Serba Dinamik Annual Report 2019

97 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 4-2 depicts the historical global crude oil and liquid natural gas (LNG) prices. OIL AND GAS INDUSTRY IN THE PAST The oil and gas industry experienced a major turmoil between 2014 and 2016 with the annual average price of Brent crude oil and liquified natural gas ("LNG") dipping to USD44.05 per barrel and USD7.37 per million British thermal unit ("mmBTU") in 2016 respectively, as compared to average of USD98.94 per barrel and USD16.04 per mmBTU respectively in 2014. The significant decline in oil and gas prices were due to the imbalances in supply and demand where supply extensively exceeded demand. Given the oversupply condition in the oil and gas industry, the Organization of the Petroleum Exporting Countries ("OPEC") and key non-OPEC countries agreed in January 2017 to curtail oil production. In2018, theBrent crude oil andLNG regained itsmomentum to record an annual average price of USD71.07 per barrel and USD10.65 per mmBTU respectively. The recovery of oil and gas prices were supported by the extension of the OPEC agreement which expired March 2020. RECENTDEVELOPMENTSINTHEOILANDGASINDUSTRY In 2019, the oil and gas industry experienced a slowdown after showing a sign of recovery in 2018. The annual average price of Brent crude oil contracted at a year-on- year ("y-o-y") rate of 9.9% to record average USD64.03 per barrel in 2019, compared to the growth of 30.7% or average USD71.07 per barrel registered in 2018. The lower average price of Brent crude oil was due to the imbalance of supply and demand. Growing production from the United States has restrained the upward trend of Brent crude oil price despite OPEC members continued curtailment of production. In addition, slowdown in oil demand attributed to dampened global economic growth which also weighted down the average price of Brent crude oil in 2019. In early 2020, the global markets was hit by the outbreak of the novel coronavirus, COVID-19, causing global economic downturn. Global oil and gas demand fell significantly as several major economies went into lockdown to control the pandemic. The Brent crude oil spot prices fell from a monthly average price of USD63.60 per barrel in January 2020 to an 18-year record low of USD23.34 per barrel in April 2020. The fall in April prices was also because Russia refused to support OPEC’s proposal to cut production in the beginning of 2020. This caused Saudi Arabia as well as several Middle Eastern countries to ramp up production to win market share. However, in April, Saudi Arabia and Russia ended their oil price war and agreed with OPEC to make the biggest oil production cut in history. OPEC, Russia and other producers, known as OPEC+, will cut 9.7million barrels a day in oil production in May and June 2020, which is equivalent to almost 10% of the global oil supply, and will continue to lower reductions until April 2022, in efforts to stabilise global crude oil markets. Meanwhile, the annual average price of LNG also showed a moderated y-o-y growth rate of 0.8% to record USD10.73 per mmBTU in 2019, compared to the growth of 23.7% or USD10.65 per million BTU registered in 2019. However, in January and February 2020, LNG price declined to USD9.90 per million BTU for both months. 0 4 4 . 2 G L O B A L O I L A N D G A S I N D U S T R Y C H A P T E R