Oil and gas to Malaysia
(Last updated: 6 Feb 2013)
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 third largest exporter of liquefied natural gas after Qatar and Indonesia in 2010 (International Energy Statistics). The Malaysian government is focused 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 percent 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 are planned.
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 last 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 percent of total world LNG exports. 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.
Malaysian oil and gas production has been gradually decreasing due to its maturing reservoirs. Petronas will continue to focus on projects that enhance output from existing oil and natural gas fields and to advance exploration in deep water areas.
(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.
There are many opportunities for Australian oil and gas organisations wanting to enter the Malaysian market. There are also opportunities for organisations to provide oil field services, technology, and engineering services.
Marginal Oil fields
Malaysia has 106 marginal fields, containing 580 million of 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 (reduced tax, capital allowances, etc.), and a special procurement arrangement exists.
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
Maintenance of platforms and ageing facilities. Petronas is planning on spending 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 entail licensing and 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:
- Investment tax allowance of between 60 - 100 percent of capital expenditure to be deducted against statutory income to encourage the development of capital-intensive projects.
(i.e. Enhanced Oil Recovery (EOR), High CO2 gas fields, High Pressure High Temperature (HPHT), Deepwater and Infrastructure projects for Petroleum Operations)
- Reduced tax rate from 38 percent to 25 percent for marginal oil field development to improve commerciality of the developments.
- Accelerated Capital Allowance to 5 years from 10 years for marginal oil field development where full utilisation of capital cost deducted could improve project viability.
- 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.
- 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 owned Government company called Petroleum National 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/component/content/article/6-projects/28-tagp.html
Association of Malaysian Oil and Gas Consultants (MOGEC) – www.mogec.org.my/
Malaysian Oil & Gas Services Council (MOGSC) – www.mogsc.org.my/
Malaysian Gas Association – http://portal.malaysiangas.com/
Petronas – www.petronas.com.my/Pages/default.aspx
Government, business and trade resources for Malaysia
Malaysian Government Official Portal – www.malaysia.gov.my/EN/Pages/default.aspx
Malaysian External Trade Development Corporation (MATRADE) – www.matrade.gov.my/
Malaysian Investment Development Authority (MIDA) – www.mida.gov.my/env3/
Ministry of Foreign Affairs – www.kln.gov.my/web/guest/home
Ministry of Trade and Industry (MITI) – www.miti.gov.my/cms/index.jsp
Bursa Malaysia (Stock Exchange) – www.bursamalaysia.com/market/
Central Bank of Malaysia (Bank Negara) – www.billionm.gov.my/
Department of Statistics Malaysia – www.statistics.gov.my/portal/index.php?lang=en
Economic Planning Unit (EPU) – www.epu.gov.my/home#=e
Royal Malaysian Customs Department – www.customs.gov.my/index.php/en
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
Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.
Contact details
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