Serba Dinamik Annual Report 2019

98 2019 ANNUAL REPORT INDUSTRY IMPACT ON OUR BUSINESS SERBA DINAMIK HOLDINGS BERHAD Figure 4-2: Global Crude Oil and LNG Prices FOB = free on board; CIF = cost, insurance and freight. (Source: World Bank) 2015 2014 2016 2017 2018 2019 2020 50 100 150 5 10 20 15 Crude Oil Prices (USD/barrel) LNG Prices (USD/million BTU) January Monthly Brent Spot Price, FOB Monthly Imported Price of LNG in Japan, CIF June 2014 USD111.87 Jan 2016 USD30.80 Global COVID-19 pandemic outbreak April 2020 USD23.34 Oil prices plunged between 2014 and 2016 when supply exceed demand IMPACT OF A PROLONGED DEPRESSED OIL AND GAS PRICE REGIME Given that the global oil and gas prices are sensitive to many factors such as geopolitical and epidemic issues that affect supply and demand and thus prices, our business may also be impacted by any prolonged depressed oil and gas prices. Our MRO and IRM services are mandatory services that are required to ensure smooth and safe operation of plants and facilities. These services are needed regardless of oil and gas price movements, so long as plants and facilities are operational. While MRO and IRM are essential services, a prolonged depressed oil and gas price regime will reduce upstreamactivities as extractionmay not be economically viable. This will affect us if new production facilities are not added, or production stops. At the same time, oil and gas producers may cut back on operational expenditure on maintenance services and request service providers like us, to reduce our service fees. A depressed oil and gas price regime may initially increase demand for petrochemical goods and refined petroleum products as goods derived fromthembecome cheaper. However, over a longer term, this may not hold. In light of the impact of the COVID-19 pandemic, global economies are expected to slow down. Combined with a significant fall in equity markets across the world, global economies are expected to cool significantly at least in 2020. Countries that depend heavily on oil and gas revenues may run into budget deficits which will compel them to curb spending which in turn will reduce overall demand for goods and services, including manufactured petrochemical goods. This, in turn, will reduce activities in the downstream sector which may impact on our MRO and IRM services. Nevertheless, it must be noted that production and processing of crude oil and natural gas, as well as manufacturing of petrochemical products, take some time to react to fall in oil and gas prices. This is because it is not simple to just stop or to start- up such plants and facilities. Shut down and start-up procedures are costly and take time. G L O B A L O I L A N D G A S I N D U S T R Y