Oil-producing countries in Southeast Asia face a murky year ahead as the plunge in oil prices — by 60% in the past seven months — could clip national revenues and push back ambitious infrastructure projects.
The cheery days of gushing petrodollars appear to be on the verge of ending as the fall in prices, from nearly $115 per barrel last June to $45 this past week, is forcing some policymakers to rejig macroeconomic policies to cope with eroding national earnings.
Low oil prices prove to be a double-edged sword. On one hand, the advantage is now shifting to energy-importing economies as cheap oil cuts production and transport costs and helps spur exports, as in the case of India and Thailand.
But oil exporters such as Malaysia or Indonesia face pain as plunging revenues dent growth prospects and trigger budget deficit.
This week Malaysian Prime Minister Najib Razak is expected to announce changes to the 2015 budget, in the wake of the oil price collapse and weakening ringgit.
Treasury officials recently ordered all government-linked companies and statutory bodies to hold off on foreign purchases in response to falling global oil prices and the weakening ringgit.
"After taking into consideration the uncertain world economic outlook in 2015, the government ... is of the opinion that domestic consumption must be increased to generate and support the country's economy," said a Treasury circular.
Malaysia, Southeast Asia's second largest producer after Indonesia, pumps about 693,700 barrels per day (bpd) and exports much sought-after light sweet crude oil, which generate nearly one-third of the government's revenues. Any fall in oil price could derail Putrajaya's plans to cut its fiscal deficit by 3% this year.
"For Malaysia, 2015 will be a murky year, at least for the first half of the year. Malaysia will be hit because nearly 30% of its fiscal revenue is derived from oil and this will put a strain on the budget deficit," said Rosnani Rasul, head of research at M&A Securities Sdn Bhd in Kuala Lumpur.
"A softening oil price will affect GDP growth because the government may defer big-ticket projects. With the GST (goods and services tax) coming in April, there will be further uncertainties as consumers may reduce spending."
Oil prices started to plunge in the third quarter last year in response to an oversupply and excess production of shale oil in the United States, and the reluctance of the Organisation of Petroleum Exporting Countries (Opec) to cut supplies as members fought to keep market share.
According to the Paris-based International Energy Agency (IEA), current global demand is about 92 million barrels per day against a supply of nearly 94 million, resulting in a surplus of two million barrels.
The knock-on effects of weak energy prices are already being felt. Malaysia's national oil company Petroliam Nasional Bhd (Petronas), the largest oil producer in Asia, in November announced plans to slash capital expenditure by 15-20% of its annual 50-billion-ringgit ($14 billion) for 2015.
As energy companies prune their capital expenditure when oil prices fall, small and medium-sized companies that offer support services to the oil and gas sector start to suffer. From refiners and oil tanker operators to shipyards, rig builders and technology providers, they employ millions of workers across Asia.
In Malaysia, several companies related to the oil and gas industry have seen their share prices fall by an average of 20% since oil prices started to slide. They include Alam Maritime Resources Bhd, which provides maritime transport support service, and Perisai Petroleum Teknologi Bhd, an offshore services provider.
It's not all doom and gloom, however. Pimonwan Mahujchariyawong, deputy managing director of Kasikorn Research Center (K-Research) in Bangkok, points out that there could be some winners in the short term.
"The petroleum sector will likely suffer, especially oil and gas producers or drillers. However, companies in the downstream sector may be less vulnerable because they could maintain or increase margins, and may enjoy an increasing demand base due to cheaper retail prices," she said.
She said the indirect impact from shrinking oil prices would negatively affect substitute sectors, such as rubber, palm oil and ethanol. "This will even suppress farm prices and commodity exports of Thailand in this year."
However, softening prices are not all bad news for Malaysia. Southeast Asia's third-largest economy is better positioned to cope than it once was, as its economy has become more diversified now, with less dependence on oil and gas, according to experts.
The oil and gas sector constitutes 28% of GDP, while services now account for 56% and the remaining 16% is from manufacturing.
As well, the weak ringgit is helping exports while revenue from gas exports, for which prices have remained relatively stable, could help improve earnings.
The ringgit has weakened by 2.2% in the past month, the worst performance in Asia, on concern that the slump in energy prices will make it more difficult for the government to meet its deficit reduction target. Last week it was trading as low as 3.604 against the US dollar, the lowest since April 2009.
"Malaysia is not in as dire [a situation] as other oil-exporting countries because it is cushioned by earnings from gas exports and the manufacturing sector, especially from E&E (electrical and electronics) exports," said Dr Yeah Kim Leng, dean of the Business School at the Malaysia University of Science and Technology.
"The weak ringgit is helping improve our exports and GST could also offset the losses. There will be pre-GST spending by consumers. So this will balance out the losses from low oil prices in the case of Malaysia."
In Indonesia, Finance Minister Bambang Brodjonegoro warned last month that if the price of oil moved below $60 per barrel, it would "not be economical" for Indonesian producers, the Jakarta Post reported.
Indonesia is the largest oil producer in the region and exports about 820,000 bpd. Brunei's output has declined to 133,000 bpd but the tiny sultanate still relies heavily on petrodollars despite recent efforts to diversify its economy.
Vietnam's production is equivalent to 353,700 bpd, according to figures from the US Energy Information Administration, similar to Thailand where the bulk of the output is natural gas.
The sudden change in energy prices may have little impact on intra-Asean trade or GDP in the broader scheme of things since most of the 10 Asean members are export orientated economies, say experts.
"Our analysis indicates that the global oil price collapse could provide a net benefit to most Asean countries which are net oil importers," said Ms Pimonwan of K-Research. "And highly subsidised domestic oil prices will likely lead to higher current accounts and better fiscal balances, while lower energy costs may support private consumption and reduce business costs."
Analysts have said that for every $10 drop in oil prices, the GDP of countries such as Thailand could be boosted by 0.1% due to higher consumption as oil accounts for nearly 10% of the country's import bills.
Ms Pimonwan added that she did not expect all of the savings consumers gain from lower energy costs to translate into spending as long as concerns about the health of the global economy cloud sentiment.
Other analysts have also pointed out that Asians are more likely to save the money they gain from lower transport costs, while their American peers tend to spend such savings.
"On the other hand, cheaper global oil prices will possibly incur an indirect negative impact on Asean's economic relationships with large energy producers, for example Russia and Opec member nations, in terms of trade and tourism," said Ms Pimonwan.
She said several Asean countries would continue to maintain economic momentum along with rising foreign direct investment, supporting regional GDP expansion of more than 5%, improving from an estimated 4.5% in 2014.