Southeast Asia’s upstream energy sector is at a pivotal moment, balancing significant challenges and promising opportunities. On one hand, the region’s maturing oil and gas fields and increasingly complex new growth projects drive up costs and operational hurdles. On the other, the region has a unique opportunity to redeploy its depleted fields for carbon storage to enable decarbonisation and low-carbon growth.
Nearly 55% of Southeast Asia’s production comes from fields that have depleted more than 75%, with many in operation since the 1970s. The decline in production rates in these fields is stark, while the costs of maintaining these assets remain high due to their inherent complexity. For instance, a regional operator recently observed their unit operating costs double over 15 years due to ageing fields and declining output. As these fields continue to mature, managing a portfolio of declining assets alongside emerging opportunities becomes a key operational challenge.
The days of “easy oil and gas (O&G)” in Southeast Asia are over, with new projects now located in tougher, more challenging environments. Over the next five years, US$120 billion ($162 billion) in upstream capital will be invested in the region, with around 27% directed toward deepwater development — more than double the 13% seen over the past five years. More than half (52%) of upcoming gas projects face high CO2 levels, requiring mitigation strategies such as carbon capture, utilisation and storage (CCUS).
Projects like Malaysia’s Kasawari, Indonesia’s Abadi LNG and the Indonesia Deepwater Development (IDD) underscore the rising complexity of deepwater and sour gas developments in Southeast Asia. With high projected breakeven prices for both O&G, these projects face both economic and technical challenges. For operators, maintaining cost efficiency will be vital to ensuring the viability of these projects.
The value of efficiency: Unlocking US$7 billion in savings
The cost pressures the O&G industry faces are compounded by inflation, supply chain disruptions and the needs of the global energy transition. However, this is an industry well-versed in cost optimisation.
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Now it is time for the next step. Boston Consulting Group (BCG) estimates that Southeast Asia’s upstream energy sector could achieve substantial cost savings of up to 30%, or approximately US$7 billion, through comprehensive performance improvement measures — while maintaining or even enhancing production, asset integrity, and health, safety and environmental performance.
BCG’s recent report, Upstream Energy Companies Cut Costs. Can They Sustain the Results?, highlights three pathways for upstream energy companies to achieve sustainable cost reduction: no-regret moves, structural changes and disruptive changes.
No-regret moves focus on quick efficiency improvements within existing operating model constraints, delivering cost savings of 10%–15%. These measures include optimising logistics by adjusting vessel and helicopter schedules, reducing the use of consumables such as chemicals, streamlining workflows to increase productive time, eliminating lower-risk maintenance tasks and renegotiating contractor agreements to improve spend efficiency.
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Structural changes involve more complex shifts in operating philosophy and ways of working to enhance productivity, reduce costs and improve production, with the potential to deliver cost savings of up to 15%–30%. Key strategies include optimising staffing through fit-for-purpose site manning and lean offsite support, simplifying and improving workflows, and outsourcing to lower-cost providers.
Disruptive changes require a fundamental shift in operating model and adoption of innovative business models, potentially delivering cost savings exceeding 30%. Examples include spinning off focused business units for innovative management, de-engineering and rationalising infrastructure to reduce excess, and leveraging advanced technologies like autonomous systems and remote operations.
Making cost cuts stick
Sustaining cost reductions requires a systematic, integrated approach. Based on global best practices, we have identified six strategies that can help Southeast Asia’s upstream operators achieve lasting improvements:
Understanding and improving how work gets done at the front line. It is crucial for companies to genuinely grasp how work is delivered onsite before designing the changes that can improve efficiency and effectiveness on a continuing basis.
Challenging ‘accepted and tested’ standards and practices. Management needs to challenge standards that have acquired “gold-plated” status in the name of risk mitigation, especially when the asset’s remaining economic life does not merit the associated expenditures.
Fostering interdisciplinary collaboration and skill sets. Upstream O&G workflows need diverse capabilities; improvements demand a multidisciplinary approach. Teams need aligned key performance indices, collocation and agile ways of working to ensure that they work toward common goals and enhance operational synergy.
Developing a ‘bias for value’ at all levels of the organisation. Cost performance should be top of mind. Companies can encourage the development of a value-oriented culture by ensuring that every level of the organisation contributes to the overarching goal of cost efficiency, without compromising performance on production, integrity or health, safety and the environment.
Instilling disciplined management of change. The rigorous management of change, not only at the initiative level but also across programmes, is essential to managing interdependencies and ensuring coherent progress.
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Follow leading indicators to guide transformation. Part of management’s role is to continuously monitor and adjust the transformation process using leading indicators that track progress and effectiveness, ensuring that the journey toward cost reduction is measurable and controlled.
A path forward for southeast Asia
While Southeast Asia’s upstream energy sector faces mounting cost pressures, it also has a unique opportunity to redefine its future. By embracing innovative cost-reduction strategies, integrating advanced technologies and fostering cross-industry collaboration, operators can enhance efficiency and maintain competitiveness.
At the same time, stronger upstream performance strengthens the business case for regional carbon storage — critical for countries like Singapore, which lack natural carbon sinks. A more efficient upstream O&G sector can accelerate carbon capture and storage (CCS) adoption, enabling Singapore and its neighbours to achieve decarbonisation targets more cost-effectively.
With a growing emphasis on decarbonisation and energy security across the region, renewed focus on efficiency will empower Southeast Asian operators to navigate this complex landscape and emerge as leaders in the global energy transition.
Aman Modi, is managing director and partner at the Boston Consulting Group (BCG) and Uday Vir Singh is partner at BCG. The authors would like to thank their colleagues Asheesh Sastry, Asia Pacific lead for energy, managing director and senior partner, and Steven Ho, lead knowledge analyst
