PETRONAS Gas: An Overview

Author: Iloka Benneth Chiemelie

Published: 2nd June 2015

1.0 Introduction

For every human activities and undertaking, energy is very vital because it is the source through which such activities can be powered. There are different sources of energy such as electricity, petroleum, gas and solar energy. In any case, the focus of this paper will be precisely on gas as a source of energy and PETRONAS as the company providing such energy sources.

Gas is one of the most adopted sources of energy in Malaysia. It is used for both household and industrial purposes. In terms of the household setting, it is very difficult to go across Malaysian households and not see a gas cooker in the homes as this is the primary cooking machines in most of the homes. On the industrial aspect, it is also used to power numerous machines and industrial activities by supplying them with the needed power to maintain operations.

The focus of this paper will be to write an essay about PETRONAS gas, detailing the company’s background, business operations, market performance and other aspects of the industry that might influence their overall performance. As such, this paper will be divided into three different sections. The first of such is the introductory section that lays a background understanding on the purpose of the paper and how it will be undertaken, while the second is the body of the paper that presents a representation of the aspects being highlighted in the introductory stage. The final stage of the paper is the conclusion that presents a summary of the overall paper and necessary recommendations as it might arise.

2.0 About PETRONAS GAS

PETRONAS Gas became 30 years old in 2013, with 2013 truly defining the company as a result of the completion of the LNG Regasification Facilities project that is located in Melaka – which is also described by the company as the most ambitious venture that it has ever undertaken in its three decades of existence (PETRONAS, 2013). The venture has also been described by the company as timely crucial and necessary in order to ensure that the nation is capable of meeting its current challenges in energy supply effectively and efficiently.

Gas processing and transmission is still the core and flagship of the company’s business. The processing process as described by PETRONAS (2013) begins at the six gas processing plants that is located in the Malaysian region of Kertih and Paka, which is also operated by the company’s Plant operation divisions (POD). Once the natural gas has been gathered from the offshore field of Terengganu, they will be processed in this plant before being piped to the company’s Peninsular Gas Utilisation (PGU) pipeline that is being operated by the Transmission Operations Division (TOD). The responsibility of the TOD is to make available the processed gas for customers in both the peninsular division of Malaysia and the entire East Malaysia.

PETRONAS Gas proceeded to expand and diversify its business into three areas as manufacturing, supplying and marketing of utility products in the industries. Although the diversification can easily be used to represent a change in business focus, there is a need to understand that such is not an issue when it comes to PETRONAS Gas as the company has continued its push with its core businesses. It is one of the most successful gas companies in Malaysia and ranks in for most of the market share as will be discussed later on in this essay.

2.1 Corporate mission and vision  

The mission and vision of companies is the most common way used to communicate to the audience about whom the brand is and what they intend to do or offer to the public. In terms PETRONAS Gas, the mission is to: add value to the natural resources (gas); while their vision is to become a world class gas and utilities company (PETRONAS Gas, 2013).

2.2 Board of Directors

1.    Datuk Anuar bin Ahmad (Chairman)

2.    Samsudin bin Miskon (Managing Director/Chief Executive Officer)

3.    Dato’ Sadasivan s/o N.N. Pillay

4.    Dato Mohammad Medan bin Abdullah 

5.    Datuk Rosli bin Boni

6.    Pramod Kumar Karunakaran

7.    Dato' Ab. Halim Bin Mohyiddin (PETRONAS Gas, 2013).

3.0 Financial performance

Following the business descriptions, the next step is to conduct an analysis of the company’s financial performance. The financial analysis is as presented in the figure 1 below.

Figure (1): PETRONAS Gas’s statement of financial performance.

Source as adapted from: PETRONAS Gas (2013)

From the above analysis, it can be seen that the company has maintained a steady growth in their profit, with and also profit as a percentage of the generated revenue. The implication is then that the company is well positioned to ensure competitiveness in the market.

Figure 2: Assets and Equity analysis

 Source as adapted from: PETRONAS Gas (2013)

For every business, assets are part of success as the higher the asset value, the higher the productivity and overall performance of the company. Assets are the factors used for production and as companies grow, there assets are expected to grow as well  - which means from the above analysis that PETRONAS Gas is growing as illustrated by the growth in assets.

Figure 3: Liabilities

 

Source as adapted from: PETRONAS Gas (2013)

The steady growth in assets is also accompanied by a subsequent growth in liabilities and this is an indication that the company might have acquired some of its assets through loans and long-term mortgage. In any case, this is not a worry for the business growth as it can be seen that investment remains profitable for shareholders with a constant increase in the value of net assets per share.

Basically, the indications presented from the analysis of the company and its background are encouraging because it implies that PETRONAS Gas has transformed itself into a renowned business sector in the gas industry and has accumulated high profits in the process.

4.0 External Environmental Analysis – PESTEL

In the current business environment, competition has intensified basically in all industries as a result of the increasing level of globalization and internationalization of firm, which the case of PETRONAS GAS Malaysia as is being review in this paper is a good evidence of the above statement. On that note, it is very important that businesses recognize the need to be risk averse by being very much aware of their external business environment as they make up the factors in the form of influence from stakeholders that can yield a subsequent influence on the performance of the business (be it positive or negative influence). As such, the external analysis of the Malaysian business environment is as presented below.

4.1 Political factors

Malaysia is going through numerous political reforms that is opening its system to the globe as a result of its presence in global organizations, which means that the company must function according to the standards set by these organizations. As a result of these reforms, sustainable environment is being created for PETRONAS GAS in Malaysia as it would means a subsequent removal of the preferentialism towards local brands in policy makings for the future and as such create a more competitive market for the brand.

4.2 Economic factors

The level of GDP per capita of Malaysia is estimated to be US$ 8,118 per year by IMF (2008), US$ 7,221 per year by the World Bank (2008), and US$ 8,800 per year by CIA Factbook (2008) (Michelle, 2009). It also been argued that the country’s continue appreciation of democracy will further increase the per capital income. While the economic status of Malaysia can easily be stated to be very high in the sense that consumers have higher purchase power, it must also be noted that the country runs and open economy that is well integrated into other international economies and this is the main reason why it suffered heavily in the recent recession. Such a growth in the nation’s economy presents a more favourable condition for PETRONAS GAS’s operation in the country as it will result in a subsequent increase in the demand for its products.

4.3 Social factors

Malaysia is more of a socialist society, and group activities are well encouraged (Dalat, 2009; Communicaid, 2009). As such, families travel together and friends enjoy going out with each other. In the transportation industry, it increases the number of people flying by air as group travelling is encouraged. On the energy consumption level, there is a growing trend in the possession of automobiles in the country at least for family usages and such a trend means a subsequent increase in the purchase of petroleum and other related products. Gasses are also very common for house usage and the demand is significantly high, considering the fact that virtually all houses in Malaysia use gas for one purpose of the other. This is also at a very high advantage to the operation of PETRONAS GAS in Malaysia as such new trends will mean an increase in the demand for its products.

4.4 Technological factors

Malaysia is one of the most technologically advanced countries in South East Asia (Malaysian industries development authority, 2009; Hobday, 1995). Most production processes are usually automated, and this increased production efficiency for the new merger because they can easily access these technologies in Malaysia and use it to enhance their production process and capability. As such, the technological aspect of the nation’s economy creates a favourable atmosphere for increased production and sustainable business operations as companies can make use of these technologies to advance their production system, without having to bear the cost of importing such products from other countries. In the case of PETRONAS GAS, technological advancement will mean efficiency in production and increased productivity in the company. This will also mean that the company will be better positioned towards meeting the increase in demands for its products.

4.5 Legal factors

The Malaysian legal system is highly advanced business laws, patent right law, and other bylaws (Mida, 2011) established to protect the business operations of the new merger. Also given the fact that these companies have been operating in the company before, they will have quality lawyer that will legally protect all the company’s assets. For every business, the legal aspect of any given economy is very significant because is the basic unit form which the business operation is secured and the Malaysian legal system is well organized, which is an advantage to PETRONAS GAS in Malaysia as it can be sure that its assets in the form of copyrights, patents, trademarks and other features will be well protected.

4.6 Environmental factors

Geographically, Malaysia is sparsely distributed and this means that some areas are either inaccessible by road or too far with road transportation (Malaysian Employment Federation, 2007; Chew, 2005; Chew and Basu (2005). This creates a favourable business condition for air transportation because people who want to access these areas will require means of transportation, and increase in demand for transportation will directly increase the demand for the products and services offered by PETRONAS GAS in Malaysia.

Another area that companies of the modern business setting look into when considering the impact of the environmental factors on their businesses is the issue of environmental disaster as it is an unpredictable force that has the potential of inducing high damages on any given business. However, Malaysia has few accounts of natural disasters.

5.0 Industry Analysis – Porter’s 5 Forces

According to the report written by Michael (2008) on the Harvard Business Review, the Porter’s Five Forces was described as the competitive tool that shapes business strategy. The main reason for such credit is because the tool has underlying features that are used to analyse the industry of any given business in order to understand the potentials of success for a new or existing business. The tool is as applied in the case of the Malaysian Oil and Gas Industry for PETRONAS GAS Malaysia below.

Figure 1: Porter’s five forces

Source as adapted from: Michael (2008)

JURUTERA (2005), the monthly bulletin of the Institute of Engineers Malaysia, presented a detailed analysis of the Malaysian Oil and Gas industry, and their analysis will be adopted in this paper.

5.1 Threat of new entrants - the threat of new entrants in the oil and gas industry is considerable low, and the reason is because of the high level of protectionism exercised in the industry through government policies as well as the high financial demand that is necessary for establishing an oil and gas firm in the Malaysian market. As such, business sustainability if more or less assured is PETRONAS GAS can be able to wade off competitions in the industry as new entrants are not so likely.

5.2 Bargaining power of buyers – the bargaining power of buyers is considered moderate as the government is always focused on arriving at the right policy that has the potential of influencing lives positively, while also not damaging the potential sustainability of businesses in the industry. However, buyers still have a considerable bargaining power and this is constantly influenced by price and quality of products that oil and gas companies have to offer.

5.3 Threat of substitute products – while the threats of solar and electricity has been recognized highly in home and office consumptions, such threats have not extended down to the transportation industry as such technologies are still on its infancy and development stages across the world. Even at home, gasses are still the most preferred source of energy for cooking because they are more affordable than solar or electricity. As such, the threat of substitute products is low but can significantly change in the future.

5.4 Threat of suppliers – the supply network in Malaysia is very much centralized in the sense that the government controls such operations at an advanced level. As such, the threat of suppliers is very low because the supply system is based purely on contracts and government policies. As such, any influences on the supply for PETRONAS GAS will also be applicable to other oil and gas companies in Malaysia.

5.5 Industry rivalry – competition is very high in the oil and gas industry as companies fight for the bragging rights in terms of consumer value, customer relationship management and demands. There is a growing network of value marketing which includes promotions and bonus offers in the Malaysian oil and gas industry and this is clear sign of intensified rivalry in the industry.

6.0 Competitors Analysis

Still on the publication by JURUTERA (2005), it was noted that the growth of the Malaysian oil and gas industry has been sporadic, as a result of the growth in support offered to the industry, which provides services and products to the operators. Competition is relatively, but the highest competitor that is pulling PETRONAS GAS by its cap is Shell. Besides the government sponsored and managed giant, other players in the industry include ExxonMobil, Nippon Oil, Murphey Oil and Amarada Hess.

All the above named industry compete with PETRONAS GAS in all upstream and downs stream operations, where upstream operation is generally known as the activities that occurs before the refined products are made available to the market JURUTERA (2005), and downstream is known as the activities that occurs once the products have been provided in the market and ready for consumption. Basically, PETRONAS GAS is the second largest oil and gas industry in the country after PETRONAS, and it has been able to gain vast networks of buyers and suppliers since its introduction into Malaysia. As such, the company had gained high ground in the Malaysian oil and gas industry and competition is no longer something that is new in the company as a number of activities have been tailored to precisely make it competitive in the oil and gas industry.

7.0 Market Analysis

7.1 Demand and supply condition

Petroleum exploration in Malaysia dates back to the 20^th century when it was first discovered in Sarawak in 1909, and first produced in 1910. Since then, both consumption and production has rocketed as is also the case in order part of the world. The demand for oil and gas in the country has been very high and the factor influencing such demand is the right in industrialization.

Figure 2: Demand and supply of oil and gas in Malaysia (1968-2002)

Source as adapted from: JURUTERA (2005)

From the figure above, it can easily be seen that since the initial production of oil in the country, there have been a subsequent rise in the production rate and this is basically because of the rise in demand for the crude resource.

7.2 Production cost

The production cost is very high as oil refining demands some of the most advance production technologies in the world. Additionally, the extraction process is based on-shore and as such required heavy investment in onshore engineering and technologies. This is the main factor that wades off interest of new entrants. However, the government has made the production process easier by financing most of the production process in the country’s oil and gas industry.

7.3 Market structure

The oil market structure is dynamic and decentralized. As a result of numerous competing brands, there is no guarantee of customer loyalty except the firms offer best value for price as is being practiced amongst oil producers in the country, through the adoption of some of the most renowned technologies in the world.

7.4 Pricing and consumer behaviour

Pricing is static while consumer behaviour on the other hand is a reflection of the services offered by the oil producers. The static nature of the pricing is influenced by the high level of control exercised by the government on prices of oil and gas products. As such, the price is almost similar amongst seller or just differs by few cents in the Malaysian ringgit.

8.0 Discussion of Economic and Business Issues

JURUTERA (2005) highlighted two issues that are facing the Malaysian oil and gas industry which are in the form of both business and economic issues. The first of such highlight is the issue of depleting hydrocarbon reserves in the country, in which they noted that the Malaysian crude basin has been depleting as a result of high exploration, and the suggestion is that there is a need for new exploration to be undertaken in areas that have been previously neglected. However, such areas include deep seas that are not currently being access and the implication is the demand for sophisticated technologies and machineries for such explorations. As such, these are issues in both the business and economic aspect as the high level of depletion presents the issue of unsustainable business operation which will impact on the economic performance of PETRONAS GAS negatively. The business aspect is the need for sophisticate technologies and machineries to aid the further explorations and the implication is a subsequent high level of incurred cost, which will also influence the business performance negatively.

9.0 Conclusion

Malaysia is fast becoming the “gotobusiness” place in South East Asia, and the reason is because of the governments’ high desire for increased economic growth, which is resulting in subsequent changes on the economic policies of the state in order to create a favourable business operation environment for both local and foreign firms. The country’s huge economic development now means that consumers have higher purchasing power as a result of the increase in their per Capita GDP. Such an economic environment created a favourable room for increase financial performance, especially in the oil and gas industry as the subsequent increase in modernization and industrialization is positively influence the demand for oil and gas products in the country. These entire factors combine together to create potentials for business success in the country. However, there were also issues identified in the form of depletion of hydrocarbon reserves in the country and the increasing demand for hefty investment in exploration technologies, which could all wind up to become an obstacle of success for PETRONAS GAS’s business operations in the country. As such, it is recommended that PETRONAS GAS should always be alert of its business environment in Malaysia in order to ensure that investments are not being pushed in areas with little potential for returns. In conclusion, it will be state that the Malaysian business environment creates the right atmosphere for sustainable business operations in the country.

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