KUCHING: With the high supply, advancement of technology and slowing demand in the crude oil industry, it is necessary for industry players to relook at their strategies and approaches.
According to Mazuin Ismail, vice president of Technical Global, Upstream Business, Petronas Malaysia, demand is slowing and Organization of the Petroleum Exporting Countries (OPEC) is not being able to control it too much.
As such, the period of low oil price is likely to persist over the next few years.
“When we look at the prolonged period of oil price, we believe this will ‘stress test’ the industry because of the lower price. We have seen how it is reported that capital flight as much as US$500 billion has taken place.
“People draw away from oil and gas industry that is currently perceived to be high risk because of the low return and are moving elsewhere,” he said during his session at the International Energy Week on Tuesday, citing examples such as Russia, Venezuela and parts of Africa which actually suffered from this capital flight which will lead to a slowdown in growth in these countries.
At this rate, activities will likely be curtailed and margins of oil and gas industry players will be eroded. For the most part, many companies and countries will re-look their investment in oil and gas.
Mazuin noted that most companies are focusing on reducing costs, wastages and overheads. “You have seen some companies have recently made announcements to reduce cost. This is true for the whole industry. We are pushing a lot on increasing efficiency,” he said.
“We have also seen how some of the major players that have been strong and very stable, beginning to suffer in terms of margin,” he added.
“As such, with low oil prices and eroding margins, Mazuin said that “it is necessary for us to relook at our strategy and approach and our focus has to be on value.”
For operators, Petronas included, their focus is how they can sustain their production through this period of challenge in addition to finding ways to continuously produce and grow.
Apart from reducing overheads and decreasing wastages, Mazuin added that there is also a lot of drive in standardisation.
“The industry needs to standardise, to normalise its specifications and standards so that we, as the operators can work with the industry, the service sectors and the vendors better,” he said.
He further noted that there is also need for them to rethink and reengineer. He said this is why some of the projects will be deferred through this challenging time because they have to take stock.
Industry players such as Petronas will have to reengineer how best to make sure the projects will succeed and return value to the company and the shareholders and also the larger community.
“We will also re-organise our spending, the focus will be on lower risk. The higher risk venture will be put on hold for a bit until we assess the economic situation and while we also work on the re-engineering,” he said.
In addition, Mazuin noted that it is also time for the industry to consolidate as there are too many smaller players and that it is actually time to consider creating a very competent, capable and competitive industry.
“We need all that, we need the entire industry to work together to make sure that the oil and gas industry will still thrive.
“It is still a major source of energy especially in Peninsular Malaysia, and to a lesser extent in Sarawak. But worldwide, the dependency of oil and gas so far as energy generation is concerned, is still high.”