Oil and gas to Malaysia

Trends and opportunities

The market

Malaysia is a significant oil and natural gas producer and is strategically located amid important sea routes for trade. Malaysia’s oil reserves are the third highest in the Asia-Pacific region after China and India. Malaysia was the second largest exporter of liquefied natural gas after Qatar in 2012 (Source: World LNG Report 2013).The Malaysian government is focusing on efforts to enhance output from existing oil and natural gas fields and to advance exploration in deep water areas. Malaysia aims to increase aggregate production capacity by 5 per cent per year up to 2020 and become the regional oil storage and trading hub. The oil, gas and energy sector currently contributes approximately 20 per cent of national GDP.

Energy policy in Malaysia is set and overseen by the Economic Planning Unit (EPU) and the Implementation and Coordination Unit (ICU), which report directly to the prime minister. Malaysia's national oil and gas company, Petroliam Nasional Berhad (Petronas), holds exclusive ownership rights to all oil and gas exploration and production projects in Malaysia, and is responsible for all licensing procedures. Most oil and natural gas production comes from production-sharing agreements operated by foreign companies in conjunction with Petronas. Today, Petronas is an integrated international oil and gas company with business interests in over 30 countries.

Malaysia's oil and gas policy is focused on maintaining the reserve base to ensure long-term supply security while providing affordable fuel to its population. In July 2010, the government introduced subsidy reductions for gasoline, diesel, and liquid petroleum gas (LPG) with the aim of gradually decreasing fuel subsidies to reduce expenditures and encourage efficiencies. Further cuts in fuel subsidies were introduced in September 2013, as part of a restructure of Malaysia’s subsidy program (Source: Prime Minister 2014 Budget speech).

Oil

Nearly all of Malaysia's oil comes from offshore fields, from three producing basins: the Malay basin, the Sarawak basin, and the Sabah basin. Malaysian oil production has been gradually decreasing due to its maturing reservoirs. The government is focused on opening up new investment opportunities by enhancing output from existing fields and developing new fields in deep water areas offshore Sarawak and Sabah. Deep water oil production projects are actively being developed in offshore Sabah.

Malaysia has a relatively limited oil pipeline network because of its island geography, relying on tankers for transportation and trucks for distribution of products onshore. Malaysia invested heavily in refining (downstream) activities during the past two decades and is now able to meet most of its demand for petroleum products domestically.

Gas

Malaysia is the fourth largest natural gas reserves holder in the Asia-Pacific region, and accounts for 10 per cent of total world LNG exports (Source: Inside Investor – Energising Malaysia; July 2012). Malaysia’s reserves are predominantly located in offshore Sarawak. As in the oil sector, Malaysia's state-owned Petronas dominates the natural gas sector. The company has a monopoly on all upstream natural gas developments, and also plays a leading role in downstream activities and the LNG trade. Exploration and development activities in Malaysia continue to focus on offshore Sarawak and Sabah.

Malaysia has one of the most extensive natural gas pipeline networks in Asia. The Association of South East Asian Nations (ASEAN) is promoting the development of a trans-ASEAN gas pipeline system (TACP) aimed at linking ASEAN's major gas production and consumption centres by 2020. Malaysia is a natural candidate to serve as a hub to TACP due to its extensive natural gas infrastructure and its location. Malaysia has bilateral gas pipeline connections with Thailand, Indonesia and Singapore (Source: ASEAN Council on Petroleum). The Bintulu LNG complex on Sarawak is the main hub for Malaysia's natural gas industry and is the largest LNG complex in the world.

According to Business Monitor International (BMI) reports (2013), oil production is expected to gradually rise from a forecast of 702,040b/d in 2013 to 936,070b/d in 2017 from the country’s maturing reservoirs. In effect, Petronas will continue to focus on the development of new projects to sustain the output of existing oil and natural gas fields and to advance exploration in deep water areas.

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(Source: Petronas Gas & Power Business Unit, 2011)

Opportunities

Under legislation enacted in 1985, a 15 per cent minimum equity for Petronas is specified in production sharing contracts with all foreign and private companies.

Exploration drilling in Malaysia by production-sharing contractors has resulted in the discovery of 163 oil fields and 216 gas fields. Significant discoveries were made in both shallow and deep water environments.

The Malaysian market offers many opportunities for Australian oil and gas organisations to venture in. The industry also paves the way for other business opportunities, such as oil field services, technology, and engineering services. Likewise, Malaysian entrepreneurs keen in venturing into the oil and gas sector are encouraged to team up with Australian oil and gas companies like ROC Oil and AWE Ltd that are already running their respective businesses in Malaysia (Source: The Borneo Post, 2013).

Marginal Oil fields

Malaysia has 106 marginal fields, containing 580 million barrels of oil. A marginal field has less than 30 million barrels of oil or oil equivalent with a recovery factor of 20 to 30 per cent. Special tax incentives are given to these fields (such as reduced tax, capital allowances), and a special procurement arrangement exists. (Source: Oil and Gas Industry - Opportunities and challenges ahead; Halliburton, May 2012)

Enhanced Oil Recovery (EOR)

New and innovative approaches are encouraged. Fit-for-purpose technologies such as offshore EOR (chemical injection) are being considered. Good reservoir management and understanding of subsurface architecture is also needed.

Others

Opportunities exist in maintenance of platforms and ageing facilities. Petronas is planning to spend RM275 billion from 2011 to 2015 on ageing infrastructure. Technologies and services to extend the life of platforms are needed.
There are also National Key Economic Area opportunities for oil and gas companies. The Malaysia External Trade Development Corporation (MATRADE) has further information on these opportunities.

Competitive environment

The market for oil and gas, and related equipment and services in Malaysia is mature, robust and growing. Oil and gas companies need to know how to respond to emerging trends, anticipate risk effectively, improve performance and operate efficiently. To gain interest from potential customers in Malaysia, it is important to have product or service differentiation from local and regional players.

There are several factors influencing the industry and operating environment of oil and gas players:

  • government and industry regulations that encompass licensing and the parameters within which the industry operates. These regulations may dictate entry barriers, market growth prospects and the emergence of new competition
  • the degree to which Petronas and other large oil and natural gas producing countries are willing and able to control production and export of oil and gas
  • technological advancements that improve total recovery and productivity

Major oil and gas industry players in Malaysia include:

  • Bumi Armada is a Malaysian-based international oil and gas offshore services provider, and a recipient of many large Floating Production, Storage and Offloading (FPSO) contracts from Petronas.
  • Dialog is an integrated oil and gas specialist with long-term recurring income from tank terminal operations. Dialog has been awarded a 15-year contract for the marginal oil fields of Balai Cluster under a joint venture with Petronas and Australia-based ROC Oil. The project is worth up to US$950 million (RM2.8 billion).
  • Sapuracrest and Kencana have recently merged to become the largest oil and gas entity in Malaysia.
  • Wah Seong is a core pipe-coating company, and a potential bidder to replace ageing facilities.
  • Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) is Petronas’ deep water fabrication arm. MMHE has a monopoly on the deep water fabrication contracts in Malaysia.

Tariffs, regulations and customs

Five new incentives under PITA (Petroleum Income Tax Act) were proposed to unlock and commercialise stranded oil and gas resources:

  1. Investment tax allowance of 60–100 per cent of capital expenditure to be deducted against statutory income to encourage the development of capital-intensive projects
    (such as Enhanced Oil Recovery (EOR), High CO2 gas fields, High Pressure High Temperature (HPHT), Deepwater and Infrastructure projects for Petroleum Operations)
  2. Reduced tax rate from 38 per cent to 25 per cent for marginal oil field development to improve commerciality of the developments.
  3. Accelerated Capital Allowance to five years from 10 years for marginal oil field development where full utilisation of capital cost deducted could improve project viability.
  4. Qualifying Exploration Expenditure transfer between non-contiguous petroleum agreement with the same partnership or sole proprietor to enhance contractors' risk taking attitude, which could encourage higher level of exploration activity.
  5. Waiver of export duty on oil produced and exported from marginal oil field development to improve project commerciality.

(Source: Performance Management & Delivery Unit (Pemandu))

From 2013, MAFTA has eliminated tariffs on a wide range of fabrication and petrochemical products, including chemicals, iron and steel, electrical-mechanical and manufactured products. Schedules of Specific Services Commitments are available from the Ministry of International Trade and Industry (MITI).

Petroleum Development Act

The Ministry of International Trade and Industry (MITI) as well as the Domestic Trade and Consumer Affairs (MDTCA), through the Petroleum Regulations of 1974 (amended in 1975 and 1981), are vested with powers to regulate all downstream activities. MITI is responsible for the issuance of licenses for the processing and refining of petroleum and the manufacture of petrochemical products, whilst MDTCA issue licenses for the marketing and distribution of petroleum products.

Through the 1995 Petroleum Development Act, the Federal Government vested all of Malaysia's petroleum resources to a wholly government-owned company called Petroliam Nasional Berhad (Petronas). Petronas enters into Production Sharing Agreements with other petroleum companies, which explore and develop the resources.

Marketing your products and services

Market entry

Australian organisations interested in exploring opportunities in Malaysia’s oil and gas sector are encouraged to work with local organisations as part of their supply chain. Malaysian organisations in fabrication, petrochemical and upstream services are on the lookout for innovative products, technologies, and services addressing opportunities in refinery processing, marginal oil fields, enhanced oil recovery, and deep-water exploration.

Distribution channels

For downstream processed refinery products, Australian organisations should have a track record of extensive brand-building and experience delivering services (to all relevant channels and outlets) such as feasibility studies, product management, merchandising, sales and stock planning.

Australian organisations should use state-of-the-art infrastructure to store, transport, and distribute products professionally and efficiently; and offer the possibility to outsource many additional specialised services, including product registration, regulatory support, customs handling, importation, and supply chain management.

Links and industry contacts

Oil and gas-related resources

ASEAN Council on Petroleum – http://ascope.org/
Malaysian Oil and Gas Engineering Council (MOGEC) – www.mogec.org.my
Malaysian Oil & Gas Services Council (MOGSC) – www.mogsc.org.my
Malaysian Gas Association – www.malaysiangas.com
Petronas – www.petronas.com.my

Government, business and trade resources for Malaysia

Malaysian Government Official Portal – www.malaysia.gov.my
Malaysian External Trade Development Corporation (MATRADE) – www.matrade.gov.my
Malaysian Investment Development Authority (MIDA) – www.mida.gov.my
Ministry of Foreign Affairs – www.kln.gov.my
Ministry of Trade and Industry (MITI) – www.miti.gov.my
Bursa Malaysia (Stock Exchange) – www.bursamalaysia.com
Central Bank of Malaysia (Bank Negara) – www.billionm.gov.my
Department of Statistics Malaysia – www.statistics.gov.my
Economic Planning Unit (EPU) – www.epu.gov.my
Royal Malaysian Customs Department – www.customs.gov.my
Australia Malaysia Business Council – www.ambc.org.au
Malaysia Australia Business Council – www.mabc.org.my
OECD – www.oecd.org/countries/malaysia/
The World Bank – www.worldbank.org/en/country/malaysia
The International Monetary Fund – www.imf.org/external/country/MYS/index.htm

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