Business

Tuesday June 10, 2008

Petronas calls for removal of fuel subsidies

JAGDEV SINGH SIDHU and FINTAN NG at the 13th Asia Oil and Gas Conference



13th Annual Asia Oil and Gas Conference

KUALA LUMPUR: Petroliam Nasional Bhd has asked governments to gradually remove fuel subsidies and strive to achieve greater energy efficiency.

President and CEO Tan Sri Mohd Hassan Marican said more cooperation between international oil companies and national oil companies was needed and efforts made to formulate a sound energy policy and address capacity and capability shortages afflicting the industry.

Mohd Hassan Merican

“While the industry is stepping up efforts to bring more energy to the market, much needs to be done on the consumer end to ensure that greater energy efficiency is achieved,'' he said at the 13th Asia Oil & Gas Conference yesterday.

“While this is being pursued, nations must also work towards a gradual removal of generous energy subsidies, which cause unmitigated consumption and market distortions that are unmanageable in the long run.''

Hassan said concerns over dwindling oil supplies would give way to worries over the industry's access to reserves, infrastructure and human capital.

Addressing those issues was critical as they would play a critical role in bringing new supply to meet the growing demand for oil and gas, he said.

“While we should not underestimate the magnitude of below-ground challenges, from maturing producing fields to the difficult geology of frontier areas, the world is not running out of energy resources,'' he added.

Hassan said under-investment in the industry during the 1980s and 90s contributed to the constraints in supply today but added that technology would play a key role in ensuring supply availability.

He said advances in technology had helped stretch oil and gas reserves further while managing to keep energy costs lower than they otherwise would have been.

“However, despite the technological advancements, the industry is still playing catch-up and the intensifying pace of industry activities is absorbing all the available capacity in the service sectors while the lack of adequate recruitment and capability building has resulted in severe shortage in experienced manpower,'' he said.

Later, Hassan told a media conference that subsidies created distortions but added that these could be administered to a select group.

“I don't think anyone will dispute that subsidies are required but the benefits must flow to the target group that requires subsidy,'' he said.

In terms of cost increase, Hassan said the industry was reaching a critical stage along the entire chain.

He said constraints were being felt from rigs to manpower to equipment manufacturers.

Although higher costs had led to delays in some projects, Hassan said the industry was still spending a lot more money to explore and find new reserves.

“It is also spending a lot of money on enhancing oil recovery,'' he said, adding that upstream spending in Malaysia averaged about RM40bil a year.

Hassan attributed the emergence of hundreds of millions of new consumers from fast developing countries like India and China to the surge in oil prices.

“The energy intensity factor has improved over the past 20 to 30 years as a result of better efficiency and conservation policies but what is not talked about is the increasing number of consumers,'' he said, adding that per capita consumption had risen driven mainly by the transportation sector.

Hassan said plans to build a 100,000-barrel refinery in Port Sudan had been deferred due to rising costs.

“At this moment we cannot justify the commercial viability of the project because of the very high investment cost,'' he said.

Hassan also said the acquisition of the Gladstone LNG project in Australia would enable the company to grow its coal seam gas business.

“We are optimistic this would be a future energy resource and that's why we have decided to invest in this venture,'' he added.

Hassan said the revenue from the project would only flow from 2014, adding that the final investment decision on the project would only be made at the end of next year.

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