O&G service industry ripe for consolidation with bottoming out of oil prices

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KUALA LUMPUR: Despite the global uncertainty brought about by recent events such as Brexit and policy direction of the Trump’s administration, the outlook for energy and environment markets in 2017 is largely viewed to be balanced with a slight positive inclination.

This follows a period of downward revisions to the economic growth forecasts and volatility in financial and commodities markets globally, impacted by the slowdown from China and oil prices slump over a two year period.

The Conference of Parties (COP22) discussions in Marrakech were clouded by Trump’s threat to pull the US out of the COP21 Paris climate change accord.

While it may be difficult for the US to unilaterally scuttle the accord, since most of the world countries have affirmed their commitment to de-carbonisation, the challenge lies in actually meeting the US$100 billion/year financial commitments and also agreement on the transparency of future climate monitoring.

However, economics will drive the substantial investments in clean and green technologies, led by China and India.

“We expect 2017 to be a transition year for long term changes, globally. With the rising protectionism across the world, issue of energy security will once again come to the fore in Asia-Pacific. This will accelerate adoption of clean technologies which can be harnessed locally and those that are less impacted by global policy & price fluctuations”, noted Ravi Krishnaswamy, Vice President for Energy & Environment, Frost & Sullivan Asia-Pacific.

Frost & Sullivan discusses key trends for 2017 across the Asia-Pacific energy and environment sectors including oil & gas, power, and buildings.

Oil prices are expected to average about US$55 per barrel in 2017, during which the market will experience a slow price recovery. Decline in oil stockpile driven by modest growth in demand for oil are expected to be the key drivers for the recovery of oil prices.

Frost & Sullivan forecasts the global production of petroleum and other liquid fuels to be 97.4 million bbl/d in 2017. OPEC countries are likely to account for 41.3% of the global oil production in 2017.

“Bottoming out of oil prices will give impetus to the consolidation of upstream oil & gas service providers in Malaysia”, says Ravi Krishnaswamy.

Coal power continues to diminish as alternate fuels compete strongly. The decline in coal is an indication of strong shift toward clean and renewable energy (RE).

Nuclear power will reemerge as a rising energy source. Key growth areas in nuclear power generation are China, India, and South Korea.

The annual solar photovoltaic (PV) installations in the Asia-Pacific region are set to increase 17.8 per cent from 2016. China will continue to lead the market for solar in 2017 as the government is continuously introducing plans to drive the market such as micro solar energy systems in rural areas. The annual installation of solar power plants in the Asean region is expected to undergo a high growth of 28.1 per cent in 2017 to reach an estimated 754.6MW.

The Asia-Pacific microgrid market is expected to undergo a strong growth of 18.8 per cent in 2017. Japan will lead in microgrids and virtual power plant (VPP). The ASEAN microgrid market will also see an investment of US$165 million in 2017. Indonesia, Malaysia, and the Philippines will be the key growth countries in the region.

Malaysia should take bold steps to integrate its policies around solar PV, microgrid and energy storage, thus helping create a new energy industry ecosystem that can service both domestic and regional markets.

The Asia-Pacific data center infrastructure solutions and UPS markets will grow above 5% in 2017. Strong concerns over data sovereignty in the region requires data centers to be stationed locally in most countries as regulators tend to be more protective of domestic technology market and relevant data.

Indonesia, Singapore, Malaysia, and Hong Kong are markets well prepared with data-center real estate or legislation to boost data center investment in 2017.

Malaysia has a total of one million square feet of data center space available. This could lead to market consolidation among leading Malaysia data center participants with tier-2 participants such as Strateq, Skali, Freenet, and Basis Bay.

The digital health hub started by Microsoft Malaysia and CREST (Collaborative Research in Engineering, Science & Technology) is expected to see a gradual increase in IoT and cloud-based analytics services in 2017, with focus on Tele-health, smart access, and remote patient monitoring, leading to growth in data center critical power solutions, as well as UPS markets.