Sarawak Must Ask For Re-investment To Develop the O&G Industry, Not More Cash

Sarawak Must Ask For Re-investment To Develop the O&G industry, Not More Cash To Be Creamed By Cronies

Malaysia ranks at number 25 among oil producing countries, somewhere in between India and Ecuador. The top oil producer in the world is Russia which produces 10.5 million barrels per day. In contrast Malaysia produces approximately 700,000 barrels of oil per day of oil. This figure has remained unchanged over the last 20 years even though prices of oil have moved up and down from US$20 to US$140 during the same period.

Thanks to the Government?s centralised planning via PETRONAS, the valuable resource is not over extracted when prices are high. It is also a fact that the amount of oil in reserve is finite and estimates are pointing to oil reserves being depleted by 2030. There may be some oil left but it may not be financially viable to bring it out of the ground.

Because of Malaysia?s finite oil and gas reserves and the wild fluctuations in prices, the government has been prudent enough to transform Malaysia?s economy since the 1970s from a producer of raw materials into a very diversified economy today. The oil and gas industry?s contribution to the nation?s economy has dropped significantly. Overall the Malaysian GDP in 2017 stood at RM1.2 trillion of which oil and gas contributed RM95.5 billion or slightly more than 8%.

Oil and Gas Only Contributes 8% of GDP and 14% of Revenues

The declining global crude oil price which began in June 2014 has triggered a wave of cost reduction strategies/tactics among upstream businesses. Global oil and gas companies slashed capital expenditures by about 40 percent, and projects that were not profitable were either cancelled or deferred.

As the Malaysia Regulator for the O&G industry, the industry has seen PETRONAS introduce many cost-cutting measures such as CORAL 2.0, and it also encourages mergers & acquisitions. Indeed, in this ?new normal? of low oil price environment, O&G companies have to prepare themselves by optimising operations, improving efficiency, and reducing costs so as to sustain profitability.

The common perception is that Malaysia is dependent on oil and gas for its revenue. Again the facts and figures show otherwise. Total revenue in 2017 from the sector in the form of income tax (RM10.9 billion), export duty (RM900 million), royalty (RM3.8 billion? and dividends (RM16 billion) amounted to RM31.7 billion or approximately 14% of the country?s total revenue which stood at RM225.4 billion? in the same year.

From these figures we can see that oil and gas is definitely overplayed as a revenue earner for Malaysia. While RM31.7 billion is not small change, Malaysia in particular the oil producing states could do better with creating industries surrounding the oil and gas industry. A case in point is Singapore. Singapore?s oil industry contributes 5% of the island state?s GDP although it does not produce a single drop of oil.

The clamoring in Sarawak for more oil royalty payments are unrealistic, and the politicians and lobbyists know it. More important are the investments being made in the Sarawak O&G sector by foreign investors and Petronas itself. The politicians are doing a complete disservice to the people of Sarawak by politicizing this critical issue. People like Lina Soo and Sebastian Ting from the minority ethnic Chinese community in Sarawak are using SAPA and S4S to drive an agenda to benefit the Chinese business cronies of the TYT Sarawak. While Abang Jo seems to want to negotiated win-win solution involving the state, Federal and PETRONAS and Petros, these cronies want a oil ?land grab? for themselves and their puppet master.


Focusing on the bigger picture and for Sarawak?s benefit, the federal government is trying hard to develop downstream industries in particular the transformation of Bintulu in Sarawak into a major production hub for liquefied natural gas and fertilizer and the development of a petrochemical refinery in Pengerang, Johor.

These capital-intensive projects will undoubtedly eat into oil wealth and put a limit on oil royalty and dividend payments. The federal and oil producing states must look at putting the money earned back into the sector, which will allow Malaysia to move up the oil and gas value chain will benefit the nation, states and its citizens in the long run.

A validation of this policy can be seen in a total of 32 projects with investments of RM25.18 billion were approved by MIDA in 2016. These included 20 (RM24.72 billion) from petroleum and petrochemical products, 11 (RM0.22 billion) from machinery and equipment for O&G and 1 (RM0.24 billion) for O&G services and engineering supporting services. Out of the total, RM19.37 billion (77%) were from domestic sources and RM5.81 billion (23%) were from foreign sources. These projects were expected to create 1,539 employment opportunities in the oil and gas sector.

– Oil Insider