Not enough oil troubles Cambodia's
waters By Andrew Symon
PHNOM PENH - Could Cambodia's much-touted
energy potential, which the World Bank and others
had earlier estimated in total at 2 billion
barrels of oil and 10 trillion cubic feet of
natural gas, become a bust before it ever boomed?
Expectations of an energy resource bounty have now
suddenly dampened as top Cambodian officials
strike a more cautionary tone.
A senior
Cambodian energy official last December publicly
estimated that the 6,278-square-kilometer Block A
that US
energy giant Chevron is now
drilling could contain as much as 700 million
barrels of oil, or nearly twice the earlier
400-million-barrel estimate. Government officials
had estimated in January that they hoped to ramp
up production by as early as 2009, three to seven
years earlier than the World Bank projected as
possible.
Marking a notable departure from
that optimism, this month Prime Minister Hun Sen
told a major business conference in Phnom Penh
that the "speculation is highly premature". And
despite the over 600 mostly foreign business
delegates in attendance at the Cambodia
Investment, Trade and Infrastructure conference,
Chevron declined to take part in panel discussions
on Cambodia's natural resources. The company had
previously said it would publicly disclose its
findings and estimates in April or May.
Hun Sen's comments and Chevron's low
profile have led to downward revisions in some
concerned quarters of the government's earlier
bonanza estimates. Ever since Chevron reported
promising energy finds in Cambodian waters in
December 2004, there has been widespread hope that
energy exports could transform one of Southeast
Asia's poorest countries into a major regional
oil-and-gas producer.
According to a joint
study last year by the United Nations Development
Program (UNDP) and Harvard University, depending
on the size and accessibility of the proven
reserves, energy-export revenues could double
Cambodia's current gross domestic product.
Although Cambodian officials have at times freely
bandied around buoyant potential energy reserve
figures, Chevron itself has shied from publicly
stating hard numbers.
Yet speculative
hopes and rising global prices have spurred ramped
up multinational exploration activities in
Cambodia. Since Chevron's supposed find, other
international energy concerns, led by Thailand's
PTT Exploration and Production, Indonesia's Medco
and China's China National Offshore Oil Corp, have
taken up new exploration positions in Cambodian
waters.
The news has also galvanized new
interest in the potential of Cambodia's 27,000
square kilometer Overlapping Claims Area with
Thailand, which lies untapped due to a
long-running dispute between the two governments.
The two sides are expected to resume talks next
year after Thailand elects a new government in
December.
All of this has occurred despite
the fact that no petroleum project in Cambodia has
yet to reach an advanced development stage - let
alone achieve actual production. As far as the
much-anticipated discoveries in offshore Block A
are concerned, Chevron has said the deposits are
subject to difficult geology and that further
appraisal is required before it can estimate how
much might be extracted.
Indeed, there are
even industry rumors that Chevron may instead move
to sell its operating interest in the block, as
the deposits may not be as large as the company
requires to replace its proven reserves. If so, it
could dampen broad foreign investor sentiment in
the country, which has recently experienced a boom
as foreign capital pumps up property prices and
brings the moribund service sector to life. It's
unclear how much of the upbeat sentiment is
contingent on Chevron's oil-and-gas find, but if
the company were to come up dry at Block A it
would undoubtedly hurt investor interest in the
country.
Foreign investor perception is
now crucial to Hun Sen's government, which is
reaping the political benefits of an unprecedented
post-war economic boom. Now some energy industry
analysts are starting to wonder whether government
officials disingenuously pumped up expectations
about Chevron's find to spur investor interest in
other less promising exploration blocks.
There was a measure of surprise among
energy industry analysts when the Block A
estimates were first touted. Earlier exploration
in those same offshore Cambodian waters by
Britain's Enterprise Oil, Premier Oil and Japan's
Idemitsu in the mid-1990s found only moderate
indications of oil and gas. All three companies
decided that the find was not significant enough
to warrant investment in further drilling and
development.
Windfall
downsides Meanwhile, there are lingering
questions about the governance quality of the
administration of Hun Sen, which ranks towards the
tail end of international corruption rankings.
Watchdog groups have already expressed their
concerns that an energy windfall could be
squandered by poor management and official
corruption.
Warnings have been made by a
wide array of international development assistance
agencies, including the World Bank, the UNDP,
Oxfam and the International Monetary Fund, that if
mismanaged the country could actually face
economic and social harm from a fossil fuels boom.
In a small economy, rapid and large energy exports
risk high rates of inflation and a
fast-appreciating currency, which in turn would
threaten the international competitiveness of the
country's other export-oriented manufacturing
industries, including garment exports.
There are also fears of potential
environmental damage, particularly as the
government toys with the idea of awarding onshore
petroleum exploration blocks in the Tonle Basin
lake region, a crucial area of the greater Mekong
eco-system on which millions of Cambodians depend
for their nourishment and livelihoods. Judging by
the rampant, often government-sanctioned logging
industry, environmental and social concerns are
often subordinated to economic gain in Cambodian
extractive industries.
Government
officials say they are well aware of the
challenges and pitfalls of natural resource-driven
development. Deputy Prime Minister Sok An told the
recent gathering of investors, "We have received
many questions about what we are going to do with
the [oil and gas] revenues as and when they come.
My answer is that we have very much to do -
rebuilding and developing our economy and
enhancing the quality of the lives of our people."
Testing such assertions will be the
establishment of a new petroleum law, which is now
being deliberated in Parliament and will likely
give a firmer legislative and regulatory base for
petroleum industry development. The national
energy sector currently operates under fairly ad
hoc regulations, first adopted in 1991. In 1998,
the Cambodian National Petroleum Authority was
established to act as the key government agency in
managing development and operation of the
industry, where upstream companies operated under
a production sharing contract regime which is
comparable with international standards.
Now, apparently to subdue its critics, the
government says it might join the Extractive
Industries Transparency Initiative (EITI), a
recently established international mechanism with
a secretariat in Oslo, Norway, which brings
governments and companies together to promote good
governance over natural resource-generated
revenues.
First proposed in 2002 by
British prime minister Tony Blair, the EITI
features a coalition of governments, investors,
companies and non-governmental organizations
supported by multilateral and bilateral agencies
such as the World Bank and the International
Monetary Fund. Both corporate and government
practices are monitored by the EITI and reforms
are proposed for their consideration.
More
than 20 countries in Africa, South America and
Central Asia, all with large petroleum or mining
industries, have joined the EITI. However, there
are currently no Asian members, apart from natural
gas-rich Timor Leste, formerly known as East
Timor. The EITI's member companies, meanwhile,
represent some of the world's largest Western
energy concerns, including the BG Group, Burren
Energy, Chevron, ConocoPhillips, ExxonMobil,
Petrobras, Shell, Statoil, Talisman Energy, Total
and Woodside.
BG Group, Chevron and
ConocoPhillips all have oil-and-gas interests in
Cambodia, as do many of the mining companies which
have signed onto the initiative. And the
government will nonetheless come under EITI
principles and guidelines as part of their loan
programs with the World Bank and other agencies -
whether or not Cambodia's highly anticipated
energy bonanza is eventually or ever realized.
Andrew Symon is a
Singapore-based journalist and analyst
specializing in energy and mining. He may be
reached at andrew.symon@yahoo.com.sg.
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