The launch of oil production marks an important milestone for Cambodia, giving the Southeast Asian nation an opportunity to play a role in shoring up energy security in the region, experts said.
“It is the first time in Cambodian history that we (are extracting) oil. (The plan) was made many years ago,” noted Chheang Vannarith, president of the Asian Vision Institute (AVI), an independent think tank based in Phnom Penh.
Oil extraction will help boost revenues for Cambodia and improve the prospects of sustainable debt management, Chheang said, adding that the endeavour will also create benefits to the whole region.
On Dec 29, Cambodian Prime Minister Hun Sen announced that his country began extracting oil from one of its offshore oilfields the previous day.
Describing the beginning of the oil production as “a blessing for Cambodia”, Hun Sen said it will significantly contribute to developing the economy and boosting national revenue.
“COVID-19 has bothered us, but it cannot destroy our efforts to produce that oil," said Hun Sen. “This is a key start for Cambodia towards building an oil industry.”
Cambodia can now play a new role, even though it might be a small one, in regional energy security and supply chains, said Chheang. Compared with other key oil exporters in the region, such as Brunei, Indonesia and Malaysia, Cambodia’s oil production is still at an initial stage.
Oil extraction will help boost revenues for Cambodia and improve the prospects of sustainable debt management, Chheang said, adding that the endeavour will also create benefits to the whole region
Under the operations of Singapore-based firm KrisEnergy, the oil production is carried out from the Apsara oilfield, which is located in Block A in the Khmer Basin in the Gulf of Thailand.
KrisEnergy holds 95-percent stake in the 3,083-square-kilometer offshore block, and the Cambodian government owns the remainder.
Block A is one of the six offshore Blocks that Cambodia awarded to companies to do the exploration.
In a statement, KrisEnergy said Cambodia’s first oil field in the Block A began production on Dec 28, with extraction from a single development well. Production will increase as four more wells are being developed.
According to the statement, production is expected to reach a peak rate of about 7,500 barrels per day once the drilling program is completed in mid-February 2021.
Kelvin Tang, chief executive officer and president of KrisEnergy’s Cambodian operations, said the event is “an important strategic and operational milestone” for the company.
“Apsara’s first oil marks a 10-year journey from when KrisEnergy initially became a partner in Block A,” Tang said, noting that production-sharing agreement with the Cambodian government was inked in 2017.
"In the context of the COVID-19 pandemic in 2020, progressing Apsara to first oil has been a tremendous achievement," said Tang. "Our task now is to complete drilling of the four remaining wells, stabilize production and monitor performance."
Block A is estimated to have some 30 million barrels of recoverable oil reserves over a nine-year period, according to a report by Xinhua.
Han Phoumin, senior energy economist at the Jakarta-based Economic Research Institute for ASEAN and East Asia (ERIA), said that Cambodia, among the 10 members of the Association of Southeast Asian Nations, has a very high import dependency as the country relies heavily on imports of coal, oil, and electricity.
Han Phoumin, senior energy economist at the Jakarta-based Economic Research Institute for ASEAN and East Asia (ERIA), said that Cambodia, among the 10 members of the Association of Southeast Asian Nations, has a very high import dependency as the country relies heavily on imports of coal, oil, and electricity
Cambodia imported 100 percent of its petroleum products from Singapore, Thailand, and Vietnam to supply domestic consumption, according to a report in 2018 by Cambodia’s Ministry of Mines and Energy and supported by ERIA.
The import of petroleum products rose from about 1.5 million tons of oil equivalent in 2010 to about 2.5 million in 2018, with an average annual growth rate of 7 percent during the same period, the report showed. Between 2017 and 2018, the rate rose to 11 percent, which is mainly due to the rapid increase of jet fuel and liquefied petroleum gas imports.
Cambodia’s fuel import dependency “could bring many energy security risks” if the nation fails to properly manage energy consumption and oil stocks, Phoumin said.
Noting that Cambodia currently does not have an oil stock holding by the government, Phoumin also pointed out that though the oil import companies are required to hold inventory of oil stock for 30 days, the reality is that they may only stock 2 weeks.
Chheang from AVI said Cambodia needs to be cautious when it comes to the transparency and governance in relation to the oil sector. Environmental issues related to the sector should also be dealt with carefully, he said.
While oil extraction can generate more job opportunities, Chheang said Cambodia needs to face the challenge of lack of human resources if it wants to further develop the sector.
For now, Cambodia will need to ship the crude oil to countries with advanced facilities for the refinery process, said Chheang.
“Originally, the oil production from Cambodia is supposed to serve the demand in China, and some may serve the domestic demand,” said ERIA’s Phoumin. “However, with the low price of oil globally, it is best to use the domestic production for domestic demand.”
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Due to weaker jet fuel demand, the International Energy Agency, in its monthly report in December, cut the forecast for global oil demand in 2021 by 170,000 barrels per day, with oil demand in the first half of the year revised down by 300,000 barrels per day.
As Cambodia is working to develop its energy infrastructure, such as oil refineries, and tapping domestic oil production, Phoumin said the country needs to learn more about “how to manage the resources effectively”, as well as having adequate energy policy.
To Phoumin, extraction of the first drop of oil from Block A is just a beginning of Cambodia’s oil production.
“In the near future, all the potential blocks in Cambodia offshore will need to be explored to full production if it is economically viable,” he said, adding that the global oil price will be an important factor.
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