Strong Rebound, New Trends For Oil & Gas Industry In Malaysian Domestic Market And Global Front In 2021

KUALA LUMPUR, Dec 16 (Bernama) -- It has been an eventful year for the oil and gas (O&G) industry, both on the Malaysia's domestic market and global front with some strong rebound bolstered by recovering demand and capped supply from the Organisation of the Petroleum Exporting Countries (OPEC). Oil prices reached their highest level in six years on July 5, 2021, as OPEC, Russia and their allies failed yet again to reach an agreement on production increases.  The global energy benchmark Brent crude hit its highest level since late 2018 at US$77.04 per barrel (US$1=RM4.20) before reversing gains by 3.4 per cent at the end of trading at US$74.53 per barrel. On Oct 5, oil prices jumped again, with the US crude hitting its highest since 2014 and Brent futures climbing to a three-year high, after the OPEC+ group of producers stuck to its planned output increase rather than raising it further. US West Texas Intermediate oil closed up US$1.31, or 1.7 per cent, at US$78.93 a barrel, while Brent hit a three-year high of US$83.13.  However, in a recent development, OPEC+ announced that it was anticipating the global oil market to show a worse-than-expected excess in the first quarter of 2022, which might give the cartel another excuse to cut output further, if not maintain it at such levels as planned.  The expected surplus next year amounts to two million barrels per day (bps) in January, 3.4 million bpd in February, and 3.8 million bpd in March.  Nevertheless, the group also mentioned its capability to review its production output in light of any demand collapse due to the emergence of the Omicron variant of COVID-19 and the potential lockdowns it will bring in the near future.    However, upstream merger and acquisition activities, which typically follow oil prices, remain well below pre-pandemic levels.  Suez Canal gridlock and effect on oil prices The Suez Canal was blocked for six days from March 23, after the grounding of Ever Given, a 20,000 twenty-foot equivalent unit (TEU) container ship. The situation disrupted the global energy supply chain, resulting in a sharp movement in crude oil prices. The canal is a crucial route, mainly used to transport Middle Eastern crude to Europe and the United States, as well as shipping fuel oil from the West to the East.  On March 26, the benchmark Brent crude was higher by 54 cents, or 0.9 per cent, at US$62.49 a barrel while US West Texas Intermediate crude was up 65 cents, or 1.1 per cent, at US$59.21 a barrel, having tumbled 4.3 per cent a day earlier. The effect was more of oil sitting idle on water, instead of making its way to refineries, so gasoline producers would need to draw inventories, adding pressure on the spot price.            New trends in O&G industry globally  According to Deloitte, the current cycle of higher oil prices reveals two new trends, which will likely continue over the next year and challenge conventional wisdom.   The O&G companies these days are more disciplined with production and capital guidance, despite high oil prices, the consulting firm cited this new trend in its 2022 O&G industry outlook. Another trend, according to the firm, is that high oil prices were allowing these companies to fund their net-zero commitment. For instance, after European O&G companies led in net-zero pledges in 2020, many United States O&G companies, Canadian oil sands producers, and a few national oil companies such as Malaysian oil and gas company, Petroliam Nasional Bhd (Petronas) have joined the net-zero group in 2021, it said.   Petronas and its net-zero carbon emissions goal The Malaysian national oil firm has made it clear that it aspires to achieve net-zero carbon emissions by 2050 but it also needs to strike a balance between achieving net-zero and carrying on producing hydrocarbons. This August, Petronas president and group chief executive officer Tengku Muhammad Taufik Tengku Aziz said exploration was not dead and a decarbonised future was not a future completely absent of hydrocarbons.  He said Petronas would continue to look for assets both in O&G as well as renewable energy sectors as part of its growth strategy. Currently, Petronas has allocated between 1.0 per cent and 2.0 per cent of its annual capital expenditure (capex) for new energy from the overall annual capex of RM40 billion to RM50 billion. The group intends to increase the allocation to 9.0 per cent to 10 per cent annually and is looking to expand in hydrogen energy.  Borneo states O&G evolution  On Dec 7, the Malaysian state of Sabah announced that it has set up its own O&G company, SMJ Petroleum Sdn Bhd, to oversee more activities in the industry following a commercial collaboration agreement (CCA) with Petronas. Sabah Chief Minister Hajiji Noor said that the company will have the opportunity to increase its participation in upstream petroleum arrangements, including in partnership with Petronas Carigali Sdn Bhd, as well as in the midstream and downstream O&G businesses within the state. The move would allow the state to receive higher revenue and have a bigger say on matters pertaining to its O&G industry following successful talks involving the state, federal government, and Petronas. Sabah is the second oil-producing state that has signed the agreement with Petronas after neighbouring state of Sarawak, which signed a commercial settlement agreement in December last year.  Omicron threat in the way of full recovery While the industry’s recovery is better than expected, uncertainties remain over market dynamics in the coming year. MIDF Research said the recent resurgence of Omicron had dampened the sector’s outlook on the prospects of a full demand recovery.  It noted that Brent crude oil began to slip from this year’s peak of US$82 per barrel to US$72 per barrel.  Despite the uncertain outcome of the variant’s characteristics, in terms of virality, symptoms and long-term effects, the general sentiment is that the resurgence will continue to hold back operations from lockdowns and closing of borders.  “While we had expected that the COVID-19 pandemic would prolong until the global vaccination rate had reached about 90 per cent of the fully vaccinated population from less than 43 per cent currently, albeit at a lower impact as businesses continue to adapt to the new normal, the risk to the sector in terms of border restrictions -- subsequent supply chain disruptions for raw materials and labour shortages -- remain,” the research firm said.   Meanwhile, OPEC+ is of the assumption that Omicron would affect more on the demand for jet fuel, particularly in Africa and Europe, but does not discount the variant to be affecting the crude oil price on its inception.  MIDF Research opined that this would be the main scenario for the beginning of 2022, more so with the call for more booster shots on top of the initial two-dose vaccination that may indicate Omicron could be staying longer.   -- BERNAMA