (APPEA)ArepresentativebodyoftheoilandgasexplorationandproductionindustryinAustralia.http://www.appea.com.au
Australian Trade CommissionAustralia’stradeandinvestmentdevelopmentagency.http://austrade.gov.au
China
General Administration of CustomsAfullministerial-levelgovernmentagencythatdirectlyreportstotheStateCouncilofChinaandmanagesallthecustomsregionsnationwide.http://www.customs.gov.cn
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National Development and Reform Commission (NDRC)Amacroeconomicregulatorydepartmentthatdevelopsnationaleconomicstrategies,long-termeconomicplansaswellasannualeconomicplans.http://www.ndrc.gov.cn
India
India Brand Equity Foundation (IBEF)A public-private partnership between the Ministry ofCommerce and Industry, the Government of India, and theConfederationofIndianIndustrywhoseprimaryobjectiveistobuildpositiveeconomicperceptionsofIndiaglobally.http://www.ibef.org
Ministry of Petroleum and Natural GasTheministrythatdevelopsandcoordinatespolicy,lawandprojectsrelatedtopetroleuminIndia.http://www.petroleum.nic.in
Indonesia
Badan Pelaksana Minyak dan Gas Bumi (BP Migas)AregulatorybodyresponsibleforallupstreamoperationsinIndonesia.
http://www.bpmigas.com
Indonesian Petroleum Association (IPA)ArepresentativeofIndonesia’spetroleumindustry.http://www.ipa.or.id
Ministry of Energy and Mineral Resources (MEMR)TheministryresponsiblefordevelopingIndonesia’ssubstantialenergyandmineralresources.http://www.setjen.dpe.go.id
Japan
Ministry of Economy, Trade and Industry (METI)METIisresponsibleforawiderangeofindustrialelds,includingbasicindustries,machineryandinformationindustries,andconsumergoodsindustries.Itisalsoinchargeofaffairsrelatedtoforeigntrade,hightechnologies,environmental protectionandindustriallocation,energyandotherareas.http://www.meti.go.jp/english
Petroleum Association of Japan (PAJ)PAJisanassociationofrenersandprimarydistributorsinJapan.ItsmainactivitiesincludecollectingtheopinionsofitsmembercompaniesandcompilingtheproposalstobeincorporatedintotheGovernment’spetroleumpolicy.http://www.paj.gr.jp/english/index.html
South Korea
Korea Energy Economic Institute (KEEI)TheKEEIcontributestonationalenergypolicy-makingbycollecting,analyzing,anddisseminatingenergyinformation.
http://www.keei.re.kr/keei/main_eng.html
Korea Petroleum Association (KOPA)KOPAaimstoattainasoundandsystematicdevelopmentofthepetroleumindustrythroughthepromotionofmutualunderstandingamongmemberrms.http://eng.oil.or.kr
Ministry of Commerce, Industry and Energy (MOCIE)MOCIEplaysapivotalroleinSouthKoreaneconomicpolicyregardingindustrialdevelopment,internationaltradeandenergyresourcemanagement.http://www.mocie.go.kr/eng
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Notes to Comparative Data
- All gures are in United States dollars.
- All gures are as r eported by the company.
- N/A = Data Not Available.
- N/L = Not Listed.
- Companies ranked by total revenue for the full year most r ecently reported.
Defnitions
- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.
- EBITDA = Earnings before interest, taxes, depreciation and amortization.
- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.
- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.
- Long Term Debt = Debt due to be paid at a date more than one year in the future.
- Return on Equity = The company’s earnings divided by its equity (book value).
- Prot Margin = The company’s net income as a percent of revenues.
Comparative Company Data | ASIA-PACIFIC
Company Country Ticker Exchange Primary SIC Other SICs
China Petroleum & Chemical Corp China 386 HKSE 1382 1311 4925 5169 2865 2911
PetroChina Co Ltd China 857 HKSE 1311 4923 2911 5171 2899 5172
Indian Oil Corp Ltd India 530965 BSE 1311 2911 5172 2992 5171
CPC Corporation Taiwan China 1328 TWN 1311 4613 2911 1382 5172 2869
CNOOC Ltd HKG 883 HKSE 1311 1321 1381 6231 6719
Hindustan Petroleum Corp Ltd India 500104 BSE 2911 5171 5172 5169
Oil and Natural Gas Corp Ltd India 500312 BSE 1311 2911
Caltex Australia Ltd Australia CTX ASX 2911 5172
Woodside Petroleum Ltd Australia WPL ASX 1311 2911 1382 4923 4922
Petronas Gas Bhd Malaysia 6033 KLSE 4925 4923
Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3
China Petroleum & Chemical Corp $284,719,645,718 $192,723,343,111 $219,117,456,691 N/A N/A $11,624,239,493
PetroChina Co Ltd $222,315,524,766 $149,278,703,829 $157,192,639,469 $45,484,253,090 $34,405,389,226 $37,114,236,711
Indian Oil Corp Ltd $58,567,323,098 $56,638,927,595 $58,626,987,172 $4,549,886,999 $2,123,755,782 $4,325,823,888
CPC Corporation Taiwan $29,218,655,848 $27,195,760,364 $23,845,943,462 -$3,705,541,733 $952,936,961 -$57,076,550
CNOOC Ltd $27,770,660,633 $15,435,706,054 $18,532,029,618 $15,197,299,122 $8,268,908,382 $9,823,824,205
Hindustan Petroleum Corp Ltd $25,235,898,327 $25,548,372,846 $27,800,119,567 $817,359,935 $408,302,006 $593,124,922
Oil and Natural Gas Corp Ltd $23,838,679,602 $21,554,651,820 $25,266,746,295 $6,780,342,398 $6,113,683,436 $7,725,515,257
Caltex Australia Ltd $19,254,181,884 $16,173,842,382 $16,468,405,373 $715,972,274 $622,790,834 $198,197,185
Woodside Petroleum Ltd $4,254,000,000 $3,949,096,876 $4,147,532,493 $3,013,000,000 $3,467,938,409 $2,915,059,816
Petronas Gas Bhd $1,046,873,548 $970,420,129 $999,152,213 $371,442,140 $327,877,664 $425,984,242
Company Net Income - FYE - 1 Net Income - FYE - 2 Net Income - FYE - 3 EPS - FYE - 1 EPS - FYE - 2 EPS - FYE - 3
China Petroleum & Chemical Corp $10,892,651,350 $9,045,108,286 $3,657,360,508 $0.82 $0.71 $0.05
PetroChina Co Ltd $22,876,388,334 $15,606,180,276 $18,583,131,398 $0.12 $0.08 $0.09
Indian Oil Corp Ltd $2,449,785,638 $470,921,444 $2,129,919,043 $0.94 $0.21 $0.83
CPC Corporation Taiwan -$3,678,692,217 $357,616,218 -$428,256,476 -$0.32 $0.06 -$0.08
CNOOC Ltd $8,254,376,553 $4,318,332,558 $6,503,297,865 $0.19 $0.10 $0.15
Hindustan Petroleum Corp Ltd $328,566,817 $148,857,281 $339,793,249 $0.97 $0.44 $1.00
Oil and Natural Gas Corp Ltd $4,394,011,150 $3,962,637,545 $5,037,022,045 $2.02 $1.82 $2.31
Caltex Australia Ltd $323,401,634 $283,083,064 $22,871,743 $1.19 $1.05 $0.09
Woodside Petroleum Ltd $1,577,000,000 $1,635,039,426 $1,231,094,072 $2.04 $2.33 $1.79
Petronas Gas Bhd $288,333,789 $254,544,800 $341,664,759 $0.15 $0.16 $0.17
CompanyTotal Current Assets -
FYE - 1Total Current Assets -
FYE - 2Total Current Assets -
FYE - 3Long-Term Debt -
FYE - 1Long-Term Debt -
FYE - 2Long-Term Debt -
FYE - 3
China Petroleum & Chemical Corp $39,478,882,565 $29,478,617,161 $24,239,465,994 $26,408,611,195 $21,357,351,865 $18,633,252,302
PetroChina Co Ltd $43,448,025,146 $43,114,088,611 $32,966,365,479 $19,927,180,225 $12,517,721,022 $4,814,537,883
Indian Oil Corp Ltd $11,089,719,779 $6,950,199,360 $11,042,560,717 $11,019,248,806 $9,306,404,596 $9,670,178,104
CPC Corporation Taiwan $5,425,286,006 $6,236,734,263 $5,424,311,909 $2,305,486,089 $1,079,164,418 $831,798,649
CNOOC Ltd $15,269,861,626 $10,379,534,752 $9,345,684,698 $1,777,421,128 $2,719,692,562 $2,031,802,694
Hindustan Petroleum Corp Ltd $3,731,954,637 $2,568,975,306 $3,885,019,305 $5,420,551,758 $4,729,410,771 $4,309,348,611
Oil and Natural Gas Corp Ltd $6,926,114,787 $5,992,614,144 $8,485,016,565 $1,395,860,490 $1,289,249,270 $235,262,922
Caltex Australia Ltd $2,312,248,763 $1,839,601,026 $1,423,756,159 $437,424,871 $387,600,576 $496,163,998
Woodside Petroleum Ltd $1,579,000,000 $2,435,471,269 $582,460,521 $4,512,000,000 $4,972,570,401 $2,038,267,173
Petronas Gas Bhd $842,298,532 $680,836,505 $662,478,556 $134,155,400 $123,325,437 $141,955,359
Company Return on Equity (Most Recent Yr) Proft Margin (Most Recent Yr) Date FYE - 1 Date FYE - 2 Date FYE - 3
China Petroleum & Chemical Corp 18.07 N/A 31-Dec-2010 31-Dec-2009 31-Dec-2008
PetroChina Co Ltd 16.06 10.29 31-Dec-2010 31-Dec-2009 31-Dec-2008
Indian Oil Corp Ltd 20.96 4.18 31-Mar-2010 31-Mar-2009 31-Mar-2008
CPC Corporation Taiwan -56.63 -12.59 31-Dec-2008 31-Dec-2007 31-Dec-2006
CNOOC Ltd 25.22 29.72 31-Dec-2010 31-Dec-2009 31-Dec-2008
Hindustan Petroleum Corp Ltd 12.15 1.30 31-Mar-2010 31-Mar-2009 31-Mar-2008
Oil and Natural Gas Corp Ltd 19.45 18.43 31-Mar-2010 31-Mar-2009 31-Mar-2008
Caltex Australia Ltd 10.35 1.68 31-Dec-2010 31-Dec-2009 31-Dec-2008
Woodside Petroleum Ltd 14.22 37.07 31-Dec-2010 31-Dec-2009 31-Dec-2008
Petronas Gas Bhd 11.74 27.54 31-Mar-2010 31-Mar-2009 31-Mar-2008
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Industry Report - Oil & Gas - August 2011
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ISIEmergingMarketsPDF in-jaipuriaimdemo from 110.234.16.130 on 2011-11-08 07:33:41 EST. DownloadPDF.