- We attended the 17th Asia Oil & Gas conference at KLCC Convention Centre over the last two days and came away reaffirmed that the fundamentals of the industry remain robust and it is poised to experience a faster rollout of projects over the next 2-3 years.

- We summarise below the salient views from the event:

(1) Enough oil resources for 2 centuries. Peak oil hypothesis, which postulates that global oil production has peaked, has been disproved for now by the North American shale gas revolution. Petronas’ president/CEO Tan Sri Shamsul Azhar Abbas has indicated that new discoveries and technological advances will enable global recoverable resources to last for the next 2 centuries based on current trends of consumption. But a key strategy for national oil companies will be in enhancing energy security to mitigate supply disruptions, thereby ensuring sustainable economic growth.

(2) But no cheap gas. The technological changes that have driven significant new production gains from unconventional sources are not likely to lead to cheap gas prices due to:- requirements to generate sufficient investment returns; higher extraction costs; geopolitical risks in Middle-East and Northern Africa; the inherent difficulties encountered by non-North American countries in replicating the US breakthrough; huge investment costs in building liquefaction facilities to ship US gas to Asia.

(3) US shale revolution hard act to follow. While the US resource boom will have profound economic and geopolitical effects globally, other countries have found difficulties in emulating the North American shale gas success, which stems from an ideal combination of factors:- well-known US geology; unprecedented scale of its oil service industry; adequate water availability; and unique rights of individuals or companies to mineral rights on their land.

(4) Gas consumption will rise, due to population growth, rapid urbanisation in Asia, faster Eastern economic growth vs. the West, regulatory shifts from nuclear generation after the Fukushima disaster, less environmental impact from low-carbon footprint amidst a plentiful and expanding global supply. Martin Houston, COO and Executive Director of BG Group does not foresee an oversupply of gas, which should be taken up by latent demand while supply dynamics require a long lead-time.

(5) Oil prices likely to stay within a range. Dr Fereidun Fesheraki of FACTS Global Energy expects oil prices to have a floor of US$80/barrel and a ceiling of US$120/barrel, with some weakness likely in 2015/2016 with the commencement of US liquefied natural gas (LNG) exports. But any price lower than the floor will lead to a production drop in unconventional oils such as shale liquids.

(6) Growing need for floating solutions. As LNG becomes the fastest growing energy segment, floating regassification projects, such as floating storage regassification units (30 units globally) will increase. In 2015, Petronas will be the first company in the world to operate a floating LNG vessel at the Kanowit field.

- As mentioned in our earlier reports, which emphasised on the upcoming multiple flows of contracts in Malaysia this year, we maintain our OVERWEIGHT call on the O&G sector with BUY calls for SapuraKencana Petroleum, Alam Maritim, Dialog Group and Petronas Gas.

Source: AmeSecurities