Tough Period For O&G Sector

Tough Period For O&G Sector

Tough Period For O&G Sector

Malaysia’s oil and gas sector is expected to face tough seasons ahead as companies are emphasising energy transition which will reduce the reliance on fossil fuels. 

Experts believe that industry players such as Petronas may need to step up on providing sustainable energy and to adapt to a green-driven environment.

Globally, the sector has had a difficult year due to jitters over China’s slowdown, supply cuts by Organisation of the Petroleum Exporting Countries and the fallout from the US Federal Reserve (Fed) tightening campaign.

The tensions wrongfooted many traders as prices sank, then recovered.

Oil prices were stable on Monday, with the Brent crude finally touching the US$89 a barrel which is a year-to-date high. This was despite expectations that supplies would remain tight, as the Fed is expected to leave interest rates unchanged.

Malaysian Institute of Economic Research economist Dr Shankaran Nambiar said it is going to be a tough year for those in the sector as those associated with fossil fuels will see slimmer times ahead.

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“Where alternative sources of energy are possible, fossil fuels will be excluded. The other factors will be the softening of the Chinese economy, the rising cost of credit and the global slowdown.

“This is a derived impact, which will result in global demand coming down, and therefore for oil, too,” he told the New Straits Times.

Nambiar went on to suggest that firms such as Petronas will face challenges since they will “have to reinvent themselves” to adapt to a rapidly evolving environment. 

“A company like that may need to reinvent itself and develop a new business model.” The global anti-fossil-fuel trend, along with the global economic downturn, would not boost the country’s oil and gas sector. “In some cases, the impact will be limited to the next quarter, possibly until early next year.”” While other industries within the sector will undergo fundamental changes,” Nambiar explained.

Dr. Mohd Afzanizam Abdul Rashid, chief economist and social finance head at Bank Muamalat Malaysia Bhd, believes that local oil and gas companies must expand in the face of the energy shift.

“They must scale up in order to shift to renewable energy (RE).” My impression is that the market has become more discerning.”

However, he believes that job losses will occur from the oil majors.

He stated that Petronas’ RM60 billion five-year capital investment plan will assist local players.

“While the moves are likely to gain traction alongside RE, I believe incumbents should benefit from the transition.” In terms of carbon dioxide emissions, petrol is regarded as the cleanest energy source. So, clearly, oil giants will continue to commit capital expenditure to get gas,” he added.

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