Oil & Gas sector – Breaking dawn

• We expect Brent oil price to average at US$80-85 per barrel in FY23-24F as OPEC+ production cuts extension may cause the deficit in oil market.
• We see sharp outlook for upstream services providers as E&P activities are picking up in both international and domestic market.
• Our top picks are PVD, PVS and GAS.

We expect Brent oil price to average around US$80-85 per barrel in FY23-24F

Brent oil price declined to around US$75/bbl at end-1H23 from the peak of US$120/bbl in mid-2022 as fear of global economy slowdown weighed on the global oil demand outlook. However, we expect OPEC+ production cuts extension through end-2024 may cause the deficit in oil market as global oil consumption is projected to keep growing in 2023-24F. Thus, we assume Brent oil price to gradually ramp up in 2H23F due to limited supply, averaging at US$80/85 per barrel in 2023-24F.

Domestic E&P activities should be more vibrant from 2024 onwards

From our perspective, the recent energy crisis due to geopolitical tension has highlighted the important of the national energy supply autonomy, thereby possibly providing motivation for the authority to boost E&P activities. Actually, we see many small and medium O&G development projects were given the green light and got significant movements in the past few months, such as Dai Hung Phase 3, Kinh Ngu Trang and Lac Da Vang. Meanwhile, there are also many signals that the multibillion-dollar gas field project Block B – O Mon could be kicked-off from late-2023F, becoming the key growth motivation for the industry in coming years. These will provide the huge potential backlog for local O&G upstream service providers, firstly for EPC contractors and drilling service providers.

Prepare for the LNG-to-power transition

According to Power Development Plan 8, gas-fired power from both domestic sources and LNG will take a spotlight in 2022-30F with a capacity CAGR of 23.1%, accounting for 25% of total capacity in 2030F. In which, we see LNG-to-power is the promising segment in coming years (accounting for 15% of total capacity in 2030F) thanks to its stability in power generation and the possibility to easily enhance capacity through import, playing a vital role in Vietnam’s power as the base power source. Notably, the recent global LNG prices slump may facilitate the LNG development in Vietnam as the benchmark LNG price in Asia has retreated to the favorable territory.

Top picks: We prefer PVD, PVS and GAS

We expect the sharp prospect of E&P activities in Vietnam from 2024F onwards to be a strong upside catalyst for upstream service companies like PVD and PVS as it will provide huge potential backlog, ensuring these companies’ workload in many years ahead. Meanwhile, for long-term horizon, we also believe GAS is a good investment selection following the LNG-to-power transition and domestic gas-fired power development. The key downside risks include: (1) lower-than-expected oil price, and (2) further delays in major projects.

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