KUCHING: The outlook for the oil and gas (O&G) sector in 2014 remains positive with high activity levels expected as Petroliam Nasional Bhd (Petronas) will have the final investment decision (FID) on the RM60 billion Refinery and Petrochemicals Integrated Development (Rapid) complex in Pengerang, Johor by 1Q14.
Aaron Tan, an analyst from the research division of MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted, “We view this (Petronas’ FID and Rapid complex) as a positive sign as it will spur the downstream petrochemical sector.
“So far, Petronas has signed agreements with Versalis SpA (Italy), Itochu (Japan) and PTT Global Chemicals (Thailand) as joint-venture partners to build specialty chemical plants.
“We do not, however, think that the Rapid initiative will directly benefit most Bursa-listed oil and gas service providers as these companies are mainly upstream offshore support service providers. It will, however, be a positive news-based catalyst for the sector as a whole.”
Tan further outlined that to date, only three Risk Service Contracts (RSCs) have been awarded since 2011. In order to facilitate the RSCs works, Petronas has incorporated a new subsidiary called Vestigo, to partner with foreign and local service providers to undertake RSCs in Malaysia.
Meanwhile, international oil companies (IOC), including the ‘supermajors’ BP Plc, ExxonMobil, Chevron Corp, Royal Dutch Shell and Total SA are expected to increase 2014’s capital expenditure (capex) to US$425.1 billion from US$421.2 billion a year earlier, said Tan.
The expected capex spending are derived from market expectations, but are strongly supported by guidance from the respective IOCs. Year-to-date, more than RM34 billion worth of jobs were awarded to Bursa-listed oil and gas service providers. This represents an increase of more than three-folds from what were awarded in 2012.
“As such, we believe that moving into 2014, the level of oil and gas activities will remain high and this will translate into higher corporate earnings for the companies. In addition, Petronas’ RM300 billion five-year capex plan remains intact with more than RM150 billion to be spent in the remaining eight quarters,” Tan enthused.
The sustained momentum in oil prices is testament of sustained global demand and cleverly orchestrated production output which would continue to spur exploration and production activities. Petronas, along with its foreign partners are successfully hitting new oil patch locally, which will trickle an abundance of services opportunity down the value chain.
On the global front, WTI crude oil price remained range-bound in November, bouncing mildly between US$92 to US$95 per barrel before spiking up to US$98 per barrel in early-December. The bounded price movements were caused by mix data and signals emanating from both the supply side and geopolitical side.
Tan noted that year-to-date, the price of WTI crude oil climbed 6.1 per cent to US$97.39 per barrel. Back in August 2013, prices scraped a two-year high of US$110.3 per barrel.
“The average 2013 WTI price is currently US$98 per barrel, which is still higher than 2012’s average of US$94.15 per barrel. The steep price uptrend from the start of the second half of 2013 (2H13) had been mainly caused by fears of supply interruption from the ongoing Egyptian political turmoil, further exacerbated by possible military strikes in Syria.
“However, these key price drivers have since subsided hence we are maintaining our 2013’s average price at US$96.50 per barrel, as we foresee further tapering in prices due to the increase in supply.”
MIDF Research’s average WTI oil price projection for 2013 is maintained at US$96.50 per barrel on the back of its world gross domestic product (GDP) forecast of 3.8 per cent to 4.1 per cent for 2013 with growth coming mainly stem from Asia.
According to Bloomberg’s survey, the market remains optimistic, with consensus forecast rising to US$97 per barrel from US$96.16 per barrel previously. However, the US Energy Information Administration (US-EIA) has fine-tuned its average 2013 WTI forecast downward by -1 per cent to US$97.74 per barrel.
“For the rest of 2013, average oil prices are expected to be supported at above US$90 per barrel, with upside bias, by a few key factors. On the demand side, global GDP growth should be higher, to be led mostly by Asian countries.
“We forecast China’s GDP to expand by 7.6 per cent in 2013. Asia is expected to lead oil consumption growth at 21.7 million barrels per day (mbpd) in 2013 compared with 21.1mbpd the year before. Consumption in Europe is expected to decline while that in the US may remain flat,” Tan stipulated.