Petronas taps changing demand trends to grow downstream business

Singapore

MALAYSIAN state-owned oil firm Petroliam Nasional's (Petronas) downstream segment was hit badly by the Covid-19 pandemic, which hurt energy demand and triggered an oil crash, but is now looking to capitalise on changing demand trends and new markets.

"We are expecting gradual recovery for the domestic market, but it may take time before we see our previous numbers, depending on the trajectory of the overall crisis and vaccine availability," Arif Mahmood, chief executive of Petronas' downstream segment told The Business Times.

He added: "This situation is not unique to Petronas. The pandemic is a disruptor and a game changer to the global economy and market landscape across all industries."

The oil major's downstream activities range from oil refineries, petrochemical plants to retail outlets and include products such as petrol, diesel, jet fuel, lubricants, cooking gas and pharmaceuticals.

Petronas has five subsidiaries listed on Bursa Malaysia: Petronas Chemical Group (PCG), which makes a variety of chemicals used in fertilisers and plastics; Petronas Dagangan (PDB), a retailer and marketer of downstream oil and gas products; and Petronas Gas, which processes and separates natural gas into its components. The other two subsidiaries are MISC Berhad, an energy-related maritime solutions and services provider, and real estate company KLCC Property Holdings Berhad.

According to Mr Mahmood, who oversees the chemical producer and retailer, the deepest cut arose from the Malaysian government's movement control order (MCO) in mid-March. At its peak, PDB's retail business suffered a 60 per cent hit in terms of sales volume while on the commercial side, sales volume from the aviation business plunged 80 per cent owing to the travel curbs.

Although the situation has since improved for the group on the whole, Mr Mahmood warns it will take time to normalise. Meanwhile, the company is taking advantage of the downtime to tap changes in demand in its downstream segment.

As the demand for jet fuel remains low with airplanes being grounded, Petronas' retail arm will focus on improving its non-fuel income and capturing opportunities in energy transition such as the electric vehicle market.

In addition, against a backdrop of "intense competition" in the pharmaceuticals, medical, food, personal care and household supplies sectors, Petronas is preparing itself for a "larger landscape" of the petrochemicals sector.

Mr Mahmood said the demand for household products, food and imports grew at a higher rate due to people spending more time at home and changes in business operations.

The group has also made its entry into the oxyalkylates market. The market hosts two chemicals - ethoxylates, which are used in the production of detergent, home care and personal products; and polyether polyols, which are mainly used to produce foam mattresses and upholstery applications.

"Demand for these two chemicals are expected to grow especially in the Southeast Asia and Asia-Pacific regions," Mr Mahmood noted. He pointed out that the likes of medical products and personal protective equipment (PPE) - necessities in pandemic times - are made from petrochemical products.

PCG is also trying its hand at the nitrile glove market by building a nitrile butadiene latex (NBL) manufacturing plant within the Pengerang Integrated Complex (PIC) in Johor, Malaysia. When completed in 2023, the plant will have an annual NBL production of 200,000 tonnes.

While low oil prices generally spell trouble for O&G companies like Petronas as they struggle to break even, Mr Mahmood said the group undertook an assessment of its liquidity. Its existing businesses expanded their scope to produce hand sanitisers as well as an entire product line on cleaning and sanitising for professional use.

The company's investments in digital initiatives also bore fruit. Setel, Malaysia's first e-payment solution for fuel purchases that allowed customers to pay directly from their mobile devices, grew "significantly" in 2020 and has close to two million users now.

Looking ahead, Mr Mahmood said Petronas, as a group, will focus on reshaping its portfolio mix to ensure high-value returns to the company with equal emphasis on sustainability, and ensure "focused execution" for efficiency, cash preservation and maintaining business liquidity.

Amid the global drive towards cleaner energy, Mr Mahmood also acknowledged the need for Petronas to hasten its complementary business growth to capture opportunities and mitigate any setbacks.

He added that the group will pursue new avenues of revenue creation through investments in nature-based solutions, as well as establish greater accessibility to cleaner energy solutions.