KUALA LUMPUR, April 15 — With Petronas and Petroleum Sarawak Berhad (Petros) still hammering out the terms of a new deal on gas governance in the Bornean state, industry experts cited by Free Malaysia Today have weighed in on its potential impact on Malaysia’s oil and gas (O&G) industry and the broader economy.
New deal
Jamil Ghani, a former analyst with the Malaysia Petroleum Resources Corporation, said Prime Minister Datuk Seri Anwar Ibrahim’s speech in Parliament on Feb 17 contained certain “clues” about the deal’s overall structure and the division of roles between Petronas and the Sarawak state-owned company.
“The details are still being worked out, but there are some lines that have been drawn by Putrajaya,” he reportedly said.
Addressing the Dewan Rakyat, Anwar said Sarawak premier Tan Sri Abang Johari Openg had agreed that Petronas’s existing international and domestic contracts would continue in full force and effect.
However, Jamil said, despite the announcement, the status of these contracts were called into question the very next day.
“The Sarawak premier’s February 18 statement explicitly said that existing Petronas contracts would remain valid and unaffected, aligning with Putrajaya’s own previous assurances.
“But it also introduced a critical condition: these contracts must neither adversely affect Petros’s role as gas aggregator [in Sarawak] nor contradict the provisions of the state’s Distribution of Gas Ordinance 2016,” he said.
Jamil said the new condition significantly altered Sarawak’s earlier stance, and would have “major implications” for Petronas.
“Given its multi-year international and domestic contractual commitments, the Sarawak premier’s statement presents operational and financial challenges for Petronas,” he added.
He said these contracts, especially those involving international buyers like Japan, South Korea and Taiwan, typically have 20- to 40-year terms.
“[The contracts] are extremely technical, and assumptions about available gas volumes and the profit margins have already been factored into the final price.
“If there’s suddenly an extra party that must be paid, like a middleman, then the increased costs potentially necessitate renegotiations or adjustments in strategic operational planning,” he said.
Anwar’s speech in Parliament also involved several other terms agreed upon between Putrajaya and Sarawak as part of the overarching dispute settlement.
He said Petronas will supply 1.2 billion cubic feet of gas daily to Sarawak to help realise the Sarawak Gas Roadmap 2030, up from the 450 million cubic feet the state currently receives.
“Petronas may need to procure gas from the market to fulfil that allocation without compromising existing contracts, possibly at higher costs. This could directly affect its financial projections and profitability,” said Jamil.
Investor confidence and economic growth
Despite the backdrop of increased tensions over revenue sharing and resource management, analyst James Chin believes a mutually beneficial Petronas-Petros deal will aid federal-state relations.
Chin, of Tasmania University, said the appointment of Petros as sole gas aggregator in Sarawak would allow the state’s ruling Gabungan Parti Sarawak coalition to view Anwar’s Madani government more favourably.
“Under the old Dr Mahathir government, Sarawak was not able to push for this because Dr Mahathir refused to even discuss the issue. It will be better for Anwar if he can deliver this,” he said, although acknowledging that negotiations are complicated.
“The problem is that oil and gas matters are very technical. We are dealing with very technical calculations.
“When the federal and Sarawak governments concluded their own discussions earlier this year, they made a deal at a very high level without going into all the details.”
Jamil said hashing out these commercial details within the strict framework set out by Putrajaya would bolster investor confidence.
“There will be more operational stability and legal clarity with a clear delineation of roles. This reduces the risk of conflicts and that could disrupt industry operations and discourage investment.”
He also said it would minimise the potential repercussions on Petronas’s bottom line while enhancing Malaysia’s energy security and the oil and gas industry, given the national oil company’s crucial role in these sectors.
“The reality is that other big industries like E&E (electrical and electronics) are dominated by foreign direct investment, while the reverse is true for O&G,” said Jamil.
According to Jamil, more than 3,000 oil and gas services and equipment companies will suffer greatly, he added. “More than 90 per cent of these companies depend on Petronas to survive.”
“If Petronas loses its position in Sarawak, it will shrink its ability to pay dividends to the federal government,” said Jamil.
“Malaysia’s extensively subsidised fuel regime will get a true reality check. All the data centres that rely on cheap electricity will also have a second look at things.”
Jamil also said many of the country’s industries are highly dependent on access to cheap fuel. “Petronas has been the backbone that supports them all.”
Ultimately, he said, it is the working people who will be hit hardest.
National security
Another analyst, Sunway University’s Shakila Yacob said that while there is much need for power and resource sharing between the federal and state governments, broader economic and security concerns must also be considered.
Shakila said it was critical that state aspirations be balanced against the need for national cohesion to address deeper tensions within Malaysia’s federal system more effectively.
“Pioritising resource autonomy at this juncture could divert attention from the need for national cohesion in addressing external threats, particularly from China.
“One of the most pressing issues is the growing geopolitical tension in the South China Sea, particularly China’s assertive claims, which extend to areas near Sarawak, such as James Shoal located just 50 nautical miles offshore,” she said.
Shakila also said the Putrajaya-Sarawak dispute needs to be carefully resolved to eliminate any negative consequences to energy autonomy.
“Petronas worked hard in the 1970s to secure Malaysia’s oil rights from foreign oil giants. Over the decades, it has developed a highly skilled workforce and expertise to manage these resources effectively.
“But the ongoing federal-Sarawak dispute could weaken Petronas’s authority, risking our energy autonomy and opening the door for foreign giants to exploit the situation.
“It’s essential to preserve Petronas’s role to protect national sovereignty and ensure we don’t lose the progress we’ve made,” she said.