KUALA LUMPUR (March 7): Rising demand for hydrocarbons will likely expand revenues and margins for national oil companies (NOCs), including Petroliam Nasional Bhd (Petronas), Thailand's PTT Public Co Ltd and India's Oil and Natural Gas Corp Ltd (ONGC), said S&P Global Ratings.
In a statement on Monday (March 7), the rating agency said Indonesia's PT Pertamina (Persero), on the other hand, will face mounting earnings pressure because it won't likely be able to fully pass through higher oil prices.
S&P said Europe is likely to look to Asia to bridge any potential supply gap from Russian imports for its energy supply.
It said the result will be higher revenues for many NOCs in South and Southeast Asia.
Some of this will be offset by higher costs of NOCs' downstream operations.
S&P Global Ratings credit analyst Minh Hoang said given the integrated, diversified business models of many hydrocarbon companies in South and Southeast Asia, the impact on revenues and margins will vary.
"For example, some companies rely on fuel imports. Downstream refining activities and subsidised fuel distribution are also likely to suffer,” said Minh.
S&P last week raised its assumptions for Brent oil prices to average US$85 (about RM355.30) per barrel (bbl) in 2022, US$70/bbl in 2023 and its long-term oil price assumption for 2024 remaining unchanged at US$55/bbl.
S&P said demand for liquified natural gas (LNG) will likely spike the most as a result of sanctions on Russia.
It said given that NOCs' sales volumes are secured under long-term contracts, many of which have destination clauses, it's unlikely that significant spare capacity can be immediately redirected — keeping prices elevated in the near term.
“Of the South and Southeast Asian NOCs that we rate, most derive 60% to 70% of their EBITDA (earnings before interest, taxes, depreciation and amortisation) from exploration and production of hydrocarbons.
“Petronas has a sizeable LNG portfolio as one of the world's leading LNG players, with more than 20% of its product revenues coming from LNG sales,” it said.
S&P said Petronas holds a non-operating interest (15%) in Russian oil producer Gazprom Neft PJSC's Badra oilfield project in Iraq, with production capacity of 5.4 million tons of oil and 1.6 billion cubic metres of gas per year.
It added that Petronas had yet to make a decision on its future in light of the global sanctions on Russia.
Market conditions
S&P said the earnings boosts for Asia's NOCs will provide some cushion against high volatility over the medium term.
It said despite expectations of higher oil prices in 2022, the situation is highly uncertain, with market conditions likely to remain volatile amid rising geopolitical risks and disrupted trade flows.
“At this juncture, all member countries appear to remain committed to the OPEC+ (the Organization of the Petroleum Exporting Countries and its allies) oil production targets despite the military conflict in Ukraine.
“The risk of even greater sanctions and more restrictions on Russian supply is likely to add even greater volatility to oil prices over the coming months.
“In addition, the US and other major economies have agreed to release additional oil stockpiles to cool down rising spot crude prices, which recently rose above US$100/bbl for the first time since 2014,” it said.