PETALING JAYA: Petroliam Nasional Bhd (Petronas) will reduce its output on a voluntary basis beginning next year in line with an initiative taken by members and non-members of the Organisation of the Petroleum Exporting Countries (Opec) to help improve prices.
The production cut is part of a collective effort by major oil producers globally to ease the current supply glut of crude oil.
In a statement yesterday, Petronas said that in light of the pact made in Vienna, Austria, on Dec 10 between Opec and non-Opec producers, it would make a voluntary adjustment involving up to 20,000 barrels per day (bpd) of crude from the country’s 2016 average production.
The proposed cut of 20,000 bpd represents about 3% of the oil giant’s current daily output. This is based on the Finance Ministry’s 2017 Economic Report which was released in October that states Petronas’ estimated production at 648,000 bpd.
Based on the current average Brent crude oil price of US$44.67, the 20,000 bpd represents US$893,400 in foregone revenue on a daily basis for Petronas.
MIDF Research analyst Aaron Lee believes the 3% production cut would not have a significant impact on the country’s oil and gas (O&G) service providers.
“In the short term, we do not think that there will be a reduction in offshore activities due to the reduction in supply in Malaysia as the bulk of the ongoing offshore projects are currently maintenance in nature, which need to be undertaken regardless of the crude oil price and production,” he said.
On the other hand, there is the possibility of higher overall crude prices offsetting the revenue foregone due to lower production, assuming Opec’s plan works out as intended.
An O&G executive said this meant the impact on the bottom line for Petronas could be negligible due to possible higher prices as well as its current drive to optimise operating expenditure.
“This (impact) is yet to be seen. Operators are looking for stability in oil prices, not so much on temporary price spikes. It has to be maintained at a certain level before they actually embark on new projects,” he explained.
Over the past two months, to the surprise of many, Opec has succeeded in securing commitments by its member countries – all of whom are heavily dependent on oil revenue to finance their budgets – as well as non-Opec producers led by Russia.
As part of a collective agreement, Opec members agreed to reduce output by 1.2 million bpd by next year, while non-Opec members pledged to reduce production by a further 558,000 bpd.
Malaysia was among the 11 non-Opec countries pledging to the cuts during the Dec 10 meeting in Vienna.
The total global oil output rose to 98.2 million bpd in November, according to the International Energy Agency (IEA) in a recent report. It added that global oil demand during the fourth quarter is estimated at 96.95 million bpd.
The IEA has projected that should the producers stick to the proposed output cut, oil markets could show a shortfall of 600,000 bpd early next year due to the firm increase in demand.
The stakes are high for oil producers globally, who are keen to see out a recovery in prices, but are wary of lower revenue as a result of an output cut.
After two years of low prices, which in turn sent many US shale operators out of business due to their high breakeven costs, conventional producers seem to be finally ready to work on raising crude prices.
Higher prices would also improve sentiment in the O&G sector and trigger new undertakings on drilling projects, thus improving demand for offshore support vessels globally.