KUALA LUMPUR: Amid greater calls to address the climate change agenda, more local oil and gas (O&G) companies are taking steps to prepare for a greener future, including through commitments to reduce carbon emission and diversifying their investments into renewable energy (RE) assets.
Notably, O&G companies have been targets for scrutiny as they are seen to be operating in a highly carbon intensive business.
But contrary to public perception, BIMB Securities Research pointed out that many O&G companies listed on Bursa Malaysia are actually environment, social and governance (ESG) friendly companies – although they are stronger in the social and governance aspects.
This is based on assessments made by FTSE Russell which has established an ESG index known as FTSE4Good Bursa Malaysia index (F4GBM Index). The index tracks the performance of selected companies within FBM EMAS index constituents which demonstrates strong ESG practices.
Currently, there are 76 companies included in the index including all O&G companies under BIMB’s coverage with the exception of Lotte Chemical Titan Holding Bhd.
Nonetheless, with growing emphasis on the environment, O&G companies are starting to take relevant action to beef up their capacity in the “E” component of ESG.
BIMB noted that Petronas’ recent announcement toward achieving net zero carbon emission by 2050 will also help drive more transformative innovation towards decarbonisation efforts given the group’s significant role in the O&G industry.
“There are two main pillars in the energy transition strategy. Firstly, the corporates need to formulate its decarbonisation plan with the intention to reduce direct carbon emission from business operations.
“This can be achieved through several measures such as reducing electricity consumption, the usage of energy efficient systems and the application of carbon capture technology.
“Secondly, corporates can also achieve a net zero carbon target through green investment, ” BIMB said in its report yesterday.
The brokerage noted that some O&G companies are re-evaluating their own fuel type of choice. For example, Velesto Energy Bhd is looking for alternative fuel for its jack-up drilling rigs diesel engine while MISC Bhd is likely to switch to ammonia fuel run tanker in the long run.Meanwhile, companies like Yinson Holdings Bhd and Hibiscus Petroleum Bhd are likely to pursue the climate change agenda through both emission reduction and green investment to offset its carbon emission.
“Being in the O&G production value chain, both companies’ main carbon emissions are from gas flaring. One of the general solutions for this type of emission is through carbon capture technology, ” said BIMB.
It viewed Yinson as the leader in the RE play as it has the largest RE capacity among stocks under BIMB’s coverage. Yinson expects to undertake more solar plant development projects in its mission to become carbon neutral by 2030.On the other hand, Hibiscus is more cautious with investment in RE as it noted that its investment returns are less attractive than its conventional business. Key criteria for green investments of its choice will be an investment that not only brings climate impact but also maintains its business sustainability.
In the long run, BIMB expects downstream and midstream companies to alter their product mix as customers turn favourably towards greener products.
Meanwhile, upstream companies are expected to diversify more into RE business with conventional O&G business to remain as their core. Given the uptick in activities following higher oil prices and the robust earnings prospects for O&G companies in the long run, BIMB maintained its “overweight” recommendation on the sector as it believes these companies will be able to respond swiftly to the ESG agenda.