CRUDE oil prices are expected to gradually drop in 2007, but analysts do not expect it to fall below US$50 (US$1 = RM3.52) per barrel.
They see support from production cuts by the Organisation of Petroleum Exporting Countries (Opec) and rising global demand, particularly from China.
According to OSK Research Sdn Bhd, at US$50 per barrel, global oil production remains very profitable, even for some unconventional oil production ventures.
Compare that figure with exploration and production costs by US companies, reportedly averaging below US$15 per barrel, and you get an idea of the high profits available.
Granted, oil costs have increased by 50 per cent to 80 per cent over the last two years, but current oil prices still make it attractive to dig for this “black gold”.
There may be some reduction in production efforts at the Canadian oil sands and ultra-deepwater oil, for example, but even there progress is still being made.
Projects such as the Qatargas Complex, China and India’s liquefied natural gas (LNG) terminals and refineries across the Middle East are also expected to continue despite dropping oil prices, as demand remains strong coupled with positive global economic growth.
Malaysia itself is just at the start of an oil boom, with many deepwater and other contracts on the way.
The country’s first deepwater field in Kikeh, offshore Sabah, is expected to start production in the fourth quarter of this year, churning out about 120,000 barrels per day (bpd) of oil.
The Kikeh field is jointly developed by Murphy Oil Corp and Petronas Carigali Sdn Bhd.
Another major development offshore Sabah is the Gumusut deepwater reserves, which may come on stream by 2011. Undertaken by Petronas Carigali and its production sharing contract (PSC) partners, Gumusut can produce about 150,000 bpd.
With the two deepwater fields coming on stream, Petronas expects to raise an additional 270,000 bpd of oil. The current national production for oil and condensate is about 720,000 bpd, while gas is at 5.5 billion cu ft per day.
Looking at the plans by Petronas to boost oil output and export levels from Malaysia over the next five years and foreign direct investment (FDI) trends, OSK believes the good times are just beginning for Malaysian oil and gas service providers.
There should be plentiful offshore contracts up for grabs, based on the 65 new platforms required in Malaysia and 23 offshore vessel contracts to be awarded for the next five years, it added.
These include jobs to make drilling rigs; build, transport and install platforms; supply drilling mud; provide diving services and supply bases; consulting and maintenance services; and chartering offshore vessels and barges.
Not all contracts will be offshore related.
There will also be opportunities on dry land given the recently announced world-scale methanol plant in Labuan; the de-bottlenecking of MLNG Dua and potential MLNG 4 plant in Petronas’ liquefied natural gas (LNG) complex in Bintulu; the new lube oil plant in Malacca; the new Kimanis-Bintulu gas pipeline project; and the expansion of petrochemical plants in the Peninsular Eastern Corridor.
RAM Consultancy chief economist, Dr Yeah Kim Leng, said last year the oil and gas sector benefited from high oil prices despite lower production.
He said crude oil output for the first 10 months was marginally lower by 0.4 per cent, while natural gas declined by 1.7 per cent. The industrial production index for the mining sector likewise fell by 3.1 per cent.
Nevertheless, in the first three quarters of 2006, the export value of crude oil exports and liquefied natural gas rose by 12.7 per cent and 12.5 per cent respectively.
“The strong earnings of the sector is also reflected by the 19 per cent rise in value-added contribution in current prices from the mining sector over the same period.
“However, from a stock market perspective, oil and gas sector underperformed the Kuala Lumpur Composite Index, in part due to companies experiencing higher fuel costs and lower charter rates,” he said.
The elevated price level together with sustained export and domestic demand will continue to drive investment in upstream and downstream activities in Malaysia, he said.
Given such a scenario, the oil and gas outlook in 2007 is expected to improve with a pick-up in offshore development activities arising from new discoveries and higher planned capital expenditure in upstream activities.
He said increased domestic capital spending by the national oil and gas company will mean more contracts for oil and gas service providers and suppliers.
Soure: The New Straits Times Press (Malaysia) Berhad
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