Challenging year for oil and gas industries

No queues were observed at a petrol station along Jalan University in Petaling Jaya Saturday night.

THE year 2016 will be one marked with challenges for the oil and gas (O&G) industry, with slower progress in the upstream sector, according to the National Transformation Programme (NTP) annual report 2015.

The industry is no stranger to trying conditions, having gone through a similar cycle when oil prices went down below US$10 per barrel in 1998.

The difference this time around is that the industry and the players are better positioned to face uncertainties, having built competency and capacity over the years.

As an upside, the current situation creates a stronger impetus for O&G players to take measures that will inevitably strengthen their operations and help them create resilience against volatilities and unexpected industry developments.

Moving forward, as the pie in this industry shrinks and domestic jobs plateau, domestic competition will intensify. Malaysian O&G services and equipment (OGSE) companies should start exploring opportunities to enhance competitiveness and prepare for the next upcycle upon recovery.

The current changing landscape and challenges have the potential to act as a catalyst for OGSE companies to explore opportunities for consolidation within the fraternity and step up on investing and working towards becoming owners of technologies, rather than merely agents of technologies, to increase their competitive advantage.

“Since 2011, Malaysia has set out on a journey to become the hub for OGSE activities. With our extensive experience in the O&G market compared with other countries in Asia-Pacific, we are well-placed to achieve this vision.

“However, in order for Malaysia to become a thriving hub, OGSE firms in Malaysia need to be competitive.”

According to the NTP, OGSE firms in Malaysia are competing in a smaller and more challenging market due to low oil prices and market liberalisation.

In 2015, the glut in oil supply pushed oil prices into a contango, where front-month contracts were at a discount to longer-dated futures contracts.

The wide price discount enabled customers and traders to purchase oil today and sell futures at higher prices.

To diversify and increase the nation’s renewable energy capacity, the Government aims to implement net energy metering and large scale solar. Additional initiatives will be implemented to complement existing initiatives, such as the feed-in tariff mechanism, to improve utilisation of indigenous resources.

In 2014, the Government announced the roadmap for the implementation of higher retail fuel standards nationwide - the Euro 4M RON97 was introduced in September 2015, Euro 4M RON95 will be unveiled in October 2018, Euro 5 diesel in September 2020 and Euro 5 RON95 and RON97 in September 2025.