KUALA LUMPUR (March 9): The Environmental, Social and Governance (ESG) efforts have created unintended consequences in affecting commodity prices, revealed Khazanah Nasional Bhd Director of Research, Mohamed Ridzuan Mohamed (pictured).
Speaking at the 2022 Palm & Lauric Oil Conference (POC2022) on Wednesday (March 9), Ridzuan gave an example on the current crude oil prices situation whereby the European oil producers are not adding any more conventional oil into the market but instead are shifting towards green renewable energy.
“The situation of oil (currently) is (that) there is a lot of demand and there is not enough supply. The logical solution is to add supply and try to bring the price down and create an equilibrium.
“Problem is, US oil producers for instance, are not really producing much and they are not really expanding either because they would rather just pay dividends to their shareholders,” he said.
Ridzuan added that it is the national oil companies such as in China and Malaysia who are willing to allocate capital expenditure (capex) into the oil and gas industry.
Petronas, whose portfolio is 70% gas and is the fifth largest gas exporter in the world, expects its capital investments to rebound after two years of lower-than-expected spending amid supply chain disruptions, Covid-19 impact on human capital and movement controls, and forgone merger and acquisition transactions.
Notably, Petronas spent RM30.5 billion for capital investments in the financial year ended Dec 31, 2021 (FY21), which fell short of its initial guidance of RM39 billion-RM40 billion.
Meanwhile, he also shared that consumer goods companies may feel the pinch amid supply chain disruptions and higher commodity prices.
“When commodity prices are running, if the underlying demand and economic conditions are okay — there is income growth and GDP growth — you can pass on its high costs to consumers.
“But the situation today is you have inflation but then consumers are also suffering from the declining real income. Hence you are not able to pass on your average selling prices to consumers.
“Really, it’s a tough time to be in consumer products,” he concluded.