Southeast Asia as an energy resource hotzone 0 comments

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Increasingly, it looks like a key pillar of Southeast Asia'a economic future could well be in resources exploration and processing, as its strength as a manufacturing base is gradually lost to most cost-effective countries with abundant and increasingly well-educated labour supply.

Indonesia has to be the starting point for any discussion of natural resources in Southeast Asia. Long recognised to have potentially huge unexplored oil and natural gas resources in its territory, its slowness in capital investment to increase exploration has led to it being embarassingly the only country in OPEC to be a net importer of oil, the high domestic consumption partly due to its petrol being heavily subsidised. All this is set to change, as the country faces currency problems due to having to buy in highly-priced oil. They have been relaxing foreign investment regulations over these few years, and this current difficulty looks set to accelerate the process. Already China has been quick to tie up investment cooperation agreements with Indonesia. We all know what China has been doing: its relentless efforts to ensure energy security are well-documented.

Of course, oil and gas exploration is not confined to Indonesia. There have been drillings all over Southeast Asia; for those who follow SPC and Pearl Energy, they will for example know about the PSCs in Indo-China and Thailand. Malaysia, I read, has recently revived the idea of setting up a second national oil exploration company to complement (and provide competition for) Petronas, given the attraction of high oil revenues.

And again, the energy resources are not confined to oil. It is clear that coal mining is also a major growth sector. That's why Chuan Hup was purchased by Habib (whose substantial shareholder is Scomi, a listed Malaysian oil and gas services firm with strong connections), and that's why Sembawang Kimtrans has shown strong earnings growth and analyst reratings leading to a share price surge. For poorer countries with less developed infrastructure, coal is still the primary fuel, especially given the high oil prices now.

Look at how Singapore is positioning herself. Already we are a world-leading builder of offshore rigs and platforms, and one of the three key oil trading hubs (the others being Rotterdam and New York). Now there are plans to set up energy derivatives trading infrastructure, to build substantial oil storage facilities (including plans for underground storage like what the US has), and government-linked SPC is actively providing consultancy services to Indonesian oil refineries and explorers. I won't be surprised to see quite a number of oil services and exploration companies in the SGX's IPO pipeline in the near future too. As always, Singapore is looking to capture the downstream and supporting services pie. And hey presto, we would experience the oil boom too, even though we have no natural resources.

Actually, one should not be surprised by this trend. Just over half a century ago, Japan invaded Southeast Asia precisely because it found the available natural resources, especially oil, too hard to resist.