Malaysia’s state-owned oil and gas giant Petronas, which contributes around 45% to the national budget, has already said it will have to cut its dividend, as well as its capital expenditure significantly and prepare for a rough ride in the coming two years
By Arno Maierbrugger
The recent major slump in oil prices is a double-edged sword for Southeast Asia despite most of the countries in the region being heavily dependent on oil and gas imports.
In fact, there are winners and losers in the game. For nations such as Malaysia and Indonesia, which are currently cutting their gasoline subsidies, the weak oil price comes partly as a blessing as it will help offset the price rise at the pumps when at some point of time it will have slashed its way through to the end-consumer.
However, Malaysia, as a major oil exporter itself, is already facing an impact of lower proceeds from hydrocarbon exports. The country’s state-owned oil and gas giant Petronas, which contributes around 45% to the national budget, has already said it will have to cut its dividend, as well as its capital expenditure significantly and prepare for a rough ride in the coming two years, its President Shamsul Azhar Abbas said. The company’s profit fell 12% in the third quarter this year, which also means lower taxes and royalties payable to the government.
Thailand’s biggest oil and gas company, PTT, in early November reported a 20% drop in third quarter net profit as falling crude oil prices ate into its income. Pertamina, Indonesia’s largest oil company which issues half-yearly financial statements, is also expected to report lower profits when it will present is financial report by December 31.
Murphy Oil, a large US oil company with a heavy presence in Southeast Asia, namely Malaysia, Vietnam, Indonesia and Brunei, saw third quarter earnings fall 10.8% from a year ago. All this has consequences for the region on investments, sector employment and further oil exploration. Oil and gas stocks in Southeast Asia have also been under heavy selling pressure since the slump in global oil prices began, and especially after the November 27 decision by Opec not to cut its current output. Large oil producers and exploration companies were the biggest losers on the stock exchanges of Malaysia, Thailand and Singapore.
The Philippines could feel an indirect impact from the weak oil price. On the one hand, its oil imports are now less costly, but if the situation persists - as feared by many economists with the oil price expected to hover at around $60 for one year or more -millions of Filipino Overseas Workers employed in oil-producing countries in the Middle East could face job cuts, which, in turn, would negatively affect the amount of remittances they are sending home. Studies over the past years have shown that the volume of remittances is indeed in almost direct correlation to the development of the oil price. The Philippines, together with India and China among the world’s largest labour exporters, having received $25bn in remittances last year, or more than 8% of GDP, could particularly feel the heat.
However, on the upside, there are certainly profiteers in this scenario. Regional airlines, transport companies and even car producers are seeing their stocks climb. Large national carriers such as Singapore Airlines, Garuda Indonesia and Thai Airways all say that the falling oil prices are beneficial as they do not only significantly reduce their operating costs, but also allow them to cut fares and attract more customers.
Tony Fernandes, Group CEO of Asia’s largest budget carrier AirAsia, wrote on his popular Twitter blog last week that the oil price slump was an “early Christmas present” and will help the group’s loss-making long-haul brand AirAsia X help turn around next year.