Dear Members, Associates and Friends of the Malaysian Gas Association,
Ladies & Gentlemen,
As we usher in the new year, I am excited with developments achieved in the Malaysian gas industry. The gas industry reforms remains on track. The grace period for the Third Party Access ends in January 2018 and the regulated gas price is projected to achieve market price by 2019. Malaysia is well underway advancing towards a sustainable gas industry.
Looking back to 2017, MGA is proud to gain further recognition of our role as the voice of the gas industry when we were appointed into both the steering and technical committees for the national Gas Price Rationalisation Communication Plan, led by the Economic Planning Unit (EPU). MGA will be playing an active role in communicating the benefits of the gas industry reforms to key stakeholders, providing perspective as an industry representative.
2017 has been quite a busy and eventful year for MGA. Our priorities for 2017 has been the following;
2.Enhancing Value Proposition for Members
We stepped up our Gas Advocacy with more engagements with policy makers, series of interviews and articles in the newspapers, face to face engagements at our booths in major exhibitions and media launch of the report on “Natural Gas: Flipping the Switch’. We ended the year with a “Gas Advocacy Series” campaign on social media.
In addition to gas advocacy, MGA members benefited from the multiple networking platforms established by MGA. We continued our annual networking events, namely the Industry Golf and Industry Gala Dinner, and have increased members activities with more industry talks, a technical visit to RAPID in Pengerang and a CSR intiative in the form of a Blood Donation Drive. We also kept members regularly informed through the newly introduced Quarterly bulletins. This in addition to the regular updates via e-mails and posts on our webpage and social media.
On the international front, as part of the Executive Committee, MGA plays a key role in charting the direction of the International Gas Union (IGU). IGU have similarly stepped up Gas Advocacy on the global arena, engaging global bodies such as United Nation, G20, World Bank and International Energy Agency (IEA). 2017 also saw the election of the first Women President of IGU. Ms. Li Yalan will be the first woman to lead IGU when China assumes the Presidency of IGU for the Triennium 2021-2014. Her appointment gives encouragement for more active participation by women in the energy sector, especially in leadership positions.
Likewise, MGA recognised the importance of women in the energy sector when we organised the inaugural Forum in Women in Energy; an event supported by women networks in member companies.
In 2017, MGA continued our outreach to students in schools and higher learning institutions. We are delighted to share that several schools and universities found our outreach so beneficial that they have invited us to collaborate.
2017 is also the year of collaborations for MGA. In addition to universities, MGA collaborated with other organisations, such as MOGSC, 30% Club and PEMANDU, and with MGA’s own member companies to organised major events.
We are extremely grateful for the support and contribution from our members throughout 2017. We are particularly appreciative of the efforts put in by the following working committees;
•Regulatory and Government Affairs
•Learning and Development
•Communications and Multimedia
•Membership and Social
the taskforce on Promotion of Cogeneration and the respective organising committees for our major events. Your commitment and contributions ensured the success of our activities. On average, we have organised 2 events or major activities per month, more than what we have achieved in the previous years.
Going into 2018, we expect our priorities to remain. We will be stepping up our Gas Advocacy even further with more advocacy related activities, more communication and more engagements with the media.
The country needs to increase utilisation and demand for gas in order to make the market more attractive to third party gas suppliers. MGA has proposed to collaborate with Federation of Malaysian Manufacturers (FMM) to jointly promote cogeneration and will be collaborating with PEMANDU Associates to organise an “Increasing Gas Demand” workshop.
2018 will also see IGU organising the World Gas Conference (WGC2018) in Washington DC, USA. We urged members to participate in this prestigious triannual congregation of global gas industry players. WGC2018 will be expecting 500 speakers and 12,000 participants.
Before I sign-off, I would like to take the opportunity to congratulate and thank the MGA Secretariat for their keen dedication and oustanding efforts.
On behalf of the Council of MGA, I close by again thanking all our members, including all the volunteers from members organisations, for your keen support and participation in all our activities. We look forward to similar support in the coming year.
I wish everyone a happy and successful 2018.
Hazli Sham Kassim
Malaysian Gas Association
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In a few days, the bi-annual OPEC meeting will take place on November 30, leading into a wider OPEC+ meeting on December 30. This is what all the political jostling and negotiations currently taking place is leading up to, as the coalition of major oil producers under the OPEC+ banner decide on the next step of its historic and ambitious supply control plan. Designed to prop up global oil prices by managing supply, a postponement of the next phase in the supply deal is widely expected. But there are many cracks appearing beneath the headline.
A quick recap. After Saudi Arabia and Russia triggered a price war in March 2020 that led to a collapse in oil prices (with US crude prices briefly falling into negative territory due to the technical quirk), OPEC and its non-OPEC allies (known collectively as OPEC+) agreed to a massive supply quota deal that would throttle their production for 2 years. The initial figure was 10 mmb/d, until Mexico’s reticence brought that down to 9.7 mmb/d. This was due to fall to 7.7 mmb/d by July 2020, but soft demand forced a delay, while Saudi Arabia led the charge to ensure full compliance from laggards, which included Iraq, Nigeria and (unusually) the UAE. The next tranche will bring the supply control ceiling down to 5.7 mmb/d. But given that Covid-19 is still raging globally (despite promising vaccine results), this might be too much too soon. Yes, prices have recovered, but at US$40/b crude, this is still not sufficient to cover the oil-dependent budgets of many OPEC+ nations. So a delay is very likely.
But for how long? The OPEC+ Joint Technical Committee panel has suggested that the next step of the plan (which will effectively boost global supply by 2 mmb/d) be postponed by 3-6 months. This move, if adopted, will have been presaged by several public statements by OPEC+ leaders, including a pointed comment from OPEC Secretary General Mohammad Barkindo that producers must be ready to respond to ‘shifts in market fundamentals’.
On the surface, this is a necessary move. Crude prices have rallied recently – to as high as US$45/b – on positive news of Covid-19 vaccines. Treatments from Pfizer, Moderna and the Oxford University/AstraZeneca have touted 90%+ effectiveness in various forms, with countries such as the US, Germany and the UK ordering billions of doses and setting the stage for mass vaccinations beginning December. Life returning to a semblance of normality would lift demand, particularly in key products such as gasoline (as driving rates increase) and jet fuel (allowing a crippled aviation sector to return to life). Underpinning the rally is the understanding that OPEC+ will always act in the market’s favour, carefully supporting the price recovery. But there are already grouses among OPEC members that they are doing ‘too much’. Led by Saudi Arabia, the draconian dictates of meeting full compliance to previous quotas have ruffled feathers, although most members have reluctantly attempt to abide by them. But there is a wider existential issue that OPEC+ is merely allowing its rivals to resuscitate and leapfrog them once again; the US active oil rig count by Baker Hughes has reversed a chronic decline trend, as WTI prices are at levels above breakeven for US shale.
Complaints from Iran, Iraq and Nigeria are to be expected, as is from Libya as it seeks continued exemption from quotas due to the legacy of civil war even though it has recently returned to almost full production following a truce. But grievance is also coming from an unexpected quarter: the UAE. A major supporter in the Saudi Arabia faction of OPEC, reports suggest that the UAE (led by the largest emirate, Abu Dhabi) are privately questioning the benefit of remaining in OPEC. Beset by shrivelling oil revenue, the Emiratis have been grumbling about the fairness of their allocated quota as they seek to rebuild their trade-dependent economy. There has been suggestion that the Emiratis could even leave OPEC if decisions led to a net negative outcome for them. Unlike the Qatar exit, this will not just be a blow to OPEC as a whole, questioning its market relevance but to Saudi Arabia’s lead position, as it loses one of its main allies, reducing its negotiation power. And if the UAE leaves, Kuwait could follow, which would leave the Saudis even more isolated.
This could be a tactic to increase the volume of the UAE’s voice in OPEC+, which has been dominated by Saudi Arabia and Russia. But it could also be a genuine policy shift. Either way, it throws even more conundrums onto a delicate situation that could undermine an already fragile market. Despite the positive market news led by Covid-19 vaccines and demand recovery in Asia, American crude oil inventories in Cushing are now approaching similar high levels last seen in April (just before the WTI crash) while OPEC itself has lowered its global demand forecast for 2020 by 300,000 b/d. That’s dangerous territory to be treading in, especially if members of the OPEC+ club are threatening to exit and undermine the pack. A postponement of the plan seems inevitable on December 1 at this point, but it is what lies beyond the immediate horizon that is the true threat to OPEC+.
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In the U.S. Energy Information Administration’s (EIA) November Short-Term Energy Outlook (STEO), EIA forecasts that U.S. crude oil production will remain near its current level through the end of 2021.
A record 12.9 million barrels per day (b/d) of crude oil was produced in the United States in November 2019 and was at 12.7 million b/d in March 2020, when the President declared a national emergency concerning the COVID-19 outbreak. Crude oil production then fell to 10.0 million b/d in May 2020, the lowest level since January 2018.
By August, the latest monthly data available in EIA’s series, production of crude oil had risen to 10.6 million b/d in the United States, and the U.S. benchmark price of West Texas Intermediate (WTI) crude oil had increased from a monthly average of $17 per barrel (b) in April to $42/b in August. EIA forecasts that the WTI price will average $43/b in the first half of 2021, up from our forecast of $40/b during the second half of 2020.
The U.S. crude oil production forecast reflects EIA’s expectations that annual global petroleum demand will not recover to pre-pandemic levels (101.5 million b/d in 2019) through at least 2021. EIA forecasts that global consumption of petroleum will average 92.9 million b/d in 2020 and 98.8 million b/d in 2021.
The gradual recovery in global demand for petroleum contributes to EIA’s forecast of higher crude oil prices in 2021. EIA expects that the Brent crude oil price will increase from its 2020 average of $41/b to $47/b in 2021.
EIA’s crude oil price forecast depends on many factors, especially changes in global production of crude oil. As of early November, members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) were considering plans to keep production at current levels, which could result in higher crude oil prices. OPEC+ had previously planned to ease production cuts in January 2021.
Other factors could result in lower-than-forecast prices, especially a slower recovery in global petroleum demand. As COVID-19 cases continue to increase, some parts of the United States are adding restrictions such as curfews and limitations on gatherings and some European countries are re-instituting lockdown measures.
EIA recently published a more detailed discussion of U.S. crude oil production in This Week in Petroleum.
The U.S. Energy Information Administration (EIA) forecasts that members of the Organization of the Petroleum Exporting Countries (OPEC) will earn about $323 billion in net oil export revenues in 2020. If realized, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues.
Crude oil prices have fallen as a result of lower global demand for petroleum products because of responses to COVID-19. Export volumes have also decreased under OPEC agreements limiting crude oil output that were made in response to low crude oil prices and record-high production disruptions in Libya, Iran, and to a lesser extent, Venezuela.
OPEC earned an estimated $595 billion in net oil export revenues in 2019, less than half of the estimated record high of $1.2 trillion, which was earned in 2012. Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programs, and support public services. EIA expects a decline in net oil export revenue for OPEC in 2020 because of continued voluntary curtailments and low crude oil prices.
The benchmark Brent crude oil spot price fell from an annual average of $71 per barrel (b) in 2018 to $64/b in 2019. EIA expects Brent to average $41/b in 2020, based on forecasts in EIA’s October 2020 Short-Term Energy Outlook (STEO). OPEC petroleum production averaged 36.6 million barrels per day (b/d) in 2018 and fell to 34.5 million b/d in 2019; EIA expects OPEC production to decline a further 3.9 million b/d to average 30.7 million b/d in 2020.
EIA based its OPEC revenues estimate on forecast petroleum liquids production—including crude oil, condensate, and natural gas plant liquids—and forecast values of OPEC petroleum consumption and crude oil prices.
EIA recently published a more detailed discussion of OPEC revenue in This Week in Petroleum.