Malaysia's hydrocarbon resources custodian, Petronas, has already announced a cut in capital expenditure and other industry players, especially those who rely on the national oil company, are expected to follow suit. Petronas said given the current excess supply, most industry experts expect oil prices to stay low for next year.
It said the indication so far is that the Organisation of the Petroleum Exporting Countries (Opec) is unwilling to give up its market share by not cutting production, and to let the market fend for itself. "No one really knows what Opec's next move is," it said.
The worldwide crude oil price benchmark Brent hit a five-year low this month of around US$60 per barrel, as oversupply conditions continue to plague the market amid booming shale oil and gas production in the US.
However, the average price this year has remained at US$100.57 per barrel due to the strong price in the first half of the year, peaking at US$112 per barrel in June.
Petronas in its third quarter results briefing last month announced that it is considering a 15-20 per cent Capex cut for new projects next year, given the current backdrop of low oil prices.
The national oil company also plans to reduce dividend and tax to the government to RM17 billion each and reduce oil and gas royalty to RM9 billion as it intends to channel most of its income to Capex if oil prices remain between US$70 and US$75 per barrel next year.
However, ministers in the Prime Minister's Department overseeing the nation's economy remain optimistic on Malaysia's ability to cushion the impact of falling crude oil prices.
Datuk Seri Idris Jala, who is also chief executive officer of the Performance Management and Delivery Unit, said the country is well prepared to handle the situation if oil prices fall below US$70 per barrel. He said the situation would even benefit the country as it could boost sectors such as tourism and finance while the export segment would be more competitive.
Datuk Seri Abdul Wahid Omar said Malaysia's dependence on oil and gas revenue has dwindled over the years, with its current contribution to gross domestic product (GDP) at just eight per cent.
He said the government has been strengthening the nation's economy and structurally moving it away from a reliance on agriculture and commodity-based activities to one which is now driven by the services sector (55 per cent of GDP) and manufacturing (25 per cent of GDP).
On the same note, Petronas said low oil price would stimulate consumption growth, which is already happening globally particularly in the US with its booming shale production.
Echoing the optimism, Universiti Teknologi Petronas (UTP) Vice Chancellor Datuk Ir Abdul Rahim Hashim said the downtrend in the oil and gas industry is cyclical and players need to train their workers for the time when the industry picks up again.
He said when the industry was booming, companies were pinching each other's staff with high salaries, thus increasing operating costs, but in this down period they should hire permanent staff and equip them with the necessary skill sets.
"Oil and gas is a long-term business. They should be recruiting, maybe not at the previous level, because if you don't recruit at all, this will actually impact their business 10 or 15 years later," he added. Abdul Rahim said as the industry takes a breather, it also gives an opportunity for local employees to pursue post-graduate courses.
But even with the challenging year ahead, Petronas remains confident of Malaysia's attractions for oil and gas investment.
"We offer stable and flexible fiscal terms and tax regime to attract and support both upstream and downstream activities, and we are politically stable with a well-established oil and gas services sector to support these activities," it added. – Bernama