Malaysia

Kelvin Tan
Assoc. Director
Performance Management and Delivery Unit (PEMANDU)
Prime Minister’s Department, Malaysia
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Discussion Outline
• Overview of Petroleum in Malaysia
• Petroleum and the broad economy
• Managing Petroleum from a Policy Perspective
• Lessons learned
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Malaysia’s Oil and Gas Industry Today
Central to Malaysian Economy
• Oil & Gas contributes approximately 20% of
Malaysia’s GDP
• A large portion of the 20% are contributed by
E&P activity, and a small portion by services
or manufacturing
• Production has declined and are mostly from
matured brown field development
• New developments are getting more difficult
i.e. deeper water, HPHT, high H2S and CO2,
etc.
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Strategy for Sustainable Development of the Energy Sector – Taking
Malaysian Industry to the Next Level
DIVERSIFY
GROW
SUSTAIN
EPPs
Grow in downstream
Continue domestic Oil & Gas
production
4.
1.
2.
3.
5. Unlock latent gas demand through
LNG import
Enhanced oil recovery
Develop small fields
Increase exploration activities
Create a regional oil storage and
trading hub
13.Increasing petrochemical output
Make Malaysia # 1 Asian hub for oil
field services
6.
7.
8.
Build alternative energy
capabilities
9.
Reduce energy bill through
energy efficiency
10. Build up solar power capacity
11. Ensure best practice nuclear
deployment
12. Drive industrial growth in
Sarawak with big hydro
Encourage investment in oil and gas
industry (DDI + FDI)
Local companies successful in
going overseas
Attract MNCs to bring global operations
to Malaysia
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Petroleum Clusters in Malaysia – Multiple Opportunities for Local Industry
▪
Sarawak
Kerteh/Kemaman
Lumut
▪
Fabrication of offshore/ onshore
structures
▪
Offshore supply base for
Peninsular Malaysia
Petrochemical hub
▪
▪
▪
▪
Fabrication
Oilfield services
Refinery
Petrochemical
Tanjung Agas
▪
Marine Services – ship
repair, structure repair
Gebeng
▪
Petrochemical
Sipitang
▪
▪
Kuala Lumpur
▪
▪
HQ’s of
major OFSE
Engineering
Companies
Pengerang/Pasir Gudang
PD and Melaka
▪
▪
Refineries and Lubricant
Blending
Regasification (Sg Udang)
South West Johor
(Tg Bin/ Tg Pelepas)
▪
OFSE manufacturing hub
▪
▪
▪
Petrochemical hub
Fabrication of offshore/ onshore
structures
Installation companies
Industrial Park
SAMUR
Labuan
▪ Offshore supply base
for East Malaysia
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Malaysia Benefits from a Long Petroleum History
Present Day
Post Independence
• ~600kb/d liquids production
• ~1000kboe/d gas production
Early Years (Pre-independence):
1957 – Independence
• Mature petroleum province
1910 – 1st Oil - Miri, Sarawak
1974 – Petroleum Development
Act (Formation of PETRONAS
NOC)
• Multiple refinery, petchem plants
1917 – world’s longest
underwater pipeline developed
(14,500ft)
1917 – 1st Malaysian refinery
(Lutong, Sarawak)
- Federal government and states
relinquish control of upstream
petroleum resources to NOC
- Production sharing contract
environment
• Strong push for extracting added
value from resources:
- Enhanced oil recovery
- Marginal fields
- Regional oil storage strategy
- Oilfield services hub strategy
- Expand domestic fabrication
- Encourage international JVs
- Expand petrochemical ind.
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Generically: Petroleum Affects the Economy at Multiple Touch-points
Petroleum Production
Government Take
Benefit
• Taxes, royalties,
dividends and other
levies on petroleum
production
• Taxes on ancillary
industries /
employees
Challenge
• Designing an
appropriate
government take to
incentivise industry
and ensure a win-win
for the host country
Local Content
• Direct industry jobs /
enterprises
• Indirect (supporting
industry) jobs
• Ancillary activity due
to rising consumption
• Host country citizens
may not have the
capabilities needed
to get the highest
value jobs
Profits Remaining Incountry
• Petroleum company
profits reinvested incountry
• Local company
profits which cascade
throughout the
economy
• Profits remain incountry only on
condition that new
viable investment
opportunities exist
Development
of downstream
industries
• Development of
downstream
industries e.g.
petrochemicals,
fertiliser, etc.
• Rate of development
of downstream
industry is limited by
demand for industry
products, resultant
economies of scale
etc.
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The Malaysian Approach to the Petroleum Policy Environment
• PETRONAS is the asset owner for all upstream petroleum acreage
• IOCs operating in Malaysia do so under the framework of production
sharing contracts
• Local content is driven by the need for vendors to the upstream industry
to be licensed by PETRONAS (irrespective of who is the operator of the
field)
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Licensing a Vendor in the Malaysian Petroleum Industry
Local Company
Local Company
Joint Venture
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Agency vs JV: Pros and Cons
Agency
Joint Venture
Pro
Pro
• Fast to set up
• Local partner ‘added value’ is
relationships and local knowledge
• Local partner requires limited access to
finance etc.
• Deeper local capability development
• Local partner and foreign principal are
more tightly bound together
Con
Con
• Local partner may have limited
incentive to move up the value chain
• Agencies may shift suddenly on a
project-by-project basis
• Deeper JV partnerships may also
require capital injection from local
partner
• ‘Matching process’ may take longer
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Internationally: Petroleum Industry Size Creates Policy Challenges
Example from
the Literature
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Source: Exporting the ‘‘Norwegian Model’’: The effect ofadministrative design on oil sector performance Thurber, Hults, Heller
Lessons Learned
• Choose an industry governance model which suits the institutional capabilities
and legal framework of the country.
• If capital is a constraint, choose a local content development model which
favours the development of capabilities among individuals.
• A local content development ‘roadmap’ is a good idea. It should take into
account maturity of the industry and individuals to ensure realisation of the
benefits.
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Thank You
For more information on Malaysia’s National Transformation Program, please
visit our website http://www.pemandu.gov.my
Kelvin Tan
[email protected]
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