Friday, 25 March 2011

Time to finalise Kingdom oil strategy

An oil rig offshore from Santa Barbara, California, in the United States, earlier this month. bloomberg

via CAAI

Friday, 25 March 2011 15:00 Steve Finch

FURTHER signs this week Chevron is moving closer to Cambodia’s first commercial oil production could not have come at a better time, in theory, after crude reached US$105.75 a barrel on Wednesday, the highest in two and a half years.

With the country still 100-precent dependent on oil imports from Singapore, Thailand and Vietnam, Chevron’s stated plan this week to open a permanent office in Phnom Penh on May 1 is both timely and encouraging, a sign the United States energy firm is here to stay. Expected domestic oil production could help the country reduce reliance on expensive imports, allowing greater control of pricing.

The country imports more than 100 million tonnes of oil products per year, fuelling the trade deficit and raising costs for businesses throughout the Kingdom.

The Ministry of Economy and Finance budget report showed revenues derived from taxes on oil products rose 15.3 percent in the first 10 months of 2010, the latest data available, a sign of climbing fuel imports.

The government has in the past resorted to crude methods of price control which have included calling oil company CEOs into meetings to reprimand them about rising prices.

Luckily for Cambodia, as crude prices soar, so does the level of interest among oil companies to realise complex reserves such as those jointly operated by Chevron in Block A in the Gulf of Thailand.

The question remains: When exactly will that happen and will production make pump prices any cheaper?

Although Te Doung Tara, secretary general of the Cambodia National Petroleum Authority, has repeatedly moved back the estimated production date from late 2009 to 2011, Prime Minister Hun Sen’s insistence that things should start moving by the end of 2012 seems to have worked.

Chevron has announced in recent months it is moving towards a final investment decision with partners Caltex and MOECO “as soon as we clarify some commercial and fiscal arrangements with the Royal Government of Cambodia”, spokesman Gareth Johnstone said yesterday.

Less clear is the eventual impact crude production will have on domestic supply and import policy.

There has been vague news of an oil refinery in Sihanoukville, but in the past Government officials have largely remained unwilling to discuss the refining issue, as noted by Bloomberg in February 2008.

Questions therefore remain as to how Cambodia will manage reserves that could eventually generate $1.7 billion in annual revenues for the government, according to World Bank estimates.

How much crude will be sold abroad, how much will be refined, how much will be released onto the domestic market and therefore will Cambodia create the right mix to help fuel the national budget and the country’s petrol pumps?

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