Page 13 - Malaysia Marine & Offshore Industries Directory 2020/2021
P. 13

                 MALAYSIA MARINE & OFFSHORE INDUSTRIES DIRECTORY 2020/2021 EDITORIAL
COPING WITH THE PRICE PLUNGE
  Malaysia produces about 700,000 barrels of crude oil per day and is ranked about 26th in the world. The country is also the fourth-largest exporter of Liquefied Natural Gas (LNG) in the world. To compare, the US, currently the world’s top oil producer, puts out about 17 million barrels per day. Our production is small in comparison, but it is a highly valuable commodity, as the country is heavily reliant on the oil and gas industry to power its economy.
As an oil producer and exporter, Malaysia’s revenue is vulnerable to market forces. Ratings agency Malaysian Rating Corporation Bhd (MARC) reported that in 2019, the country’s oil-related products accounted for about 9% of total exports. The sector also generated about 21% of the country’s revenue annually.
The extraordinary jolt that the oil market has undergone due to the COVID-19 outbreak is expected to cause a serious dent to the country’s revenue. At the peak of the outbreak, oil prices had lost more than half its value since only December 2019.
In Budget 2020, the revenue from oil and gas was projected to be RM50.5 billion, which is 20.7% of the country’s total expected revenue of RM244.5 billion.
This was premised on an oil price of US$62 per barrel. At the time of writing, Brent crude is at US$42 per barrel. This slump in crude oil price not only means billions lost in revenue but also less money available for domestic needs and development plans that have been laid out in Budget 2020. CGS-CIMB Research estimated that if crude oil stabilises at US$48 per barrel, Malaysia would still fall short of its projected oil revenue by RM4.5 billion.
Following the decision made by the OPEC+ countries to reduce production and stabilise oil price, Malaysia also pledged to cut output by about 136,000 barrels per day in May and June 2020, which is bigger than expected and almost seven- to nine-fold the country’s previous cuts. How fast things get back on track depends on how quickly oil prices recover and how effectively the outbreak is contained. While some analysts remain optimistic and believe the situation is temporary, others say oil prices will not get back up for another year or longer because of uncertainties such as continued oversupply of oil and the return of COVID-19 in the near future.
Over at Petroliam Nasional Bhd (Petronas), its first quarter numbers for 2020 show a slump in net profit by 68% to RM4.5 billion from RM14.2 billion a year ago, primarily due to net impairment on assets and lower revenue recorded. The company’s first quarter revenue decreased by 4% to RM59.6 billion from RM62 billion last year, mainly due to the impact of lower average realised prices recorded for liquefied natural gas, petroleum products and crude oil and condensates.
The national oil company – which controls all oil and gas resources in the country and is responsible for their development – anticipates a very challenging outlook for the rest of 2020, with economic activities expected to only gradually recover in the second half of the year.
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