Malaysia’s booming oil and gas segment beckons the world-

The oil and gas sector in Malaysia contributes nearly 20 to 30 per cent of the country’s GDP, thus making it the mainstay of Malaysia’s economic growth. It has been identified as a key growth driver under Malaysia’s Economic Transformation Programs. It is expected to generate RM 131.4 billion in gross national income by 2020 (5 per cent annual growth between 2010 and 2020).

Malaysia has over 3,500 oil and gas businesses comprising international oil companies, independents, services and manufacturing companies that support the needs of the oil and gas value chain both domestically and regionally. The country has approximately 615,100 square km of acreage available for oil and gas exploration. Its first oil well was discovered by Shell on Canada Hill in Miri, Sarawak, in 1910. There was no other drilling activity elsewhere in Borneo or Malay peninsula until the 1950s. Activity in the petroleum sector in Borneo increased tremendously in the 1960s with the discovery and development of offshore fields, and Shell initially was the major player, followed by Esso; these two companies dominated upstream production, downstream refining and sales. Until 2015, Malaysia was the world’s second largest liquefied natural gas (LNG) exporting country after Qatar. LNG exports contribute significantly to its income and international currency reserves. The country’s major exports are to Japan, Korea, Taiwan and China. Besides, it also imports LNG via the first LNG regasification terminal (RGT) in Sungai Udang, Melaka, which became operational in May 2013.

Its continental shelf is made up of six major sedimentary basins, grouped into three main regions, thus providing the county with geologically favourable conditions for the creation of hydrocarbons, that is, petroleum and natural gas. The six basins are grouped into three main regions.

Industry structure and exploration and supply

Upstream, exploration and supply

Malaysia is Southeast Asia’s second-largest oil producer after Indonesia. Its upstream activities include 101 production sharing contracts (PSCs) and six risk sharing contracts (RSCs) Exploration and development activities in Malaysia take place in offshore Sarawak and Sabah. The most prolific and active area for natural gas exploration and production, the Malaysia-Thailand Joint Development Area (JDA) is administered by the Malaysia-Thailand Joint Authority and is  located in the lower part of the Gulf of Thailand. The JDA holds 9.5 trillion cubic feet of proven plus probable natural gas reserves. The Tapis field in the offshore Malay basin holds more than a quarter of Malaysia’s crude oil production currently.

Midstream

Malaysia’s main oil pipelines connect oilfields offshore in peninsular Malaysia to onshore storage and terminal facilities. From the Tapis oilfield runs the 124 mile Tapis pipeline, which terminates at the Kerteh plant in Terengganu, as does the 145-mile Jerneh condensate pipeline. Most of the pipeline, transportation and other logistics assets in the midstream sector in Malaysia are controlled by PETRONAS. Besides, ExxonMobil also operates a number of pipelines connected with upstream holdings located offshore in peninsular Malaysia. An international oil product  pipeline runs from the Dumai oil refinery in Indonesia to the Melaka oil refinery in Melaka City, Malaysia.  An interconnecting pipeline also runs from this refinery to Klang Valley airport and to the Klang oil distribution centre.

Downstream

The downstream activities in Malaysia take place at the Pengerang Integrated Petroleum Complex in southern Johor. PETRONAS owns three refineries in Kerteh, Malacca I and Malacca II. The country has made huge investments during the past two decades in refining activities and can now meet most of its demand for petroleum products with domestic supplies. It has around 600,000 (bpd) of refining capacity at six facilities.

PETRONAS plans to build a refining and petrochemicals integrated development project (RAPID) in Johor. This project includes a 300,000 bpd refinery that will help the country become a net oil product exporter from a net oil product importer.

Key developments

  • Netherlands-based Royal Vopak and its joint venture (JV) partners are set to expand the company’s liquid storage facility, Pengerang Independent Terminals (PITSB). Vopak plans to expand the deep water independent liquid storage terminal in Pengerang at the PITSB. The terminal will be expanded with 430,000 cubic metres to a total capacity of 1.7 million cubic meters. The expansion relates to the storage of clean petroleum products. Twenty four new tanks will be built ranging from 10,000 cubic meters to 25,000 cubic metres. Besides, one extra berth will be taken into operation, bringing the total number of operating berths to six. The expansion is expected to be commissioned progressively from the first quarter of 2019.
  • Petronas continues to seek opportunities to expand its presence overseas, despite the prolonged weakness in global oil prices. The company has three exploration blocks in Mexico. The company also has business operations in Iraq. As of 2016, Petronas’s upstream activities had entered 23 countries globally, with 216 producing fields, 381 offshore platforms and 21 floating facilities.
  • ASEAN is promoting the development of a trans-ASEAN gas pipeline (TAGP), which aims to link 80 per cent of ASEAN’s major gas production and consumption centres. Due to Malaysia’s extensive natural gas infrastructure and its location, the country is a natural candidate to serve as a hub in the ongoing TAGP project. The first pipeline that was built connected Malaysia with Singapore and was commissioned in 1991. This was followed by gas pipeline links between West Natuna, Indonesia and Duyong, commissioned in 2002, and the trans-Thailand-Malaysia gas pipeline, commissioned in 2005, which allows Malaysia to pipe natural gas from the Malaysia-Thailand JDA to its domestic pipeline system.
  • In order to meet the growing demand for petroleum and petrochemical products in the Asia-Pacific region by 2019 ($19 billion), Petronas is developing a world-scale integrated refinery and petrochemical complex in the state of Johor. The project will have a refining capacity of 300,000 barrels of oil equivalent per day and will supply naphtha and LPG feedstock for the RAPID petrochemical complex, as well as produce gasoline and diesel that meet European specifications.
  • Petronas intends to purchase a stake in the Indian Oil Corporation’s (IOC) under-construction 5 million tonne per year LNG import terminal at Ennore. The move is in its preliminary stages as of now. IOC holds 95 per cent stake in the Rs 51.51 billion Ennore LNG import terminal, which is expected to be completed by June 2018. The Tamil Nadu Industrial Development Corporation (TIDCO) has 5 per cent stake in the same. IOC wants to retain a minimum 50 per cent stake in the project, leaving a 45 per cent stake available for the taking.
  • Petronas currently has 60 oil and gas producing fields in Sarawak producing an average of 850,000 barrels of oil equivalent per day. The company has also signed two contracts worth RM 480 million with Brooke Dockyard and Engineering Works Corporation to undertake work on Bokor Phase 3 redevelopment and Anjung gas development projects in offshore Sarawak. Petronas has signed a JV with Shell, ConocoPhillips, Murphy and Petroleum Brunei to bring to reality a new deepwater gas development in Block CA-2 off Brunei.

Enhanced oil recovery

In order to improve the country’s reservoir recovery factor, arrest declining production and extend the field life of assets, especially offshore assets, Petronas has plans to begin exploring enhanced oil recovery (EOR) (offshore) facilities. The company has identified 1 billion-plus barrels of oil from 14 fields for EOR projects worldwide.

Petronas’s upstream subsidiary, Petronas Carigali (PCSB) has set aside RM 10 billion for its EOR projects located in offshore Sarawak. The project is expected to be completed by 2020. The EOR in the Bakor and Baronia fields will be jointly carried out with Sarawak Shell Bhd. Petronas plans to turn Bintulu and Miri into gas and oil production centres respectively.

Sarawak state-owned Brooke Dockyard and Engineering Works Corporation has secured two offshore module fabrication contracts worth RM 479 million from Petronas. The project, under the Baram Delta EOR PSC, is to develop additional reserves. The PSC is operated by Petronas Carigali in partnership with Sarawak Shell. The first contract is for the provision of front-end engineering design and engineering, procurement, construction, installation and commissioning of three wellhead platforms for the Bokor Phase 3 redevelopment project in Sarawak. The second contract is for the provision of engineering, procurement, construction and commissioning of one wellhead platform and jacket for the Anjung gas development project, 200 km offshore of Bintulu in the central Luconia gas field.

Key challenges and the way forward

The biggest challenge facing this industry in the years to come is the sustainability of its operations. The major players in this sector need to try and make their operations more environment friendly and this may require reassessing their operations to be able to contribute to the development of a sustainable oil and gas industry in the country. With developments in technology and other advancements, the demand for oil and gas will only increase. This calls for suitable policies to harness resources in a manner that controls overexploitation and optimises the use of resources. Appropriate policies are also needed to safeguard these scarce resources for future generations.

In a bid to provide a boost to the oil and gas sector, the Malaysian government aims to implement sustainable policies. The current situation demands harmony between being able to meet growing industry demands and maintaining environmental standards. Data management using modern technology to fill policy execution gaps is also needed.