The recovery in oil demand is fragile | The star

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) expects the path to a sustained recovery in oil demand to remain fragile and uncertain next year, as the emergence of new variants of Covid-19 could potentially hamper the growth.

In light of this, the national oil company said the smart approach would be to strengthen efforts collectively and be ready to deal with volatility in oil prices.

“As global economic activity picks up, the global economy is experiencing its most robust post-recession rebound with rapid recovery in all countries and sectors.

“A widespread vaccine deployment in 2021 has supported the recovery of road transport fuels amid pent-up travel demand,” Petronas said in its annual business outlook 2022 to 2024, released yesterday.

He stressed that the aviation sector, for example, is only expected to return to pre-pandemic levels by 2024.

“The path to a sustained recovery in oil demand remains fragile and uncertain due to the emergence of new variants of Covid-19 that are triggering new waves of blockages.

“While most industry players are optimistic about the economic recovery, they remain cautious.”

In the same report, Freida Amat, vice president of purchasing at the Petronas Group, said the accelerated energy transition would also pose new challenges to traditional oil and gas (O&G) businesses. “Thus, the industry must be innovative and remain competitive in the course of its activities, to ensure that projects and production remain feasible in an uncertain economic climate. Immediate reforms along the value chain have become increasingly important, focusing on greater operational efficiency and higher productivity. “

In the same report, Freida Amat, vice president of purchasing at the Petronas Group, said the accelerated energy transition would also pose new challenges to traditional oil and gas (O&G) businesses.

“Thus, the industry must be innovative and remain competitive in the course of its activities, to ensure that projects and production remain feasible in an uncertain economic climate. Immediate reforms along the value chain have become increasingly important, focusing on greater operational efficiency and higher productivity. “

She pointed out that Petronas works with industry players to maximize existing assets for greater efficiency and cost optimization.

“The O&G equipment and services industry can capitalize on the new opportunities that have emerged from the changes introduced in the way we operate, whether it’s rethinking the way we conduct projects or taking advantage of technological advancements. fast in the form of artificial intelligence, machine learning, robotics and the Internet of Things.

“Globally, we’ve seen companies form collaborations to accelerate technology adoption and create a range of new revenue streams while sharing resources and investments. “

Freida said Petronas’ aspiration to achieve net zero carbon emissions by 2050.

She said the company has taken steps to realize its energy transition aspiration and embrace a low-carbon energy future by accelerating its “exit” strategy to renewable energies, such as solar and hydrogen companies.

“The O&G gas industry and its players must work together to move forward together, integrating the environment, social and governance into the DNA of our industry,” she said.

Freida also highlighted the need to scale up the adoption and capitalization of digital transformation and technological advancements.

“We must continue to stay focused on technological advancements, the digitization of processes, as well as the harmonization of standards for equipment and services.

“The use of technology and digital solutions to optimize costs while ensuring results and performance had become more important and vital. “

Amid the acceleration of the energy transition, Petronas stressed that gas and renewables will play a greater role in meeting global energy needs.

“Gas is more resilient than oil because the growing share of electric vehicles, the growing demand for sustainable fuels and the increasing efficiency of the transportation sector would erode oil consumption.

“Although gas is cleaner than oil, the challenges come in the form of methane leaks from operations and pipelines targeted by policymakers, as a result of stricter emissions targets set during the 2021 United Nations Climate Change Conference. “

On the home front, Petronas said Malaysia’s 12th plan arrived at an opportune time as the country recovered from the Covid-19 pandemic.

“Setting the strategic direction for Malaysia’s development from 2021 to 2025, it aims to address current issues with strategic directions to achieve a sustainable economy focused on the rejuvenation of economic growth, ensuring a more fair and equitable distribution of prosperity, as well as the maintenance of environmental sustainability. “

Meanwhile, Kenanga Research, in a report released yesterday, expected global demand for oil to return to pre-pandemic levels in 2022.

“Global oil demand and supply are expected to stabilize at over 100 million barrels per day in 2022, close to pre-pandemic levels.

“Nonetheless, while the aggressive equity drawdowns over the past two months have helped push oil prices up, we expect production growth from Opec + (a grouping of the Organization of the United Nations). oil exporters), U.S. tight tank oil and other non-OPEC countries will outgrow the slowdown in global oil consumption growth, especially in light of renewed concerns about Covid-variants. 19. “

The research house maintains its 2022 average Brent crude price assumption of US $ 65 (RM272) per barrel.

“The additional impact of Covid-19 remains the greatest uncertainty about the recovery in global oil consumption, especially given the recent emergence of the Omicron variant.” But, as vaccination rates increase , coupled with better management of Covid-19, our baseline scenario is that the impact of the Omicron variant is expected to be mild and short-lived.

Meanwhile, Hong Leong Investment Bank Research maintains its Brent crude oil price forecast between US $ 70 (RM 292) and US $ 75 (RM 314) per barrel for 2022.

“We expect the Omicron variant to affect the demand for jet fuel in the near term due to travel restrictions, even though the world has come a long way and is better equipped to handle Covid-19 and its related challenges.

“In the meantime, in the local space, we expect Petronas’ capital spending to remain between RM40 and 45 billion per year for the next five years, with a gradual increase in the allocation to renewable energy initiatives, ”the research house said.


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Steve R. Hansen