Mixed bag for PETRONAS

PETROLIAM Nasional Bhd’s (PETRONAS) results in the first half of financial year 2026 (1H26) was a mixture of good and bad news, partly due to the conflict in the Middle East and how companies have adapted to the event.

For one, Saudi Aramco divested its 50% stake in Pengerang Refining Co Sdn Bhd and Pengerang Petrochemical Sdn Bhd, collectively PRefChem, to PETRONAS likely due to commercial reasons.

With the second-biggest proven reserves in the world, the Saudi giant probably sees better use of its capital in rebuilding and new opportunities the conflict may present.

For PETRONAS, the conflict has made ensuring energy security a vital part of operations.

It has had to become more agile and flexible and diversify its supply chain for crude oil, distillates and liquefied natural gas (LNG) away from the conflict region to places like West Africa, Latin America, Angola and parts of the Asia Pacific.

That has come at the expense of margins as Malaysia’s national oil company has had to pay a higher price for resources, shipping insurance and charter rates and longer shipping journeys.

When other oil companies hesitated to import diesel without Finance Ministry incentives, PETRONAS stepped in to prevent shortages, sources tell StarBiz 7.

To secure immediate supplies, it bought heavily on the spot market with shorter forward gaps.

This tactical shift drove PETRONAS’ crude importation and processing costs up by US$160mil to US$200mil for any given month. It also increased its buffer stocks at terminals from three days worth of supply to seven to 10 days worth.

Nevertheless, the higher average crude oil and LNG prices and sales volumes enabled it to post a 15% year-on-year (y-o-y) rise in revenue to RM152.4bil in 1H26, while core earnings eased 2.4% y-o-y to RM23.5bil.

Upstream profit after tax (PAT) grew 69.9% y-o-y, supported by higher average Brent prices of US$92bil in the period while the gas segment’s PAT rose by 60.4% y-o-y, underpinned by higher domestic average sales gas volume of 3,111 million standard cu ft per day (12.4% y-o-y) and LNG sales volume of 20.29 million tonnes (17% y-o-y), TA Research noted.

PETRONAS’ downstream segment posted a loss of RM15.2bil in 1H26 (1H25: loss of RM900mil), mainly due to the recognition of previously unrecognised accumulated joint-venture losses following the reacquisition of the stake in PRefChem.

The question now is how will the remainder of the year turn out.

The ongoing conflict will be key as it has a major impact on the global energy supply chain and prices, as will Chinese demand.

A recent Bloomberg report noted that Chinese imports of LNG are set to fall in September after restocking activities were completed as prices average US$21 per million British thermal units (mmbtu) compared to US$12/mmbtu last August.

The high price has led to significant demand destruction among price-sensitive industrial users. Shanghai, for instance, sources almost 60% of its LNG supplies from PETRONAS.

However, Europe’s LNG and gas storage levels are currently well below seasonal norms, and restocking could provide price support.

HSBC Global Investment Research has a bearish view on the oil market, projecting the Brent crude oil benchmark to average US$80 a barrel for 2026 and US$65 thereafter on faster normalisation and return to surplus by the 4Q26.

This is based on the assumption of a return to normal Gulf exports by the end of September, with Hormuz traffic recovering to around 80% of pre-conflict levels and bypass pipelines staying at full capacity.

It expects a cyclical surplus of 3.7 million barrels per day in 2027, partly offset by inventory refilling and stronger supply growth.

Assuming that Gulf exports normalise by end-3Q26, stocks may return to February 2026 levels by end of 1Q27.

“The rebalancing has been helped by weaker demand, notably from China, and strong exports from outside the Gulf.

“Post-reopening, we expect some demand destruction to persist and stronger supply growth, leading to a larger oversupply than we had forecast at the beginning of the year,” the bank stated in a recent report.

Stephen Innes, managing director of SPI Asset Management, tells StarBiz 7 the Brent benchmark can remain broadly in the US$80 to US$90 range while Middle East risk remains elevated.

Prices could stay higher for longer than the market expects as countries rebuild depleted petroleum reserves.

Temporary moves above US$90 are also possible if tensions worsen.

What the Organisation of the Petroleum Exporting Countries and its allies, or Opec+, does is another point to consider.

The product market, however, will take longer to adjust.

“Refined product markets remain tighter than crude, given limited slack in global refining and lower inventories, and we expect product tightness to persist through 2H26 before some normalisation in 2027,” Global Investment Research said.

In summary, the energy market looks to be transitioning towards normalisation.

The energy security factor, however, could see PETRONAS’ annual capital expenditure spending staying at around the RM45bil to RM60bil levels to help build new, secure supply hubs both at home and abroad.

Domestically, the company is executing an exploration campaign in 2026, deploying six deepwater research operations while seeking to monetise assets such as the Mutiara Cluster (with first gas targeted for 2029) and the Permata Cluster in Sabah.

It has also made a final investment decision on the long-delayed Limbayong deepwater field development offshore Sabah.

While the Malaysia LNG asset anchors PETRONAS’ gas business at present, the 3.5 million tonnes from LNG Canada offers room for growth in the Pacific market, especially after the facility doubles its current capacity of 14 million tonnes annually as planned over the next few years.

The sheer volume of LNG supply then should require PETRONAS to evolve into a portfolio player in LNG, more so with its purchase deals with Qatar, Australia and, to some extent, the United States (under the tariff reciprocal deal).

Following eight successful discoveries in Suriname, PETRONAS has proven to have enough resources to potentially support two floating LNG facilities.

To balance the LNG portfolio, it is seeking to build its liquid footprint in lower risk geographies like Oman and West Africa.

All such investment decisions will help support Malaysia’s energy requirement in future, which is set to grow, driven by fresh demand from the numerous data centres, industrialisation and urbanisation.