PETROLIAM Nasional Bhd’s (Petronas) second-quarter 2021 (2Q21) earnings look set to get a boost from higher energy prices, barring major impairments and production cuts as a result of the Covid-19 pandemic.

The national oil company is scheduled to announce its results tomorrow and based on recent strong results of oil majors like Royal Dutch Shell plc and British Petroleum plc, Petronas’ upstream business — which accounts for about 60% of earnings every year — is set to drive the growth in profits for the quarter.

Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff said the higher average crude oil prices during the quarter of about US$70 (RM296.97) per barrel compared to around US$45 per barrel in 2Q20 and higher natural gas prices are set to power Petronas’ quarter performance despite the negative impact of the stronger ringgit in the quarter on a year-on-year (YoY) comparison basis.

“Crude oil is higher and natural gas prices are almost at a peak now (around US$4 compared to US$2 last year). However, I don’t think the prices will continue to be high and will stabilise at a lower level in the next few months,” he told The Malaysian Reserve (TMR).

With the Malaysian market accounting for about a third of its total earnings, the 2Q results of its downstream listed companies such as Petronas Chemical Group Bhd, Petronas Dagangan Bhd, Petronas Gas Bhd and MISC Bhd have generally improved YoY based on their respective exchange filings.

The growth in 2Q earnings is likely to be strong on a YoY basis considering Petronas registered a quarterly net loss at RM21 billion in the 2Q20 dragged by huge impairments on assets.

Group revenue for the 2Q last year dropped 42% to RM34 billion from RM59.1 billion recorded in 2Q19 mainly due to lower average realised prices for major products and lower sales volume especially from petroleum products, liquefied natural gas (LNG) and processed gas.

Petronas made a net profit of RM9.3 billion in 1Q21 after posting earnings of RM4.5 billion in 1Q20.

The company had said the higher 1Q21 profit was backed by lower overall group costs incurred which partially offset lower revenue in the period.

Revenue for the quarter, however, dropped 12% YoY to RM52.5 billion due to lower sales volume of petroleum products, LNG and natural gas, coupled with the effect of a stronger ringgit against the US dollar.

An analyst with MIDF Research said natural gas prices globally had increased compared to last year and expected to average at US$3.42 per million British thermal units (mmBtu) for 2021 compared to US$2.03/ mmBtu in 2020.

According to the analyst, recently, Gas Malaysia Bhd had expected an average natural gas selling price for distribution to RM30.03/mmBtu, slightly below the average natural gas selling price of RM33.65/mmBtu last year.

“These may be reflecting the growth in LNG exports and rising natural gas consumption for sectors other than electrical utility. Tighter supply for LNG and natural gas, lower European production and lower exports from Russia had caused the recent high commodity prices.

“Demand for natural gas has been on a strong rebound globally under varying factors — economic recovery from seasonal peaks, extreme weather conditions reducing the capacity of other electrical generators, and depleted gas storage from long winters in need of replenishment,” the analyst told TMR.

As long as supply remains in a crunch and demand for gas for power generators recovers, the price will continue to be high, both globally and locally, said the analyst.

The analyst believes the financial performance of oil and gas (O&G) companies for 2Q21 or the first half of 2021 (1H21) will be less impacted by the current drop in crude oil price.

“Financial performances for O&G companies with diverse business segmentation and resilient orderbook are expected to perform better for 2Q21, as are service companies with awarded projects and ongoing projects to be delivered in 2Q21.

“Additionally, O&G companies had started to adhere to sustainable environmental, social and governance activities and projects as a way to compensate for earning losses in 2020 and 1Q21,” the analyst said.

The analyst said the outlook for the O&G sector for the 2H21 will continue to be beset by uncertainties and volatility in prices.

Brent oil price began to drop in early August after OPEC commenced its supply output rise to 400,000 barrels per day which is expected to remain until the end of 2022.

Demand for energy products, however, is set to increase amid global vaccination rollouts (30.7% of the world population has received at least one dose of a Covid-19 vaccine, and 16% is fully vaccinated) and reopening of borders, said the analyst.

“Taking into context the near-term impact of the Delta virus variant, OPEC+ supply output and the business mitigation movement, we opine the oil market will most likely trade in the price range of US$60 per barrel to US$75 per barrel in 2H21. We also maintain our outlook for Brent crude oil price average of US$62 a barrel in 2H21,” the analyst said.

Petronas looks set to see out a much stronger 2021 financial year.