Following the start of the Russia-Ukraine conflict in February 2022, western countries introduced widespread sanctions, targeting Russian individuals, banks, businesses including exports, across industries. A few months later, the fallout of the war is being felt globally as it threatened regional energy security, aggravated the existing supply chain crisis, and stunted global economic growth. Towards the year end, the global economy experienced a broader and sharper slowdown than forecasted, with inflation higher than seen in several decades. Most central banks have tightened their financial policies and continuously raised their interest rates to contain the rising inflation. In December, most countries have opened their borders and loosened up COVID-19 restrictions, particularly China easing their COVID-19 restrictions. Oil prices have increased to a record high during the year, mainly caused by the Russia-Ukraine war. While western countries were mulling on sanctioning Russian oil, the IEA and the US has decided to execute the largest oil reserve release in history, to cool the high oil prices. In May, the EU decided to ban most Russian oil imports by the end of the year. Subsequently in October, OPEC+ has agreed to a steep oil production cut, curbing supply in an already tight market. Meanwhile, Russian supplies to the EU have significantly reduced. This has pushed the commodity’s price to a historic high as the EU scrambled for alternative sources. The EU depends heavily on Russian gas supply, at 40% of its total consumption. To replace this, the EU has decided to increase its LNG imports. However, the rising LNG demand in Asia and soaring LNG prices have made it tough for EU to materialise its LNG import plan. Outlook and Opportunities According to the IMF, a third of the global economy will be in recession in 2023. The cost-of-living crisis, tightening of the financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 endemic, all weigh heavily on the outlook. The impact of higher interest rates may grow bigger, affecting the consumers, businesses across industries, as well as governments. Meanwhile, China has decided to relax its COVID-19 control measures and open its borders starting Jan 2023. Many economists and analysts have forecasted that China’s economy is set to continue its recovery at a faster pace, and this can be a major contributor to the global economy. Implications to MISC • MISC long-term charters and other sources of secured revenue with strong counterparties has enabled us to generate sustainable and recurring income over the years. Additionally, the Group’s diversified portfolio of businesses protects us against market volatility. • To ensure health and safety, we continue to take all necessary measures to protect our employees as COVID-19 shifted from the pandemic to endemic phase. • Although risks remain, MISC is well positioned for growth based on the visibility of our cash flows from operations. This allows us to plan our growth to meet our strategic goals, even in challenging economic circumstances. SHORT AND MEDIUM TERM (< 5 YEARS) THE FALLOUT OF GEOPOLITICAL TURMOIL GLOBAL ENERGY CRISIS Outlook and Opportunities The IEA forecasted the global oil demand to increase despite the ongoing concerns on potential global recession. This forecast is supported mainly by demand recovery by the largest oil importer, China, due to relaxation of its COVID-19 restrictions. Similarly, LNG demand and supply are expected to grow steadily, driven by the increase in demand by the European and Asian countries, particularly China. Meanwhile, the US is poised to become the world’s top LNG exporter in 2023, ahead of Australia. Implications to MISC • In 2022, MISC’s businesses have remained steady, underpinned by strong fundamentals and stable portfolio of existing long-term contracts. Amidst the uncertain environment during the year, the Group’s business segments focused on project execution and delivery alongside extension of existing and securing new contracts. For more details, please refer to the Offshore and Shipping sections below. Material Matters Financial Performance Project Management Asset Availability, Utilisation and Marketability Geopolitical Instability Risks 1994 IMF (Oct 2022) IHS (Jan 2023) OECD (Nov 2022) 1996 1998 2020 2022 2024 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 -3 -2 0 1 -1 -4 3 4 6 7 5 2 Source: IMF, IHS, OECD (2022) 3.2 forecast World Real GDP Growth (%) Source: EIA,IHS 0 20 40 60 80 100 140 100 80 60 40 20 0 120 Russia invaded Ukraine USD/barrel USD/MMBtu Brent TTF (RHS) Asia Spot (RHS) Henry Hub (RHS) Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Oil and Gas Prices 2020 2019 2021 2023 2022 2024 2018 World Production World Consumption forecast 85 0 90 95 105 100 Source: EIA World liquid fuels production and consumption balance (mbpd) 100 150 0 50 200 250 300 350 450 400 2021 2022 2024f 2023f 2015 2016 2017 2018 2019 2020 Source: Woodmac Global gross LNG imports (Mt) Material Matters Financial Performance Project Management Geopolitical Instability Risks OUR OPERATING ENVIRONMENT Strategic Review Strategic Review 65 64 MISC Berhad Integrated Annual Report 2022
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