‘Great reset’ in motion for Petronas

Petronas’ activity outlook is deemed to be slightly underwhelming, as most of the value chains are expected to see either flattish or lowered activity levels from 2020, going into 2021. — Bernama photo

 

KUCHING: Petroliam National Bhd’s (Petronas) newly released Activity Outlook for 2021 to 2023 provides detailed guidance for its activities over the next three years even as the group repositions for the ‘great reset’.

This follows the impact of the unprecedented Covid-19 pandemic and uncertainties in production cuts from the Organisation of Petroleum Exporting Countries (Opec) amid the global energy transition towards net zero carbon emission targets.

The group will prioritise cost efficiencies and technology-driven productivity while de-risking its portfolio by pivoting towards faster cash-generating investments with less volatile profiles.

Petronas will also encourage local players to move towards digitalisation and renewable energy solutions.

Overall, Kenanga Investment Bank Bhd (Kenanga Research) deemed Petronas’ activity outlook to be slightly underwhelming, as most of the value chains are expected to see either flattish or lowered activity levels from 2020, going into 2021.

“Ultimately, we believe this downplays the possibility of a huge boost towards recovery, or a resumption of pre-pandemic activity levels for the coming year,” it said yesterday.

“Plant maintenance providers are expected to benefit from the increase in turnarounds in 2021. Conversely, losers are mainly value chains that are exposed to greenfield projects, such as jack-up rigs, offshore fabrications, hook-up and commissioning.

“We believe this is largely in line with Petronas’ increased prudent approach towards capital expenditure (capex) spending, given its declining net-cash position on top of increased dividends and tax commitments,” Kenanga Research added.

Hong Leong Investment Bank Bhd (HLIB Research) agreed with this, adding that this is one of the most tepid outlooks that Petronas has produced thus far with no indication of a strong pick-up in activities despite the dismal activity levels seen in 2020.

“We believe that while Brent oil prices have breached the US$50 per barrel mark from mid-Dec FY20, Petronas would not have the propensity to materially elevate its capex spending this year due to its dividend obligations to the government as Malaysia thrives to recover from the Covid-19 pandemic,” it said in its own analysis.

“However, we expect capex to start picking-up from the third quarter of 2021 (3Q21) on the premise of a successful roll-out of vaccines and the dissipation of Covid-19.”

Another key focus in Petronas’ activity outlook report is its reiteration of its focus on renewable energy as a driver of long-term growth.

Kenanga Research saw that Petronas is committed towards the energy transition trend, and targets to reach net zero carbon emissions by 2050. Renewable energy will be the fastest growing source of energy in the world, and is expected to contribute 15 per cent of world energy demand by 2030, from 10 per cent in 2019.

This makes up a huge majority of the increase in world energy demand throughout the decade. Domestically, by 2025, 20 per cent of Malaysia’s electricity is to be generated by renewable sources, from two per cent currently.

“As such, Petronas is seeking to redefine its energy offerings, while also encouraging other OGSE to venture into providing solutions in the renewable energy sector, in efforts to future-proof their portfolios to remain resilient in the low-carbon world.”

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