Strategically located in the heart of the Association of Southeast Asian Nations (Asean) region, Malaysia possesses a number of unique attributes that have enabled it to build one of the world’s most efficient and productive oil and gas sectors anywhere. Southeast Asia’s second-largest oil and natural gas producer overall, Malaysia’s proximity and cultural ties to China, India and Indonesia – the world’s second, third and 15th largest economies and its first, second and fifth most populous countries, respectively – place it at the centre of the world’s most rapidly developing economic block, while it also overlooks important routes for seaborne energy trade. All this has helped it develop into a vital energy hub in the Asean community, but for Malaysia, these achievements pale in comparison to the future it aims to build.
“The overall growth in Asia is spawning a voracious appetite for energy,” explains Tan Sri Dato’ Shamsul Azhar Abbas, President and Group CEO of Petronas, Malaysia’s national oil company. “Population growth, urbanisation and emergence of mega-cities have led to not only GDP growth, but also the need for energy and petroleum products. No other region has experienced more increase in energy demand than Asia.”
The result has been continued upward pressure on energy supply and infrastructure, which require large investments as well as long-term planning. Furthermore, Malaysia’s territory – consisting of two main land masses separated by some 640km of the South China Sea – straddles the Strait of Malacca, the second most significant oil transit chokepoint in the world by volume of oil transited, with over 15 million barrels of oil per day moving through its waters, according to the US Energy Information Administration. As a result, Malaysia’s potential to become a key centre for business in the global energy trade is second to none.
“Currently in Asia, there is no oil and gas hub in the likes of Houston, Aberdeen or Stavanger to cater for this intensified servicing activities required for this development in the region” Mr Azhar Abbas adds. “It makes perfect sense to work on establishing one, and in this context, Malaysia is a perfect fit for this purpose.”
Established in 1974 by the Malaysian government as the country’s national oil company (NOC), Petronas has grown to become the world’s 25th largest oil and gas multinational. In contrast to many other state-run oil companies, which function as part of the government, Petronas is one of the world’s most profitable firms and one of the most successful NOCs globally. Under the new management, there has been a strategic shift to fully market-oriented strategies.
“Petronas had to face strong competition from worldwide renowned IOCs (international oil companies),” explains Abdul Hamid Ibrahim, an internationally recognised expert in the oil and gas sector. “We could no longer act simply as a national oil company. It is a matter of survival.”
”The overall growth in Asia is spawning a voracious appetite for energy”
Tan Sri Dato’ Shamsul Azhar Abbas, President and Group CEO of Petronas |
Increased global competition and complexity of operations has placed similar pressure on other NOCs, but Petronas had the flexibility and the foresight to make the necessary changes to achieve its current level of efficiency.
“In the past four or five years, Petronas has shifted and embraced a market-driven strategy that focuses on strategic collaborations with the industry and foreign players,” Mr Hamid adds. Today, Petronas has made the transition to a fully fledged commercial organisation, more comparable to the world’s leading IOCs like BP, Royal Dutch Shell or Exxon. The company’s bottom line tells the story more succinctly: In 2012, it ranked 75th among the world’s largest corporations, with a revenue of $94.3 billion and was the 19th most profitable firm, with net proceeds of $16 billion, according to the 2013 Fortune Global 500 survey.
While its land and waters hold the fifth highest oil reserves in Asia-Pacific and one of the top 30 highest reserves in the world, it is Malaysia’s technological and engineering expertise as well as its effective governance and attractive investment climate that have allowed it to become a world leader in high-value products like liquefied natural gas – of which it is the second largest exporter worldwide.
As Asia’s largest economies continue to expand at a rapid pace, the region’s demand for gas is forecast to continue climbing. Positioning itself to feed this dynamic market, Malaysia has made extensive investments in deepwater and technically challenging fields, even as production has risen significantly. The country also boasts an extensive gas pipeline network that connect offshore fields in all three states to key infrastructure onshore.
Across the country, Malaysia is implementing necessary policies and projects to facilitate the diversification of energy sources and increase its share of renewable energy. The energy sector is projected to generate GNI of RM131.4 billion (£24.5 billion) and create 52,300 new jobs by 2020 according to the government’s Economic Transformation Plan (ETP).
Oil and gas remains a key driver of the Malaysian economy, representing one of 12 National Key Economic Areas in Malaysia’s National Economic Transformation Programme. Global Incentives For Trading (GIFT) incentives for investment in the industry include a 3 per cent flat corporate tax rate on qualifying income and a 50 per cent exemption on gross employee income. The GIFT programme applies to petroleum and petroleum-related products, minerals, carbon credits and other products upon approval.
Leaders in Malaysia’s government, up to the highest levels, continue to strongly support the development of its hydrocarbons sector. Prime Minister Najib Razak sees economic growth this year continuing to be driven by the development of petroleum resources, as large-scale projects proceed apace, like the RM61 billion Refinery and Petrochemicals Integrated Development (RAPID) in Pengerang, Johor, which is scheduled to come online this year.
These types of initiatives have helped Malaysia encourage investment in the infrastructure and facilities that will turn it into a regional oil trading and storage hub. Similarly, its leaders have turned the slogan “there is no more easy oil” into a catchphrase that spurs new thinking. Forward-thinking investments in new, technically-advanced enhanced oil recovery as well as the development of smaller, marginal and deepwater fields have turned declining production from natural depletion into opportunities for the future.
With major oil and gas operations carried out in different states across its territory, as well as ad hoc policies to further promote both upstream and downstream sectors, Malaysia’s oil and gas industry is thriving with global investment in exploration activities, oil storage and trading, and research and development. In 2014, Kuala Lumpur held Asia’s first ever gathering of the Offshore Technology Conference, the world’s foremost event for the development of offshore resources.
Malaysia holds enormous promise in the area of renewable energy as well, with its widespread adoption and application of green technology, and efficiency revolutionising its energy sector. This makes it an excellent destination for UK investors and multi-national corporations in the oil and gas services and renewable energy fields that want to penetrate Asean and establish their headquarters in Kuala Lumpur. Malaysia’s oil and gas industry has a wide range of opportunities both upstream and downstream. As demand for telectricity increases, global investors look at locations that ensure an efficient and uninterrupted supply of power. Energy represents an emerging sector of interest for British businesspeople, and the UK invests heavily in this field on a global scale. With the European economy showing signs of a slow, protracted recovery, the UK is turning east for new investment opportunities.
Malaysia’s mature petroleum industry is complemented by industry groups like the Malaysian Oil & Gas Services Council (MOGSC). Established in 2003, MOGSC gives its members in the oil and gas industry a collective voice and a seat at the table during important conversations about the sector’s future. Its main activities include engagements with industry stakeholders and promotion of members’ capabilities nationwide. In addition, MOGSC provides forums for industry networking, addressing common areas of interest, and sharing of knowledge and experience.
“I think that the greatest contribution of the announcement of the National Key Economic Areas (NKEA) and the Transformation Programme has been that of giving visibility to the oil and gas sector,” says Sofiyan Yahya, MOGSC’s President. “As for the UK-Malaysia relationship,” she adds, “the UK is the first foreign industry base that MOGSC has established a relationship with.”
By providing the industry with a forum in which to find common purpose, MOGSC has helped many services companies reach new heights. One such example can be found in Barakah Offshore Petroleum Berhad. Founded in 2000 as an offshore pipeline services company, Barakah won respect throughout the industry, being recognised as the best service provider for pipeline services by Petronas in 2012. Its President and CEO, Syed Abdul Rahim Syed Jaafar, credits much of the industry’s success to strong private and public sector relations. “The government has been very supportive,” he says. “The government in fact are encouraging business concerns and has given a free hand, so to speak, to Petronas, to look at new technologies and to engage new technical expertise from outside.”
Another significant player in this diverse sector is Deleum Berhad, which provides a wide range of supporting specialised products and services to the oil and gas industry, particularly in support of exploration and production.
“You ask me whether Malaysia could become a regional hub,” says Group Managing Director Nan Yusri bin Nan Rahimy. “I believe we are already there.”
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