Southeast Asia is entering a second crucial wave of deepwater natural gas development, targeting approximately 28 trillion cubic feet of gas resources across Indonesia, Malaysia, and Brunei, according to Wood Mackenzie. However, delivering these projects presents significant challenges.
Economic models indicate that the financial viability of these projects is fragile, with many showing internal rates of return (IRR) below 15%. Consequently, operators are striving to deploy over $20 billion in new infrastructure and supply capacity before 2030, but the margin for error in execution is extremely slim.
A senior research analyst at Wood Mackenzie stated that shallow water and onshore gas fields in Southeast Asia are maturing rapidly, necessitating a shift in focus to deepwater resources once considered too risky and costly. An initial wave of deepwater gas projects between 2008 and 2017 demonstrated commercial viability in new countries like India, China, and Malaysia. However, progress has been intermittent since then due to various commercial, regulatory, and subsurface challenges. The region is now entering a new phase, described as the 'Deepwater 2.0' era for Asia.
According to Wood Mackenzie, Indonesia's non-associated offshore gas production has declined by over 12% since its 2018 peak. Brunei will require an additional 500 million cubic feet per day of new gas supply after 2030 to maintain its LNG production levels. Malaysia is projected to source 20% of its gas production from deepwater fields by 2027.
This second wave of development targets the substantial gas resources through six major projects. Key developments include the North Ganal, Rapak, and Ganal projects in Indonesia's Kutei Basin; the South Andaman project (comprising Tangkulo and Layaran) off North Sumatra; the Kelidang project in Brunei; and the Rosmari-Majoram project in Malaysia. The total capital expenditure for these developments is estimated to exceed $20 billion based on 2026 prices. These projects are expected to provide critical gas supply for domestic markets and LNG export facilities, offsetting declining conventional production.
The operator landscape is diverse, featuring major players like Eni and Shell, national oil companies such as PETRONAS, and mid-sized firms like Mubadala, which is entering deepwater development for the first time. Eni is concurrently developing three separate deepwater hubs in the Kutei Basin, including the North Ganal project. Ongoing equity divestment opportunities, such as Eni's assets in the Kutei Basin and Harbour Energy's assets in North Sumatra, offer potential entry points for companies seeking deepwater growth assets.
Wood Mackenzie's analysis shows that under base-case assumptions, most projects have IRRs clustered near the 15% threshold, which is significantly lower than deepwater developments in other global basins. Sensitivity analysis reveals a very thin profit margin: a 20% increase in capital expenditure or a 20% decrease in gas prices/production would reduce net present value by approximately 150%. A project delay of three years would immediately erase 50% of its value.
Without progressive fiscal mechanisms to share risks, there is almost no buffer for execution errors; any delays or cost overruns directly threaten project viability. Furthermore, severely constrained global supply chains increase execution pressure, and ongoing conflicts in the Middle East are exacerbating cost inflation and extending delivery lead times for subsea equipment.
To overcome Southeast Asia's historically slow project timelines, operators are deploying accelerated delivery strategies. Eni aims to achieve a five-year cycle from discovery to first production at the Geng North field. Mubadala is adopting a phased approach in North Sumatra, initially supplying the local market via the Tangkulo project while finalizing the development plan for the larger Layaran project.
Amidst ongoing conflicts in Ukraine and the Middle East, regional energy self-sufficiency has become increasingly urgent. Deepwater gas is no longer a high-risk exploration frontier but a core component of Southeast Asia's energy security strategy.
The industry will closely monitor the delivery performance of these current projects. The fragile economics of the Deepwater 2.0 initiatives mean the margin for error is exceptionally narrow. The next five years will be decisive in determining whether the region can deliver these projects in a timely, cost-effective, and commercially successful manner.