PETALING JAYA: While oil majors are cutting costs in anticipation of volatility in prices, analysts say Petroliam Nasional Bhd’s (PETRONAS) guidance will be key for the prospects of the local oil and gas (O&G) industry here.
The Organisation of the Petroleum Exporting Countries (Opec) in its latest monthly report forecast demand for its crude oil would increase by about 1.3 million barrels per day (bpd) by the end of 2025 which means the group is only able to unwind a third of current Opec cuts of close to four million bpd.
As a result, Saudi Arabia and the United Arad Emirates would have a significant spare capacity, that is expensive to build and maintain, at the end of 2025.
This is leading many major oil companies to invest in greenfield projects that will remain profitable at lower energy prices, and fears the sector is heading for a challenging period, made worse by energy transition investments and growth of electric vehicles, which will dent future demand.
Analysts are not worried of the same scenario unfolding here as Malaysia’s national oil company’s capital expenditure (capex) guideline and recently released 2024 to 2026 Activity Outlook remain upbeat.
Rakuten Trade head of equity sales Vincent Lau said the sector remains largely dependent on PETRONAS’ capex and activity and thus far, the outlook for the O&G sector remains favourable.
“Unless PETRONAS revises its expectations downward and adjusts its activity outlook report, we are likely to see stability. Additionally, Saudi Aramco’s plans to sell more shares indicate market confidence and demand,” he told StarBiz.
Fitch Ratings in a report in December forecast PETRONAS’ annual capex to rise to around RM55bil to RM60bil over 2024 to 2026 (2022: RM37.8bil).
The national oil company’s activity outlook report stated it will carry out an average of about 300 facilities improvement plans annually for the next three years to maximise production efficiency and sustainability of O&G supply, all of which bodes well for maintenance-related support service providers.
Moreover, PETRONAS also aims to sustain and enhance the country’s O&G production to two million barrels of oil equivalent per day by 2025, driven by key projects such as Kasawari, Jerun, Rosmari-Marjoram, Lang Lebah, Gumusut-Kakap Redev and Belud Clusters.
There are plans for over 45 upstream projects, including drilling of more than 25 wells per year.
These projects will primarily target shallow-water wells in West Malaysia and Sarawak, along with deep-water wells in Sabah.
Lau added contract extensions that were awarded to companies like Dayang Enterprise Holdings Bhd , Carimin Petroleum Bhd and Steel Hawk Bhd recently from PETRONAS, also reflects positively on the local O&G space.
“These developments indicate ongoing spending but it is essential to keep an eye on any potential cuts by PETRONAS,” he warned.
Meanwhile, Tradeview Capital chief investment officer Nixon Wong said PETRONAS’ capex has been healthy which is seen positively to local players.
“Cost cutting is only one of the many factors driving oil prices. Other factors include Opec production plan, demand from global markets, geopolitical risks as well as production plan from the competing shale gas industry,” he said.
RHB Research maintained its “overweight” call on the sector and maintained its 2024, 2025 and 2026 Brent crude oil price forecasts at US$85, US$80 and US$80 per barrel, repectively.
“We expect oil prices to strengthen from current levels, assuming that global demand picks up while supply conditions tighten.
“We believe the recent escalation in geopolitical tensions will provide support to oil prices over the near term, but this premium is also expected to normalise more prominently in the second half of 2024.
“This is based on the assumption that there will be no further escalations in the current geopolitical landscape,” the research house said in a report yesterday.
It believes Opec still plays a major part in controlling the oil market and is not overly concerned that Saudi Aramco is keeping its current maximum sustainable capacity at 12 million bdp in the near term.
“That said, we are unsure whether there is a change in its long-term oil demand view which has led to this, but it may affect oil capex spending in the long term,” the research house noted.
Major US shale producers, RHB Research added, are likely to prioritise capital discipline to reward shareholders this year versus aggressively ramping up production.