IS it still too premature for local industry players in the oil & gas (O&G) sector to consider venturing into renewable energy, especially at a time when global oil prices are facing so much vulnerabilities?
This question makes AmBank Research’s latest O&G sector report an interesting read as it delves on the pace of industry players embracing renewable energy solutions – primarily solar energy.
Setting the tone was the Rystad Energy’s Deep Dive Renewables webinar which highlighted that renewables installations in solar, wind and storage facilities are set to rise by 40% year-on-year (yoy) to a record 140GW globally after experiencing a dip in 2Q FY2020 due to project delays stemming from the
This is predominantly driven by solar photovoltaic (PV) solutions, followed by onshore wind installations.
According to AmBank Research, the shift towards renewable energy in Malaysia has already been underway over the past three years with Petronas operating 448MW of solar capacity in India and Southeast Asia – and presently developing another 212MW.
In Malaysia, Petronas is operating and developing 50MW of solar capacity, part of that to supply to 15 Tesco stores.
Among local O&G service providers, the research house said only Yinson Holdings Bhd has taken the plunge by investing US$30 mil for a 95% equity stake in a Rising Son Energy which has a 160MW solar farm in the Bhadla Solar Park Phase II project in Rajasthan, India.
“Nevertheless, we envisage a slow adoption of renewable projects by local O&G providers given that a large segment is currently burdened by high gearing amid a low oil price environment,” observed analyst Alex Goh in a sector update.
For the record, Brent crude price is currently trading at US$40.87, down 74 cents or 1.78%, on concerns over demand worries and oversupply, the stalled US stimulus and its presidency election (Nov 3).
Moreover, the COVID-19 health crisis is also weighing heavily on the market with case numbers rising rapidly across Europe and the US, casting doubt on prospects of global economic recovery.
Johns Hopkins University data has global cases nearing 44 million as of Oct 28, with 1.17 million deaths.
Libya’s continued restoration of supply is also helping drive the fall in prices with the North African country expected to reach 1 million barrels per day (bpd) shortly, up from less than 100,000 bpd just a few months ago.
This is slightly offset by the arrival of Hurricane Zeta in the Gulf of Mexico which caused the shutdown of oil rigs and refineries.
Back to fossil oil, AmBank Research reckoned that with Brent crude spot prices stabilising above US$40/barrel, the down cycle has reached a bottom with the worst experienced in April this year when Brent spot prices fell to a low of US$14/barrel while futures inverted to an abnormal negative price due to lack of storage capacity.
Maintaining an “overweight” rating on the O&G sector, the research house noted that it likes Yinson as its earnings growth momentum from the maiden contributions of floating, production, storage and offloading vessels Helang, off Sarawak, Abigail-Joseph in Nigeria, and Anna Nery in Brazil together with multiple charter opportunities in Brazil and Africa.
Elsewhere, it continues to have “buy” calls for Dialog Group Bhd and Serba Dinamik Holdings Bhd due to their resilient non-cyclical tank terminal and maintenance-based operations.
“We recommend Petronas Gas Bhd as the group’s optimal capital structure strategy and resilient earnings base translates to highly compelling dividend yields,” added AmBank Research. – Oct 28, 2020
