APAC’s oil and gas industry outlook dips; yet still ahead of Europe

In the face of falling oil prices, confidence in the outlook for the oil & gas industry in Asia Pacific (APAC) has dropped dramatically by 50% among sector professionals – from 77% to 27% since October, according to new research published recently by Norway-headquartered international classification society, DNV GL. The report, A Balancing Act: The outlook for the oil and gas industry in 2015, highlights that the region has experienced the most significant fall in confidence in the last three months of all regions, and is now slightly behind North America (33%) and marginally ahead of Europe (26%).

Hiring intentions have also dropped more steeply in Asia Pacific than elsewhere. In October, more than half (51%) of respondents still expected headcount to increase in their business, but this has now dropped to 11% and 46% now expect headcount to decrease, up 30 percentage points in three months. The pessimistic outlook is also reflected in capital expenditure intentions, with those planning to increase CAPEX in the same three-month period dropping from 61% to 15%.

Cost management will be a priority driven by pressure from low margins with 70% of respondents planning to increase strictness on cost control. New measures will be introduced with the top priority being improved workflow and processes (43%), tougher decisions on what capital expenditure decisions are actually approved (38%), reducing exposure to riskier/costlier projects and reducing the size of the workforce (both 29%).

Richard Bailey, Executive Vice President and Director of Asia Pacific and Middle East for DNV GL, said, “The dramatic drop in confidence, CAPEX and hiring intentions in just the last three months is no surprise given the oil price. At the same time, we have some of the world’s largest international mega projects for Australia, Malaysia, the Middle East and Europe still under development here, which in turn will keep key regional suppliers busy. It is positive to note that APAC respondents put a greater emphasis on improving work processes as ways to work smarter and more cost-effectively to help ride out the storm. Whilst short-term measures such as cutting CAPEX spend to reduce costs are understandable, the industry must continue to keep a clear focus on long-term growth to remain robust in different price environments.”

DNV GL’s global research, provides a timely assessment of industry confidence and priorities for the year ahead and is based on a global survey of more than 360 senior industry professionals and executives carried out during the week starting 19 January 2015. The report also includes 18 in-depth interviews with a range of experts, business leaders and analysts. The research has been compared with a previous survey carried out from October to November 2014 to monitor shifting sentiment during a period of falling barrel prices, as well as with DNV GL’s 2014 industry outlook report. The APAC respondents for the study are from Afghanistan, China PRC, India, Indonesia, Japan, Kazakhstan, Philippines, Korea (South), Thailand, Malaysia, Singapore, Taiwan, Turkmenistan, and Vietnam.

Other key findings in the report include:

• China is the second-most-favoured investment destination among 11% of global respondents, after the US (28%) and before Norway in third place (9%).
• Some 14% of ApAC respondents still plan to increase spending on R&D and innovation in 2015 compared to 10% globally. Asia Pacific reports the biggest cut back in spending on R&D of any region in the last three months, with only 14% of respondents planning to increase spending on R&D, a drop of 25% in the last three months.
• The biggest barriers to growth for Asia Pacific respondents are the low oil prices (68%), the weak global economy (38%) and tougher competition from international rivals (25%).
• Among respondents globally, the same top two barriers to growth are identified, but the third barrier to growth is uneconomic gas prices.
• Around 18% of Asia Pacific respondents believe skills shortages or an ageing workforce to be the biggest barrier to growth compared to 11% in North America and 14% in Europe.
• 22% of Asia Pacific respondents will prioritise increasing pressure on the supply chain to control costs, which is less than in other regions (38% in North America and 36% in Europe).
• Among respondents globally, the US (28%), China (11%) and Norway (9%) are the top three most-favoured investment destinations for 2015, whereas last year these were the US, Brazil and Australia.