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Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : SHANGRI-LA HOTEL, KUALA LUMPUR
Tarikh/Date : 30/07/96
Tajuk/Title : THE ASIA OIL AND GAS CONFERENCE
1. It gives me great pleasure to officially open
this conference, the first of its kind to be held in
Malaysia. Let me first of all extend a warm welcome
to all our foreign guests, some of whom may be
visiting Malaysia for the first time. I wish you
all a very pleasant and enjoyable stay in Malaysia.
We are honoured to host such a distinguished
gathering of policy makers, energy experts, top
executives and other key players in the oil and gas
industry.
2. The holding of this conference is indeed
appropriate at a time when the regional market is
faced with numerous challenges due to political and
economic changes worldwide. While on one hand
countries appear to favour the free market systems,
they still indulge in protectionism and closed
regionalism. Widespread concern for the environment
has also led to changes in fuel specification. All
these changes translate into increase costs,
especially in upgrading refining processes and
improving combustion of the fuel in order to reduce
exhaust gases.
3. In the East Asian region the growth in the
demand for oil and gas is perhaps the highest due to
the rapid economic development in the region.
Growth in the region for the next five years is
expected to hover around seven percent per annum.
And this is occurring despite the fact that East
Asia is made up of a mixture of developed, newly
industrialised countries and developing countries
which have only just adopted liberal economic
policies.
4. Still in the early stage of their economic take
off, China had been recording an annual growth of
more than ten percent while Vietnam had been
recording more than eight percent. The trend will
continue into the foreseeable future. The economic
growth for ASEAN and the newly-industrialised
countries, although still high, has been quite
steady, current account deficits notwithstanding.
It is also worth noting that Japan has turned around
and is now recovering with an expected real growth
of 2.4 percent in 1996.
5. The spread of the free market economic system
and the abandonment of the command economy by
countries like China, Vietnam, Myanmar and Cambodia
has opened up new avenues for foreign participation
in oil and gas exploration as well as marketing of
products. At the same time those countries which
have always been market economies such as Japan, the
Philippines, Indonesia, Malaysia, India and others
have been rapidly deregulating in order to attract
private and foreign investment. With these
developments, we can expect a more vibrant economic
environment which must impact positively on the oil
and gas industry.
6. For Asia, the mere size of its population,
making up more than half the world's total, is a
major factor that will support growth. With the
liberalisation of the economies bringing about new
investments and jobs, there will be increases in the
income level and the purchasing power as well as the
lifestyle of the people. Higher standards of living
will result in increasing demands for sophisticated
goods and services. The demand for energy in the
region must grow proportionately in particular
petroleum for transportation, power generation,
industrial and domestic use. Consumer preferences
will be towards cleaner fuel. If previously
consumers in these countries were using firewood for
cooking, now they would prefer and would be able to
afford kerosene or even LPG or natural gas.
Consciousness of the need for cleaner environment
has also resulted in increased demand for lead-free
petroleum products, low sulphur fuel and increasing
usage of gas. However, despite all these and the
efforts to achieve energy resource diversification,
oil is likely to remain the most important fuel in
the region. The current relatively low oil price
provides little economic incentives to switch to
other energy resources. Demand for energy in Asia
is expected to increase between five percent to six
percent per annum until the year 2000 while oil
demand is projected to grow at an average rate of
3.9 percent between 1995 to 2000, reaching almost 20
million barrels per day by the year 2000.
7. What should be of concern to the region is the
imbalance between the increasing consumption and the
lower growth in production, especially in the area
of indigenous low sulphur crudes. The supply/demand
imbalance could be further aggravated by the
increasing demand for environmentally friendly
energy resources as new environmental awareness
takes root in Asia. New environmental standards are
being rapidly proposed and implemented not only in
the richer countries of Asia but also in many of the
region's developing nations. Lead is rapidly being
phased out of the gasoline mix, while diesel and
fuel oil specifications are being tightened to
control the sulphur content. We also see efforts to
reduce aromatic content in jet fuel. Nuclear power
generation has now gone into disrepute and few new
plants are being built in the region, thus putting
even greater pressure on oil and gas for power
generation. Again, due to rapid economic growth,
the demand for power in East Asia and even Central
Asia is growing at a faster rate than in any other
region of the world.
8. The decline in the regional crude availability
will result in the region being more dependent on
imports of the Middle Eastern crudes whose reserves
are estimated to last about 100 years at their
current rate of production. To consuming countries,
this high dependence on the Middle East crudes may
result in OPEC again exercising control over prices.
It should be noted that no country in East Asia can
remain independent of outside supply for long.
Their rapidly growing economies will soon outstrip
their production of oil and gas for domestic use.
Even Malaysia which presently exports half of its
oil and gas production may become an oil importing
country fairly soon.
9. Intensive efforts are being taken by
governments in the region to increase exploration in
their respective countries. In order to tap
financial and technical resources from international
oil companies, host governments should be prepared
to be flexible in terms of policies and reward
system. The increasing market opening and
deregulation in the emerging economies of the region
are attracting foreign companies to explore new
acreage. While this is happening, focus should also
be made on secondary recovery, exploration in deep
waters, new technologies to increase the success
rate of striking oil and marginal fields
development. Efforts must be made to keep costs of
exploration and production down.
10. Natural gas could be one answer to the
declining oil availability in the long run in view
of the abundant reserves and its environmentally
friendly characteristics. While oil will remain the
prime source of world energy for many years to come,
we can no longer ignore the fact that gas will
increasingly play an important role in supplying the
energy needs in the region. With current regional
gas reserves amounting to 328.5 trillion cubic feet
and more oil exploration activities resulting in gas
finds, natural gas production and usage is slowly
gaining momentum and emerging as a strong
alternative to oil especially in the power and
industrial sectors. Technology improvements have
enabled gas to become more a global rather than
local or even regional industry and will be a major
growth area for the future. But bringing natural
gas to the market will require enormous
infrastructural investment in view of its nature,
particularly its more complex storage and
transportation requirements. To achieve economies
of scale, the projects would have to be of
reasonably large and markets assured. However,
given the very slow progress of the pipeline
projects in the region, and the costly
infrastructure involved in the setting up of
transnational gas transmission systems, liquefaction
will remain the only feasible form of transporting
natural gas to consumers for at least the next
decade. Again because of the large investments
involved, development of gas resources and supply
requires long term partnership between producers and
consumers. The potential partners should not try to
hold each other to ransom because this strategy only
results in delays and increases in cost. Instead
partners should be sincere and flexible, taking into
consideration the instability not only of policies
but also the US dollar in which all transactions are
denominated.
11. The oil and gas industry is highly capital
intensive. But for the hike in oil prices by OPEC
in the 70's, the industry would have been confined
to the oil majors. But high oil prices made the
then marginal fields worth exploring. Countries
like Malaysia were able to open up areas on land and
sea for exploration because of better returns from
production sharing. Later the national oil
companies in these countries were able to actually
go into the oil business, exploring, producing,
refining and marketing.
12. The emergence of small national oil companies
is good for the industry and the consumers. But
such is the uncertainty of this business that not
many can afford the huge capital outlay needed. It
is good therefore for the oil companies to cooperate
with each other and to share the risks. Besides,
national oil companies cannot depend on domestic
production only. They have to go abroad in order to
ensure future supplies. Abroad they will not get
the kind of protection they enjoy at home. They
have a need to spread the risks by teaming up with
other oil companies, especially the oil majors. The
willingness of these big companies to accept the
small national oil companies as partners in ventures
in third countries should augur well for the future
of the oil industry. National oil companies can
contribute through their business connections and
the relation between their country and host nations.
It is not only in their own countries that the
national oil companies can be useful to the bigger
international companies. They will be useful in
third countries too. Thus most international oil
companies are now entering Asian markets
strategically through joint ventures with NOCs or
private local enterprises.
13. Countries where the big international oil
companies invest or market their products expect
much more than to be passive locations for doing
business. They expect the oil companies to literally
fuel their economic growth. They expect
participation by locals so as to benefit not just
from employment opportunities but also some
technology and marketing know-how transfer. The oil
business is a lucrative business and the wealth
generated must be shared fairly. No one should
forget the result of the exploitation of the Middle
Eastern oil nations. Eventually they hit back by
increasing by many times the price of oil. The
world's economy was thrown into turmoil as a result.
14. The growth and increasing affluence of East
Asian including South East Asian countries will
change the pattern of trade and distribution of raw
materials for the whole world. This is inevitable.
If Asians become massive and wasteful consumers as
the Europeans and Americans are, demand must exceed
supply of many of the basic raw materials. If we
can imagine all the Asian countries having the per
capita income of Western countries, the consumption
of petroleum would probably dry up all the oil wells
of the world in record time. We can look upon this
scenario with fear and try to prevent it by stifling
the development of Asian countries. But this is a
rather negative approach to a future problem. The
better thing to do is to study and carry out
research and development on how to use energy more
efficiently and to identify newer fuels and energy
resources, in particular renewable resources. The
attempt by some misguided groups to prevent the
development of renewable energy resources in Asia is
to be regretted. Instead the judicious harnessing
of renewable energy resources particularly hydro
power should be encouraged and subsidised by the
developed western nations, in the interest of
conserving exhaustible fossil fuel for them to share
in the future. I would urge the participants at
this conference to mull this problem of the future.
15. With this, Ladies and Gentlemen, I take
pleasure in declaring the conference open.
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