OFFSHORE SECTOR CAPEX spending on global upstream exploration and production (E&P) rebounded in 2021 for both onshore and offshore sectors. The reported total global E&P CAPEX in 2021 was USD346.7 billion, 15% more as compared to the previous year. In the offshore sector, the total E&P CAPEX spending increased by 12% to USD103.8 billion. The CAPEX spending on FPS units (FPSO, FSO and floaters) increased by 25% to USD10 billion. With regards to the FPSO market, 10 FPSO contracts were awarded throughout the year, seven of which were Brazilian projects. This signalled a strong rebound for the FPSO market as compared to 2020 which only recorded three awards. Outlook and Opportunities The global offshore E&P CAPEX spending is forecasted to continue growing for the next five years. The largest spending will be coming from the Asia Pacific region starting 2023 onwards followed by Latin America. According to Rystad, when it comes to offshore field sanctioning, there are around 80 projects worth a total USD75 billion in the approvals pipeline for 2022, of which, 10 are FPSOs. Latin America and Europe is expected to be responsible for around 24% each of the total offshore sanctioning spend in 2022 with deepwater expansions expected in Guyana and Brazil, as well as Norway. Implications to MISC • The Offshore Business segment continues to focus on the execution of the FPSO project in hand while sourcing for opportunities in targeted markets in the Atlantic Basin, Southeast Asia and Asia Pacific regions. In the meantime, its existing portfolio of long-term contracts will underwrite its financial performance. • During the year, the Marine & Heavy Engineering segment secured a contract from SapuraOMV Upstream (Sarawak) Inc. for the provision of engineering, procurement, construction, transportation & installation and hook-up & commissioning services (EPCIC) for the SK408W Jerun Development Project. The ongoing large-scale Heavy Engineering segment projects such as Kasawari and Jerun will sustain the segment’s recurring income until 2024. • In the short to medium term, the segment remains focused on replenishing its order book, strengthening its value proposition through collaborations and other initiative, as well as prioritising cost management efforts, safe execution and timely delivery of ongoing projects. • To strengthen its resilience, this segment’s strategy is to diversify into new areas of growth such as offshore wind farm and modular structures. Material Matters 0 100 200 300 400 500 600 700 800 USD billion 2017 2016 2015 2018 2013 2012 2011 2014 2019 2020 2021 2022f 2023f 2024f 2025f 2026f Global upstream E&P CAPEX Source: IHS Markit Offshore Onshore OUR OPERATING ENVIRONMENT STRATEGIC REVIEW Asset availability, utilisation and marketability Risks Crude oil dynamics, supply, demand and price Evolving LNG market 0 50,000 100,000 150,000 200,000 250,000 USD/day Jan 2021 Feb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021 Nov 2021 Dec 2021 Jan 2022 0 5,000 -5,000 10,000 15,000 20,000 25,000 USD/day Jan 2021 Feb 2021 Mar 2021 Apr 2021 May 2021 Jun 2021 Jul 2021 Aug 2021 Sep 2021 Oct 2021 Nov 2021 Dec 2021 Jan 2022 VLCC Suezmax Aframax SHIPPING SECTOR In 2021, average petroleum tanker spot rates tumbled to its lowest levels in more than 10 years as oil demand had not recovered to pre-pandemic levels. OPEC+ continued to limit production which also led to reduced oil exports and lower petroleum tanker demand. The overall tanker orderbook trend remained limited in 2021 due to increasing newbuilding prices and prevailing tonnage oversupply. However, demolition activity was robust in 2021, reaching the highest level since 2018 given the incessant weak environment in the tanker market amid scrap steel prices remaining strong. Meanwhile, the LNG carrier (LNGC) spot rates strengthened from second quarter onwards, mainly driven by strong demand in Asia for the summer and tight supply amid maintenance and outages at multiple terminals. Similarly, the term charter rose gradually towards the end of 2021. Supported by strong LNG demand and supply expansion, 2021 was a record-breaking year for LNGC newbuildings with 90 orders, the most vessels ordered in a single year. The previous peak years for LNGC orders were 2004 and 2018 with 68 and 66 orders respectively. Material Matters Outlook and Opportunities The global crude oil tanker market remains weak in the near term. However, the easing of OPEC+ production cuts and potential growth in oil and gas exports from the Americas such as US and Brazil could boost tanker and LNGC tonne-mile demand as the main importers are mostly situated in Asia. Underlying tanker fleet growth is expected to remain limited in 2022 at 2.2%, following the expansion of 1.6% in 2021. Given the potential for market pressures in 2022, continued firm recycling volumes may be seen. The LNG market is expected to grow strongly in the coming years supported by production expansion in Qatar and US, as well as increase in demand mainly from China and India. These factors will definitely ramp up tonne-mile demand in the coming years. Due to this, strong LNGC newbuilding orders are expected to continue in 2022. Implications to MISC • Despite the tough business environment for petroleum shipping, the Petroleum & Product Shipping segment managed to secure a long-term time charter with Shell for three newbuild LNG dual-fuel VLCCs. The segment will continue to focus on building long-term secured income through its niche shuttle tanker business and rejuvenation of its fleet with eco-friendly tankers. • The GAS business segment managed to deliver the remaining five VLEC units into operation which contributed to revenue generated in 2021. The operating income of the segment continues to remain stable, supported by its existing portfolio of long-term charters. For the medium term, the segment will selectively explore conventional and non-conventional LNG shipping solutions to support its long-term growth strategy. For more information, kindly refer to respective segments’ Business Review on page 126 (Petroleum & Product Shipping) and 120 (GAS Business). Petroleum tankers average earnings LNGC 160k cbm average spot and 3-year time charter rates Source: Clarkson Source: Clarkson Spot rate 3-year time charter Risks Crude oil dynamics, supply, demand and price Evolving LNG market For more information, kindly refer to respective segments’ Business Review on page 136 (Offshore Business) and 142 (Marine & Heavy Engineering). MISC Berhad 72 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 73
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