Even with heightened political tensions between countries bordering the East China and South China seas, the Asia-Pacific region is set for unprecedented growth as demand for natural gas and oil continues to surge upwards.

"As the world and the region continue to search for undiscovered hydrocarbon resources and to maximize already developed fields, capex investments in E&P activities are important for long-term producing countries like Malaysia to tackle production declines and continue to compete with new players, as smaller countries, such as Brunei, Bangladesh, and Myanmar, come into the market," said Dr. Arnis Judzis, Offshore Technology Conference (OTC) board of directors representative, at the opening of OTC Asia 2012 Oct. 2.

"Asia is becoming increasingly important in the world of oil and gas exploration and drilling. The region is supported by strong fundamentals including sustained high rates of economic growth and high oil prices, leading many international operators to expand oil E&P activity in a region with a rapidly growing thirst for energy," he said.

Asia-Pacific's offshore resource development, which already accounts for almost 30% of the 306 E&P projects worldwide, is poised for aggressive growth in the next five years, according to an offshore oil and gas market analysis provided by Infield Systems Ltd.'s, "Regional Perspectives Offshore Asia Oil and Gas Market Report to 2015," which was commissioned by the OTC board.

Forecasters estimated that between 2011 and 2015, US $87 billion would be spent in the region. The largest capex increase in the region is expected to be for projects offshore Malaysia at more than $59 billion – even ahead of China and India. An estimated 84 fixed deepwater platforms and eight FPSOs will be installed offshore Malaysia between 2011 and 2015.

"As the demand for fixed, floating, and subsea units continues to rise, we envision the players here making technological leaps in drilling, exploration, production, and environmental protection over the next few years," Judzis said.

Added the Infield authors, "Despite this expected surge in demand, it is unlikely that the region's largest countries will be able to reduce their dependency on crude imports, giving further support to exploration and production activity in the long run. Meanwhile, new oil frontiers are being opened up in deeper waters and also in countries such as the Philippines and Myanmar, which did not previously have any significant levels of offshore activity. These developments are expected to greatly increase demand for subsea units in a region traditionally dominated by shallow-water production."

Regional capex growth

Malaysia and Indonesia face production decline if they do not take steps to maintain E&P activity.

In Indonesia, producers are expected to increase capex on Indonesian projects from the $8 billion spent between 2006 to 2010 to more than $12 billion forecast for 2011 to 2015, according to the report.

Projects offshore Malaysia are expected to see the largest increase between forecast periods, with more than $17 billion forecast over the next five years. Meanwhile, China and India are expected to be in second and third place around the world with $13.5 billion and $13.1 billion in spending, respectively.

A wealth of undeveloped gas reserves and continued increases in demand from the region will drive capex

spending in Australia to more than $4 billion per annum over the next five years.

Capex levels on pipeline and fixed platform developments will take up the region's largest proportion of regional expenditures. Pipeline capex is expected to total more than $42 billion, with fixed-platform costs forecast at $27 billion over the same period.

Subsea capex will see strong growth, from more than $2 billion in the period 2006 to 2010 to more than $7 billion for the next five years, according to the report.

Fixed-platform market

Asia is expected to be the largest fixed-platform market over the next five years in terms of capex. Forecasts indicate that the region will take up almost 31% of the global market between 2011 and 2015 or $27.5 billion out of $89.8 billion, according to the report.

The greatest expenditure and units will be directed towards projects offshore China, Malaysia, and Thailand. China is expected to install 78 units with a capex of $5.7 billion, while Malaysia is expected to install 84 units costing more than $4.4 billion.

Asia is expected to install 459 fixed platforms between 2011 and 2015, with the vast majority of units expected to be pile-type (434 platforms out of 459 fixed units), mostly for shallow-water developments. Drilling in deep water offshore China, India, Indonesia, and Malaysia is expected to speed up, the report continued.

Floating production systems market

"Compared with other regions, capex on floating production units in Asia is ranked the second lowest in the forecast period, ahead of only the Middle East and Caspian regions," stated the report. "Overall, during the 2011 to 2015 period, forecasts suggest that just less than $7.2 billion will be invested."

Some 49 FPS installations are expected, primarily in Indonesia (13 units), Vietnam (12 units), and Malaysia (eight units).

Over the next five years, other smaller Asian countries are expected to come into the FPS market, including Brunei, Bangladesh, and Myanmar. With this extra demand, floater capex is expected to increase by 42% between 2011 and 2015.

Pipeline, subsea markets

In terms of capex, the Asian pipeline market represents the largest segment of oil and gas expenditure in Asia. Between 2011 and 2015, the report's forecasts show that the region will see more than $42 billion in spending. Projects based in Malaysia and India are expected to be the driving forces behind capex in the region, with operators predicted to spend more than $7.2 billion and $7.1 billion, respectively.

Overall, pipelines forecast for 2011 to 2015 exceed what was installed in the previous five years by almost 50%.

The Asian subsea market is the third smallest in the world, since many of the developments are in shallow water that negates the need for subsea infrastructure.

"Capex expenditure is expected to be just more than $7 billion on subsea projects between 2011 and 2015 compared to $2.25 billion over the previous five years. Within the region, the countries that are expected to drive subsea demand include Malaysia, Indonesia, China, and India," according to the report.

Malaysia and Indonesia are the regional subsea drivers and are expected to require 57 and 45 subsea trees over the next five years, respectively. China and India also are expected to be significant demand drivers, requiring 42 and 38 subsea trees, respectively.

Boundary conflicts could derail plans

Attempts to occupy islands by Japanese and Chinese protesters have heightened the conflict over maritime boundaries in the East and South China seas. Japan, Vietnam, Malaysia, and the Philippines are facing off with China over which country owns what part of the Outer Continental Shelf (OCS).

As the demand for oil and gas in the region continues to grow, these conflicts over potential petroleum resources are becoming more threatening. The China-Japan confrontation is getting the biggest headlines currently, but leasing activity offshore Vietnam and the Philippines is heating up the confrontations as well.

CNOOC recently offered 22 blocks in the South China Sea, much to the consternation of Vietnam. Nine of the blocks, according to Vietnam, are within the Vietnamese exclusive economic zone. The blocks are well south of mainland China; thus the OCS claim for China would be difficult to determine.

In July, China put a military garrison along with a legislative assembly on the Paracel Islands, which also are claimed by Vietnam. The move added to the tensions between the two countries.

The Philippines also weighed in on the dispute Sept. 5 by renaming the waters west of that country. The area is now the West Philippine Sea, according to Philippine President Benigno Aquino III. He ordered all maps to be redrawn using the new name for the area west of the Philippines, including the contested Spratly Islands and the Scarborough Shoal, which are prime areas for exploration.

In April, China and the Philippines were in a confrontation over the Scarborough Shoal. The new West Philip-pine Sea is supposed to boost the Philippines' claim to the OCS. Planned drilling operations offshore Vietnam and the Philippines could bring the matter to a head.

How the countries deal with these conflicts could have an impact on oil and gas companies far beyond just those regions. If these become armed confrontations, oil prices could skyrocket.