Energy Policy 50 (2012) 262–271
Contents lists available at SciVerse ScienceDirect
Energy Policy
journal homepage: www.elsevier.com/locate/enpol
Oil and gas trends and implications in Malaysia
Khalid Abdul Rahim a,n, Audrey Liwan b
a
b
Faculty of Economics and Management, University Putra Malaysia UPM, Serdang, Selangor 43400, Malaysia
Faculty of Economics and Business, University Malaysia Sarawak, Malaysia
H I G H L I G H T S
c
c
c
c
c
The quantities of petroleum production and consumption are expected to converge.
Malaysia’s status as a net exporter in value terms is expected to expand.
With slower consumption trend, petroleum reserves will be depleted by 2035.
There is a large potential in natural gas utilization in Malaysia.
Renewable energy is abundant for the fuel diversification policy for Malaysia.
a r t i c l e i n f o
a b s t r a c t
Article history:
Received 10 February 2012
Accepted 7 July 2012
Available online 9 August 2012
The trends of reserves, production and consumption of oil in Malaysia to meet the ever-increasing
demands do not seem to show that oil and gas will be depleted soon, contrary to many reports.
Malaysia’s net exporter status of oil continues to expand over time for as long as the value of exports is
greater than the value of imports. Only in physical quantities of oil that Malaysia’s imports exceed
exports, but this does not mean that Malaysia will be a net importer by then. Given higher prices of
exports, the value of exports outweighs the value of imports. If the current reserves are extracted based
on the domestic consumption trend of 1980–2010, Malaysia’s reserves will last until 2027 but based on
the 1998–2010 trend, the reserves will be depleted by 2035. Malaysia has adopted a four fuel
diversification strategy comprising oil, gas, coal and hydro, instead of heavily dependent on oil. Gas has
a huge potential for domestic utilization as well as for exports to increase revenues. Malaysia is one of
the few countries having many types of renewable energy sources. Malaysia has great potential in
biomass utilization as renewable resources mostly from the existing natural forest and planned
plantations.
& 2012 Elsevier Ltd. All rights reserved.
Keywords:
Petroleum
Natural gas
Net export
1. Introduction
A common objective of government energy policies around the
world is to ensure secure, diverse and sustainable supplies of
energy at competitive prices. Malaysia’s policy on the energy
sector focuses on ensuring a secure, reliable and cost-effective
supply of energy, aimed at enhancing the competitiveness and
resilience of the economy. Given the dominance of petroleum
product demand in the country the emphasis of the Malaysian
National Energy Policy initiated in 1979 has been diversification
and efficiency in the use of the fossil fuels and hydro-power.
Efficient utilization of energy resources, as well as the use of
alternative fuels particularly renewable energy, are encouraged.
Efficient fuel switching in favor of natural gas and electricity has
received high priority by policy makers. Energy pricing policy is
considered an important instrument to diversify the fuel-mix.
All energy policy in Malaysia is crafted and overseen by the
Economic Planning Unit (EPU) and the Implementation and Coordination Unit (ICU), which report directly to the Prime Minister. In
March 2004, the Ministry of Energy, Water, and Communications
(MEWC) was formed to regulate the energy and electricity sectors,
although this body does not have policymaking powers. On April 9,
2009 the Ministry of Energy, Green Technology and Water was
established to replace the MEWC following the cabinet reshuffle
and restructuring in March.
2. The energy supply and demand in Malaysia
n
Corresponding author. Tel.: þ60 389471096; fax: þ 60 389471077.
E-mail addresses: [email protected] (K.A. Rahim),
[email protected] (A. Liwan).
0301-4215/$ - see front matter & 2012 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.enpol.2012.07.013
The main sources of energy supply in Malaysia are crude oil
and petroleum products as well as natural gas. Both accounted for
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
more than 88% of the total energy supply for the country in 2005,
down from 91.5% in 2000 (Table 1). This share declined further to
86.3% in 2010. In our effort to reduce dependency on oil the share
of crude oil and petroleum products (49.3% in 2000) declined
marginally to 46.8% in 2005 and declined further (44.7%) by 2010.
As an alternative to oil, however, the share of coal and coke
continued to increase (5.2% in 2000, 9.1% in 2005 and 11.2
in 2010).
In terms of demand by source, petroleum products category is
the main energy consumed, growing at the rate of 4.5% annually
during the 8th Malaysia Plan (2000–2005) period and 6.1% per
annum during the 9th Malaysia Plan (2006–2010). Its share to
total demand had declined from 65.9% in 2000 to 62.7% in 2005
and declined further to 61.9% in 2010 (Table 2). The share of
263
natural gas, however, increased from 13.0% in 2000 to 15.1% in
2005 and further increased to 15.8% in 2010, in line with the Fuel
Diversification Policy. The overall energy demand had increased
at the rate of 5.6% during the 8th Malaysia Plan and grew at a rate
of 6.3% during the 9th Malaysia Plan. The per capita consumption
increased annually from 3.3% during the 8th Malaysia Plan to 4.2%
annually during the 9th Malaysia Plan.
The demand for energy by sector shows that the transport
sector is the dominant consumer of energy, accounting for 40.5%
of the total final commercial energy demand in 2005 (Table 3).
This is followed by the industrial sector at 38.6%. The residential
and commercial sector consumes only about 13.1%. These three
sectors consumed more than 92% of the total energy demand in
the country, growing at an average rate of 5.5 to 5.7% annually
Table 1
Primary commercial energy supplya by Source, 2000–2010.
Source: Ninth Malaysia Plan (Ministry of Energy, Water and Communications and Economic Planning Unit).
Petajoulesb
Source
Average annual growth rate
2000
Crude oil and petroleum products
Natural gasc
Coal and coke
Hydro
Total
988.1 (49.3)
845.6 (42.2)
104.1 (5.2)
65.3 (3.3)
2003.1
n
2005
2010
8 MP
9 MP
1181.2 (46.8)
1043.9 (41.3)
230.0 (9.1)
71.0 (2.8)
2526.1
1400.0 (44.7)
1300.0 (41.6)
350.0 (11.2)
77.7 (2.5)
3127.7
3.6
4.3
17.2
1.7
4.7
3.5
4.5
8.8
1.8
4.4
a
Refers to the supply of commercial energy that has not undergone a transformation process to produce energy.
Joule is the unit of energy to establish the equivalent physical heat content of each energy form. One megajoule ¼106 J, 1 gigajoule (GJ) ¼ 109 J and 1 petajoule
(PJ) ¼ 1015 J. One PJ ¼0.0239 million tonnes of oil equivalent (mtoe). One toe¼ 7.6 bl.
c
Excludes flared gas, reinjected gas and exports of liquefied natural gas.
n
Figures in parentheses are percentages of total.
b
Table 2
Primary commercial energy demanda by Source, 2000–2010.
Source: 9th Malaysia Plan (Ministry of Energy, Water and Communications and Economic Planning Unit).
Source
Petajoulesb
2000
Petroleum products
Natural gasc
Electricity
Coal and coke
Total
Per capita consumption
n
820.0(65.9)
161.8(13.0)
220.4(17.7)
41.5(3.4)
1243.7
52.9
Average annual growth rate
2005
2010
8 MP
9 MP
1023.1(62.7)
246.6(15.1)
310.0(19.0)
52.0(3.2)
1631.7
62.2
1372.9(61.9)
350.0(15.8)
420.0(18.9)
75.0(3.4)
2217.9
76.5
4.5
8.8
7.1
4.6
5.6
3.3
6.1
7.3
6.3
7.6
6.3
4.2
a
Refers to the quantity of commercial energy delivered to final consumers but excludes gas, coal and fuel oil used in electricity generation.
Joule is the unit of energy to establish the equivalent physical heat content of each energy form. One megajoule ¼106 J, 1 gigajoule (GJ) ¼ 109 J and 1 petajoule
(PJ) ¼ 1015 J. One PJ ¼0.0239 million tonnes of oil equivalent (mtoe). One toe¼ 7.6 bl.
c
Includes natural gas used as fuel and feedstock consumed by the non-electricity sector.
n
Figures in parentheses are percentages of total.
b
Table 3
Primary commercial energy demand by sector, 2000–2010.
Source: 9th Malaysia Plan (Ministry of Energy, Water and Communications and Economic Planning Unit).
Source
Transport
Industriala
Residential and commercial
Non-energyb
Agriculture and forestry
Total
Per capita consumption
a
b
n
Petajoules
Average annual growth rate
2000
2005
2010
8 MP
9 MP
505.5(40.6)
477.6(38.4)n
162.0(13.0)
94.2(7.6)
4.4(0.4)
1243.7
52.9
661.3(40.5)
630.7(38.6)
213.0(13.1)
118.7(7.3)
8.8(0.5)
1631.7
62.2
911.7(41.1)
859.9(38.8)
284.9(12.8)
144.7(6.5)
16.7(0.8)
2217.9
76.5
5.5
5.7
5.6
4.7
12.9
5.6
3.3
6.6
6.4
6.0
4.0
15.9
6.3
4.2
Includes manufacturing, construction and mining.
Includes natural gas, bitumen, asphalt, lubricants, industrial feedstock and grease.
Figures in parentheses are percentages of total.
264
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
during the 8th Malaysia Plan (2000–2005). These sectors grew at
an average annual rate of 6.0 to 6.6% during the 9th Malaysia Plan
(2006–2010) with the transport sector growing at the fastest rate.
3. Malaysia’s energy resources
Malaysia’s energy supply conventionally depends on four
resources, namely oil, gas, coal and hydro for fuel and for power
generation. However, new sources such as renewable energy are
encouraged as the fifth fuel. These include biomass, biogas, municipal waste, solar and mini-hydro. Of these, biomass resources such
as oil palm and wood wastes as well as rice husks, are used on a
wider basis mainly for electricity generation (Hamdan, 2002). Other
potential sources of energy include palm diesel and hydrogen fuel.
3.1. Crude oil
In Malaysia, prior to the 1950s, most of the oil exploration was
done inshore until some preliminary evidence of oil deposits were
found in the offshore areas of Peninsular Malaysia and the
discovery of the Seria oilfield off the coast of Brunei. In 1962, oil
was discovered in offshore of Sarawak. Nearly all oil exploration
since then has been in the offshore areas.
During the late 1960s and early 1970s oil exploration was
done by multinational oil companies (MNOC) such as Shell (the
early dominator), Esso (a subsidiary of Exxon), Elf Acquitaine and
Oceanic and Sabah Telseki Oil Company in East Malaysia. In the
peninsular, the main giants were Esso, Conoco and Mobil. The first
offshore oilfield to begin operation was the West Lutong oilfield
in Sarawak in June, 1968. By 1973, with the emergence of OPEC,
Malaysia had 19 oilfields.
The formation of OPEC in 1973 was not only significant for the
major oil producing countries but it also affected smaller oil
producing countries like Malaysia. To have more control and
planning in the exploitation of the oil-based energy resource, the
government enacted the Petroleum Development Act in mid1974. The major theme of this Act was the establishment of a
government corporation to own and administer all petroleum
resources in the country. This corporation was named the ‘Perbadanan Petroleum Nasional’ (National Petroleum Corporation) or
PETRONAS.
Among the initial steps undertaken by PETRONAS was the
conversion of the Concession system given to MNOCs to the
Production Sharing Contract (PSC) signed with PETRONAS-owned
subsidiary to undertake exploration and production activities.
This was intended to create further competition among MNOCs
and to lessen the reliance for production technology and
know-how solely on the MNOCs. This was followed by the
construction of a refinery. In 1979, another subsidiary was
established to facilitate the domestic marketing of petroleum.
By 1984, PETRONAS with its 7 wholly owned subsidiaries, had
created an integrated petroleum industry in Malaysia.
Malaysia holds proven oil reserves of 4.0 bbl as of January
2012, down from a peak of 4.3 bbl in 1994–1996 (Table 4). Most
of the country’s oil reserves are located off the coast of Peninsular
Malaysia, and are of high quality. Malaysia’s benchmark crude
stream, Tapis Blend, is very light and sweet with an API gravity of
441 and sulfur content of 0.08% by weight.
Several new oil production projects have come online during
the last few years, although Malaysia’s oil output declined somewhat since 2005 (see Table 4). Malaysian oil production has been
gradually decreasing since reaching a peak of 862,000 bbl/d in
2004 due to its maturing offshore reservoirs. Average production
for 2010 stood at 664,827 bls per day (bbl/d), down 13.8% from
2000 level. During 2010, Malaysia consumed an estimated
523,913 bbl/d of oil, up 12.7% from 2000 level. Malaysia’s crude
oil production has decreased at an average annual rate of only
0.5% annually during the 8th Malaysia Plan (2001–2005) offset by
the substantial reduction in 2005 (see Table 4). Generally, oil
production has been increasing at an average annual rate of 8.29%
in 1980s, compared to only 2.05% in 1990s but declining at an
average annual rate of 3.74% since mid-2000s.
Malaysia’s national oil company, PETRONAS, dominates
upstream and downstream activities in the country’s oil sector
but faces competition from Shell, Chevron, and BHP. PETRONAS is
the only wholly state-owned enterprise in Malaysia, and is the
single-largest contributor of government revenues. PETRONAS
holds exclusive ownership rights to all exploration and production (E&P) projects in Malaysia, and all foreign and private
companies must operate through the PSCs with PETRONAS.
ExxonMobil (through its local subsidiary Esso Production Malaysia Inc.) is the largest oil company by production volume,
and there are numerous other foreign companies operating in
Malaysia via PSCs.
3.1.1. Exploration and production
Malaysia’s proven oil reserves have declined in recent years,
despite growth in the Exploration and Production (E&P) activities.
PETRONAS and its various PSC partners have been most active
exploring offshore areas, especially in deepwater zones that pose
high operating costs and require substantial technical expertise.
Malaysia’s new oil production projects include the Kikeh block, the
country’s first deepwater oil and natural gas discovery which began
operation in January 2008. The Shell-operated Gumusut/Kakap
Table 4
Petroleum production, consumption and reserves growth in Malaysia: 1980–2010.
Source: Energy Information Administration, International Energy Annual 2012 (http://www.eia.doe.gov/).
Year
1980
1985
1990
1995
2000
2005
2006
2007
2008
2009
2010
Production
Average annual
growth rate
Consumption
Average annual
growth rate
Reserves
Average annual
growth rate
1000 bbl/d
%
1000 bbl/d
%
Billion barrels (bbl)
%
284.00
451.00
629.57
717.55
771.03
751.82
730.31
703.92
727.84
693.00
664.83
9.69
6.90
2.65
1.45
0.50
2.86
3.61
3.40
4.79
4.06
160
194
266
399
465
501
520
547
536
525
524
3.93
6.52
8.45
3.11
1.50
3.79
5.19
2.01
2.05
0.19
2.800
3.000
2.950
4.300
3.900
3.000
3.00
3.00
4.00
4.00
4.00
1.39
0.34
7.83
1.93
5.11
0
0
33.33
0
0
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
deepwater fields began production in 2010. Shell also expects to
begin oil production at the deepwater Malikai field by 2012,
although no production timetable is set. In February 2007, PETRONAS started construction of the new Sabah Oil and Gas Terminal
(SOGT), which has a capacity to handle 300,000 bbl/d of oil and
1 Bcf/d of natural gas. The construction of the SOGT was believed to
facilitate exports from the new deepwater oil and natural gas
production in Sabah.
PETRONAS has initiated several overseas E&P projects in an
effort to offset declining domestic oil reserves. At present,
PETRONAS is investing in 29 countries, with an upstream component in 23 of these countries. PETRONAS is investing in oil E&P
projects in Syria, Turkmenistan, Iran, Pakistan, China, Vietnam,
Burma, Algeria, Libya, Tunisia, Sudan, and Angola. Much of the
company’s international involvement is conducted by its overseas
investment arm, PETRONAS Carigali. Overseas operations now
make up nearly one-third of PETRONAS’s revenue.
3.1.2. Downstream activities
The majority of Malaysia’s oil is exported to Japan, Thailand,
South Korea, and Singapore. Malaysia invested heavily in refining
265
activities during the last two decades, and is now able to meet the
country’s demand for petroleum products domestically, after
relying on the refining industry in Singapore for many years.
According to Oil and Gas Journal (2007), Malaysia had about
545,000 bbl/d of refining capacity at six facilities as of January
2007. PETRONAS operates three refineries (259,000 bbl/d total
capacity), while Shell operates two plants (200,000 bbl/d), and
ExxonMobil one (86,000 bbl/d). The three largest refineries are
the 155,000-bbl/d Shell Port Dickson refinery and the PETRONAS
Melaka-I and Melaka-II refineries, which have a capacity of
92,832 bbl/d and 126,000 bbl/d, respectively.
3.1.3. Production and consumption trend
The general long term trend of Malaysia’s physical production
and consumption based on the available data from EIA (Energy
Information Administration) is depicted in Fig. 1. The production
and consumption trends both show a polynomial relationship.
Both trends exhibit a very high degree of the goodness of fit as
shown by the respective R-squares for 1980–2010.However, in
the shorter period of 1998–2010 the rate of growth in the
physical consumption has slowed down as shown in Fig. 2.
Fig. 1. Physical oil production and consumption trend, 1980–2010.
Fig. 2. Physical oil consumption trend, 1998–2010.
266
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
The significance of studying the production and consumption
trends is that Malaysia is an open economy and does not consume
oil entirely from its production but exports high grade oil and
imports lower grade oils. Thus, in physical accounting, imports, (I)
plus production, (P) equals the amount available for domestic
consumption (C) with the excess of consumption being available
for exports and a change in the reserves (R), i.e., PþI C ¼X þ DR.
Thus, P C ¼X Iþ DR. Hence, if reserves are maintained, i.e.,
DR¼0, P C¼X I, or simply the difference in production over
consumption, P C is the net exports, X I. When P C is positive,
then the status is net exports and when P C is negative the status
is net imports. The issue of net exports status has been very
critical and worrying that the Malaysian government is so concerned about. Statements after statements have been made that
we will be a net importer after several dates in 2009, 2010 and
2012 but it did not happen. The latest prediction is sometime
between 2012 and 2013, and probably by 2014 (Business Times,
May 15, 2012).
Based on the computed long term trend equations of 1980–
2010, with the assumption that the stocks are readily available,
replenished through new discoveries etc., the forecasted production and consumption levels are expected to converge before the
third quarter of 2013 implying that Malaysia’s status as a net
exporter will be reversed as a net importer of oil physically
(Table 5). However, with the slow-down in consumption as
shown in the shorter trend period of 1998–2010 the net importer
status (physically) will be reached before the third quarter of
2015. The physical accounting in determining whether a country
is a net exporter or net importer is inappropriate without taking
into consideration the prices of oil for export and imports.
Malaysia exports high grade oils at high prices while imports
low-grade oils at low prices that in terms of value exports may
still be larger than imports even when the quantity of export is
smaller than the quantity of imports.
3.1.4. Value of exports and imports
Oil prices in the market are differentiated with the grades of
oil. Thus, physical accounting is not an appropriate measure.
Hence, if reserves are maintained, i.e., DR¼0, or the difference in
production over consumption, P C equals the value of exports
minus imports, i.e., P C ¼X I. The value of exports and imports
is the sum of the value of each grade of oil exported or imported,
respectively. Net export is the difference between the value of
exports and the value of imports by definition. Hence in determining whether a country is a net exporter or net importer it is
essential to account the value of its exports against its imports.
Based on the estimated trend of export and import values, it does
not seem that Malaysia is going to be a net importer after all. The
trend shows that the value of exports seems to diverge from the
value of imports (Fig. 3). The forecasted values of exports and
imports are shown in Table 6. Malaysia will continue to be a net
Table 5
Physical production and consumption forecast (1000 bl/d).
Year
Production
y¼178.66 þ54.024x 1.2123x2
Consumption
y¼ 94.296þ 20.092x 0.1579x2
Consumption
y¼ 423.7 þ 15.27x 0.509x2
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
641.257
614.057
584.433
552.383
517.909
481.011
441.688
399.940
355.768
309.171
260.149
208.703
154.833
98.537
585.379
594.892
604.089
612.970
621.535
629.784
637.718
645.336
652.638
659.624
666.295
672.650
678.689
684.412
538.225
537.716
536.189
533.644
530.081
525.500
519.901
513.284
505.649
496.996
487.325
476.636
464.929
452.204
Fig. 3. Petroleum export and import value trends, 1980–2010.
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
exporter of oil as long as it exports high grade oils with higher
prices and imports low grade oils at low prices.
Another issue that has been worrying the government is the
trend in the prices of imported oils. The differences in the export and
import prices have been large in the mid-80s but have steadily
narrowed from as large as US$47.86 per bl in 1986 to US$16.28 per
bl in 2008. The computed trend lines show that the export and
import prices will not even converge (Fig. 4). Instead, based on the
trend equations the difference in the import and export prices tend
to diverge beyond 2008. This strengthens our earlier findings that
the value of exports will continue to be greater than the value of
imports making Malaysia’s net exports increasing over time.
267
3.1.5. Reserves
Reserves are replenished through exploration and discoveries
as well as imports. Malaysia’s oil reserves are maintained at
between 3 and 4 bbl since 1985. The current reserves of 4 bbl are
sufficient for domestic consumption for several years even without new discoveries and imports. Based on the long term
consumption trend of 1980–2010 the 4 bbl are good for 15 more
years until 2027, but with the slowing down of consumption
based on the short-term trend of 1998–2010, the reserves are
sufficient for 23 more years until 2035 (Table 7). Predictions will
vary over time with updates and revisions.
3.2. Natural gas
Table 6
Forecasted values of exports and imports, 2012–2025.
Year
Export values (US$billion)
y¼0.0398x2 0.8617xþ 6.8735
Import values (US$billion)
y ¼0.0307x2 0.6501x þ3.7901
2012
2013
2014
2015
2020
2025
21.780
23.585
25.469
27.433
38.448
51.452
15.769
17.176
18.644
20.174
28.743
38.847
For many years, natural gas was regarded as useless by-product
of crude oil production and flared or vented in vast quantities.
Following the growth of the gas industry in North America, natural
gas gradually found increasing use in Europe after the discovery of
substantial non-associated gas fields close to potential markets.
Many of world’s gas fields are, nevertheless, remote from the main
consuming markets. Moreover, gas is bulky and relatively costly to
transport. Once liquefied, it is much more compact and can be
shipped long distances by specialized tankers.
Export versus Import Prices of Oil, Malaysia 1986-2008
120.00
Export Price: y = 0.426x2 - 9.939x + 90.60
R² = 0.572
US$ per barrel
100.00
80.00
60.00
Import Price: y = 0.326x2 - 5.088x + 23.10
R² = 0.943
40.00
Export Price
20.00
Import Price
Poly. (Export
Price)
Poly. (Import
Price)
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
0.00
Year
Fig. 4. Petroleum export and import price trends, 1986–2008.
Table 7
Forecasted depletion of oil reserves.
Year
2012
2013
2014
2015
2020
2025
2027
2030
2035
Consumption
(1000 bl/d)
Reserves
(Billion barrels (bbl))
Trend 1
y¼94.296þ 20.092x 0.1579x2
Trend 2
y¼423.7 þ 15.27x 0.509x2
Based on trend 1
4.000
Based on trend 2
4.000
585.379
594.892
604.089
612.970
652.638
684.412
694.910
538.225
537.716
536.189
533.644
505.649
452.204
423.700
373.309
268.964
3.786
3.569
3.349
3.125
1.962
0.735
0.229
3.804
3.607
3.412
3.217
2.270
1.402
1.087
0.659
0.088
268
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
Table 8
Malaysia’s LNG infrastructure.
Plant
Ownership
MLNG
PETRONAS (65%), Shell (15%), Mitsubishi (15%), Sarawak local government (5%)
MLNG Dua
PETRONAS (60%), Shell (15%), Mitsubishi (15%), Sarawak local government (10%)
MLNG Tiga
PETRONAS (60%), Shell (15%), Nippon Oil (10%), Sarawak local government (10%), Diamond Gas (5%)
Total liquefaction capacity at bintulu complex
In many oil explorations in Malaysia, natural gas resources
were also discovered, especially off the states of Sarawak and
Terengganu. Malaysia has the 12th largest gas reserves as of
January 2012. Malaysia’s gas reserves stood at 83.0 trillion standard cubic feet (tscf). While much of the country’s oil reserves are
found off Peninsular Malaysia, much of the country’s natural gas
production comes from Eastern Malaysia, especially offshore
Sarawak.
As of March 31, 2008, Malaysia had 88 producing fields of
which 61 were oil fields and 27 gas fields. About 50% of these
producing fields are solely operated by PETRONAS’s subsidiary,
PETRONAS Carigali. As in the oil sector, Malaysia’s state-owned
PETRONAS dominates the natural gas sector. Most natural gas
production is operated by foreign companies through PSCs with
PETRONAS.
Malaysia has three liquefied natural gas (LNG) processing
plants, all located in a massive complex at Bintulu and supplied
by the offshore natural gas fields in Sarawak (Table 8). The Bintulu
facility is the largest LNG complex in the world, with a total
liquefaction capacity of 22.7 MMt (1.1 Tcf) per year. PETRONAS
holds majority equity stakes in all three LNG plants at Bintulu:
Malaysia LNG Sdn Bhd (MLNG), MLNG Dua, and MLNG Tiga.
Malaysia is the 9th world’s leading exporter of natural gas and
3rd only after Qatar and Indonesia in Asia, primarily in the form of
LNG. About 61% of the gas produced is exported as LNG, 3.5%
exported via pipeline and 35.5% is for domestic utilization
(Thaddeus, 2002). In 2010, Malaysia exported 1.130 Tcf of LNG,
accounting for 3.17% of total world LNG exports. As in 2005, the
majority of Malaysia’s shipments went to Japan, South Korea, and
Taiwan, although small amounts of LNG were also sent to the United
States and Spain (Fig. 5). LNG is primarily transported by Malaysia
International Shipping Corporation (MISC), which owns and operates 23 LNG tankers, the single largest LNG tanker fleet in the world
by volume of LNG carried. MISC is 62%-owned by PETRONAS and
also has significant involvement in oil shipping activities.
Capacity (MMt/y)
Commencement
8.1
7.8
6.8
22.7
1983
1996
2003
Fig. 5. Malaysia’s energy export by destination, 2005.
Source: EIA Natural Gas Monthly (Aug. 2006); CEDIGAZ Natural Gas in the World,
Trends and Figures in 2005; IEA Natural Gas information 2006
Fig. 6. Peninsular Malaysia gas reticulation system, 2005–2010.
Source: Petroliam Nasional Berhad
Carigali-PTTEP Operating Company (CPOC), a joint venture of the
Malaysian and Thai national oil companies.
3.2.1. Exploration and production
E&P activities in Malaysia focus on offshore areas, especially in
deepwater blocks. Some of the largest projects include Murphy
Oil’s deepwater Kikeh field in offshore Sabah, with a rate of
120 million cubic feet per day (MMcf/d). Other major new
developments are PETRONAS Carigali’s Blocks SK-309 and SK311 in offshore Sarawak, which began producing a combined
130 MMcf/d in early 2009 (EIA, 2012). One of the most active
areas for natural gas E&P is the Malaysia-Thailand Joint Development Area (JDA). The area is divided into three blocks and is
administered by the Malaysia-Thailand Joint Authority (MTJA),
with each country owning 50% of the JDA’s hydrocarbon
resources. Sources estimate that the JDA holds 9.5 Tcf of proved
plus probable natural gas reserves, and some analysts speculate
that the area could hold as much as 24 Tcf total in-place reserves
(EIA, 2012). The Carigali-Triton Operating Company (CTOC), a
joint venture between PETRONAS Carigali and Hess, operates one
of the blocks, while the remaining two blocks are operated by the
3.2.2. Other international LNG operations
PETRONAS is also involved in two LNG projects overseas besides
the LNG activities at home. In late 2005, production started at the
Egyptian LNG (ELNG) project on Egypt’s Mediterranean coast. The
ELNG plant has 7.2 MMt/y (350 Bcf/y) of total liquefaction capacity
at two production trains, with PETRONAS holding a 36% stake in
Train 1 and a 38% stake in Train 2. PETRONAS also holds a 30%
interest in the Dragon LNG project in the United Kingdom, which
consists of an LNG receiving and regasification terminal operational
in 2008. The Dragon LNG facility provides a future market for LNG
cargoes from Malaysia.
3.2.3. Natural gas pipelines
With the completion of the multi-phased Peninsular Gas
Utilization (PGU) project in 1998 Malaysia now has one of the
most extensive natural gas pipeline networks in Asia (Fig. 6). The
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
3.2.4. Production and consumption trend
Natural gas production has risen steadily in recent years since
2000 (Table 9). In the early 1980s production increased substantially at an average annual rate of over 38% over 5 years. In early
2000s annual production grew at an average annual rate of about
4.6%. The 2005 production level is about 23% higher than that in
2000. Domestic natural gas consumption has also increased
substantially since 1980s through the year of 2000. The 2010
consumption is about 40% higher than the 2000 consumption
level. With about 1130 Bcf of LNG exported in 2010 Malaysia is
ranked the 9th largest exporter in the world.
The production and consumption trends seem to be linear over
time with production exceeding consumption and the difference
is widening (Fig. 7). The excess of production over consumption is
shown as exports of natural gas from Malaysia.
Given that the trend continues we would expect exports of
natural gas to continue to expand over time (Table 10). Since
natural gas is currently viewed as abundant in Malaysia, there is a
Table 9
Natural gas production, consumption, exports, imports and reserves growth in
Malaysia, 1980–2010.
Source: Energy Information Administration, International Energy Annual, 2012.
Year Reserves
Production Consumption Imports
Exports
Trillion cu ft Billion cu ft Billion cu ft
Billion cu ft Billion cu ft
(Tcf)
(Bcf)
(Bcf)
(Bcf)
(Bcf)
1980 17.000
(38.8%)n
1985 50.000
(0.8%)
1990 51.900
(6.2%)
1995 68.000
(4.0%)
2000 81.700
(1.6%)
2005 75.000
(2.1%)
2010 83.000
n
56.000
(136.1%)
437.000
(9.9%)
654.000
(11.2%)
1019.900
(11.4%)
1599.770
(4.6%)
1967.046
(2.1%)
2170.813
56.000
(60.4%)
225.000
(8.0%)
315.000
(10.8%)
484.870
(13.8%)
819.661
(2.3%)
913.952
(5.1%)
1144.912
NA
NA
NA
NA
0.000
–
0.000
–
0.000
–
0.000
–
103.826
335.000
(11.9%)
535.020
(9.2%)
780.108
(7.0%)
1053.093
(1.5%)
1129.727
Figures in parentheses are average annual growth rates.
Natural Gas Production and
Consumption Trend, 1980-2010
2500.000
Production: y = 76.88x - 106.1
R² = 0.988
2000.000
1500.000
Consumption: y = 37.81x - 46.67
R² = 0.966
1000.000
Production
500.000
0.000
Consumption
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Billion cu m
PGU system runs more than 1420 km and has the capacity to
transport 2 Bcf/d of natural gas to domestic consumers. The gas
processing plants are located in the East Coast of Peninsular
Malaysia. The system also comprises of six gas-processing plants
producing methane, ethane, propane, butane and condensate.
Trans ASEAN Gas Pipeline (TAGP) is ASEAN’s declared intention to ensure greater security and sustainability of regional
energy supplies through diversification, development and conservation of resources, the efficient use of energy and the wider
application of environmentally sound technologies (Anon, 2003).
Increased pipeline infrastructure enables the development of gas
fields located near pipeline routes which may otherwise be
uneconomical to develop in isolation.
The first cross-border gas pipeline in ASEAN was commissioned
in 1991 with the exports of gas from Malaysia to Singapore.
Malaysia buys gas from Indonesia (West Natuna). Since then
several regional gas pipelines have been completed and several
more are in the process of design and construction or are envisaged.
ASEAN’s energy policies plan to connect gas pipelines between
Myanmar, Thailand, Vietnam, Singapore, Indonesia, Philippines
and Malaysia to boost energy trade within the ASEAN region
(http://www.gasmalaysia.com/). In fact, ASEAN’s energy policies
are founded upon a combination of various accords, policy declarations and summit undertakings.
269
Linear (Production)
-500.000
Fig. 7. Natural Gas production and consumption trend, 1980–2010.
Table 10
Natural gas production and consumption forecast.
Year
2012
2013
2014
2015
2020
2025
2030
Production (billion cu m) (Bcm)
Consumption (billion cu m) (Bcm)
y¼76.885x 106.17
y¼ 37.815x 46.679
2431.035
2507.920
2584.805
2661.690
3046.115
3430.540
3814.965
1201.216
1239.031
1276.846
1314.661
1503.736
1692.811
1881.886
Table 11
Natural gas reserves forecast.
Year Production
Consumption
Forecast reserves
y¼ 76.885x 106.17 y ¼37.815x 46.679 Based on
production
rate
2015
2020
2025
2030
2035
2036
2040
2045
2050
2052
2053
2661.690
3046.115
3430.540
3814.965
4199.390
4276.275
4583.815
4968.240
5352.665
5506.435
5583.320
1314.661
1503.736
1692.811
1881.886
2070.961
2108.776
2260.036
2449.111
2638.186
2713.816
2751.631
83,000.000
72,814.550
58,352.825
41,968.975
23,663.000
3,434.900
841.375
–
–
–
–
–
Based on
consumption
rate
83,000.000
77,968.246
70,827.716
62,741.811
53,710.531
43,733.876
41,625.100
32,811.846
20,944.441
8,131.661
2,741.844
9.787
large potential in its domestic utilization contrary to some beliefs
that Malaysia will soon be a net importer of oil and gas.
3.2.5. Reserves
Natural gas reserves stood at 83 Tcf for several years up to
January 2011 with new discoveries while production and consumption have been increasing over time. The new discoveries
have been sufficient to cover annual production, consumption
and exports, thus maintaining the current level of reserves. Even
without new discoveries the current reserves are sufficient to last
for several years. At the current production rate the reserves,
without new discoveries, can last for 24 more years up to 2036.
However, if the reserves are extracted based on the current
slower rate of consumption Malaysia’s gas reserves can last for
41 more years up to year 2053 (Table 11).
270
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
3.3. Renewable energy
In 1980 Malaysia moved away from a huge dependence on oil
(87.8%) to adopt a four fuel policy. The power generation fuel mix,
for example is based on the fuel policy that considers the security of
fuel supply and the cost of fuel. This has allowed Malaysia to
develop its hydro power and natural gas resources. In 2000 gas
constitutes 77% of the fuel mix (Table 12). Fuel oil has been
displaced by gas and by 2010 oil will only constitute 0.2% down
from 4.2% in 2000 in the fuel mix. Notable increase in the fuel mix is
coal which has increased to 36.5% in 2010 from only 8.8% in 2000
especially by the National Energy Corporation, TNB. All three major
electricity suppliers have shown little dependence on oil in their fuel
mix for power generation. Besides natural gas, the Sarawak Electricity Supply Corporation (SESCO) and the Sabah electricity supplier
(SESB), respectively, are quite heavily dependent on hydro-power
for electricity generation in preference over on coal.
The fuel diversification policy comprising oil, gas, hydro and coal
for Malaysia is extended to include renewable energy (RE) as the
fifth fuel during the Ninth Malaysia Plan (2006–2010). Renewable
energy resources include in particular biomass, biogas, municipal
waste, solar and mini-hydro. Of these, biomass resources such as oil
palm and wood waste as well as rice husks, will be used on a wider
basis mainly for electricity generation. Other potential sources of
energy include palm diesel and hydrogen fuel.
The development and utilization of renewable energy policy is
further intensified with the implementation of Small Renewable
Energy Power (SREP) projects. The terms and conditions of the
Renewable Energy Power Purchase Agreement (REPPA) as well as
issues related to project viability such as long-term fuel supply
security and financing will be reviewed. The Clean Development
Mechanism (CDM) will also be utilized to provide support for the
implementation of the SREP projects. RE projects utilizing municipal
waste will also be promoted (Ninth Malaysia Plan, 2006–2010).
The Ministry of Energy, Green Technology and Water was
established on April 9, 2009 following the cabinet reshuffle and
restructuring in March replacing Ministry of Energy, Water and
Communications (MEWC) which was established on March 27, 2004
to replace the earlier Ministry of Energy, Communications and
Multimedia (http://www.ktak.gov.my). The Ministry coordinates
R&D activities of the various energy-related research centres. New
sources of energy such as solar and wind will be developed with
emphasis on utilizing cost-effective technology as well as strengthening capacity building. In addition, activities under the roadmap on
solar, hydrogen and fuel cells such as technology development and
knowledge sharing will be implemented while financing
Table 12
Fuel mix in electricity generation (2000–2010).
Source: 9th Malaysia Plan, Chapter 19: Ministry of Energy Communication and
Water.
Year
Oil
Coal
Gas
Hydro
Others
Total (GW h)
77.0
70.2
55.9
79.6
71.9
56.8
31.4
43.0
47.2
59.4
58.9
44.1
10.0
5.5
5.6
9.4
4.9
3.4
21.3
13.6
26.5
14.3
11.4
31.7
0.0
0.3
1.8
0.0
0.2
1.6
–
0.8
7.3
–
–
–
69,280
94,299
137,909
63,634
86,242
126,718
2,299
3,447
4,808
3,347
4,610
6,383
% of total
Malaysia
TNB
SESB
SESCO
2000
2005
2010
2000
2005
2010
2000
2005
2010
2000
2005
2010
4.2
2.2
0.2
2.3
0.5
0.1
47.3
42.6
0.5
11.2
4.7
3.0
8.8
21.8
36.5
8.7
22.5
38.1
–
–
18.5
15.1
25.0
21.2
mechanisms will be explored. Initiatives to enhance local capabilities in the development of indigenous RE-based technologies as
new sources of growth are also being supported.
The development of bio-fuel using palm oil as a renewable
source of energy is intensified during the 9th Malaysia Plan
period. The introduction of a National Bio-fuel Policy (interchangeably known as the National Bio-diesel Policy) on August
10 2005 is primarily aimed at reducing the country’s fuel import
bill, promoting further the demand for palm oil which will be the
primary commodity for bio-fuel production (alongside regular
diesel), as well as to shore up the price of palm oil especially
during periods of low export demand. Bio-diesel which is a blend
of 5% palm olein and 95% petroleum diesel has already commenced operation in 2006 (http://my-biodisel.org/). During the
initial phase, the blended diesel was utilized by vehicles of
selected Government agencies.
Malaysia has approved 75 bio-diesel manufacturing projects
which would annually consume about 8 Mt of palm oil a year and
officials believed the country has already produced 1 Mt of biodiesel in 2007. The Malaysian Palm Oil Board (MPOB) and Golden
Hope Plantations are partnering to build a biodiesel plant in Labu
in Negeri Sembilan—the first in the country. MPOB is investing
RM 40 million. The plant produces 5000 t (approximately
36.5 thousand barrels or 1.15 Mgal) of biodiesel a month. Sime
Darby Biodiesel Sdn Bhd is responsible for the production of palm
biodiesel in Malaysia and its distribution overseas (http://
www.biofuelsdigest.com/). Two plants in Selangor, are currently
placed under its purview, one in Carey Island and another in Teluk
Panglima Garang. The plant in Carey Island has an annual capacity
of 60,000 t while the one in Teluk Panglima Garang has an annual
capacity of 30,000 t.
4. Policy implication
Huge dependence on oil prior to 1980s had prompted Malaysia
to adopt a four fuel strategy comprising oil, gas, coal and hydro.
The effect of fuel diversification strategy has turned Malaysia into
an energy trader in the region. Malaysia exports crude oil, LNG
and piped gas but in turn, imports fuel oil, piped gas from
Indonesia and coal from Australia, South Africa, Indonesia and
China though some domestic coal is used as blending stock.
Malaysia’s net exporter status of oil and gas has been reported
several times to be reversed in 2009, 2010, 2012, and the latest by
2014. However, trend equations do vary with data updates. In
physical quantities, consumption of oil will exceed production by
the third quarter of 2013 if the long term trend equation is used but
is delayed to the third quarter of 2015 when the shorter term
consumption equation is used. But net export is measured in values
of export and imports rather than in physical quantities. Since
Malaysia exports high grade oils and imports cheaper and lower
grade oils the value of exports continues to exceed the value of
imports and perhaps the difference is widening over time. If the
current reserves are extracted based on the long term domestic
consumption trend without new discoveries over time, our reserves
will be totally depleted by 2027 or 2035 if the short term trend is
plausible. Thus, in order to delay the depletion even further it is
imperative that the reserves be replenished through new discoveries
and addition to the stocks from within the country and abroad and
strategic fuel mix with renewable energy sources.
Malaysia has a large reserve of natural gas which if utilized at the
trend rate it can last for until 2053. However, if extracted based on
the production trend rate, reserves will last until 2036. Given the
abundant reserves of gas and the slow rate of increase in its
consumption there seems to be a huge potential in the development
of gas utilization within the country and the region.
K.A. Rahim, A. Liwan / Energy Policy 50 (2012) 262–271
Not only can the PGU initiative helped boost domestic
natural gas consumption, it can also help expand regional
natural gas trade. Malaysia already trades small amounts of
piped natural gas with Singapore and Indonesia, and PETRONAS
reported that in 2006 construction was completed on the TransThailand-Malaysia Gas Pipeline System, which allows Malaysia to
pipe natural gas from the Malaysia–Thailand JDA to its domestic
pipeline system. This linkage marks a significant step toward
the realization of the proposed ‘‘Trans-ASEAN Gas Pipeline’’ (TAGP)
system, which envisions the establishment of a transnational pipeline network linking the major natural gas producers
and consumers in Southeast Asia. On account of Malaysia’s extensive natural gas infrastructure and its location, the country is a
natural candidate to serve as a hub in the proposed TAGP project.
Coal prices have been relatively low and stable, currently based
on bilateral negotiations with reference to benchmark prices. With
the introduction of affordable new clean technologies in the coal
fired generation plants, the abundance of coal resources and readily
available supply will encourage Malaysia to consider coal as a fuel of
choice in its power generation mix. Coal has the potential to displace
gas in the power generation mix since it is priced much lower than
gas. Though Malaysia has a large coal reserve, it has a comparative
disadvantage in developing its coal resources. The costs can easily
outweigh the benefits of developing its coal resources. Even when
coal prices tend to increase, Malaysia lacks experience and technology to develop coal resources.
Malaysia is considering reforms to its power sector to make it
more competitive and lower costs. Currently, three state-owned
utilities dominate power generation and distribution in Malaysia.
The market was opened to independent power producers (IPPs) in
1994, and already 24 IPPs were licensed, though not all of the
projects have been built. Eventually, Malaysia expects to achieve
a fully competitive power market, with generation, transmission,
and distribution decoupled, but reform to a competitive market is
still at an early stage. The issue is still under study, and many
observers have voiced caution in light of the experiences of other
deregulated utility systems.
Malaysia is one of the few ASEAN countries (Philippines,
Indonesia, Thailand and Vietnam) which are blessed with most
of the types of renewable energy sources. The implementation of
various policies and programs by the government has increased
the awareness of the importance of the role of renewable energy
in a sustainable energy system. Apart from that, close cooperation
within the countries in this region can also further promote the
use of renewable energy in order to fulfill the demands of energy
worldwide. In general, the demand pattern for biomass, as one of
the renewable energy, is expected to increase steadily. Malaysia
has great potential in biomass utilization as renewable resources.
The major portion of this demand will come from the existing
natural forest and planned plantations. However, the government
has plans to maintain or increase the contribution of renewable
energy following the introduction of the Five Energy Policy where
renewable energy is expected to feature prominently in the
country. This will mean that biomass sources and bio-diesel will
play an important role in the national energy balance. In Malaysia,
skyrocketing palm oil prices are crucial in efforts to promote biodiesel fuel. Government officials say that unless world oil prices
increase higher than $82 a barrel, or plants achieve economies of
scale, or palm oil prices receded they do not see bio-diesel plants
to begin operation.
5. Conclusion
Being a developing country, Malaysia will have to cope with
the ever-increasing domestic demands for energy for the
271
residential and commercial sectors while at the same time will
have to look at opportunities for revenues from exports of energy
resources. Energy production will have to be carried out in the
most cost-effective manner whilst ensuring sustainability of the
energy sector. To enhance the country’s competitiveness and
resilience the energy sector must be able to deliver adequate,
reliable and quality power supply. The Malaysian energy sector is
still heavily dependent upon non-renewable fuel: oil, coal and
natural gas as a source of energy. These non-renewable fuels are
finite and the stocks gradually decreasing and also contribute to
the emission of greenhouse gas.
Currently, about 59% of the energy mix in Malaysia is contributed by natural gas as a source of fuel. The natural gas is
supplied via a gas reticulation system installed by the national
petroleum company, PETRONAS. Being the cheapest and most
abundantly available fossil fuel, coal will always have a role in the
energy mix of a particular country. Malaysia’s coal resource to
date is estimated at about 1050 Mt of various qualities, ranging
from lignite to anthracite. Bituminous to sub-bituminous coal,
however forms the bulk from this amount. Coal is fast gaining
significance in the generation fuel mix from 6.7% in 2000 to the
present 35% in 2009. Coal as a primary fuel will gain more
significance with the commissioning of the Tg. Bin and Jimah
power plants by the IPP within this 9th Malaysia Plan period. The
quest for self-sufficiency in energy is not peculiar to Malaysia. It is
an international phenomenon that has had countries working
to secure renewable, sustainable and environmentally–friendly
sources of energy.
Given the trends of production and consumption, it is evident
that oil will be depleted physically and calls for its conservation
and exploration both within and abroad to replenish the reserves
to meet the ever-increasing demands. Gas has a huge potential for
domestic utilization as well as for exports to increase revenues.
Coal will have to continue to be imported from reliable suppliers
as the price is stable and low compared to natural gas. To develop
local coal resources may not be feasible as Malaysia may not be
able to compete with established world coal producers and
exporters. Renewable energy from biomass has a great potential
as Malaysia has abundant forest resources and plantations. Biodiesel has some potential to be developed if the crude oil prices
stay above US$82 per bl for palm oil to be able to compete.
Acknowledgement
This paper has benefitted from Long Run Research Grant Scheme
(LRGS) 2011–2014 funded by the Ministry of Higher Education,
Malaysia for the Low Carbon Economy (LCE) Research Group.
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