Is Brunei's offshore Block J area really ours, or Malaysia's?

Wednesday, December 19, 2007

ACCORDING to Brunei Shell Petroleum, every one in five lightbulbs in Tokyo is powered by Brunei's gas. This may seem impressive, but with hydrocarbon reserves declining over the last several decades and our country's struggle to diversify its economy away from oil and gas, the need may arise for the country to address one thorny issue: the ongoing territorial dispute with Malaysia for offshore Block J.

In 2000, the sultanate awarded offshore Blocks J and K to consortia led by Shell and Total. However, these companies suspended exploration work following an incident in April 2003 when several Malaysian patrol boats chased away a Total exploration vessel after claiming that it has extended its territorial claims into seas Brunei says are in its Exclusive Economic Zone (EEZ).

So far, Brunei has lived up to its image as the 'Abode of Peace', by demonstrating that anything, including critical offshore exploration issues, can be settled peacefully and without confrontation with its closest neighbour. However, recent developments in Malaysia suggest that the sultanate may need to press ahead with a solution very soon.

In 2003, Malaysia's Petronas and partner Murphy Oil logged a significant oil find in the Kikeh Block (estimated to hold 700 million barrels of recoverable oil reserves), which may extend into Block J. This year in August, Murphy Oil announced that it had started oil production from the field with an initial rate of 40,000 barrels per day. It expected additional wells to follow next year, further increasing its output to 120,000 barrels per day.

Total Brunei General Manager Louis Heuze has voiced out concerns, as cited in the Oxford Business Group (OBG)'s 2007 country report on Brunei, that as production starts on the Malaysian side, it could lead to losses on the Bruneian side. "Once Murphy starts exploiting its field, the pressure will drop and any molecule of oil coming out of the Malaysian side will be replaced by a molecule from Brunei," said Louis.

Yet, Brunei continues to languish in inaction. According to the OBG report, Brunei's oil reserves are decreasing by three per cent annually, while Malaysia's are going down at 15 per cent.

"Neither relishes the prospect of having to eventually import oil, particularly if international prices stay at their current levels," stated the report.

If Brunei is counting on blocks J and K to sustain its oil and natural gas output levels and if it does not acquire them the country would be faced with the formidable challenge of rapidly diversifying its economy away from hydrocarbons. Efforts have been made by the government in diversifying the economy, but with lacklustre results.

Internationally-published economic and political studies continue to state that Brunei's development is hampered by its heavy dependence on oil revenues, an over-centralisation of power, a bloated bureaucracy, a weak private sector and a small domestic market of only 370,000 people.

An Asian diplomat, based in Bandar Seri Begawan, summed it acutely in 2004, when he spoke to AFP. "Brunei cannot live in fairyland forever. Today, globalisation is the reality and Brunei will be swept aside if it does not wake up."

The recommended reforms in the studies include allowing the private sector to be the main growth engine, decentralisation of power, economic diversification, better management of state finances and more transparency — to which there remains to be seen a tangible solution for all these recommended reforms.

Despite a recent upsurge of awareness among the government agencies, little headway has been made with regards to translating this into much-needed reality.

The Brunei Times