Southeast Asian petrostate Malaysia is currently navigating a tough economic environment amid the coronavirus pandemic when oil prices collapse and demand for its oil and gas plunge. The country generates nearly 20% of its total revenue from oil-related sources, but analysts expect it can survive the crisis better than many other petrostates.
S&P Global Ratings expected Malaysia's GDP to grow by 2.4% this year, which will be the weakest expansion since the Asian Financial Crisis in 1997-1998. The figure is also much lower than the 4.3% growth in 2019, and an expected 3.5% growth rate for Asia Pacific's emerging markets in 2020.
Malaysia budgeted oil price of $65/barrel for this year, but Brent prices have fallen to around $33/barrel recently. The prices of natural gas, one of Malaysia's main export commodities, also dropped to a record low of below $2.40/MMBtu last week. At the same time, the pandemic also affected the country's fiscal deficit by forcing it to issue economic stimulus such as its latest $58-billion package to protect the affected sectors.
The country also imposed a movement control order that shuts all non-essential businesses as well as restricts land and air travels until April 14. This created major demand destruction in transportation fuels.
Malaysia's exports to China have fallen by 20% year to date since the coronavirus outbreak forced Beijing to put some cities under lockdowns. Fortunately, state-owned energy company Petronas managed to offset LNG export losses in China with shipments to South Korea.
However, Petronas' LNG exports are concentrated in Asia-Pacific markets such as China, South Korea, and Japan. These countries are still facing the spillover of the pandemic and are expected to be unable to support Malaysian exports in the coming months. Besides, Petronas exports at least 10% of its LNG on the spot market, where it faces growing competition from global suppliers that flood the market.
All of these put Petronas in a delicate situation where it has to maintain stable dividend payments to the government, meet energy security requirements, and reduce capex to save cash. However, analysts expect the company to be able to navigate the storm. Petronas can consider cutting spending on some projects ranging from shale investments in Argentina to LNG projects in Canada.
