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ENERGY | BG9
Wood Mackenzie: Oil
production in Asia
declining at record levels
Oil production in Asia-Pacific is declining at a rate
not seen elsewhere in the world, with around half of
losses coming from China alone, Wood Mackenzie
"We estimate 2016 production of 7.5 million barrels
per day will fall by over a million barrels per day by
2020," said Angus Rodger, the energy consultancy's
Asia-Pacific upstream research director.
China, Indonesia, Malaysia and Thailand are among
the biggest producers in Asia but the near having
of crude oil prices since 2014 has hit the industry
and resulted in an annual average base decline rate
of around seven per cent within existing oil fields,
Rodger pointed out.
"Lower oil prices and the severe cuts to upstream
capex (capital expenditure) to mature assets has in-
creased decline rates," he explained in a new video
published on Wood Mackenzie's site.
Recently, global prices have staged a rebound as the
Organisation of the Petroleum Exporting Countries
(OPEC) and other producers move to implement a
supply cut of nearly 1.8 million barrels per day for
the first half of 2017.
"Regional oil production will be underpinned by
giant fields in Indonesia, Malaysia and China but
these fields are super mature and will require expen-
sive techniques, high break-evens and capex cuts,"
Moreover, the bulk of exploration in the region is on
gas so there are far too few new oil projects to make
up for dwindling production, he continued, pointing
out there are only a handful of undeveloped fields
that can be online by 2020.
"The scarcity of new oil discoveries over the last
two decades combined with lower prices and hefty
capex cuts, particularly to legacy fields, will see de-
cline rates spiral across the region."
IMF slashes Saudi Arabia growth
forecast on lower oil output
The International Monetary Fund cut
its growth outlook for Saudi Arabia
on lower oil production, underscor-
ing the challenges facing the kingdom
as it seeks to overhaul its economy.
Gross domestic product will ex-
pand 0.4 per cent in 2017, the lender said in its World
Economic Outlook report update on Monday, citing
the impact of the recent deal by the Organisation of
the Petroleum Exporting Countries to reduce output.
It compares with the fund's October prediction of 2
percent, and a median estimate of 0.9 percent in a
The forecast reflects cuts in government spending
as well as the impact of lower oil production, Gian
Maria Milesi-Ferretti, deputy director of the IMF's re-
search department, told reporters on Monday. "There
is a big adjustment in spending downwards," he said.
"There is an adjustment in taxes upwards, and as a
result non-oil growth is not going to be as good as it
was during periods of strong oil prices."
Saudi Arabia is seeking to build investor confidence
in its long-term strategy to reduce dependence on
crude and boost non-oil sectors of its economy, while
trying to plug one of the Middle East's biggest budget
deficits. The kingdom is planning to borrow as much
as US$15 billion this year on international debt markets
to help fund its spending plans, following last year's
US$17.5 billion sovereign bond sale.
"It will take time to diversify the economy in a
meaningful way," said Monica Malik, chief econo-
mist at Abu Dhabi Commercial Bank. "Saudi remains
dependent on oil; and at the current prices, the ability
of the government to stimulate growth is limited."
Saudi Arabia's so-called Vision 2030 strategy de-
rives from the global slump in oil prices since 2014,
which severely dented revenue. Led by Deputy Crown
Prince Mohammed bin Salman, it includes a plan to
set up the world's biggest sovereign wealth fund and
to sell a stake of less than 5 percent in state-run Saudi
Arabian Oil Co by 2018.
Saudi Arabia estimates growth fell to 1.4 per cent
in 2016, the lowest since the recession in
2009, as it cut spending by suspending bo-
nuses for public employees and reducing
ministers' salaries. The government has
also raised the cost of fuel, and plans to
introduce value-added taxes and fees on
October's sovereign bond was the biggest
ever emerging-market issuance, attracting
US$67 billion of bids, people familiar with
the sale told Bloomberg at the time. Saudi
Arabia is "very likely" to tap debt markets
again in the first quarter, including with an
Islamic bond, Finance Minister Mohammed
Al-Jadaan said last month.
The government plans to increase debt
levels to 30 percent of economic output by
2020, from 7.7 percent, according to targets
set out in June. By which time, it may be
running a surplus, based on its latest budget
in December; the most-detailed in Saudi
Malik said she expects Saudi debt to re-
main attractive in international markets
even with the negative impact of weaker
growth, bolstered by the riyal-dollar peg,
low government borrowing and a stronger
oil-price outlook for 2017.
The IMF forecast Saudi growth to re-
bound to 2.3 per cent in 2018; still lower
than its October projection of 2.6 per cent.
"The scale of the adjustment Saudi Arabia
must still deliver suggests growth will lag,"
Simon Williams, HSBC Holdings Plc's chief
economist for central and eastern Europe,
the Middle East and North Africa, said in a
report issued on Monday. "It is here, though,
where the prospects for reform are at their
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