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Petros Failing Sarawak’s Oil and Gas Industry

Politicians and parties with interests in Sarawak have been actively demanding and lobbying for full rights of its oil reserves. However Petros has to look at the big picture. Does it want state sovereignty to trump clarity and a clear direction for foreign investors?

As both Petronas and Petros claim ownership of oil & gas activities in Sarawak one under the Petroleum Development Act 1974 (PDA 1974) and the other under the Oil Mining Ordinance 1958 (OMO 1958), the loser will undoubtedly be Sarawak as foreign investors need clear lines on the ground. Which law takes precedence?

As it stands today, all industry stakeholders are given till the end of 2019 to procure the necessary licences and leases from Petros for all O&G development works. The grace period has led to a wait-and-see attitude that has stalled investments in the sector and begs the question whether Petros understands the bigger picture of the industry in the state instead of merely being a gatekeeper.

The oil and gas sector in Sarawak has come a long way under the present arrangement. Large international oil companies have invested billions into the oil & gas sector and we should not deter more investments from coming into the state or nation. Oil and gas has pushed Sarawak to third place after Selangor and Kuala Lumpur in its overall contribution to the GDP and that speaks a lot about how the resources are managed.

The oil and gas sector in Sarawak has come a long way under the present arrangement.

Thanks to centralized planning the amount of oil pumped out of the ground in Malaysia has remained unchanged at 700,000 barrels per day 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. It is a fact that the amount of oil in reserve is finite and analysts 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.

This is a key point here is that the money may not lie in extracting and selling the oil but in developing industries around the sector. Malaysia, in particular the oil producing states like Sarawak, could do better with creating more oil and gas industries than trying to earn from pumping more of the stuff. 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.

Sarawak has plenty of potential in the downstream sectors for example Asean Bintulu Fertilizer (ABF) is the second largest nitrogen based fertilizer plant in Malaysia with a capacity of 750,000 metric tonnes per annum (mtpa) of urea and 450,000 mtpa of ammonia per year. Petros could focus its energies on developing more downstream activities like this which is what Sarawak needs for the future.

The cooperation of the Sarawak state and the federal government is imperative to the future of the oil & gas sector in the state. The last thing Sarawak needs is an on-going dispute which creates an environment of great uncertainty which could drive potential investors away.

by Edgar Rombos, Marudi