Nopporn Chuchinda is the Secretary in Charge of the ASEAN Council on Petroleum (ASCOPE). He is also an Executive Vice President of PTT Plc, the national oil company of Thailand. He has 30 years’ experience in the oil & gas industry, in the supply, IT, finance and upstream sectors, having worked for a major U.S. IOC, the Petroleum Institute of Thailand, and for the last eight years, PTT.
At the end of 2014, PTT took over the hosting of the ASCOPE Secretariat from the Philippine National Oil Company. The ASCOPE Secretariat is hosted by the ASEAN Member States on a rotational basis, for a term of five years.
1. How have oil and gas companies in ASEAN responded to the decline in oil prices to stay competitive in the long run?
Over the past year or so, oil prices have dropped from US$115 per barrel to slightly less than US$50. The jury is still out as to the future direction of prices in the medium to long term. Some are predicting that prices may strengthen slightly. Overall, the view is that prices will still remain relatively low over the next couple of years.
Naturally as oil prices decline, bringing down revenues in the process, costs need to be scrutinized and effectively controlled and managed. Within ASEAN, we are seeing both a reduction in capital expenditures (CAPEX) as well as operating expenses (OPEX). Generally, we are seeing anywhere between a 20% to 40% reduction in CAPEX and 10% to 15% reduction in OPEX.
In addition, we are seeing efforts to increase overall efficiency, such as the restructuring of business units and decentralization of decision making. There is also a refocusing of asset management.
The current price environment provides a driving force for the re-rationalization of investment and business portfolios, strategic M&A and selective divestment, based on changing and revision of medium- to long-term strategies. Also, in these times of volatility, risk management will be crucial to companies’ long term viability, and we will potentially see more partnering between companies to reduce their risk profile.
2. Coal is expected to remain as the dominant fuel for ASEAN moving forward. What can be done to encourage the use of natural gas and strengthen energy security?
In a nutshell, the competition is between abundant and inexpensive coal, and environmentally cleaner and – with the emergence of unconventional gas sources – relatively abundant gas. In terms of abundance, coal ranks the highest amongst the fossil fuels, outranking natural gas.
Natural gas is an important fuel of choice for ASEAN. The Trans-ASEAN Gas Pipeline (TAGP) project is going strong and remains one of ASEAN’s flagship interconnectivity projects since 1999, when the ASEAN Ministers of Energy tasked ASCOPE to undertake the project. With the incorporation of LNG regasification terminals into TAGP to create virtual pipelines, the availability of natural gas within ASEAN is enhanced. A number of initiatives by ASCOPE are currently being undertaken to further facilitate LNG cargoes into ASEAN, including investigating the flexibility for LNG to land within ASEAN shores.
The issue of public acceptance of coal in parts of ASEAN is well-documented, due to environmental concerns from coal-fired power projects dating back a couple of decades. Because of the severity of those incidents, the memories of the communities affected still linger to this day. Additionally, from a financing perspective, gas-fired power generation projects tend to be easier to finance, compared to coal-fired power projects. The Kyoto Protocol, and other post-Kyoto treaties and agreements, also partly constrains the amount of coal-fired power generation.
At the end of the day, the need to have a balanced energy portfolio to ensure energy security will remain crucial to the ASEAN Member States. The availability of natural gas landed at cost-competitive prices from sources such as the Americas will result in the long term viability, from both economic and environmental perspectives, of natural gas as a fuel in ASEAN.
3. ASEAN has significant oil and gas potential, especially in the upstream sector of exploration and production. How can oil and gas companies in the region work together to tap on this?
ASCOPE is an ASEAN Specialised Energy Body, and the ASEAN Member States are represented in ASCOPE by their respective National Oil Companies (NOCs). ASCOPE strives to promote cooperation and synergies amongst the members, and to support member countries in increasing their capabilities, through mutual assistance, in all aspects and phases of the petroleum industry.
Taking this statement and expanding on its message, the ASEAN NOCs have an existing forum to work together on a mutually beneficial manner. There exists a framework for the members to share information in order to identify potential collaborative projects. The work within ASCOPE is handled by working groups called business development committees and task forces, of which there are currently seven – Exploration & Production; Trans-ASEAN Gas Pipeline; ASEAN Gas Consultative Council; Processing & Refining; Trading & Marketing; Technology & Services; and Health, Safety, Security & Environment. These working groups meet regularly and the progress they make is reported through the ASCOPE Secretariat to the ASCOPE National Committee, and finally to the ASCOPE Council, which comprises the CEOs of the ASEAN NOCs.
The ASCOPE Secretariat strives to create and maintain the impetus for the ASEAN NOCs to work together to fuel the economic development of ASEAN leading up to the ASEAN Economic Community at the end of 2015.
4. What is the current status of the Trans ASEAN Gas Pipeline Project and what do ASEAN countries need to do to advance its development?
As stated earlier, the Trans-ASEAN Gas Pipeline (TAGP) is one of the flagship interconnectivity projects within ASEAN. Currently, six countries are connected bilaterally via the TAGP, and as it stands currently, the total pipeline length is 3,673 kilometers.
The geography of ASEAN is such that half of the countries are located on the mainland and the other half are in maritime areas. Therefore, gas interconnectivity may not be feasible using only a physical pipeline infrastructure. To connect the maritime region of ASEAN to the mainland region, we have been actively pursuing LNG regasification terminals, creating virtual pipelines to expand the TAGP. There are currently four LNG regasification terminals in operation in ASEAN namely, Thailand, Indonesia, Singapore and Malaysia, with a combined capacity of 17.8 million tonnes per annum (MTPA).
It is anticipated that by 2020, we will have at least one more country connected to the TAGP as additional LNG regasification terminals are commissioned.
5. How does the formation of the ASEAN Economic Community impact the opportunities and challenges for oil and gas companies, and how will this impact ASCOPE’s role?
The year 2015 is a very exciting one for ASEAN, with the introduction of the ASEAN Economic Community (AEC) at the end of the year. We shall establish a common market based upon the Four Pillars of: creating a single market and production base, increasing competitiveness, promoting equitable economic development and further integrating ASEAN with the global economy.
From the ASCOPE perspective, we see potential opportunities in the free flow of investment, transportation, increased energy demand and energy infrastructure connectivity. To enable ASEAN as a whole, and ASEAN Member States as individual countries to fully benefit from these potential opportunities, we would need to work together as far as differences in national rules and regulations are concerned, as well as individual energy policies, to ensure that all the ASEAN Member States gain from AEC 2015.
Based on these opportunities and challenges ASCOPE looks forward to encourage active collaboration amongst our members on a regional level to promote value creation in terms of business investments, oil & gas infrastructure and energy security, in line with and to support AEC 2015 to achieve its intended targets.