PETALING JAYA: Malaysia may stand to benefit from higher oil and gas prices due to Russia’s invasion of Ukraine, but an energy market analyst warns that it may not last long.
Renato Lima de Oliveira, an assistant professor at the Asia School of Business, explained that as a net exporter of oil and gas, Malaysia could benefit from the price increases.
“First, long-term liquefied natural gas (LNG) prices tend to be linked to crude oil contracts. So, higher crude prices are beneficial,” he said.
“Second, Malaysia spends a lot on fuel subsidies which have fiscal costs. If subsidies were cut, it would essentially allow gasoline prices to go up, and the fiscal benefits would be higher.
But, on the other hand, the higher oil and gas prices are advantageous due to the taxes from the oil extracted in the country.”
“Third, higher oil prices from all of Petronas’ activities, locally and globally, make the company more profitable. The profits can then be returned to the shareholder, the Malaysian government, or be used for further investment.”
As for fuel prices at the pump, he said, they depended on the government’s decision on whether or not to absorb the variance through subsidies.
Reuters reported yesterday (Wednesday) that Brent crude prices had jumped to US$104.97 per barrel as Western allies imposed more sanctions on Russia – a major oil producer – and blocked some Russian banks from a global payments system, which could cause severe disruption to its oil exports.
Oil was priced in the US$60 per barrel range a year ago and started 2022 at around US$50.
De Oliveira warned, however, that price spikes due to war had historically been short-lived, such as during the first Gulf War.
“A prolonged war can result in another global economic recession that will dent the demand for fuel and lead to lower prices down the line. Also, Malaysia’s exports to Russia and Ukraine, from electronic equipment to palm oil, will likely suffer,” he said.
He noted that oil prices had already been increasing earlier this year because of higher global economic growth after two difficult years of Covid-19 movement restrictions and a tight supply market, with the Opec+ grouping of major oil producers still constraining output.
The 13 members of the Saudi-led Organization of the Petroleum Exporting Countries (Opec) and their 10 allies, including Russia, cut production sharply in 2020 as prices collapsed as a result of the Covid-19 pandemic.
The group began to increase output last year as demand and prices recovered after countries began lifting Covid-19 restrictions.
While Europe has been diversifying its energy mix with locally generated renewables and LNG from the United States, De Oliveira said such changes did not happen overnight.
“I expect an even stronger push towards renewables in the continent to replace fossil fuels to achieve energy security and sovereignty. This will be driven by existing higher prices for gas, which makes alternatives comparatively cheaper,” he said.
Russian ground forces crossed into Ukraine on multiple fronts last week, hours after President Vladimir Putin announced the launch of a major offensive.
Ukraine has mounted a fierce resistance, and President Volodymyr Zelensky has said that his country needs more help to prevent the crisis from spreading across Europe.
Source: https://www.freemalaysiatoday.com/category/nation/2022/03/03/malaysia-to-benefit-from-higher-oil-gas-prices-says-analyst/