Oil & Gas – Rising tide lifts all boats – Sector note

• We expect average Brent oil price around US$75/bbl in 2022 as the supply could not rise fast enough to keep pace with the growing demand.
• Our top picks are GAS, PVD and PLX.

We expect average Brent oil price to stay around US$75/bbl in 2022
For 2022F, we expect oil price to remain high as the demand keep strongly recovering while the supply could not rise fast enough to catch up the demand due to lower new investments for upstream activities during many years, causing to the difficulties in raising oil production. Overall, we assume average Brent oil price around 75 USD/bbl in 2022F.
Strong oil price to enhance upstream companies’ fundamental
We believe strong oil price rally to heat up E&P activities globally, boosting drilling market in Southeast Asia and benefiting drilling services companies like PVD. For Vietnam upstream activities in 2022, investors should keep the eyes on Block B – O Mon project, which we expect to kick off in 2H22F after O Mon 3 power plant project is expected to be approved in 1H22F. We consider this project will be the great growth motivation for the industry in coming period.
Midstream: forming the LNG value chain from 2022
In 2022F, LNG Thi Vai will be completed in 2H22F, marking the first LNG projects coming onstream in Vietnam. According to Vietnam’s National Energy Development Strategy, the Government highlights the priority in developing the LNG infrastructure for both imports and consumption, turning gas-fired plants into a key power source toward 2030. Riding on this trend, we believe GAS will be the biggest beneficiary as an infrastructure developer and LNG provider.
Downstream: riding on petroleum demand rebound
Downstream companies could gain benefits from the domestic demand bounce back when Government eased social distancing and the improvement in crack spread given the expected strong oil price in 2022F. Notably, we believe Vietnam’s petroleum consumption has lots of room for growth, supported by (1) low refined products consumption per capita, and (2) the increasing middle-class population to boost automobile demand, benefiting petroleum consumption.
Stock picks: We like GAS, PVD and PLX
Generally, we prefer the players who could ride both the energy infrastructure story in Vietnam and the expected strong oil price like GAS and PVD. Besides, we also believe a downstream company like PLX to gain benefits from the demand recovery. Investment risks include: (1) lower-than-expected oil price, (2) the further delays in key projects, and (3) the prolonged Covid pandemic.

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