Periodic/Sector reports
Oil & Gas: Various Developments Focusing On Energy Security
Highlights
- High oil price expectations, but Sarawak’s constitutional issue remains the crucial point to resolve. We may follow consensus in raising oil price expectations in view of the geopolitical developments, which should benefit direct oil plays including Hibiscus and Dialog. However, the overarching sector theme in our view, ie the legal impasse between Petronas and Petros will be deliberated by the Federal Court only in Jan 27.
- Life still goes on. Nevertheless, there are several bright developments: Velesto Energy continues to benefit from a tight JU rig market, and all the locally listed FPSO peers have officially ventured into the floating gas (FLNG, FSRU) market. Upstream M&A valuations metrics are gaining traction again, with Hibiscus and Dialog as key beneficiaries.
Analysis
- Oil price forecasts now reflect a core risk-adjusted price regime. New consensus expectations now project global oil prices of US$95-110/bbl. This oil price assumption has been trending up due to sustained Hormuz impairment, additional refinery outages and accelerated inventory draws. Equally important to follow are the downstream product prices as the market tightness needs to be considered. A severe inventory drawdown may push oil prices up to over US$120/bbl. In a recent conference, both heads of Petronas and Saudi Aramco voiced concerns over global inventories having shrunk from 10b barrels to over 6b barrels, with over 10% of that available for use.
- Positive resolution between Petronas-Petros unlikely a near-term scenario. The Federal Court has set 25-29 Jan 27 to hear the petitions from both sides. Petronas’ petition challenges the competency of 10 Sarawak laws, while Sarawak filed its challenge on three federal laws. A Federal Court bench usually comprises three or five judges. However, this constitutional issue is considered a case of extraordinary weight, and requires a full bench of 9-11 judges. At the same time, Sarawak had signed to construct its first floating storage and regasification unit (FSRU) in Kuching, with an operational target of late-29. Although owning FSRU allows Sarawak better control over its gas supply and price fluctuation, we also interpret it as Sarawak having no confidence that the other party will honour their agreement to ensure Sarawak has 30% of their domestic gas supply.
Highlights
- High oil price expectations, but Sarawak’s constitutional issue remains the crucial point to resolve. We may follow consensus in raising oil price expectations in view of the geopolitical developments, which should benefit direct oil plays including Hibiscus and Dialog. However, the overarching sector theme in our view, ie the legal impasse between Petronas and Petros will be deliberated by the Federal Court only in Jan 27.
- Life still goes on. Nevertheless, there are several bright developments: Velesto Energy continues to benefit from a tight JU rig market, and all the locally listed FPSO peers have officially ventured into the floating gas (FLNG, FSRU) market. Upstream M&A valuations metrics are gaining traction again, with Hibiscus and Dialog as key beneficiaries.
Analysis
- Oil price forecasts now reflect a core risk-adjusted price regime. New consensus expectations now project global oil prices of US$95-110/bbl. This oil price assumption has been trending up due to sustained Hormuz impairment, additional refinery outages and accelerated inventory draws. Equally important to follow are the downstream product prices as the market tightness needs to be considered. A severe inventory drawdown may push oil prices up to over US$120/bbl. In a recent conference, both heads of Petronas and Saudi Aramco voiced concerns over global inventories having shrunk from 10b barrels to over 6b barrels, with over 10% of that available for use.
- Positive resolution between Petronas-Petros unlikely a near-term scenario. The Federal Court has set 25-29 Jan 27 to hear the petitions from both sides. Petronas’ petition challenges the competency of 10 Sarawak laws, while Sarawak filed its challenge on three federal laws. A Federal Court bench usually comprises three or five judges. However, this constitutional issue is considered a case of extraordinary weight, and requires a full bench of 9-11 judges. At the same time, Sarawak had signed to construct its first floating storage and regasification unit (FSRU) in Kuching, with an operational target of late-29. Although owning FSRU allows Sarawak better control over its gas supply and price fluctuation, we also interpret it as Sarawak having no confidence that the other party will honour their agreement to ensure Sarawak has 30% of their domestic gas supply.
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