Nov 20, 2007 By Andrew Symon
Asia Times (Hong Kong)
PHNOM PENH - Could Cambodia's much-touted energy potential, which the World Bank and others had earlier estimated in total at 2 billion barrels of oil and 10 trillion cubic feet of natural gas, become a bust before it ever boomed? Expectations of an energy resource bounty have now suddenly dampened as top Cambodian officials strike a more cautionary tone.
A senior Cambodian energy official last December publicly estimated that the 6,278-square-kilometer Block A that US energy giant Chevron is now drilling could contain as much as 700 million barrels of oil, or nearly twice the earlier 400-million-barrel estimate. Government officials had estimated in January that they hoped to ramp up production by as early as 2009, three to seven years earlier than the World Bank projected as possible.
Marking a notable departure from that optimism, this month Prime Minister Hun Sen told a major business conference in Phnom Penh that the "speculation is highly premature". And despite the over 600 mostly foreign business delegates in attendance at the Cambodia Investment, Trade and Infrastructure conference, Chevron declined to take part in panel discussions on Cambodia's natural resources. The company had previously said it would publicly disclose its findings and estimates in April or May.
Hun Sen's comments and Chevron's low profile have led to downward revisions in some concerned quarters of the government's earlier bonanza estimates. Ever since Chevron reported promising energy finds in Cambodian waters in December 2004, there has been widespread hope that energy exports could transform one of Southeast Asia's poorest countries into a major regional oil-and-gas producer.
According to a joint study last year by the United Nations Development Program (UNDP) and Harvard University, depending on the size and accessibility of the proven reserves, energy-export revenues could double Cambodia's current gross domestic product. Although Cambodian officials have at times freely bandied around buoyant potential energy reserve figures, Chevron itself has shied from publicly stating hard numbers.
Yet speculative hopes and rising global prices have spurred ramped up multinational exploration activities in Cambodia. Since Chevron's supposed find, other international energy concerns, led by Thailand's PTT Exploration and Production, Indonesia's Medco and China's China National Offshore Oil Corp, have taken up new exploration positions in Cambodian waters.
The news has also galvanized new interest in the potential of Cambodia's 27,000 square kilometer Overlapping Claims Area with Thailand, which lies untapped due to a long-running dispute between the two governments. The two sides are expected to resume talks next year after Thailand elects a new government in December.
All of this has occurred despite the fact that no petroleum project in Cambodia has yet to reach an advanced development stage - let alone achieve actual production. As far as the much-anticipated discoveries in offshore Block A are concerned, Chevron has said the deposits are subject to difficult geology and that further appraisal is required before it can estimate how much might be extracted.
Indeed, there are even industry rumors that Chevron may instead move to sell its operating interest in the block, as the deposits may not be as large as the company requires to replace its proven reserves. If so, it could dampen broad foreign investor sentiment in the country, which has recently experienced a boom as foreign capital pumps up property prices and brings the moribund service sector to life. It's unclear how much of the upbeat sentiment is contingent on Chevron's oil-and-gas find, but if the company were to come up dry at Block A it would undoubtedly hurt investor interest in the country.
Foreign investor perception is now crucial to Hun Sen's government, which is reaping the political benefits of an unprecedented post-war economic boom. Now some energy industry analysts are starting to wonder whether government officials disingenuously pumped up expectations about Chevron's find to spur investor interest in other less promising exploration blocks.
There was a measure of surprise among energy industry analysts when the Block A estimates were first touted. Earlier exploration in those same offshore Cambodian waters by Britain's Enterprise Oil, Premier Oil and Japan's Idemitsu in the mid-1990s found only moderate indications of oil and gas. All three companies decided that the find was not significant enough to warrant investment in further drilling and development.
Windfall downsides
Meanwhile, there are lingering questions about the governance quality of the administration of Hun Sen, which ranks towards the tail end of international corruption rankings. Watchdog groups have already expressed their concerns that an energy windfall could be squandered by poor management and official corruption.
Warnings have been made by a wide array of international development assistance agencies, including the World Bank, the UNDP, Oxfam and the International Monetary Fund, that if mismanaged the country could actually face economic and social harm from a fossil fuels boom. In a small economy, rapid and large energy exports risk high rates of inflation and a fast-appreciating currency, which in turn would threaten the international competitiveness of the country's other export-oriented manufacturing industries, including garment exports.
There are also fears of potential environmental damage, particularly as the government toys with the idea of awarding onshore petroleum exploration blocks in the Tonle Basin lake region, a crucial area of the greater Mekong eco-system on which millions of Cambodians depend for their nourishment and livelihoods. Judging by the rampant, often government-sanctioned logging industry, environmental and social concerns are often subordinated to economic gain in Cambodian extractive industries.
Government officials say they are well aware of the challenges and pitfalls of natural resource-driven development. Deputy Prime Minister Sok An told the recent gathering of investors, "We have received many questions about what we are going to do with the [oil and gas] revenues as and when they come. My answer is that we have very much to do - rebuilding and developing our economy and enhancing the quality of the lives of our people."
Testing such assertions will be the establishment of a new petroleum law, which is now being deliberated in Parliament and will likely give a firmer legislative and regulatory base for petroleum industry development. The national energy sector currently operates under fairly ad hoc regulations, first adopted in 1991. In 1998, the Cambodian National Petroleum Authority was established to act as the key government agency in managing development and operation of the industry, where upstream companies operated under a production sharing contract regime which is comparable with international standards.
Now, apparently to subdue its critics, the government says it might join the Extractive Industries Transparency Initiative (EITI), a recently established international mechanism with a secretariat in Oslo, Norway, which brings governments and companies together to promote good governance over natural resource-generated revenues.
First proposed in 2002 by British prime minister Tony Blair, the EITI features a coalition of governments, investors, companies and non-governmental organizations supported by multilateral and bilateral agencies such as the World Bank and the International Monetary Fund. Both corporate and government practices are monitored by the EITI and reforms are proposed for their consideration.
More than 20 countries in Africa, South America and Central Asia, all with large petroleum or mining industries, have joined the EITI. However, there are currently no Asian members, apart from natural gas-rich Timor Leste, formerly known as East Timor. The EITI's member companies, meanwhile, represent some of the world's largest Western energy concerns, including the BG Group, Burren Energy, Chevron, ConocoPhillips, ExxonMobil, Petrobras, Shell, Statoil, Talisman Energy, Total and Woodside.
BG Group, Chevron and ConocoPhillips all have oil-and-gas interests in Cambodia, as do many of the mining companies which have signed onto the initiative. And the government will nonetheless come under EITI principles and guidelines as part of their loan programs with the World Bank and other agencies - whether or not Cambodia's highly anticipated energy bonanza is eventually or ever realized.
Andrew Symon is a Singapore-based journalist and analyst specializing in energy and mining. He may be reached at andrew.symon@yahoo.com.sg.
