This article first appeared in The Edge Financial Daily on June 25, 2019 - July 1, 2019

KUALA LUMPUR: Not enough investments are being made in big oil and gas (O&G) projects with long gestation periods when oil prices are low, said Petroliam Nasional Bhd (Petronas) president and group chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin.

The impact of this will be felt in a few years, he said in a panel session during the Asia Oil and Gas Conference 2019 here yesterday.

“While short-term demand can be fulfilled by unconventional short-cycle projects, I think as an industry, we kind of left [the investment value] of these megaprojects low,” he said. Though he noted there were good reasons for that, the effects may not augur well for the industry in the long run.

Petronas, on its part, made a conscious decision of investing in two megaprojects — the US$16 billion (RM66.4 billion) Refinery and Petrochemical Integrated Development (Rapid) petrochemical plant in Johor, and a liquefied natural gas (LNG) project in Canada, in which Petronas holds a 25% stake — as the industry moves towards recovery from the 2014 oil price crash.

Rapid, with its 300,000 barrels-per-day refining capacity, is expected to begin commercial operation in the fourth quarter of this year.

“We sanctioned the project when oil prices were really, really low back in 2014. There were some advantages [from doing so]. We got good, competitive pricing from the service contractors, and it helped the project,” said Wan Zulkiflee.

“We take a very bullish view [on] demand for petrochemicals. There would be times of volatility, but I think the price trends [will] go up,” he added.

Similarly, Petronas reached a final investment decision on the C$40 billion LNG Canada project alongside partners Shell — which holds a 40% stake — PetroChina (15%), Mitsubishi (15%) and Korea Gas (5%) last October when low gas prices halted more investments from the industry at large.

On renewable energy, the national O&G major is keeping “a measured approach” and “should not be ahead of the curve”, said Wan Zulkiflee.

“This is for the very good reason [where] returns on renewables are not as great as the returns on conventional O&G. Essentially, it is a sweet spot that we have to determine how our investments should be so we will not be financially compromised but at the same time have the competency to play in the new energy space when the time comes.

“Honestly, time will tell whether we made the right decision,” he noted.

‘Global energy demand shifting towards Asia’

During his welcome remarks earlier, Wan Zulkiflee said Asia remains the focus of global energy demand due to its dynamic and robust market, and the many undiscovered opportunities it holds, due to rising economic prosperity, populations, and rapid advancements in digital technology and innovation.

“Despite the uncertainties and challenges, energy demand continues to shift towards Asia. Analysts project that primary energy demand in the region is expected to grow at 2.5% per annum and reach 7.1 billion tonnes of oil equivalent in 2035, accounting for 42% of the world’s primary energy demand,” he added.