2015 Hack of a year ahead!


Hack 20152014 has seen a tsunami of epic hacks and identity thefts, including the recent massive cyber attack on Sony Pictures Entertainment. Security experts are predicting more or worse cases of such hackings, including in Malaysia where the awareness of cyber threats and security measures is still very low

Hack_getimageBrace for more cyber attacks

PETALING JAYA: If you think that a cyber attack like what happened to Sony Pictures Entertainment could only happen in Hollywood, think again.

It is a sign of what’s to come globally in 2015, say cyber security experts.

In the attack on Sony on Nov 24, the attackers hacked the company’s network and took terabytes of private data, deleted original copies from the company’s computers and left messages threatening to release the information if Sony did not comply with their demands.

Nigel Tan, director of systems engineering for software security firm Symantec Malaysia said the prominent data leaks of 2014 would keep cyber security in the spotlight in 2015.

“With the interconnected nature of a global Internet and cloud infrastructures, cross-border flow of data is unavoidable and needs to be appropriately addressed.

“Malaysia was affected in the data breaches this year and will continue to be affected next year,” he said.

Tan recalled a hack last month by a site called Insecam, which downloaded and displayed images from unsecured webcams of CCTV and simple IP cameras around the world, including from Babycams.

Symantec expects more mega data breaches next year, especially with the rising use of mobile devices for e-payment and the cloud computing technology for storage of personal and confidential information.

“Mobile devices will become even more attractive targets for cyber attackers in 2015 as mobile carriers and retail stores transition to mobile payments.

“Mobile devices are also used to store troves of personal and confidential information. They are left switched on all the time, making them the perfect targets for attackers,” said Tan.

He said the growing use of smart home automation, like smart televisions, home routers and connected car apps had also increased the potential of cyber attacks as more devices were being connected to the network.

Cyber law expert Dr Sonny Zulhuda agreed that the idea of synchronisation and interlinking of smart home automation (or the Internet of things) would be too tempting for both users and “abusers”.

“Users need to balance the use of these devices and smart technology with the efforts to preserve security, privacy or confidentiality.

“Just imagine how many mobile users are concerned about installing a good malware scanner on their devices. In the mind of the criminals, on the other hand, this will make their work even easier.”

Dr Sonny, who is assistant professor at the law faculty of the International Islamic University Malaysia, said it would come to a point where people would get too tired with the intrusion and abuse of their privacy.

“In Malaysia, for example, more people are being aware about the need to protect personal data thanks, to the enforcement of the PDPA 2010 (Personal Data Protection Act).

“Perhaps it is timely now to consider the development and penetration of cyber insurance as a new product for our insurance industries,” he said.

Imam Hoque, managing director of business analytics software and services company SAS said another reason why more cyber criminals target mobile devices was the increasing number of corporations embracing the “bring your own device” (BYOD) to work policy.

“This coupled with a general trend for business to provide more methods of interaction with consumers using mobile devices opens up further opportunities for hackers.

“The emergence of more mainstream malicious software kits for these mobile devices will accelerate the number of attacks on the mobile channel,” he said.

Hoque said that the continued trend to store data within the cloud, coupled with the high-publicised data losses from corporations such as Sony would encourage more hackers to consider large data loss exploitation.

“This in turn will lead to higher levels of identity theft and the ability of hackers to compromise the relationships between individuals and the institutions with which they interact,” he said.

CyberSecurity Malaysia CEO Dr Amirudin Abdul Wahab said while malware would continue to rise steadily on mobile devices to attack individuals, cyber criminals would also exploit the mobile device for advanced persistent threats (APT) on specific targets, resulting in high impacts on security, prosperity and public safety like critical infrastructure and big corporations.

“We foresee sophisticated APT carried out using a combination of technical sophistication, excellent planning and coordination, and social engineering,” he said, adding that another major cyber threat next year was the increasing influence of social media.

“Social media can be exploited to propagate political and racial radicalism as well as religious extremism that could destabilise our national security and societal harmony which we have taken for granted all these years.”

BY Hariati Azizan The Star/Asia News Network

Common hack job used to attack Sony Pictures 

Hack_SonyThe entrance of Sony Pictures Studios in Culver City, California is seen December 16, 2014. “Guardians of Peace” hackers invoked the 9/11 attacks in their most chilling threat yet against Sony Pictures, warning the Hollywood studio not to release a film which has angered North Korea. – AFP

PETALING JAYA: The hack on Sony Pictures Entertainment might have been one of the most incredible cyber attacks ever, but it was carried out in one of the most common modus operandi of cyber crime.

As reported on Friday, US investigators had evidence that hackers stole “the keys to the entire building” of Sony Pictures by getting the password of a top-level information technology employee in the entertainment company.

Security experts in Malaysia have warned that we are also vulnerable to similar attacks with low level of awareness of cyber threats and security measures.

Cyber criminals exploit “users’ ignorance”, along with the rise of social media and mobile devices, to mount attacks against them,” said CyberSecurity Malaysia CEO Dr Amirudin Abdul Wahab.

He said more cyber criminals were using a combination of technical sophistication and social engineering – a non-technical method of intrusion that relies heavily on human interaction – to trick people into breaking normal security procedures and giving up their personal data.

Nigel Tan, director of systems engineering for Symantec Malaysia, cautioned that user behaviour will continue to be big target points for cyber crime next year.

“Sometimes the weakest link is the person behind the keyboard. If they visit dodgy websites, click on unknown links in fake emails and download apps or malicious software, cyber criminals will take advantage of this to siphon off information like passwords for online banking or e-mails.”

Tan said as most people still tend to use the same password for all their online transactions, services and websites, a stolen password can give the thief access to the victim’s whole life.

“And once they access your email, they can reset all your passwords and take over your identity,” he said.

Imam Hoque, managing director (Fraud and Security Solutions) with business analytics software firm SAS said the growing number of online services has created a goldmine for cyber criminals.

“If you think about how many different services you interact with over web and mobile channels, the numbers are forever growing.

“You need to consider what a hacker would need to know to compromise your accounts and then what damage they could do,” he said, stressing that hackers tend to go for the weakest link and then work their way from there.

Tan highlighted the case of a group of hackers in August who claimed to have stolen 1.2 billion usernames and passwords belonging to more than 500 million e-mail addresses in a hack described as the “largest data breach known to date”.

“They did it by targeting every site their victims visited, instead of focusing on one large company,” he said.

Cyber law expert Dr Sonny Zulhuda said cyber criminals tended to exploit people’s greed to attack them.

“While it is important to equip ourselves with some technical knowledge about the risks and threats to security, we also need to use our common sense when facing possible threats.

“One thing we need to understand with technology is the law of economy – why would people provide you mobile apps for free? Or any online service for that matter, for free?”

“How do they make profit if not from the access to users’ information that they acquire when you install such a free app? If one is keeping this in his mind, then he will be more mindful and careful in using the mobile devices.”

Dr Amirudin warned local computer experts not to be seduced by the seemingly easy but lucrative reward of cyber crime.

“Cyber crime is preferred by criminals due to its profitability, convenience and low risk, and their ‘success’ has boosted the global underground economy. It has even become a money-making profession for some computer experts.

“If this trend affects Malaysians, our own experts could be recruited to join the lucrative international underground economy, while our general public become their potential victims.”

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Is the weakening Malysian ringgit a similar to 1997/98 crisis?


asian-financial-crisis-1997-98

Economic troubles ahead but most don’t think it will be as bad as back then

We don’t see a crisis brewing in emerging Asia. But that is not to say there aren’t risks. We believe those risks are going to be mitigated and managed. Despite some portfolio outflows, we believe there is still sufficient liquidity in the market for some trading ideas

The weakening ringgit has caused anxiety. But is the economy in a similar situation to Malaysia’s worst ever crisis 16 years ago?

MANY Malaysians will still remember the Asian financial crisis of 1997/98. Nearly 20 years ago, the then crisis was responsible for the greatest capital market crash in the country and forced many structural changes we see today in the financial markets.

It was a time of great turmoil, with people losing their investments on a scale never seen since. Companies for years bankrolled on easy credit were leveraged to the hilt and crumbled under the weight of their debts as business evaporated and the cost of credit soared.

Shares traded on the stock exchange mirrored the scale of the troubles. The benchmark stock market index plunged from a high of 1,271 points in February 1997 to 262 on Sept 1, 1998. Words such as tailspin and panic were common in the financial section of newspapers and the chatter among market players as people scrambled to take action.

“More people are talking about it with the fall in the ringgit,” says a fund manager who experienced the difficult times in the late 1990s.

Triggering the crisis back then was the fall in the regional currencies, starting with the Thai baht. Speculators then zeroed in on other countries in Asia and Russia as the waves of attack on the currencies back then saw many central banks spending vast amount of foreign exchange reserves to defend their currencies.

Exhausting their reserves, those central banks requested for credit help from the International Monetary Fund to replenish their coffers.

Attacks on the ringgit and many other currencies in Asia sent the ringgit into freefall as the currency capitulated from a previously overvalued zone against the US dollar.

The ringgit dived into uncharted territory to around RM4.20 to the dollar before capital controls were imposed and the ringgit was pegged at RM3.80 to the dollar. The ensuing troubles were seen from the capital market to the property sector. Corporate Malaysia was swimming in red ink and huge drops in profit.

The shock from that period was different than what the country had seen in previous recessions. The last economic recession prior to that was caused by a collapse in global commodity prices and during that pre-industrialisation period before factories mushroomed throughout the major centres of the country, unemployment soared. Unemployment was not a major issue in 1997/98 like it was in the prior recession but the crunch on company earnings meant wage cuts and employment freezes.

With the drop in crude oil and now with the resurgence of the US economy, the flight of money from the capital market has began.

Deja vu?

Most would argue that no two shocks or crisis are the same. There is always a trigger that is different from before. From the Asian financial crisis, the world has seen the collapse of the dotcom boom which crushed demand for IT products and services. Then there was the severe acute respiratory syndrome (SARS) crisis and the global financial crisis in 2008/09. There were periods of intermittent volatility in between those periods but there was nothing in Malaysia to suggest trouble ahead.

Shades of 1998 though have emerged in this latest wave of turmoil but the situation now is not the same as it was back then.

“We don’t see a crisis brewing in emerging Asia. But that is not to say there aren’t risks. We believe those risks are going to be mitigated and managed,” says World Bank country director for South-East Asia, Ulrich Zachau.

The fall in crude oil prices, which has been the trigger for Malaysia, has sent the currencies of oil-producing countries lower, affecting their revenues and budgets. In South-East Asia, pressure has been telling on the ringgit and the Indonesian rupiah.

Reminiscent of the gloom and doom of 1997/98, the Indonesian rupiah tanked against the dollar to levels last seen during that period.

Intervention by the Indonesian central bank addressed the decline, but the situation is also different today then it was back nearly two decades ago.

“Bank Negara is still mopping up liquidity today,” says another fund manager who started work in Malaysia in the early 1990s.

Although liquidity is plentiful in Malaysia, money has been coming out of the stock market. Foreign selling has been pronounced this year and the wave of selling has seen more money flow out of the stock market this year than what was put in to buy stocks last year.

Equities is just an aspect of it as the bigger worry is in Government bonds where foreigners hold more than 40% of issued government debt.

“The fear is capital flight and people are looking to lock in their gains,” says the fund manager.

“The worry will start when people get irrational.”

Times are different

While the selling that is taking place in the capital markets is a concern, Malaysia of today is vastly different than it was during the 1997/98 period.

For one, corporates in Malaysia are not as leveraged as they were back then. Corporate debt-to-gross domestic product (GDP) ratio is below 100% but it was above 130% in 1998. Furthermore, corporate profits are still steady although general expectations have been missed in the last earnings season.

Secondly, fund managers point out that the banking system is in far better health today, better capitalised and seeing the average loan-to-deposit ratio below 100%. That loan-to-deposit ratio was much higher than 100% during the 1997/98 period and and as loans turned bad, the banks got into trouble.

“Fundamentally, we are much stronger now. That was not the case back then,” says a corporate lawyer.

“The worry though is on perception and denials that there is no trouble.”

The one big worry, though, is household debt. That ratio to GDP is crawling towards the 90% level while it was not even an issue back in 1997/98.

Sensitivity analysis by Bank Negara which looks at several adverse scenarios, such as a 40% decline in the stock market and bad loans from corporates and households shooting up, indicate that the banking system can withstand a major shock.

“The scenario-based solvency stress test for the period 2014 to 2016 incorporated simultaneous shocks on revenue, funding, credit, market and insurance risk exposures, taking into account a series of tail-risk events and downside risks to the global economic outlook.

“The simulated spillovers on the domestic economy were used to assess the compounding year-on-year impact on income and operating expenses, balance sheet growth and capitalisation of financial institutions, disregarding any loss mitigation responses by financial institutions or policy intervention by the authorities,” says Bank Negara in its Financial Stability and Payment Systems Report.

“Even under the adverse scenario, the post-shock aggregate TCR (total capital ratio) and CET1 (common equity tier 1) capital ratio of the banking system were sustained at 10% and 7% respectively, remaining above the minimum regulatory requirement under Basel III based on the phase-in arrangements which are consistent with the global timeline,” it says in the report.

Government finances and the current account

The line in the sand for Government finances seems to be at the US$60 per barrel level for crude oil prices. A number of economists feel the Government will miss its fiscal target of a 3% deficit next year should the price of crude oil drop below that level.

With oil and gas being such a big component of the economy than what it was in 1997/98, the drop in the price of crude oil could also spell trouble for the current account and cause a deficit in the trade account.

Those concerns have been highlighted by local economists and yesterday, Fitch Ratings echoed that worry.

“Cheaper oil is positive for the terms of trade of most major Asian economies. But for Malaysia, which is the only net oil exporter among Fitch-rated emerging Asian sovereigns, the fall increases the risk of missing fiscal targets.

“The risk of a twin fiscal and external deficit, which could spark greater volatility in capital flows, has increased. Malaysia’s deep local capital markets have a downside in that they leave the country exposed to shifts in investor risk appetite. Malaysia’s foreign reserves dropped 6.8% between end-2013 and end-November 2014, the biggest decline in Fitch-rated emerging Asia,” it says in a statement yesterday.

Despite the softness in the property market and corporates getting worried about their profits, the general feeling is that Malaysia will not see a repeat of 1997/98. The drop in the ringgit and revenue for crude oil will mean a period of adjustment but the cheaper ringgit will make exports more competitive.

The difference between then and now

The ringgit vs the dollar …The ringgit’s steep decline against the dollar has made it one of the worst performing currencies of late. That decline, although steep and having caught the attention of the central bank, is more down to the link with the decline in crude oil than structural issues to be worried about.

Capital ratios of banks …Banks today are far better capitalised then they were during the 1997/98 crisis, which forced the local banking industry to consolidate for their own good. Stress tests by the central bank suggests then even under adverse conditions, banks in Malaysia wil be able to withstand the shock associated with it.

Loans-to-deposit ratio …The ratio of loans against the deposit of banks have been rising but it is no where at the level before the Asian financial crisis in 1997/98. Banks too are aware of making sure it does not cross 100% and the development of the bond market means leverage risk has been diversified from the banking sector.

Businesses not as leveraged …One of the reasons corporate Malaysia was in trouble in 1997/98 was down to its leverage, or debt levels. Today. corporates are not as geared as they were back then and although that level is rising, their financial position and better cash balances and generation means they are able to better withstand a shock to the economy.

Household debt to GDP …

This is the biggest worry. As households are leveraged despite the financial assets backing it, that means any economic weakness or shock will affect the ability to service loans taken to buy those assets. As consumer demand has been a big driver to the economy, any changes the affects the ability of consumers to continue spending will impact on
economy growth and have an impact on non-performing loans in the banking sector.

Dropping current account surplus …

The decline in the current account surplus means that the domestic economy has been growing strongly. There were concerns earlier and the prioritisation of projects was able to smoothen imports to ensure a positive balance of trade. The drop in crude oil prices could mean a deficit in the current account in the first quarter of next year but the weaker ringgit should translate to better exports and a better current account balance thereafter.

By JAGDEV SINGH SIDHU Starbizweek

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Nanjing Massacre is undeniable! Remember it to better embrace peace


Nanjing Massacre remember

Chinese President Xi Jinping and Zhang Dejiang, chairman of the Standing Committee of the National People’s Congress,
attend a state commemoration for China’s first National Memorial Day for Nanjing Massacre Victims in Nanjing, east China’s Jiangsu Province, Dec. 13, 2014. (Xinhua/Lan Hongguang)

http://player.cntv.cn/standard/cntvOutSidePlayer.swfFull Video: State memorial ceremony for Nanjing Massacre victims

Full Video: State memorial ceremony for Nanjing Massacre victims

China observed the first National Memorial Day for Nanjing Massacre Victims on Saturday. It is a day to reflect on the past and look forward to the future, and a day to make people more aware of the significance of peace.

Invading Japanese troops captured Nanjing, then the capital of China, on Dec. 13, 1937 and started a bloody campaign lasting more than 40 days. More than 300,000 Chinese civilians and unarmed soldiers were killed and about 20,000 women were raped.

Seventy-seven years later, the deep wound may be healed, but the scar has always been there. Chinese people cannot and should not forget those dark and miserable moments in their history.

That is why in February, China’s top legislature decided to designate Dec. 13 as the National Memorial Day for Nanjing Massacre Victims, along with Victory Day of the Chinese People’s War of Resistance Against Japanese Aggression on Sept. 3.

The memorial day is no different from how Americans remember the attack on Pearl Harbor and the Allies mark the D-Day invasion of Normandy.

Observing the day is of great significance, especially as some people in Japan, which committed the brutal crime, are still trying to deny the facts. It urges Japanese right-wingers to stop distorting the country’s history of aggression.

History will not change due to the changing times. Facts will not disappear because of clever denial.

The remembrance of the massacre victims is a warning to the world about the brutality and destructivity of war. Peace cannot be achieved and maintained by a single party. What Japan should do is reflect on its history of aggression, correct its mistakes and change its course.

The day is meant to remind the Chinese people and all peace-loving people around the world to be cautious about Japan’s history of militarist aggression and safeguard the WWII victory and post-war international order.

Overcoming one and a half centuries of humiliation by invaders dating back to the Opium War (1840-1842), China is sober-minded that it must become stronger through remembrance of the massacre victims in order to avoid stepping on the old path.

People who experienced the torment of war are deeply eager for peace. The Nanjing homage day also gives China determination to pursue the road of peaceful development and contribute to, rather than threaten, regional and world peace.

The Chinese remember history not out of hatred, but of love — the love of peace, and love for humanity.

Source:Xinhua Published: 2014

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President Xi addresses state memorial ceremony for Nanjing Massacre victims
President Xi addresses China’s first state memorial ceremony for Nanjing Massacre 
President Xi addresses state memorial ceremony for Nanjing Massacre victims
Chinese President Xi Jinping addresses a state commemoration for China’s first National Memorial Day for Nanjing Massacre Victims in Nanjing, east China’s Jiangsu Province, Dec. 13, 2014. A state commemoration for China’s first National Memorial Day for Nanjing Massacre Victims was held here on Saturday.

http://player.cntv.cn/standard/cntvOutSidePlayer.swf

Nanjing memorial gains global media attention

China on Saturday marked the day when 77 years ago invading Japanese soldiers slaughtered more than 300,000 people, mostly unresisting civilians.


7th episode of Nanjing Massacre Archives released

President Xi addresses China’s first state memorial ceremony for Nanjing Massacre 

Full coverage:

National Memorial Day for Nanjing Massacre Victims

China’s State Archives Administration has published the transcript of a court verdict against a Japanese Major General who was involved in the Nanjing Massacre.

Major-General Sasaki Toichi is widely recognized as having overseen some of the worst atrocities that took place under his command.  According to the verdict, his unit committed atrocities of unparalleled brutality and violence. They included mass murder, gang rapes, beheadings, burning and burying people alive, looting and wanton
destruction.

His unit alone killed over 100,000 victims, one third of the total.  Today’s publication is the latest in a series of releases by the archive, aimed at heightening awareness of the massacre, in the run-up to today’s memorial events.

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Malaysian obsession for titles, world’s highest holders!


Change mindset of obsession for titles

I REFER to the letter “Just one too many Datuks around” (The Star, Dec 6 :see beloww) by Pola Singh.

It is utterly amusing that Malaysians are so obsessed with titles, especially the politicians and business community.

It is said Malaysia has one of the world’s highest rates of royal title holders estimated to run into tens of thousands.

Our former Prime Minister Datuk Seri Dr Mahathir Mohamad had warned about title glut. When you have too many Datuks then the value of the title will drop.

“If you produce a million Ferrari cars. Nobody will care about buying a Ferrari,” Dr Mahathir had said.

In Britain, which has double the population of Malaysia, fewer than 100 will be knighted by the Queen every year.

In comparision about 300-400 new Datuk titles are conferred in Malaysia.

Currently, there are 15 different avenues where a person can be conferred a Datukship within Malaysia – from the Yang di-Pertuan Agong and the 14 states including the Federal Territory of Kuala Lumpur.

I have a few friends who have done nothing for the rakyat yet have been bestowed with “Datuk” and‘Tan Sri” titles.

It is embarrassing how one could carry these titles without any contributions to society or with personal achievements to show.

This group is highly egocentric and self-serving. Great personalities do not fall for this kind of cheap publicity.

US president Barack Obama, former South Africa President Nelson Mandela, newly crowned Indonesian President Jokowi, Chinese President Xie Jinping do not carry any titles.

Big achievers like Steve Jobs, Mark Zuckerberg, Larry Page, Oprah Winfrey and Bill Gates hardly have any titles to their name; yet have contributed immensely to mankind.

Malaysians must change the mindset of title obsession and instead contribute positively to our beloved nation, participate in NGO activities and do something good for fellow human beings who are living hand to mouth.

To some, titles purportedly help slice through red tape and gain easy access to those in power.

However, when these Datuks or Tan Sris leave Malaysian shores, often they don’t get any recognition.

I wish to relate an incident during an international function in a foreign country attended by the host country’s Prime Minister.

This particular Tan Sri was trying to push his weight to get a front seat through his assistants but was refused by security officials.

He was sent to the back of the hall. In Malaysia it could have been a different story.

Malaysians must understand that recognition and reputation comes with your noble work for community, contribution to the society, high moral standards, and integrity.

We must stop this obsession of seeking titles.

Source: FR Subang Jaya The Star/Asia News Network

Just one too many Datuks around

THERE is a joke going around that “if you throw a stone into a VIP crowd in the country, not only will it hit a Datuk but it will rebound off him and hit another Datuk”. And if you were to do the same to an ordinary group of Malaysians, then at least half of those hit will be Datuks!

Many believe that there are just too many Datuks around. I agree.

On a number of occasions, I have been put in a rather embarrassing situation when I entered a room and called out to my ex-classmate who is a Datuk. Unfortunately, the one I was referring to was not paying attention but I got cold hard stares from two other Datuks I was not familiar with.

On another occasion in a room full of VVIPs, I said something unpleasant (with a particular Datuk in mind) but I got immediate response from two other Datuks thinking that I was referring to them. How can we enlighten Datuks that there are also others in the room with the same title and that they cannot infer that they are the only ones with the title?

I have asked around whether I could address a Datuk using his or her maiden name? I have been told politely time and again that this is indeed a sensitive issue; the majority of the Datuks would feel slighted if we do not address them by their title. It means a lot to them. It makes them feel important.

And please don’t forget the Datins. They too want their share of the limelight. The look on their faces tells all if you were to address them by their name.

I know of a secretary who was severely reprimanded by her boss when she printed his new calling card with the new title “Tan Sri”.

Her superior was angry that she left out his previous Datuk title in the card. Since the Tan Sri title is a higher award, she assumed that the Datuk title need not be used anymore.

Then there are those Datuks who have recently been conferred “Tan Sri” titles and strongly resent if one were to absent-mindedly call them “Datuk”.

Yes, there are also the humble ones who tell you that they prefer to be called by their names but they are a minority.

Perhaps the Association of Datuks can take the lead and persuade its members to encourage the public to refer them by their name and not their title. This will be a good start.

But until then, please do not take any chances. If in doubt, address the VVIPs as Tan Sri first. And give the Datins and Puan Sris the due respect please.

By POLA SINGH Kuala Lumpur The Star/Asia News Network Dec 6, 201

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Many Malaysians are too obsessed with politics & race instead of expanding economic cake


Malaysian Ringgit

Sharing the same destiny

“Reading political blogs and getting into frenzy over race issues in social media seem to be the preoccupation of many Malaysians, when we all should be working together to achieve our economic growth target”.

 “There’s no point talking about how the economic cake should be cut when it is getting a smaller and needs to be expanded”.

I AM worried about the economy of Malaysia as we head towards 2015, and I am sure many Malaysians also share my concerns over the uncertainties in the coming months.

All the assurances and figures given by our leaders, we are sorry to say, are no longer convincing as they don’t seem to connect with market sentiments and the realities on the ground.

If we only listen to all the glowing official reports, everything is supposed to be all hunky dory. In short, there’s nothing to worry about as the economy is on course and Malaysia is doing everything right.

Rhetoric by politicians and certain individuals, which smacks of racism and political bullying, are not going to help the economy. It can only worsen race relations in Malaysia and make investors think twice about us.

And if you listen to the palaver of some politicians, it sounds as if there are more pressing issues than the state of our economy to worry about.

The impression given seems to be that the mundane issues of the economy should be left to the economists, businessmen and academics.

These are the delegates who see threats and ghosts from fellow Malaysians when there are none, but they are not able to see the huge economic challenges staring them in their faces.

Even if they are not business owners or part of Corporate Malaysia, they should be concerned about how these challenges will affect the ordinary people, including their livelihood.

This is the time when companies have to worry about paying the salaries of their staff, meeting targets, ensuring a clean sheet for the quarterly reports and planning for the next year.

The weak market sentiments and growing inflationary rates, coupled with the already tight wallets of many consumers, are hitting the lives of ordinary people hard. And even politicians too.

When companies don’t do so well, they have to cut down on operating expenses, reduce bonuses – possibly even increments – and do away with certain perks and privileges.

According to CIMB Research, the third-quarter results fell below consensus estimates, which was another reason for the weak overall stock market performance.

Based on the 117 listed companies the research house tracks, the percentage of stocks that missed expectations increased from 30% as at end August 2014 to 36% in the latest quarter.

Kenanga Research, meanwhile, said that during the third quarter, it “saw the highest number of companies under our coverage delivering below expectations results, or 40% of the stocks.”

These samplings provide a fair picture of the general performance of most companies listed on our stock exchange.

And it is, of course, not just the public companies but the private ones too that have to deal with these economic challenges.

In short, ordinary Malaysians have to brace themselves for a tougher year. Other economies like China and Singapore have also predicted lower single-digit growth for next year.

When the going gets tough, we will realise that many of us are living beyond our means, and the accumulated household debt will become problematic.

These are the substantial matters that we should all be talking about, not just at political meetings but also together as a nation.

We should all focus on expanding the economic pie and giving good suggestions on how to overcome these challenges.

It’s absurd to still talk about vernacular schools or sulk over the voting patterns of the Chinese voters in the last two general elections.

We are at a crucial juncture where the price of oil is sliding downwards and the ringgit is getting weaker. These are two factors that will have an impact on our Budget, which may even need to be revised.

The falling oil prices, which shows Malaysia’s exposure to external factors, pushed the ringgit to its lowest level since February 2010 against the US dollar on Thursday.

These grassroots-level politicians should be worried about the price of commodities, especially palm oil, as it would have a deep impact on the rural smallholders whom they claim to champion.

They should be asking our leaders if these would affect our vision to become a high-income developed nation by 2020, which is only just five years from now!

One does not need a degree in economics to know that our heavy reliance on the export of oil, palm oil and rubber for the country’s revenue means the decline in global prices for these commodities will hit us hard.

We are talking about the effects on our half-a-million rubber tappers and smallholders who are already struggling with the daily cost of living, as media reports predict over a 60% drop in earnings since early this year.

Felda Global Ventures Holdings Bhd reported its first quarterly loss of RM12mil for the quarter ending September, with its stock price taking a beating after the announcement.

Worse, the company only achieved 53% of the market consensus full year profit.

Just over the last one month, foreign investors have reportedly taken out over US$3bil (RM10.4bil) from the country.

Among us Malaysians, there seems to be an extreme obsession with politics, and there seems to be no real concern with business and economics.

Reading political blogs and getting into a frenzy over race issues in social media seem to be the preoccupation of many, when we all should be working together to achieve our growth target.

There’s no point talking about how the economic cake should be cut when it is getting smaller and needs to be expanded.

Some of us are remarkably arrogant and think that we are better than our neighbours because they are the ones who supply us with maids and construction workers.

This kind of thinking will be our downfall as these countries, with their bigger markets, quickly put their act together.

The depreciation of the ringgit, while making our exports more attractive in price, will also mean costlier food bills as we are a net importer of food.

All this may sound gloomy and even seem out of place as the year comes to a close and when most of us have to clear our leave and spend time with our families during the holiday season.

But the point to politicians who still live in a world of their own is that they should worry about the economy and how ordinary people live. After all, the reason they are in politics is to seek power and helm the government, which has to be responsible for many of these issues.

American civil rights leader Martin Luther King Jr once said: “We may have all come on different ships but we are in the same boat now.”

Some of us may still want to argue over this saying but make no mistake about it – as Malaysians, we share the same destiny.

The views expressed are entirely the writer’s own

On The Beat by Wong Chun Wai

Wong Chun Wai began his career as a journalist in Penang, and has served The Star for over 27 years in various capacities and roles. He is now the group’s managing director/chief executive officer and formerly the group chief editor.

On The Beat made its debut on Feb 23 1997 and Chun Wai has penned the column weekly without a break, except for the occasional press holiday when the paper was not published. In May 2011, a compilation of selected articles of On The Beat was published as a book and launched in conjunction with his 50th birthday. Chun Wai also comments on current issues in The Star.

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Oil & Gas lead to wealth crunch, Malaysian Ringgit beaten and dropped!


PETALING JAYA: With the oil and gas (O&G) sector being the hardest hit in the current market rout, tycoons who own significant stakes in these companies have seen a huge loss in their net worth.

These tycoons had collectively had their shareholding in these companies valued at some RM15.89bil when O&G stocks were trading at their highest prices. The fall in global crude oil prices and the plunge in the value of O&G stocks on Bursa Malaysia saw the value of their shareholding cut by almost half to some RM7.86bil yesterday.

Accelerating the decline in share prices yesterday and the loss in their net worth was the decision by Petroliam Nasional Bhd (Petronas) to slash its capital expenditure (capex) by between 15% and 20% next year.

Petronas’ capex cut has spooked investors in the local O&G sector as many companies rely on the national oil company for work. Petronas’ huge capex, estimated at RM60bil a year prior to the planned cuts, was also a buffer for the domestic industry from the onslaught of crumbling crude oil prices and its effect elsewhere.

The largest of these companies, SapuraKencana Petroleum Bhd, has seen its share price dip by 48.78% year-to-date. At its peak, SapuraKencana was trading at RM4.81, translating to a wealth of RM4.85bil for Tan Sri Shahril Shamsuddin’s 16.84% stake in the integrated O&G concern.

SapuraKencana was the most actively traded counter yesterday, falling 10.36% to close at RM2.51. At yesterday’s market capitalisation of RM16.76bil, Shahril’s shareholding in the company was valued at RM2.53bil.

Another major shareholder of SapuraKencana is Tan Sri Mokhzani Mahathir, whose 10.25% interest has also seen a decline by almost half its value. At yesterday’s price, Mokhzani’s stake in SapuraKencana was valued at RM1.54bil compared to the RM2.95bil it was worth during its highest level.

Mokhzani had sold a block of 190.3 million shares in SapuraKencana earlier this year when the stock was trading at around RM4.30 per share, giving the entire sale a value of RM818.29mil. The shares were taken up by seven institutions.

Another stock in which Mokhzani has an interest in, Yinson Holdings Bhd, was also not spared from the bearish sentiment surrounding O&G stocks. Yinson’s share price has declined from its peak to close at RM2.45 on Dec 1. Based on yesterday’s price, Mokhzani’s stake in the company was worth RM235mil.

Billionaire Robert Kuok, T Ananda Krishnan, Tan Sri Ngau Boon Keat and Tan Sri Quek Leng Chan are also part of the list of value losers in this O&G stock meltdown.

Kuok owns 80% of PACC Offshore Services Holdings (POSH Semco), an offshore marine services provider that was listed on the Singapore Exchange in mid-2013 at a price of S$1.15 per share. POSH Semco closed yesterday at S$0.51, meaning that Kuok has lost more than half the value of his stake in that company.

Similarly, Ananda’s worth from his 42.3% shareholding in Bumi Armada Bhd has gone down by half the value it was during the peak of its share price. To be noted is that Bumi Armada had undertaken a rights issue in August this year that has seen the dilution of Ananda’s shareholding in the company.

Bumi Armada, Malaysia’s largest offshore support vessel firm, was relisted in 2011 at a price of RM3.03 per share. The stock dived into penny-stock territory yesterday, falling to a low of 98 sen before ending the day at RM1.01 per share. Based on yesterday’s price, Ananda’s stake in Bumi Armada was valued at RM2.06bil.

Dialog Group Bhd’s Ngau, meanwhile, has seen the value of Dialog’s stock fall. His stake was worth RM1.45bil based on yesterday’s closing price of RM1.26. This is about a one-third decline from the RM2.25bil his 23.2% stake was valued at when the stock had hit a high of RM1.96.

Stock investors such as Quek and his lieutenant Paul Poh are also edging into negative territory.

Quek had bought his 9% in TH Heavy Engineering Bhd (THHE) in 2013 at a price of 45 sen per share, enjoying gains for most of this year – the stock had hit a high of RM1.03 on Feb 19 this year. THHE closed yesterday’s trade at 40.5 sen a share, giving Quek a paper worth of RM38mil for his shareholding in the company as opposed to RM80mil as at the end of last year.

In April, Quek and Poh also took a block of 15.5% in Alam Maritim Resources Bhd at RM1.35 a share. They are sitting on a paper loss of some RM80mil today, or a decline of over 40%.

By: GURMEET KAUR The Star/Asia News Network


Ringgit Slides With Stocks as Oil Slump Poses Risk to Revenues

Malaysia’s ringgit posted the biggest two-day decline since the 1997-98 Asian financial crisis and stocks slumped on concern a protracted slide in crude will erode the oil-exporting nation’s revenue.

The currency weakened 1.5 percent to 3.4340 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. The ringgit has dropped 2.5 percent in two days, the steepest decline since June 1998. The benchmark FTSE Bursa Malaysia KLCI Index of shares fell 2.3 percent in the worst one-day performance in 22 months.

Brent slid to a five-year low after OPEC’s decision last week not to cut production to shore up prices, which have slumped 41 percent from a June high. The potential revenue loss may make it harder for Prime Minister Najib Razak to lower the fiscal deficit to 3 percent of gross domestic product next year from 3.5 percent.

“Malaysia is probably most affected by oil prices in the Asian space,” said Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia. “The ringgit could fall to 3.45 this week.”

A 1997 devaluation of the Thai baht triggered the Asia financial crisis and prompted Malaysia’s government to adopt a pegged exchange rate to the dollar in 1998. The ringgit was fixed at 3.8 until the policy was scrapped in 2005.

The currency dropped to 3.4392 earlier, the lowest level since February 2010, when it last traded at 3.45 and went on to reach 3.4545 on the 5th of that month, data compiled by Bloomberg show.

Stocks Fall

Oil-related industries account for a third of Malaysian state revenue and each 10 percent decline in crude will worsen the nation’s fiscal shortfall by 0.2 percent of GDP, Chua Hak Bin, a Bank of America Merrill Lynch economist in Singapore, wrote in an Oct. 22 report.

The FTSE Bursa Malaysia Index was dragged down by oil, gas and plantation stocks. The gauge has dropped 6 percent from its 2014 high in July.

SapuraKencana Petroleum Bhd., Malaysia’s biggest listed oil and gas services company by market value, fell 10 percent, the most on record. Dialog Group Bhd. (DLG), a contractor in the same industry, dropped 15 percent.

“We are watching the stocks closely,” said Gerald Ambrose, who oversees the equivalent of $3.6 billion as managing director at Aberdeen Asset Management Sdn. in Kuala Lumpur. “There are a lot of oil and gas companies that meet our quality and criteria but there was no upside previously. Now prices are falling.”

Bonds, Exports

Malaysia is already seeing a deterioration in its terms of trade. The current-account surplus narrowed to 7.6 billion ringgit ($2.2 billion) in the third quarter, the smallest gap since June 2013. A Dec. 5 report may show the nation’s exports declined 0.3 percent in October from a year earlier, according to the median estimate in a Bloomberg survey. That would be the worst performance since June 2013.

The nation’s sovereign bonds fell. The yield on the 4.181 percent notes due 2024 rose three basis points, or 0.03 percentage point, to 3.89 percent, data compiled by Bloomberg show. That’s the highest since Nov. 24. The five-year bond yield advanced five basis points to 3.81 percent.

“Hopes for Malaysia have rested on the fiscal consolidation story,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “Markets need to be re-priced for diminished hopes on that front.”

Source: Bloomberg By Liau Y-Sing and Choong En Han

Beating for KLSE and ringgit

PETALING JAYA: The stock market and the ringgit have taken a beating from falling oil prices, which have sunk below the US$70 per barrel mark.

The benchmark FBM KLCI, which measures the key 30 stocks of Bursa Malaysia, was down 42 points or 2.34% at its close at 5pm, marking its worst performance since mid-October, while the ringgit declined to 3.4340 against the US dollar, a four-and-a-half-year low.

At 5pm, Brent crude oil was down 94 cents to a five-year low of US$69.21 while US light crude oil – better known as West Texas Intermediate (WTI) – fell US$1.09 to US$65.06 as markets continued to be spooked by the plunge in oil prices.

The plunge follows an Opec decision not to cut production despite a huge oversupply in global markets.

The technical indicators are all pointing to even lower oil prices.

Technical analysts said the WTI – the benchmark oil price used by Bank Negara to calculate the economic indicators – should find some support at US$64 per barrel.

If it goes below that level, it could plunge all the way to US$32.40 per barrel – the lowest recorded price in recent years when it hit US$32.40 per barrel on Dec 19, 2008, before rising to US$114.83 on May 2, 2011.

Taking the cue from the plunging oil prices and a chilling warning issued by Petronas on declining revenues, oil and gas stocks on Bursa Malaysia also faced a rout which affected market sentiment as a whole.

Yesterday, some 981 counters declined compared to 82 gainers while 150 were unchanged.

Petronas president and chief executive Tan Sri Shamsul Azhar Abbas had said on Friday that the national oil corporation was cutting its spending for next year by between 15% and 20% and asserted that its contribution to the Government’s coffer in the form of taxes, royalties and dividends could be down by 37% to RM43bil from RM68bil this year.

Analysts said the selling could be over-done and expected a relief rebound when oil prices settle.

Oil prices fell to their lowest in five years yesterday due to the production war between Opec and the American oil boom from shale oil producers.

In recent months, the United States has become a major producer of shale oil and gas – fuel that’s extracted from rock fragments – threatening the position of Saudi Arabia as the dominant oil-producing country.

In response to the threat, Opec, which is influenced by Saudi Arabia, has vowed to continue production of oil in a market where supply has outstripped demand.

This has led to a free fall in global oil prices that have declined by more than 40% since July this year.

Late last night after the opening of the US counters, oil price fell to below US$65 a barrel.

Saudi Arabia hopes to break the back of shale oil and gas producers by making their operations not financially viable.

It had been reported earlier that at prices below RM80 a barrel, shale oil producers would go bust.

However, Bloomberg reported that only about 4% of US shale oil output needs US$80 a barrel or more to be economically viable.

Among the top losers of the Bursa yesterday were SapuraKencana Petroleum Bhd, Bumi Armada, Dialog Group Bhd, UMW Oil and Gas Bhd and Petronas-related counters.

The paper wealth wiped out due to the rout on the oil and gas stocks was close to RM8bil.

The selling pressure also spread to plantation stocks, with crude palm oil for third month delivery down RM63 to RM2,109 per tonne. The fall in crude oil prices would make biodiesel less viable as an alternative at current prices.

However, low-cost carrier AirAsia Bhd bucked the trend as it stands to benefit from weaker oil prices. AirAsia rose 21 sen to RM2.79.

Investors were also worried about the impact Petronas’ reduced payout would have on the Government that counts on the national oil corporation as a key source of funding for its expenditure.

UOB Kay Hian Malaysia’s head of research Vincent Khoo said a much lower crude oil price scena­rio would bring negative implications on the ringgit and the Federal Government’s ability to spend its way to pump prime the economy.

The head of research, products and alternative investments at Etiqa, Chris Eng, said that based on the weakening of the ringgit, foreign funds could be behind the selling.

“However, today’s selling was over­­done and I believe there could be a relief rebound,” he said, based on improving US economic growth and ample liquidity from China and Japan.

Eng said according to reports, Bank of America believed Malaysia’s budget deficit could balloon to 3.8% from a planned 3% while Citi thought the 3% deficit could still be maintained.

“The outlook for investing in 2015 remains challenging but it also depends on what level the local bourse ends the year,” he said.

By JOSEPH CHIN The Star/Asia News Network

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Oil enters a new era of low prices: Opec vs US shale, impacts, perils as Petronas cuts capex


Petronas_free fall price

Oil Enters New Era as OPEC Faces Off Against Shale; Who Blinks as Price Slides Toward $70?

OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers.

The 12-nation Organization of Petroleum Exporting Countries kept its output target unchanged even after the steepest slump in oil prices since the global recession, prompting speculation it has abandoned its role as a swing producer. Yesterday’s decision in Vienna propelled futures to the lowest since 2010, a level that means some shale projects may lose money.

“We are entering a new era for oil prices, where the market itself will manage supply, no longer Saudi Arabia and OPEC,” said Mike Wittner, the head of oil research at Societe Generale SA in New York. “It’s huge. This is a signal that they’re throwing in the towel. The markets have changed for many years to come.”

The fracking boom has driven U.S. output to the highest in three decades, contributing to a global surplus that Venezuela yesterday estimated at 2 million barrels a day, more than the production of five OPEC members.

Demand for the group’s crude will fall every year until 2017 as U.S. supply expands, eroding its share of the global market to the lowest in more than a quarter century, according to the group’s own estimates.

Photographer: Eddie Seal/Bloomberg.Floor hands on the Orion Perseus drilling rig near Encinal in Webb County, Texas.

Benchmark Brent crudefell the most in more than three years after OPEC’s decision, sliding 6.7 percent to close at $72.58 a barrel. Futures for January settlement sank to $70.15 today, the lowest close since May 2010. Prices peaked this year at $115.71 in June.

Market Signals

“We will produce 30 million barrels a day for the next 6 months, and we will watch to see how the market behaves,” OPEC Secretary-General Abdalla El-Badri told reporters in Vienna after the meeting. “We are not sending any signals to anybody, we just try to have a fair price.”

OPEC pumped 30.56 million barrels a day in November and has exceeded its current output ceiling in all but four of the 34 months since it was implemented, according to data compiled by Bloomberg. OPEC’s own analysts estimate production was 30.25 million last month, according to a report Nov. 12. Members will abide by the 30 million barrel-a-day target, El-Badri said yesterday.

“OPEC has chosen to abdicate its role as a swing producer, leaving it to the market to decide what the oil price should be,” Harry Tchilinguirian, head of commodity markets at BNP Paribas SA in London, said yesterday by phone. “It wouldn’t be surprising if Brent starts testing $70.”

Conventional Producers

Conventional oil producers in OPEC can no longer dictate prices, United Arab Emirates Energy Minister Suhail Al-Mazrouei said in an interview in Vienna on Nov. 26. Newcomers to the market who have the highest costs and created the glut should be the ones to determine the price, he said.

“That is what OPEC is hoping for,” Carsten Fritsch, a commodity analyst at Commerzbank AG in Frankfurt, said in an e-mail. “It’s the question of who will blink first.”

OPEC may now be prepared to let prices fall to force some drillers with higher production costs to stop pumping, said Julian Lee, an oil strategist who writes for Bloomberg First Word and has worked in the industry for 25 years. That scenario would mark the start of a fourth oil-market era since the end of the 1970s, he said.

Fourth Era

Since the early 2000s, surging demand growth drove up prices allowing companies to apply new extraction techniques and develop deep-water and other costly oil. That ended an era that pervaded since the mid 1980s, which was characterized by low prices and OPEC regaining the market share that it had previously sacrificed in an attempt to preserve high prices, Lee said.

OPEC will face pressure too, with prices now below the level needed by nine member states to balance their budgets, according to data compiled by Bloomberg.

“They haven’t taken collective action,” Richard Mallinson, an oil analyst at London-based Energy Aspects Ltd., said by phone. “That doesn’t mean they won’t do it in the next few months if prices stay low.”

U.S. Production

U.S. oil production has risen to 9.077 million barrels a day, the highest level in weekly data from the Energy Information Administration going back to 1983. Output will climb to 9.4 million next year, the most since 1972, it forecasts.

Middle Eastern exporters including Saudi Arabia, Iran and Iraq can break even on a cost basis at about $30 a barrel, Sanford C. Bernstein & Co. They need more to balance their budgets. Some U.S. producers need more than $80, the consulting firm said in a report last month.

OPEC’s policy will spur a crash in the U.S. shale industry, Leonid Fedun, a vice president and board member at OAO Lukoil, Russia’s second-largest oil producer, said in an interview in London before the group’s decision.

“In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.”

The share prices of U.S. oil producers including Exxon Mobil Corp. and Chevron Corp. fell by at least 4 percent in New York trading today.

No Cut

Igor Sechin, the chief executive officer of OAO Rosneft, Russia’s largest oil producer, said after a meeting with Venezuela, Saudi Arabia and Mexico that his nation wouldn’t need to cut output even if prices fell below $60.

“The question is, what price level will be low enough to slow U.S. production growth?” Torbjoern Kjus, an analyst at DNB ASA, Norway’s biggest bank, said by phone. “What price will get U.S. growth to slow to 500,000 barrels a day from this year’s rate of 1.4 million barrels?”

Only about 4 percent of U.S. shale production needs $80 or more to be profitable, according to the Paris-based International Energy Agency. Most production in the Bakken formation, one of the main drivers of shale oil output, remains profitable at or below $42 a barrel, the IEA estimates. The agency expects U.S. supply to rise by almost 1 million barrels a day next year, with increasing flows to international markets.

OPEC has gone “cold turkey” on balancing the oil market, Goldman Sachs Group Inc. said in a report yesterday. Prices may have further to fall until there is evidence of U.S. production slowing, according to the bank. It said last month that oil markets were entering a “new oil order,” with OPEC retreating from its role as a swing producer.

“OPEC’s decision means it is over to you America,” Miswin Mahesh, a London-based commodities analyst at Barclays Plc, said in an e-mail. “This opens the window for the U.S. to be the new swing producer.”

Source: Bloomberg


The perils of cheaper oil

COME Dec 1, Malaysia will enter a new era long desired by the advocates of free market.

The pump price of petrol and diesel at the kiosk will be based on a managed float system depending on global oil prices. This will replace the current system where the Government fixes the price at the pump, a process that involves a huge amount of subsidy.

For years, the Government adopted the fixed price mechanism because it brought about an element of stability.

Unlike most other countries where the price at the pump varies from day to day, Malaysians are used to planning their expenditure based on a fixed price.

Right from a typical consumer to large companies, they all depend on oil or some form of energy to carry out their daily lives or operations. The fixed price has helped in their planning.

But the biggest disadvantage of having a fixed price for oil is that it involves a huge amount of subsidy, especially in an environment where oil prices go beyond what is anticipated by the Government.

Malaysia’s tale of subsidy woes is a subject matter that is often spoken about.

The subsidy bill is estimated at about 14% of the Government’s total operating expenditure of RM271.94bil for next year. The bulk of the RM38bil that has been set aside for next year is to ensure that the fuel cost remains stable.

There is a sales tax of 58 sen per litre on petrol sold at the pump. But the mechanism to collect the tax has not kicked in because the subsidy per litre is much higher than the sales tax.

Beginning July this year, the oil and gas dynamics changed with the United States becoming a large producer, thanks to the shale oil and gas.

The implications of the shale oil and gas on the global economy are huge. It has gone beyond the oil and gas industry. Oil-dependent nations such as Iran, Iraq and Venezuela are in trouble because a low oil price means less revenue and less money to fund their development programmes and, more importantly, to pay off their debts.

Venezuela is high on the list of countries that could seek some reprieve from bondholders because it needs oil price to be more than US$160 per barrel to balance its budget.

The Russian rouble has depreciated by more than 45% against the dollar and state-owned Rosneft has seen its profit almost collapse due to the depreciating currency.

Russia’s problems have exacerbated the slowdown in Germany, the strongest economy in Europe and this has in turn affected the entire eurozone recovery.

As for Asia, the best thing that the low oil prices have brought about is an era of low inflation and allowed some governments to carry out their reforms of energy policies. It has allowed governments to dismantle the subsidy system that has for long artificially kept the cost of production low.

Indonesia removed subsidies last week, a move that was cheered by foreign investors, because the system apparently only benefited a handful of powerful businessmen.

For Malaysia, when global oil prices are less than US$80 per barrel, which is the case now, there is no more subsidy for petrol and diesel sold at the pump. What kicks in is the sales tax of 58 sen per litre.

Come April 1 next year, the sales tax will be replaced with a goods and services tax of 6%. What this means is prices at the pump will be substantially lower than what they are today – provided global oil prices remain at less than US$80 per barrel.

Theoretically, this should translate into Malaysia having a lower cost of production due to cheaper energy prices. When oil prices went up over the past years, wages and all other costs followed suit. When the reverse happens, shouldn’t the cost of production come down?

Unfortunately that is not the case. The US is benefiting from the low energy cost era, at the expense of Asia. In fact, Asia as a whole may be losing out as a result of the steep fall in global energy prices.

Since the 1980s, Asian countries have been the destination for foreign manufacturers from the Europe and the US to relocate their operations because of the cheap cost of labour.

But manufacturers increasingly are paying more attention to destinations with low energy cost. Cheaper cost of energy is seen as an adequate substitute for low wages.

European manufacturers have turned to the US, where the cost of natural gas is one-third that of South-East Asia, to relocate their operations.

BASF, the large German chemical company, is planning to build a US$1.4bil plant in the Gulf Coast, apart from increasing its annual capital expenditure of US$20bil into that country.

An Austrian steel company, Voestalpine, is building a US$500mil facility in Texas to export iron for its steel plants. It will use natural gas to blast the furnace instead of coking coal in Europe.

Previously, these companies would make Asia their destination because of its low cost of production.

The flow of new manufacturing investments to the US is also assisted by the low rise in wages there compared with Asia. According to a report, between 2006 and 2011, Asian wages rose by 5.7% compared with only 0.4% in developed countries.

For decades the big gap in the wage rate increases between Europe, the US and countries such as Malaysia determined the flow of foreign investments. But now that is no longer the case.

Malaysia has to raise productivity or it will lose out on attracting new investments. Low wages alone will not do, especially now when prices of oil and gas resources are in a tailspin.

By M.SHANMUGAM The Star/Asia News Network

 

Petronas cuts capex

PETROLIAM Nasional Bhd’s (Petronas) announcement of its third-quarter results comes at a delicate time, considering that it is being watched by all and sundry.

Petronas president and CEO Tan Sri Shamsul Azhar Abbas

Amidst a scenario of a free-fall of oil prices and the politically-charged Umno General Assembly, it comes as no surprise that Tan Sri Shamsul Azhar Abbas (pic), the oil major’s president and chief executive, says he has to be “politically correct” in delivering his key message.

At a press conference yesterday, Shamsul also explained that Petronas had waited for the all-important Organisation of the Petroleum Exporting Countries (Opec) meeting to conclude before addressing the media in Kuala Lumpur.

And rightly so

The 12-member Opec decided on Thursday not to lower its output target, leading to oil prices plunging by a further 8% on Friday, cumulating in an almost 40% dip since mid-June.

The Brent crude oil price is now at US$72.84 per barrel and some forecasters are predicting that oil prices could hit US$60 per barrel.

Petronas itself is now predicting that oil prices could settle at US$70-US$75 next year.

This is a far cry from the US$108 per barrel that Petronas had averaged last year and the US$106 per barrel, which is the average price of the Brent crude for the first nine months of this year.

Shamsul lays out the bare truth on what the falling oil prices would mean for Petronas, the oil and gas (O&G) services industry and the federal government’s coffers:

  • Capital expenditure (capex) on the O&G industry will be cut by between 15% and 20%
  • Petronas’ contribution to Government coffers in the form of dividends, taxes and oil royalty for next year will dive by 37% to RM43bil, assuming the Brent crude settles at US$75 per barrel;
  • Petronas will not proceed with contracts to award new marginal oil fields unless oil settles at levels above US$80 per barrel
  • Projects in Pengerang that have yet to receive the final investment decision (FID) will be affected by the cut-backs. Projects worth US$27bil that have received FID will not be affected, but Petronas does not have 100% equity in all the projects approved.

The capex crunch is expected to send chills down the spine of the already fragile O&G sector, with the stock prices of listed players already haemorrhaging in light of the free-fall of oil prices.Petronas_free fall price

Apart from the 40-odd listed O&G companies, there are close to 4,000 other smaller companies that depend onPetronas for O&G service jobs.“Nearly all depend on Petronas for jobs,” says an official in the O&G industry.

The capex cut by the national oil company is likely to have a negative impact on these companies and runs contrary to what research houses have been projecting.

Global slide

Several research houses have been stating that the Malaysian O&G industry is sheltered from the global slide in crude because Petronas will keep up with its spending of about RM60bil per year.

Taking a jibe at the forecasters, Shamsul says he has been warning of a shake-up in the industry in all his quarterly briefings.

“But nobody wants to listen to me. The worst part is, some of them have been listening to these so-called desk-top analysts who say this cannot happen because Petronas is always there to help them out … dream on.”

Shamsul says it is also reviewing the feasibility of some of its projects and could shelve projects that are no longer viable and for which Petronas has yet to make its FID.

“For the last nine months, we have been telling you guys about the likelihood that oil prices will drop. So the declining oil price is no surprise to us,” says Shamsul.

“But like every international oil company (IOC) out there, declining oil prices will impact us, and as such, we have to review our capex plans for next year onwards, which is also what the IOCs are doing. We have to assess the feasibility of projects,” Shamsul says.

He adds that at current oil price levels, marginal oil fields are no longer feasible for Petronas to get involved in, and warns that companies seeking to get involved in this business are “dreaming”.

When asked what was his message to the service providers seeking to do more work for Petronas, Shamsul said: “I’ve been singing this song for the last nine months, to watch out because things are not going to be that rosy.

“But not many seem to want to listen to me. So, I’ve stopped singing that song. But when they (service providers) get hurt, they will know,” he said.

Clearly, Shamsul is referring to how the sluggish oil price will force it to become more cost-effective in its projects, cancelling some, shelving others and negotiating down the terms of others.

Impact to federal government coffers

Meanwhile, Shamsul also explains that based on the assumption that oil prices average US$75 per barrel for 2015, the state oil firm would be paying the Government about RM43bil in dividends, royalty and taxes.

This would be 37% less than the RM68bil it plans to pay the Government this year.

“The lower dividend and other payout contributions is to ensure Petronas has enough money to replenish the reserves. If we are to maintain the payouts, it will have a significant impact on our growth plans,” says Shamsul.

As such, he says the Government should relook and rebalance its budget planning to adjust to the new level of oil prices.

He also reiterates that Petronas still needs to keep investing in new technology, in overseas projects and increasing its oil reserves in order to maintain its growth, considering that current production levels decline by some 10% every year, naturally.

At present, Petronas produces some two million barrels of oil equivalent per day.

“In five years, if we don’t replenish our production, our production will be down to half of what we have today,” he asserts.

By RISEN JAYASEELAN, NG BEI SHAN The Sunday Starbizweek Nov 29 2014  

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