Sarawak gas deal expected to boost downstream activities

The partnership will further increase Sarawak’s participation in the domestic integrated O&G value chain


THE recent natural gas deal between Petroliam Nasional Bhd (Petronas) and state-owned Petroleum Sarawak Bhd (Petros) is expected to provide a boost to Sarawak’s downstream operations.

The handover of authority over the supply, sales and distribution of natural gas in Sarawak to Petros effective Jan 1 this year has given the fuel-rich state room to manage its resources — which account for 54% of total national gas reserves and 29% of national oil reserves.

AxiTrader Ltd chief Asia market strategist Stephen Innes said he expects greater participation from Sarawak in the oil and gas (O&G) sector given the greater autonomy granted to the state.

“It could provide incentives [for Sarawak] to build out the economy via downstream economic activities. [There are] lots of gas to be found and extracted and with the move to liquefied natural gas (LNG) as a cleaner alternative, Sarawak could also benefit from ESG (environmental, social and governance) investment to help build up infrastructure development around the downstream services,” Innes told The Malaysian Reserve.

He said the deal could provide a great blueprint for other oil-rich states to follow.

Petronas CEO Tan Sri Wan Zulkiflee Wan Ariffin reportedly said the partnership will further increase Sarawak’s participation in the domestic integrated O&G value chain.

Sarawak is the main producer of natural gas and LNG exporter in Malaysia, having shipped 27 million metric tonnes of LNG worth RM41.1 billion in 2017. Sarawak Chief Minister Datuk Patinggi Abang Johari Tun Openg recently announced plans to retain 40%-50% of all new discoveries in Sarawak for its downstream high-value adding activities.

Sarawak’s O&G industry was dogged by uncertainty since the state government made the landmark decision to enforce its Oil Mining Ordinance 1958 (OMO) on July 1, 2018, effectively wrestling regulatory control over its petroleum resources from Petronas.

Companies looking to participate in Sarawak’s O&G industry were thus made to procure the necessary licences and leases from Petros by end-2019.

The developments in Sarawak are part of several changes taking place in Malaysia’s O&G industry, which include granting all oil-producing states a 20% royalty from the net profit of a given O&G project.

Currently, a 10% oil royalty of gross profit is divided equally between the federal and state governments for respective O&G developments. Kelantan and Terengganu are granted compassionate funds under the current arrangement.

Petronas was the exclusive owner of Malaysia’s petroleum resources since its incorporation in 1974 and the ratifying of the Petroleum Development Act 1974 (PDA) that same year.

However, the Sarawak state government moved to reassert its authority over its O&G resources shortly before the May elections last year via the OMO — a colonial law that was consolidated upon the signing of the Malaysia Agreement 1963, but idle since the PDA came into effect.

The PDA vests Petronas with the authority to explore, exploit and mine petroleum the country in exchange of royalties paid to the oil-producing states.