KUALA LUMPUR: Malaysia's oil and gas sector is expected to face tough seasons ahead as companies are putting emphasis on energy transition which will lead to reduced reliance on fossil fuels.
Experts said that industry players need to step up on the sustainability game and adapt to the green-driven environment.
Globally, the sector has had a difficult year due to jitters over China's slowdown, supply cuts by Organisation of the Petroleum Exporting Countries and the fallout from the US Federal Reserve (Fed) tightening campaign.
The tensions wrongfooted many traders as prices sank, then recovered.
Oil prices were stable on Monday, with the Brent crude finally touching the US$89 a barrel which is a year-to-date high. This was despite expectations that supplies would remain tight, as the Fed is expected to leave interest rates unchanged.
Malaysian Institute of Economic Research economist Dr Shankaran Nambiar said it is going to be a tough year for those in the sector as those associated with fossil fuels will see slimmer times ahead.
"Where alternative sources of energy are possible, fossil fuels will be excluded. The other factors will be the softening of the Chinese economy, the rising cost of credit and the global slowdown.
"This is a derived impact, which will result in global demand coming down, and therefore for oil, too," he told the New Straits Times.
Nambiar added that companies like Petronas are bound to have a challenging period as they may "have to re-engineer itself" and adapt to the fast changing environment.
"A company like that may have to re-invent itself and find a new business model. The global trend against fossil fuels and the global economic slowdown, taken together, are not going to help the oil and gas sector in the country.
"In some cases, the impact is going to be restricted to the next quarter, perhaps till early next year. While for other industries within the sector, there is going to be a structural adjustment," said Nambiar.
Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said local oil and gas companies need to scale up amid the energy transition.
"They need to scale up in order to pivot towards renewable energy (RE). My sense is that the market has become selective."
However, he opined that there will be job flows from the oil majors.
He said Petronas' five-year capital expenditure plan totalling RM60 billion will benefit the local players.
"While the moves are likely to gain traction along with RE, I believe the incumbent players should still benefit from the transition. Gas is deemed as the clean energy with respect to carbon dioxide emission. So obviously oil majors will continue to allocate capex in order to procure gas," he added.