Identifier
Created
Classification
Origin
08BANDARSERIBEGAWAN147
2008-05-13 05:20:00
CONFIDENTIAL
Embassy Bandar Seri Begawan
Cable title:  

BRUNEI REJECTS GAS CARTEL

Tags:  ENRG EPET ECON PREL BX 
pdf how-to read a cable
VZCZCXRO2584
RR RUEHDT RUEHPB
DE RUEHBD #0147/01 1340520
ZNY CCCCC ZZH
R 130520Z MAY 08
FM AMEMBASSY BANDAR SERI BEGAWAN
TO RUEHC/SECSTATE WASHDC 4225
INFO RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEAIIA/CIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI
RUEKJCS/SECDEF WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 BANDAR SERI BEGAWAN 000147 

SIPDIS

DEPARTMENT FOR EAP/MTS

E.O. 12958: DECL: 05/13/2018
TAGS: ENRG EPET ECON PREL BX
SUBJECT: BRUNEI REJECTS GAS CARTEL

Classified By: DCM Justin Friedman, reasons 1.4 (b) & (d)

-------
SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 02 BANDAR SERI BEGAWAN 000147

SIPDIS

DEPARTMENT FOR EAP/MTS

E.O. 12958: DECL: 05/13/2018
TAGS: ENRG EPET ECON PREL BX
SUBJECT: BRUNEI REJECTS GAS CARTEL

Classified By: DCM Justin Friedman, reasons 1.4 (b) & (d)

--------------
SUMMARY
--------------


1. (C) In the most definitive statement we've heard to date,
Minister of Energy Pehin Yahya rejected the idea of a natural
gas cartel along the lines of OPEC, although he acknowledged
the concept has strong backing from Russia, Iran, and Qatar.
Evolving market conditions are pushing natural gas away from
longer term contracts, with five year contracts likely to
become the norm according to Yahya. Resolution to Brunei's
offshore territorial dispute with Malaysia could come as
early as August, which in turn could secure Brunei's next 30
years of oil and gas. END SUMMARY.

--------------
NO SUPPORT FOR GAS CARTEL
--------------


2. (C) On May 8 the Ambassador, accompanied by DCM, paid a
farewell call on Pehin Yahya Bakar, Minister of Energy in the
Prime Minister's Office. Yahya told us that Brunei had no
intention of spoiling its current good relations with its
liquefied natural gas (LNG) customers by supporting the
creation of an OPEC-like cartel for natural gas. Yahya said
that Brunei would participate in meetings proposed by Russia
and supported by the other two major players in natural gas,
Iran and Qatar, but he could not see what value such a cartel
would add for Brunei. While Yahya believes that the three
are serious about forming the cartel, other major LNG
exporters like Malaysia and Australia are not supporting it.

--------------
SHORTER TERMS FOR LNG CONTRACTS
--------------


3. (C) Preparing to leave for Japan for meetings with
Brunei's LNG customers, Pehin Yahya told us that rising costs
for Brunei LNG production will have to be factored in to
future contracts. The global rig shortage and the global
shortage of engineering talent, combined with Brunei's and
other suppliers' needs to go after higher pressure/higher
temperature deposits are driving the rise in gas (and oil)
prices as much as or more than current supply and demand
fundamentals. This, along with the maturation of the LNG
market was driving the industry toward shorter term contracts
as more volumes are being moved into spot-market-like
arrangements. While Yahya does not see a total shift toward
spot market sales for LNG, he expects most contracts,
including Brunei's next contracts with the Japanese, to be
significantly shorter term, i.e. five years versus the
typical twenty years of previous contracts. He said Brunei
is selling all its LNG cargoes above its contracted volumes
on the spot market, with Japanese firms the major buyers.

--------------
TOWARDS AN OFFSHORE SETTLEMENT
--------------


4. (C) Pehin Yahya told us that he had accompanied Sultan
Hassanal Bolkiah on his trip earlier that week to Malaysia.
The visit focused on defense and military cooperation and the
issue of the dispute over the two nations' rival claims to
offshore oil and gas deposits was not discussed. However,
Yahya said that the issue would be discussed in meetings
scheduled for August of this year and he had high hopes that
some form of settlement could be agreed to then.

--------------
COMMENT: EITHER WAY, BRUNEI WINS
--------------


5. (C) As a relatively small producer and exporter of oil and
gas, Brunei is a price taker and not a market maker. If
Russia succeeds in its ambitions to create a GAS-PEC, Brunei
can stay out and "free ride" on any price rise such a cartel
could squeeze out of the market. That said, Brunei will
remain strategically significant as a reliable,
market-driven, non-cartel exporter of LNG to our key regional
allies of Japan and South Korea. In the medium term, Brunei
will need to resolve its dispute with Malaysia and begin
developing the offshore fields which most industry experts
believe contain most of Brunei's next 30 years of potential
gas production and, as Murphy Oil is proving from its
development of the same deposit in adjacent, undisputed
Malaysian waters, significant oil as well.

BANDAR SER 00000147 002 OF 002


SKODON