MISC Annual Report 2019

57 56 OUR VALUE CREATION STORY MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 Our Operating Environment World GDP annual growth fell to 2.9% in 2019 – its lowest rate since the financial crisis – amidst the continued deepening of US-China trade policy tensions during the year. The oil market remained volatile and risk averse throughout 2019 amidst the US-China trade war, recession fears and geopolitical tensions in key oil-producing countries. Oil prices moderated since the early part of 2019. Supply restrictions by OPEC and Russia, with production in Iran and Venezuela declining sharply, helped to The global growth outlook remains unstable and was expected to remain at around 3% over the next two years. The coronavirus disease (COVID-19) outbreak has added more uncertainty. There is robust oil supply coming from non-OPEC producers, predominantly from the US. The US, currently the largest producer of crude oil, is targeting to be a net energy exporter by 2020, a first for the US in nearly 70 years. In addition, there are other projects being ramped up in Canada, Brazil, Guyana and Norway. The International Energy Agency in its November 2019 report indicated that non- OPEC production is expected to continue to grow, adding 2.3 million barrels per day of oil supply in 2020. As part of our strategy towards more secured profits, most of our assets in LNG Asset Solutions and Offshore Business are on long-term charters. The Petroleum & Product Shipping segment has also increased its proportion of tankers on long-term charters. This is expected to support a steady performance even if global growth slows down. Despite the slower GDP growth, both the LNG shipping and crude tanker markets had a positive 2019, as there are other factors also driving the markets. For further information on the dynamics of the energy shipping industry, refer to pages 30 to 35. As noted above, MISC’s portfolio of long-term charters would underpin a stable performance. Despite the volatility and decline in 2019, oil prices were still within a band which was supportive of new upstream exploration and production activity. The expected increase in activity and supply from non-OPEC producers, particularly from the Atlantic Basin, presents growth opportunities for MISC to tap. There has been amplified oil price volatility in March 2020, which if it persists for an extended period, may dampen the growth of the upstream sector. 2019 LANDSCAPE Slower Economic Growth Oil Market Volatility OUTLOOK IMPLICATIONS TO MISC Source: ICE Brent Crude Oil Price January - December 2019 Source: OECD (21 Nov 2019) Real GDP forecast Total, Annual growth rate (%), 2012 – 2021 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 While some upside is possible from the phase one trade deal between the US and China, the downside risks, including expected slower GDP growth in China, soft trade growth and Brexit uncertainty, will continue to weigh on global growth which may translate into lesser demand for energy. Sources: OECD & Fitch underpin prices, but oil demand weakened. The oil prices in 2019 fluctuated from a daily low of USD53 per barrel to a high of USD75 per barrel (as at November 2019) yielding an average of USD64 per barrel as compared with the average of USD71 per barrel in 2018. Sources: Petronas, OECD, Argus, IEA $55.00 $60.00 $65.00 $70.00 $75.00 US$/barrel 4/1/19 4/4/19 4/7/19 4/10/19 31/12/19 In 2019, the global environment in which MISC operates continued to be volatile and challenging. The year was marked by the slowdown of the global economy, volatility in the oil market, trade sanctions, geopolitical instability and increasing environmental awareness globally.