Serba Dinamik Annual Report 2018

86 ANNUAL REPORT 2018 SERBA DINAMIK HOLDINGS BERHAD OIL AND GAS Global A substantial part of our revenue for FYE2018 was derived from the oil and gas industry. As such, major local and global events and developments in the oil and gas industry may have an impact on our business. Generally, oil and gas projects are capital intensive, and the economic viability of oil and gas activities is directly influenced by oil and gas prices. Figure 4-1 depicts the historical global crude oil and liquid natural gas (LNG) prices. Figure 4-1: Global Crude Oil and LNG Prices = free on board; CIF = cost, insurance and freight. (Source: World Bank) INDUSTRY IMPACT ON OUR BUSINESS Oil and Gas Industry in the Past The most notable event that impacted the oil and gas industry in the past few years was the sharp fall in global crude oil and LNG prices between 2014 and 2016. Brent crude oil price, the global price benchmark, plunged by 72.5% from a high of USD111.90 per barrel in June 2014 to USD30.80 per barrel in January 2016. The average monthly prices of imported LNG in Japan, the world’s largest LNG importer, tracked global crude oil prices with a slight time lag. The average price of imported LNG in Japan slumped by 62.7%, from USD16.79 per million British Thermal Unit (BTU) in April 2014 to USD6.27 per million BTU in June 2016. This severe fall in global oil and gas prices stemmed from demand and supply imbalances, with supply greatly exceeding demand. This supply glut compelled the Organization of the Petroleum Exporting Countries (OPEC) and key non-OPEC countries to enter an agreement in January 2017 to curtail oil production by about 1.2 million barrel per day (bpd) for 6 months. As a result, the oil price recovered for a period of time fromthe 2014 crash. However, concerns that the rise in US shale production would lead to market imbalance again, the members agreed to extend the production cut to December 2018. Oil and Gas Industry in 2018 2018 was a momentum regaining year for the oil and gas industry. Brent crude oil prices regained its strength at an annual price increase of 30.7% in 2018. The average Brent crude oil price was USD71.07 per barrel in 2018, In 2018, we continued to showcase our strengths as an engineering solutions provider to the energy sector. Our capabilities enabled us to secure our position in the oil and gas, power generation and water utility industries. Operations in these industries are heavily dependent on tangible assets such as plant facilities and machineries, where the condition of these assets are critical to their performance. The performance of these industries has a direct impact on the performance of companies that serves them, such as our Group. For instance, higher development and operational oil and gas activities are likely to increase the demand for repair and maintenance services, thus benefiting our business. As such, this section discusses the performance of the oil and gas, power generation and utility industries of some of the countries that we operate in. 2014 2015 2016 2017 2018 Monthly Brent Spot Price, FOB Monthly Imported Price of LNG in Japan, CIF 50 100 150 5 10 20 15 Crude Oil Prices (USD/barrel) LNG Prices (USD/million BTU) January