Malaysia's energy industry sees a stronger 2017

Malaysia's energy industry sees a stronger 2017

Despite lower hydrocarbons earnings last year, Malaysia is moving forward
with targeted energy investment and improved operational practices.

Petronas is pushing ahead with development of a large-scale refinery and
petrochemicals plant in the southern state of Johor, with support from Saudi
Arabia guaranteed as of last month.

In late January Petronas confirmed it would complete its Refinery and
Petrochemical Integrated Development (RAPID) project on schedule, with
production to commence in 2019. When fully on-line, the complex will have
the capacity to process 300,000 bpd and up to 7.7m tonnes of petrochemicals
annually.

Following the announcement, oil giant Saudi Aramco announced at the end of
February that it would invest $7bn in the RAPID project out of a total
investment of $16bn. This put to rest concerns that the programme would be
scaled back or delayed, amid reports in January that the Saudi company had
stepped away from forming a partnership with Petronas.

Building chains

The refinery is part of a larger development, the Pengerang Integrated
Complex (PIC), which includes further midstream and downstream facilities
intended to strengthen Malaysia's value-added hydrocarbons chain, and help
it maximise returns on its natural resources.

Establishing a complete supply and processing chain - encompassing upstream,
mid-stream and downstream components - is becoming more important for
Malaysia, particularly against a backdrop of lower oil prices.

Supply side

To maintain the links in this chain, Malaysia needs to sustain the flow of
feedstock oil and gas for processing.

Last year saw a roughly 2% reduction in oil output to 648,000 barrels per
day (bpd), down from 662,000 bpd the previous year, due in part to the
maturing of existing fields.

As production wanes at several of its established, Petronas is looking to
enhanced oil recovery (EOR) technology to maximise extraction, and also sees
potential to boost production by developing smaller fields. The challenge
for such projects will be to ensure profitability and viability in the
present operating climate.

To this end, Petronas inked a deal with local upstream company Uzma at the
beginning of the month to conduct research and development with universities
on EOR projects that use carbon dioxide.

Extending the operating life of existing fields through EOR technology
should also open up opportunities for service providers in the segment.

Balancing act

Though it has committed to continuing its RAPID project and other
PIC-related developments, Petronas is likely to carefully weigh the costs at
each stage, balancing outlays against potential returns.

Indeed, low oil prices saw state-owned energy firm Petronas register a 96%
dip in profits in the first half of 2016. However, resurgent energy prices
saw revenue recover by 1% in the third quarter to RM48.74bn ($11bn) and to
RM58.6bn ($13.3bn) in the final quarter, a trend expected to continue into
2017.

While Malaysia is slated to cut its oil output by another 3%, or 20,000 bpd,
this year -part of an agreement struck with the Organisation of Petroleum
Exporting Countries at the end of 2016 to curb market oversupply - the
impact on earnings could be offset by price increases expected from the
reduction in excess global supply.

Nonetheless, this scenario has seen Petronas adopt a more careful approach
towards investments and implement greater operational cost efficiencies.

Last year Petronas announced it was tightening its budget, cutting spending
in the years to 2020 by as much as RM50bn ($11.2bn). In the first 11 months
of 2016, the company said it had reduced costs by 9.4% y-o-y to RM30.7bn
($6.9bn).

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Link to Original Article:
http://www.oxfordbusinessgroup.com/news/malaysia%E2%80%99s-energy-industry-s
ees-stronger-2017

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com