Sanjeev Gupta, Asia-Pacific Oil & Gas Leader, EY Singapore
Sanjeev Gupta, the head of Asia-Pacific Oil & Gas, discusses the rapidly evolving energy landscape of Asia Pacific and conveys how, through investment and re-positioning, Ernst & Young are poised to remain the region’s premier financial & advisory consultant.
Asia Pacific’s energy arena is a rapidly evolving landscape. How do you succinctly portray the transition of the region’s oil and gas industry?
There are two key trends that drive the changing energy landscape in Asia-Pacific: globalization and access to market. The globalization of the oil and gas industry has hit Southeast Asia on the back of surging economic growth. We are a very densely populated region and thus need sufficient supplies of energy to sustain growth. Asia-Pacific produces approximately 10 percent of global energy, yet consumes around 28 percent. Consequently, Asia-Pacific is profoundly reliant on the importation of energy resources and has emerged as a net-importer. Asian oil and gas players are pursuing internationalization strategies and reaching out to the global platform to secure a stream of energy supplies. By contrast, Western companies want to grow and tap into Asia-Pacific’s burgeoning consumer market, and thus have both upstream and downstream regional focus.
LNG trading is one area where Singapore is striving to become a regional market leader. With the development of Singapore’s new import terminal, can the country realistically achieve its ambition to become an LNG trading hub?
By 2020, the global demand and supply position of liquefied natural gas (LNG) would have doubled, which is an unprecedented upwelling. As a result, to be regionally competitive, companies will increasingly seek more flexibility in gas contracts, which will trigger the development of a regional spot market.
I believe Singapore can become the regional LNG trading hub but there are challenges. To have a strong LNG infrastructure, there are several pre-requisites: the energy source, the consumers and a robust financial system. While Singapore does not possess the reserves, it has positioned itself well as a promising regional LNG hub. Gas stakeholders are drawn to Singapore because of its transparent business nature, and mature legal and financial systems. Moreover, in the eyes of neighboring states such as Indonesia and Malaysia, Singapore is perceived as a partner.
Another challenge for Singapore is that Japan is way ahead in terms of its LNG import quantities and also has a sophisticated and strong financial infrastructure. Nonetheless, a number of LNG trading companies are pivoting towards Singapore and setting up shop in the Lion City.
How important are government agencies such as the EDB towards driving the development of Singapore’s oil and gas industry?
They are crucial. Singapore’s status as an oil and gas hub today is really the result of immense efforts by government agencies such as the Singapore Economic Development Board (EDB) and Energy Market Authority (EMA). We work closely with the EDB and they are the ambassadors of Singapore, championing its targeted industries. There are a myriad of initiatives that they have done to propel the industry forward. Their role in branding Singapore as an open, transparent and efficient place to do business has been central to the development of the oil and gas industry here.
As a company that works closely with oil majors, what are the core industry issues they face for the year ahead?
Portfolio rationalization has been a theme for oil majors for a long time; it is not new. Essentially, it means that a company strategy evolves with the dynamism of a sector. With that overall strategy evolution, the next to shift is the investments within a portfolio that are used to achieve a certain strategy. The third aspect is to assess whether the capital invested has been efficiently utilized. The ultimate aim for oil majors has always been to strive towards profit sustainability.
Interestingly, we are seeing the emergence of national oil companies (NOC) seeking to rationalize their portfolios. This is partly because the NOCs have, in the pursuit of resources overseas, over-invested and entered very competitive regions over the last five years. As such, there are two key questions they seek our advice on: How can we be more global? How can we rationalize our portfolio?
How does EY’s oil and gas service platform distinguish itself from its big four competitors?
We have forged a market leading reputation in the oil and gas industry because of our continuous investments into our service offerings, while seeking to deliver exceptional service to clients. Ultimately, we bring to our clients an established track record of sector expertise, in addition to our globally recognized stamp of quality.
We are actively repositioning our oil and gas platform and seeking to expand our advisory and transaction services to clients in the industry. Our clients know that EY is the only professional services organization that is truly global in nature. Our 175,000 people have a global mindset and team across geographies and functions, bringing with them the diverse perspectives, experience and skills that our oil and gas clients around the world expect.
In 2011, Asia was perceived as the M&A hotbed of the world. EY recently published a Global O&G Transactions Outlook. How do you assess ASEAN’s M&A outlook for 2014?
Last year, deal volume for the global oil and gas industry was low due to an expectation gap and wider uncertainty surrounding the global economy. Nevertheless, I am positive about the longer-term outlook of the industry. For a start, the oil and gas industry is cash-rich and this is partly driven by high oil prices. Companies that are cash-rich tend to actively pursue portfolio rationalization, which bolsters M&A activity. Moreover, a number of countries in Asia-Pacific plan to increase or upgrade their domestic refining capabilities with the assistance from global major players to reduce the import of finished products. This will drive overseas investments downstream. Finally, deal flows within Southeast Asia will likely increase with Myanmar working hard to entice oil and gas majors to support its upstream journey. Indeed, across Southeast Asia, outbound interest will be robust with the growing oil and gas demand and the limited domestic supply.
Over the next three years, which markets will propel Southeast Asia’s Exploration and Production activity?
Malaysia has put in substantial efforts to arrest the drop in crude oil production and accelerate natural gas output. Supported by its NOC, the country has been very proactive in improving its fiscal regime to attract foreign investments and expertise. Furthermore, creativity through the Risk Sharing Contracts (RSCs) has attracted more players to take a stake in Malaysia’s exciting oil and gas offshore industry. The RSC model strikes a balance in sharing risks with fair returns for development and production of discovered marginal fields.
Indonesia’s continued efforts to increase gas output should bolster the supply of indigenous reserves and ensure strong business flow for Southeast Asia’s upstream ecosystem.
Also, Myanmar could be the game-changer for the region. It has abundant natural resource potential and the opening up of its oil and gas sector has generated huge interest among oil exploration and production players.
How important is APAC’s O&G industry to EY’s global O&G services in its efforts to achieve long-term, sustainable growth?
The oil and gas industry in Asia-Pacific is important to EY. As a result, we invest significantly into our oil and gas service platform. In Asia-Pacific, we are pushing to increase our presence and participation in the industry and expanding our talent base. As this region continues its upward growth trajectory, we look to invest in even more talent.
With someone of your oil and gas expertise, what characteristics of EY have prompted you to stay at the company over a long period of time and deterred you from working in-house at oil major?
Both sides are attractive. Yet, at EY, we have the opportunity to be exposed to and work with different clients across the entire oil and gas sector. The ability to work with such a variety of clients is a unique opportunity and supporting them in their quest to overcome bespoke practical business challenges has always been very appealing for me. Each day in this industry breeds new challenges and possibilities, and that keeps me on the professional services side of the fence.
Furthermore, EY is a people-focused organization that also has the wider interest of helping to build a better working world. We are often ranked as one of the most attractive employers globally. We are also a strong advocate of inclusiveness and diversity, where we thrive on leveraging different perspectives to build the high performing teams that our clients deserve. We also demand of ourselves to deliver exceptional client services, which create positive challenges for me as a professional and a leader of my teams. Talk to anyone at EY and they’ll tell you that it is a rewarding place to advance one’s career.