KUALA LUMPUR: The reduction in capital expenditure (capex) by Petroliam Nasional Bhd’s (Petronas) affiliates Petronas Dagangan Bhd (Petdag) and Petronas Gas Bhd (PetGas) does not indicate a gloomy sentiment for the oil and gas (O&G) this year.
O&G analysts said the lower capex by the national oil company's subsidiaries would not jeopardise the sector, citing that global crude oil price favourably stood at US$73.52 (RM289.48) per barrel last Friday.
At the recent annual general meeting (AGM) PetDag reduced its capex this year to RM300 million from RM400 million in 2017 for the upgrade and refurbishments of its existing stations as well as overall business activities.
Petgas also reduced its capex this year to RM1.3 billion from RM1.4 billion earmarked in 2017, largely to revamp its overall operation facilities.
MIDF Research oil and gas analyst Aaron Tan said this year’s capex would not largely required for the expansion in terms of building new infrastructures.
"The bulk of capex will not be utilised to fund new big facilities. This year’s capex allocation for Petronas’ affiliates including Petronas Chemical Group Bhd is slated to be utilised for maintenance or turnaround activities,” he told NST Business today.
For the year 2018, Petronas group has allocated RM55 billion capex, higher from RM44.5 billion in 2017.
Tan said the improved offshore activities such as higher utilisation rate of the jack up rig and offshore support vessel (OSV) indicated the sector’s recovery since the fourth-quarter of 2017.
“However, the exploration activities are still slow as players are cautiously aware of the success rate between 10 per cent and 15 per cent.
“Right now it is mainly for oil production rejuvenation or enhancement activity to increase production,” he said, adding that provides more assurance than oil exploration activity.
Oil demand is expected to increase gradually with the average forecast of US$60 per barrel this year.
"To drive up the oil prices, there should be more production cut. However, it is not easy to execute it. The oil price currently stands at a comfortable level,” he said.
Bloomberg Intelligence (BI) energy analyst Vincent G Piazza said a recovery in oil benchmarks has supported improving sentiment but prices may have outpaced near-term fundamentals.
“Upstream merger and acquisition activity is likely to recover on price-fuelled optimism, but service companies are poised to play a role as spending resurfaces,” he said.
BI chemicals analyst Christopher Perrella said petrochemicals products would drive oil demand growth over the next several years.
“Investors should pay more attention to petrochemicals than electric vehicles (EVs). The chief driver of oil demand growth won't be transportation, but petrochemicals, which is largely insulated from fuel switching,” he said.
Perrella pointed out the global oil demand is expected to increase by about seven million barrels per day (b/d) over the next five years from about 98 million in 2017.
Adding to that, Tan said the efficiency in public transportation could be a game-changer to erode the oil demand locally, citing that the sales volume of RON95 and RON97 has decreased year-on-year (YoY).
“Thanks to the element upgrade of public transportation such as the Light Rail Transit extension,” he said.
However, he believed EVs and plug-in hybrid will not impact the oil demand in Malaysia, as it is still early for locals adapting to electrification mobility.
Bl analyst Kit Konolige concurred that EVs are too expensive for the mass adoption and it must be cheaper and perform better than internal combustion engines.
“Before mass adoption can occur, and that's not in the cards for at least another seven years,” he said when quoting the Bloomberg New Energy Finance research.
Konolige said it was far from certain for the timeline assumes that current battery bottlenecks will be resolved shortly.
“The public electric-charging infrastructure needs to be built out on an aging grid, which currently doesn't have the capacity to handle mass EVs adoption.
“The impact of electric cars on oil demand today is negligible, at best. Although gasoline and diesel displacement by EVs is expected to increase rapidly, it's starting from a very small base,” he said.
Global oil demand is also estimated to be just under 100 million barrels per day in 2018.