Brunei's small, wealthy economy is based heavily upon proceeds from exports of crude oil and natural gas. Revenues from the hydrocarbons sector account for nearly half of gross domestic product (GDP), around 90 percent of merchandise exports, and 80 percent of government revenues. Brunei consumes little energy domestically, and is a sizeable net exporter of oil and natural gas. However, the country’s hydrocarbon reserves have declined over the last several decades.

The bulk of Brunei’s domestic energy consumption comes from natural gas, while the balance is met by oil. As oil and natural gas reserves are further depleted, there may be some pressure to diversify the country’s energy consumption mix.

According to Oil & Gas Journal (OGJ), Brunei’s oil reserves are declining and stood at 1.1 billion barrels of proven oil reserves as of January 2007. To prolong the life of Brunei’s hydrocarbon reserves, the government controls oil production levels. During 2006, Brunei produced an estimated 220,000 barrels per day (bbl/d) of oil, of which 198,000 bbl/d was crude oil and the remainder was natural gas liquids. Crude oil production peaked at about 240,000 bbl/d in 1979, but the government’s conservation efforts have mostly kept output under 200,000 bbl/d since that time.

In 2006, Brunei consumed an estimated 13,000 bbl/d of oil, with most of the country’s crude oil production exported to other countries in the region. Despite Brunei’s status as a net exporter of oil, the country imports about half of the refined petroleum products that it consumes, since it has limited domestic refining capacity.

Brunei Shell Petroleum (BSP), a joint venture between Shell and the government of Brunei, dominates the country’s oil industry. Until 1999, BSP had a monopoly on all upstream and downstream activities in Brunei’s oil sector. Since 1999, the government has awarded some exploration blocks to other companies, most notably Total. In 2002, the government established the country’s first national oil company (NOC), Brunei National Petroleum Corporation (BNPC, also known as PetroleumBRUNEI). PetroleumBRUNEI lacks significant industry experience and controls a relatively small portion of the country’s exploration acreage. As a result, the NOC has chosen to award private companies the exploration rights for the blocks that it controls rather than develop the blocks itself. Despite some efforts to introduce competition, BSP will continue to be the country’s dominant oil producer by virtue of its control over all of Brunei’s major oil and natural gas fields.

The principal agency charged with regulating Brunei’s oil sector is the Petroleum Unit, which reports directly to the office of the Prime Minister. The Petroleum Unit sets overall energy policy, regulates company activities, sets fuel prices, and acts as the point of contact for all foreign companies operating in the country.

BSP controls all of Brunei’s most productive oil fields, including the Southwest Ampa field, the country’s oldest and largest, which accounts for about 60 percent of total oil and natural gas output. BSP also operates the Champion, Iron Duke, Magpie, Gennett, and Farley fields. BSP and the few companies that hold exploration licenses in Brunei have actively conducted exploration activities in an effort to replace depleting oil reserves. In 2004 and 2005, BSP logged new oil finds that the company estimates hold 100 million barrels of recoverable reserves.

Despite ongoing exploration and production (E&P) activities, industry sources expect that onshore and coastal areas of Brunei are unlikely to hold significant additional oil reserves. The most promising acreage lies in deepwater areas in the South China Sea, although an ongoing territorial dispute with neighboring Malaysia has limited E&P work in these areas. Brunei awarded offshore Blocks J and K to consortia led by Shell and Total in 2000. However, these companies suspended exploration work following an April 2003 incident in which several naval patrol boats from Malaysia chased away a Total ship. Malaysia has extended its territorial claims into seas that Brunei says are in its Exclusive Economic Zone (EEZ). Also in 2003, Malaysia’s Petronas and partner Murphy Oil logged a significant oil find in the Kikeh Block, which the companies estimate holds 700 million barrels of recoverable oil reserves. Brunei officials claim that the Kikeh find extends into Bock J in Brunei’s territory (for more information, see the Malaysia Country Analysis Brief and the South China Sea Regional Analysis Brief).

In August 2006, heads of state from Brunei and Malaysia held talks and declared their intentions to resolve their maritime border dispute swiftly and peacefully. Malaysia has previously proposed the establishment of a joint development zone with Brunei, but this would require that Brunei redraw its contracts with foreign companies holding Production Sharing Contracts in its EEZ. Brunei is counting on Blocks J and K to sustain the country's oil and natural gas output levels, and without these Blocks, would be forced to more rapidly diversify its economy away from the current reliance on hydrocarbons.

According to OGJ, Brunei had 8,600 bbl/d of refining capacity at one facility as of January 2007. BSP operates the country’s lone refinery at Seria. According to industry sources, this refinery meets about one half of Brunei’s domestic petroleum product needs. Brunei must import small amounts of petroleum products from neighboring countries to meet domestic demand. Brunei’s government subsidizes refined fuels for domestic consumption.

Brunei exports most of its natural gas production. According to OGJ, Brunei held 13.8 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2007. Most of Brunei’s natural gas reserves are from associated fields, occurring alongside the country’s crude oil deposits. In 2004, Brunei produced 406 billion cubic feet (Bcf) of natural gas while consuming 71 Bcf. During 2004, Brunei exported 357 Bcf of liquefied natural gas (LNG), of which 88 percent went to Japan and the remainder went to South Korea.

Brunei Shell Petroleum dominates production of natural gas. LNG activities are carried out by Brunei LNG (BLNG), a joint venture between the government of Brunei (50 percent), Mitsubishi (25 percent), and Shell (25 percent). BLNG receives most of its natural gas supplies from BSP, although beginning in 1999 it began receiving small amounts of natural gas from Total’s offshore production facilities.

E&P activities in the natural gas sector face the same limitations as the oil sector. Much of Brunei’s most promising exploration sites are located in the country’s two deepwater blocks, Blocks J and K, the rights to which are contested by neighboring Malaysia. However, whereas the government has intentionally limited oil production to preserve the country’s reserves, Brunei’s natural gas reserves are considered sufficient to meet domestic consumption requirements and LNG supply contracts for the foreseeable future.

Brunei became the first Asian exporter of LNG in 1972. Brunei is an important regional producer of LNG, with 2005 exports totaling 333 Bcf, or 6.8 million metric tons (MMt). In 2005, 92 percent of Brunei’s LNG exports were sent to Japan, with the rest going to South Korea. BLNG operates the country’s sole natural gas liquefaction plant and LNG export terminal, located at Lumut. The facility has a total capacity of 7.2 MMt/y (350 Bcf/y), and BLNG has announced plans to add a new production train with 4.0 MMt/y (195 Bcf/y) of additional capacity. While the planned expansion has been discussed at length, there are no firm agreements in place that guarantee the production train will be built.