Oil royalty dispute to hinder Sarawak

We should not deter more investments from coming into Malaysia’s O&G industry


Not many appreciate the fact that Malaysia is currently one of the largest oil and gas (O&G)-producing nations in Asia, producing about 720,000 barrels of oil per day in 2017 — accounting for about 9.8% of Asia’s oil production and 73 billion cu m of natural gas in 2017, the highest in South-East Asia.

According to the Department of Statistics Malaysia (DoSM), the country’s GDP stood at RM1.17 trillion in 2017 with mining and quarrying (97% crude oil, condensates and natural gas) contributing about 9% or RM98.4 billion to the economy.

I want to put this in the context of recent calls from politicians and parties with interest in Sarawak, who have been actively demanding and lobbying for the full rights of its oil reserves.

So, just how important is Sarawak’s O&G contribution to the national GDP?

Sarawak has always been an integral part of the Malaysian economy and O&G still has a very important role to play in Sarawak’s economy, despite the mining and quarrying sector’s contribution to the national GDP is only 2% in 2017.

According to DoSM data, Sarawak contributed a total of RM114 billion, or 9.7%, to the Malaysian GDP.

Of this amount, the services sector contributed RM39.8 billion, or 39%, and the manufacturing sector contributed RM31.2 billion, or 28%.

Mining and quarrying is the third-largest contributor with 21% or RM23.9 billion, despite contributing only 2% to the GDP.

Sarawak’s O&G industry is expected to thrive further with oil prices recovering, exploration activities resuming and future downstream expansion plans in the pipeline.

Furthermore, the contribution of the petrochemicals industry has always been computed under the manufacturing sector in recent years.

According to DoSM, the manufacturing industry’s contribution towards the economy in 2014 was RM269.8 billion, or 23%, to the national GDP and the petrochemical industry constituted 43.6% of the manufacturing sector.

The manufacturing sector has contributed 23% to the national GDP and 28% of Sarawak’s GDP in 2017.

This is an indicator that the petrochemical industry in Sarawak does have an important role to play in the country’s economy as well.

Sarawak has plenty of potential both upstream and downstream.

According to a statement by Petroliam Nasional Bhd (Petronas) CEO Tan Sri Wan Zulkiflee Wan Ariffin in August last year, Sarawak has the capacity of producing 850,000 barrels of oil equivalent per day.

Its Asean Bintulu Fertiliser (ABF) plant is the second-largest nitrogenbased fertiliser plant in East Malaysia after Petronas Chemicals Group Bhd’s (PetChem) Sabah plant with a nameplate capacity of 750,000 metric tonnes per annum (mtpa) of urea and 450,000 mtpa of ammonia per year.

The combined nameplate capacity of ABF and PetChem’s Sabah plant of almost two million mtpa of urea and 1.2 million mtpa of ammonia makes East Malaysia one of the largest urea and ammonia producers in South- East Asia, contributing 67.2% of Malaysia’s total urea and ammonia production.

Urea and ammonia prices have also been recovering in the last two years.

The O&G industry in Sarawak and Sabah has the potential to attract further investments from Petronas and other international oil companies with its vast amount of hydrocarbon reserves.

Having said that, Sarawak needs to resolve its oil royalty issue in the most amicable and mutual way possible.

The cooperation of the Sarawak state and the federal government is imperative to the future of the nation’s O&G industry as large international oil companies have already invested billions into our O&G industry and we should not deter more investments from coming into the state or nation.

The ongoing dispute creates an environment of great uncertainty — especially to production sharing contract terms — and the ambivalence could drive potential investors away.

Finally, as a state that is rich in natural resources, there should also be a greater emphasis on a professional and independent regulated management of these resources or there is a very strong chance that the oil resources could go the same way as its timber.

Low Jin Wu was a former equity research analyst. The views expressed are of the writer and do not necessarily reflect the newspaper’s owners and the editorial board.