CAMBODIA: Energy resources finds prompt navy expansion
Updated
The discovery of oil and gas fields off the coast of Cambodia has given rise to some excitement about potential revenue. It has also prompted Cambodia's Defence Ministry to announce plans to substantially expand the size of its navy. But industry experts are wondering whether the move is at all necessary.
Presenter: Jill Scanlon
Speakers: Dave Ernsberger, editorial director for Asia with leading global energy information service, PLATTS
Over the past two years, exploration companies from the US, South Korea and Japan have been searching for oil and natural gas reserves off Cambodia's southern coast.
It has now been confirmed a rich reserve of oil has been located in the Gulf of Thailand and production is expected to start in 2008.
Oil has reportedly been struck in four out of five exploration wells within just one exploration sector and the size of the deposits has international companies vying for exploration and production rights.
Dave Ernsberger is the editorial director for Asia with PLATTS, a leading global energy information service.
He says the Cambodian government may be getting ahead of itself and that the project may not be as straight forward as they hope.
ERNSBERGER: From an international point of view, the reserves that appear to have been discovered in Cambodia are medium sized so far. And the main discovery there was found by Chevron working with a couple of partners from Japan and South Korea.
The thing about that find though is that it's moderately sized but it appears to be technologically challenging and there have been some statements coming out from Chevron just in the last couple of months that Cambodia needs to be cautious and also that investors need to be cautious before getting over-excited about this new find because the hydrocarbons that are located out there are what they call 'dispersed' - they're spread over a broad area rather than a one-core field. And that's going to make them hard to get out of the ground in an economic way and in a profitable way.
Dave Ernsberger.
The Cambodian Ministry of Defence believes the oil sites will need substantial security when they go into production.
It has proposed a plan to triple the size of its naval force and create a marine force of up to 2000 personnel.
Yim Sovann, a lawmaker from the Sam Rainsy Party is quoted as saying the defence move responds to the routine need to protect maritime borders and more particularly offshore oil fields being explored in Cambodia.
"What we are doing is simply to safeguard environment at sea and maritime borders, prevent terrorist acts and provide security to companies. We are not going to put up any menacing presence to anyone."
Dave Ernsberger says that the Cambodian government is going to find the project a challenge and will need to make sure it gets its 'ducks in a row' on the kind of incentives it puts in place for investment and drilling before making plans in relation to the production.
ERNSBERGER: You know, already we're seeing these reports about Cambodia boosting its navy and preparing for how it's going to tax and spend based on this resource, but I think the very first step is to look at what kinds of cost recovery structures and what kinds of profit structures are actually going to get international companies in to try and develop some of these resources because they're not, based on what we're hearing so far, they're not going to be cheap or easy to get out of the ground. So I think they need to get back to the basics and think about the incentives that need to be put in place first.
Cambodia is NOT considered a player on the international oil market and many Asian oil analysts and traders are surprised to find there is anticpation of the prospect of a commercial size reserve.
The dominant asian oil producers are Indonesia and Vietnam with significant oil production also in China and Australia.
ERNSBERGER: The words Cambodia and oil reserves are very rarely found in the same sentence. And I think that Cambodia is not even registering on people's radars right now - it's just a surprise.
Nobody can say for sure if Cambodia won't emerge as maybe the next 'Vietnam' or even something like an Indonesia with large resources it could begin to export over time to the very hungry consumers in Japan and China.
Analysts say there is plenty of room in Asia for Cambodian oil if it can be brought to the market.
The major regional oil countries have been more preoccupied with the South China Sea, the East China Sea and the Spratlys Islands that lie between Vietnam and the Philippines, paying no attention to Cambodia and its exploration in the Gulf of Thailand.
Dave Ernsberger says that historically, there's been a moderate level of exploration done in that area but not a very committed one and that is why it's surprising that they've discovered this moderately sized resource there.
The size of the find is being reported as up to 700 million barrels but Dave Ernsberger believes this should be put into perspective.
ERNSBERGER: Based on that resource size it looks as though it's going to be a medium sized production rate coming out of Cambodia or even slightly small. But still, what is small or medium sized to the international oil market is a huge resource for Cambodia itself.
Navies and military powers tend to be a projection of economic power and political power. You have to think that the Cambodian economy would probably change overnight the minute it started selling oil into the international market. It would probably have a dramatic and immediate impact on the Cambodian economy.
However, the Cambodian government will need to exercise caution. Dave Ernsberger says the influx of petro dollars is such a double-edged sword being both a curse and a blessing.
ERNSBERGER: The reason why it's a curse is because the minute you discover you have an oil resource - immediately you start talking about tax and spend; immediately you start talking about expand your navy, project your military power, protect your resources and immediately you start coming into conflict with your neighbours.
I think there's been an overreaction to this and overexcitement to this about how much it could add to the top line of Cambodia's economy, but they need to be aware that Thailand is not far away, Vietnam is not far away and these countries are not going to be particularly happy with Cambodia becoming suddenly a more boisterous neighbour in between them.
