Cambodia Prepares To Produce Its First Oil

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Cambodia Prepares To Produce Its First Oil

As Asian oil demand looks set to increase over the next decade, Cambodia is taking advantage of the opportunity with its first crude oil production. Cambodia’s plan is to extract oil from the Gulf of Thailand oil fields in a joint project with Singapore’s KrisEnergy Ltd, a plan that has seen several years of delays.

The development was announced by Prime Minister Hun Sen on social media, “The year 2021 is coming and we have received a huge gift for our nation — the first oil production in our territory”. Going on to say, “Key benefits include national budget revenue, economic benefits from the diversification of the oil industry and national capacity building in this sector”. This came after production started in the region on Monday.

The venture was initially proposed in 2017 when KrisEnergy and the Cambodian government signed a pact to develop 3,083 square kilometers of the Khmer basin in the Gulf of Thailand, also known as Block A. The government hopes this project will earn around $500 million in revenue in the first phase of the project, with an initial production rate of 7,500 bpd.

KrisEnergy already has several ongoing exploration, appraisal, development and production projects across Asia, in Bangladesh, China, Thailand, Vietnam and Indonesia. The company hopes to increase its Asia portfolio with a 95 percent stake in block A, having purchased Chevron’s stake in the zone for $65 million in 2014.

Oil was initially discovered in the region in 2004 by U.S. energy giant Chevron. Despite this early discovery, Chevron was unable to reach an agreement with the Cambodian government to develop its oil capabilities. Additionally, due to the drop in oil prices in 2014, few companies have been willing to invest in the unestablished oil region.

The project is not without risk, with the production commencing in the midst of a global pandemic that has significantly threatened oil demand. However, the government believes there to be hundreds of millions of barrels of crude in Cambodia’s waters, making the outlook promising.

The drilling program is expected to be completed by February 2021. The exploration and production of oil in Block A is being carried out in phases to collect and assess data to mitigate risk, due to the unknown production performance in the basin.

Cambodia currently produces three-quarters of its energy needs, split between around 44% coal production and 45% hydropower. Earlier in 2020, Cambodia announced plans for the future of its energy industry, embracing new coal power projects. The Cambodian government stated plans to triple the country’s coal output in the coming years. The move comes following failures in Cambodia’s hydropower industry due to drought.

However, Cambodia’s reliance on fossil-fuel over renewable alternatives has led the country to appear less attractive to international brands that manufacture in the country. Companies worry that Cambodia will not keep up with international trends and that it is not considering environmental concerns for the future of its energy, with no clear renewable energy target stated at present.

In contrast, neighboring country Vietnam is embracing its solar potential with production levels increasing from 100 megawatts to 4.5 GW between 2016 and 2019. A clear move to renewables going into the next decade therefore makes Vietnam a more attractive option for many international brands.

As Cambodia’s hydropower industry is faltering in the face of drought, its new oil potential could offer a bright alternative for the country’s energy future. While the government has faced criticism over its move to increase coal output, the new oil venture looks set to improve Cambodia’s energy outlook.

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