Petronas charting the next growth path

It is bullish on LNG as global demand is predicted to exceed a historic 350m tonnes per annum in 2019


Tan Sri Wan Zulkiflee Wan Ariffin (picture) was in a more relaxed and jovial mood when he announced Petroliam Nasional Bhd’s (Petronas) nancial performance for 2018 last Friday.

The smile could be a mix of joy and relief for the president and group CEO of Malaysia’s largest company, who was thrown into the position during the height of the global oil price rout.

In previous press conferences, Wan Zulkiflee had been cautious and rather pensive as questions of hefty provisions, rationalisation, capital expenditure trimming, axing of employees and dwindling returns dogged the agenda.

It was never easy for him to talk about staff retrenchments for a company which had been for years named among the country’s most preferred employers.

Five years after the 2014 global oil price rout and the millions of man-hours spent to find an escape hatch, the 58-year-old chemical engineer had put Petronas back on the growth track.

Petronas recorded its highest profit since 2013 as net earnings rose to RM55.3 billion for 2018. The 2018 profit was more than the combined earnings of RM20.8 billion in 2015 and RM23.8 billion in 2016. Revenues rose by 12% to RM251 billion and net writeback on asset impairments recognised helped to boost earnings.

The worst is behind for the state-owned energy company.

“It was also a year when we saw further tangible results from our ongoing efforts to drive efficiency and increasing our operational excellence over the last three years, to build a more resilient organisation,” he said.

The efforts to balance the company from the lows following the oil price plunge had worked for the state-owned company.

Wan Zulkiflee had indicated that the company has emerged stronger and leaner from the oil rout and had set the next growth part — liquefied natural gas (LNG) — to secure the firm’s long-term fortune.

Wan Zulkiflee said the national energy company is “bullish” on LNG as global demand for the natural gas is predicted to exceed a historic 350 million tonnes per annum in 2019.

He said the LNG market would mitigate volatility and potential aberrations in the oil market.

“For us, this (LNG) is a longterm play and this is what we are investing in. We are still very bullish about LNG,” he said.

“We are also a strong advocate for gas. As much as there is space for renewable energy (RE), we think gas will play a very significant role (in meeting energy demand) because it is the cleanest fossil fuel.”

His excitement on LNG came when money countries are looking to replace their coal-powered and nuclear power plants to the cleaner LNG power energy generator, opening up new markets, especially in Europe, when environmental concerns have been the main focus.

Petronas’ multibillion LNG Canada project and the Petronas Floating Liquefied Natural Gas 2 (PFLNG 2) project offshore Sabah provide the fuel to the company’s enthusiasm.

Valued at C$40 billion (RM122 billion) and located at Kitimat, British Columbia, LNG Canada secured the final investment decision in October last year. Petronas holds a 25% interest via its unit North Montney LNG Ltd.

The facility is the biggest single private investment in Canada’s history and is expected to have a nameplate capacity of 14 million tonnes per annum when fully operational in 2024.

Petronas’ investment in LNG Canada will further help the company monetise its sizeable assets in the country of up to 22 trillion to 23 trillion cu ft. Canada is Petronas’ largest gas reserve after Malaysia, but the company is reportedly only producing 600 million cu ft of gas from its Canadian assets. On-site works have already

begun on LNG Canada. Meanwhile, PFLNG 2 is slated to be completed by the end of this year before becoming fully operational by February 2020, Wan Zulkiflee said. Petronas has also identified RE as part of its three-pronged strategy which includes maximising cash generators by sweating assets, expanding on core businesses and venturing into new business areas.

“We are exploring, reviewing and assessing opportunities, specifically on RE such as solar and wind, and specialty chemicals,” he said. “This is an ongoing exercise and there are many opportunities that we screen, and India is one of them,” he said, responding to reports that the company is in talks to invest in one of India’s largest rooftop solar power producers.

To ensure growth in the capital-intensive oil and gas sector, the company had allocated slightly above RM50 billion for its capital expenditure (capex), a sizeable portion that will go into the upstream segment.

Total capex for FY18 rose to RM46.8 billion against RM44.5 billion in the previous year.

“The company allocates capex (in areas) where the opportunities are,” he said.

This is reflected in the US$27 billion (RM110.16 billion) Pengerang Integrated Complex (PIC) which made up a large portion of Petronas’ expenditure in recent years.

The downstream facility in southern Johor achieved 98% completion as of January this year, and is due for full operations by the fourth quarter of 2019.

At full operations, the PIC will produce 300,000 barrels of crude oil and 220,00 barrels of fuel per day, as well as 3.3 million tonnes of petrochemical products per annum.

The completion of the PIC will further increase Petronas’ downstream portfolio, in line with the strategy adopted by most oil majors such as Saudi Arabian Oil Co.

On its commitment to the government, Wan Zulkiflee said RM54 billion has been allocated for dividends and will be paid in tranches throughout 2019.

“We are confident because before we make our commitment and declare these numbers, we do so only when we are confident we will be in a position to pay out these dividends.”

It seems the wind is back in Petronas’ sails and the state oil company will be looking to best its next performance.