Growing opportunities for O&G companies in new energy space

Malaysia’s pledge to reduce its carbon emissions and increase its RE mix is carving out new economic opportunities for local players

by MARK RAO / pic by BERNAMA

THE worldwide push towards a sustainable and greener future is creating new growth opportunities for Malaysian oil and gas (O&G) companies looking to tap into new and diversified income streams.

Malaysia’s pledge to reduce its carbon emissions and increase its renewable energy (RE) mix in the not-too-distant future is carving out new economic opportunities for local players.

The O&G sector is among industries showing tentative, but nascent signs of growth in the new energy space as a means to tap into new markets, while diversifying its revenue base.

Asia School of Business assistant professor of management Dr Renato Lima de Oliveira said the energy industry is undergoing a “major transformation” which is affecting O&G companies and utility providers alike.

“Energy consumption is increasingly coming in the form of electricity and the pressure towards decarbonising the system is driving O&G companies to explore opportunities in the field, mainly in the form of wind and solar energy,” he told The Malaysian Reserve.

Lima de Oliveira said the key factor to consider in this energy transition is determining what skills and capabilities can be transferred to other sectors and what is unique to O&G.

“For companies working in the oilfield service and manufacturing sector, project management capabilities are very important, and they can explore such skills in other areas as well,” he said.

A good example is Sapura Energy Bhd’s contract to transport and instal offshore wind energy in Taiwan which promises to be a good move to diversify its risk and to develop new expertise, he noted.

The O&G service provider secured a contract for the transportation and installation of offshore wind turbine substructures in the Taiwan-based Yunlin Offshore Wind Farm in June this year.

This marked the company’s maiden foray in the RE market — a space where the company hopes to grow its revenue contribution to the group by between 10% and 15% in the future.

Its president and group CEO Tan Sri Shahril Shamsuddin said Sapura Energy intends to develop this segment, namely the servicing and installation of wind turbines, as the company can leverage on current assets to undertake the business.

This is aimed at driving the utilisation of the company’s assets, domiciled in the engineering and construction and offshore sectors, while diversifying the group’s business.

KNM Group Bhd, meanwhile, is increasing its presence in RE to diversify its income base away from project-based contracts due to the volatility surrounding the oil market today.

The RE business provides the equipment manufacturer and engineering services provider a recurring income base.

KNM currently operates a bio-ethanol plant in Thailand with a production capacity of up to 400,000 litres per day. It further runs an 80MW waste-to-energy power plant in Peterborough, UK.

Loss-making and debt-saddled Scomi Group Bhd announced early last year it was hoping to clinch RM1 billion worth of RE contracts to create new growth opportunities for the group.

The service provider for the O&G and transport industries is venturing into this space, which includes hydro and solar energy, due to expectations activities in the oilfield services segment forecast to remain muted.

There are diverging views on just how big a market RE will be and its potential to overtake fossil fuels as a major energy source worldwide.

Lima de Oliveira said crude oil has characteristics that are difficult to replace including its high energy density, ease of transportation and multiple uses (fuel, petrochemicals, etc).

“We will still need liquid fuels for many years (something like three decades) and the progress on the biofuels front has been limited. So, we are not past the age of oil yet,” he said.

Lima de Oliveira noted renewables are growing at a faster pace than conventional oil production. It is thus pivotal for energy companies to occupy space in renewables for their long-term survival, he said.

“National oil companies like Petroliam Nasional Bhd (Petronas) are particularly challenged by these changes since the significant competitive advantage they have is favourable access to national reserves.”

Petronas reiterated on several occasions that it does not plan to be ahead of the curve in the new energy space as fossil fuels are not expected to be hugely displaced in the long term.

It estimates RE will only contribute to no more than 18% of the global energy mix in the next 20 years, while O&G will contribute to over half of that mix.

The national oil company also noted financial returns from a RE investment is typically lower than conventional O&G. Being ahead of the curve in renewables will thus compromise Petronas’ financial returns.

This will likely be the strategy adopted by national oil companies and oil majors in the market today and O&G service providers will need to balance between meeting new energy demand and serving the traditional oil market.