The oil and gas industry will have a strong year in 2019, with likely growth in global oil demand despite forecasts of weaker overall global economic growth, according to a report by Moody's Investors Service.
The report forecasts the medium-term price band for West Texas Intermediate crude at US$50-70 per barrel (bbl), and Henry Hub North American natural gas averaging $2.50-3.50 per million British thermal units.
The report notes that one key concern for the year is whether Opec and Russia will maintain oil production discipline, and uncertainty surrounds the end of the current agreement in June.
Exploration and production (E&P) companies have also made strides in capital efficiency, as oil and gas prices are higher, but investor sentiment is weak and infrastructure constraints reduce prices that E&Ps receive.
This year Asian oil companies will increase capital spending to support fuel supply, and as fuel demand continues to grow, Asian national oil companies (NOCs) plan to increase capital spending in 2019 after years of rationalising capital investments. The report predicts that they will focus their capital projects on adding refining capacity and increasing upstream production.
Thailand's PTT Plc (Baa1 stable) will spend to boost upstream production and help reduce reliance on crude imports and replenish hydrocarbon reserves.
Indonesia's Pertamina (Baa2 stable) plans downstream capital spending of $2-2.5 billion in 2019 to reduce petroleum imports, currently making up 40% of consumption.
"Asian NOCs will face a dilemma over investment plans amid volatile oil prices," said Rachel Chua, Moody's assistant vice-president and analyst. "Asian NOCs will increase capital spending to support growing domestic fuel needs in line with national energy policies, but volatile oil prices, increasing shareholder returns, soft refining margins and evolving fuel-price regulations all pose credit risks."
Shareholders will also demand stronger returns from Asian NOCs after their strong performance in 2018 and a largely supportive operating environment, with oil prices settling into the medium-term price band, Moody's said.
Meanwhile, Asian refining earnings will contract in 2019 as higher regional crude prices drive up feedstock costs, and retail fuel price regulation in some countries will strain marketing profits.
"We expect the benchmark Singapore complex refining margin to stay at $5.50 per bbl through the end of 2019," Ms Chua said. "Distillate margins for refiners will begin expanding from already strong levels in the second half of 2019 and remain strong through at least 2022."
