By Karen Bong
KUCHING, Sept 7: Petroliam Nasional Bhd (PETRONAS) is reportedly considering legal action to maintain its majority control over Malaysia’s oil and gas resources amid mounting pressure from Sarawak, which seeks to assume full control over the trading and management of the substantial natural wealth and resources in the region.
This follows Sarawak-owned Petroleum Sarawak Bhd (Petros) positioning itself to become the sole gas aggregator, which challenges PETRONAS’ decades-long dominance in the sector since 1974.
With Sarawak demanding full rights by the approaching Oct 1 deadline, a Channel News Asia (CNA) report quoting government officials close to the situation has claimed that PETRONAS may resort to a court injunction to halt Sarawak’s bid to assert its rights over the distribution and sale of liquified natural gas (LNG) through Petros.
PETRONAS could be feeling the urgency and strain on the ongoing negotiations, given its reliance on Sarawak, which supplies 90 per cent of Malaysia’s LNG exports. Furthermore, the Federal government reports that Sarawak’s probable and proven petroleum reserves constitute 60.87 per cent of Malaysia’s total reserves, with Sabah accounting for around 18.8 per cent.
Recently, the Malaysia’s national oil corporation reported a 19.4 per cent drop in profit after tax (PAT) for the first half of 2024, falling to RM32.4 billion from RM40.2 billion in the previous period. This decline is attributed to weaker performance in its gas segment and a 45 per cent drop in average LNG prices due to reduced global demand.
Potential dividend impact
At a press conference in Kuala Lumpur after announcing the financial result on Sept 5, 2024, PETRONAS president Tan Sri Tengku Muhammad Taufik cautioned that Sarawak’s bid could impact the company’s revenue and, consequently, its dividend payments to the government.
He emphasised that PETRONAS’ role in maintaining Malaysia’s integrated energy value chain is crucial for the country’s energy stability.
“If there is a change in arrangement which sees a value transfer at the top line, inevitably it will be trickled down to our cash flows. And the cash flows at PETRONAS, not PETRONAS Group, is what ultimately determines our affordability for payouts to dividends.
“I think, in so far as the implications thereof, the jury is still out as we are still negotiating. Whether it’s something that’s going to cause a material dent or not, that is still something that is going to be resolved through these discussions,” he said, according to reports by The Edge Malaysia.
Sarawak’s bid to control gas supply a concern for LNG buyers
Taufik also highlighted concerns about international LNG buyers, particularly in key markets like Japan and South Korea, which rely heavily on Malaysia for their LNG supply, underscoring the high stakes of the ongoing negotiations.
He pointed out that the potential shift in gas aggregation is being closely scrutinised by LNG buyers, who seek assurance that Malaysia’s supply will remain reliable, cost-competitive, and sustainable.
Despite Sarawak and Petros assuring that LNG supplies will continue uninterrupted, Taufik acknowledged that buyers are concerned about contract renewals and long-term security of supply.
“I have extant contracts, I have discoveries that need to go into the funnel, I have buyers who are waiting to be able to renew, refresh and extend (contracts), and they want to know this,” he said.
He added that upstream players are also anxious about the future, as the financial viability of their exploration and production activities depends on stable, predictable arrangements that allow them to monetise their investments.
Sarawak’s push based on its own laws
Sarawak, led by Premier Datuk Patinggi Tan Sri Abang Johari Tun Openg, insists that its oil and gas resources be governed by its own laws. Sarawak’s push is driven by the Sarawak Land Code, Oil Mining Ordinance (OMO) 1958, the Gas Distribution Ordinance 2016, the Federal Constitution, and the Malaysia Agreement 1963 (MA63).
OMO 1958 stipulates that oil and gas resources found within 200 nautical miles of its waters belong to Sarawak.
Abang Johari’s push in the oil and gas sector is part of Sarawak’s broader quest for autonomy as outlined in MA63, which has been a significant issue since Sarawak formed Malaysia, along with Sabah in 1963.
In July, Petros signed gas sale agreements with Sarawak Petcam and Sarawak Energy, marking a pivotal step for Petros as it prepares to assume the role of sole gas aggregator, previously held by PETRONAS to buy and sell all natural gas in Sarawak.
On Aug 7, 2024, the Gas Distribution Division of the Ministry of Utility and Telecommunication (MUT) Sarawak has issued retail licences to 13 upstream gas sellers, including PETRONAS and Shell, to supply and sell natural gas in the region.
Despite these developments, negotiations between PETRONAS, the federal government, and Sarawak are still ongoing, leaving the specifics of any new arrangement up in the air.
Previously, Abang Johari has emphasised that Sarawak does not intend to usurp PETRONAS’s rights but viewed the company as a partner or ‘sibling’ in the oil and gas sector.
He had mentioned that Sarawak’s actions in the oil and gas industry are grounded in existing rights and laws. Sarawak’s goal is to maximise the value of Malaysia’s hydrocarbon resources, contribute to the nation, and honour the mandate entrusted to them. Sarawak is not seeking more than what is rightfully theirs, insisting that MA63 must be upheld.
Win-win partnership in balancing power in the nation’s energy sector
While negotiations on the oversight of oil and gas trading in Sarawak continue, PETRONAS recognises Sarawak’s ambition to become a leading hub for green hydrogen, a move that would greatly benefit Malaysia’s energy sector and economy.
Emphasising that PETRONAS has invested heavily in Sarawak’s economic growth, Taufik expressed commitment to collaborating with Sarawak to achieve mutual goals.
While negotiations have been difficult, but he assured that there have been no confrontations between PETRONAS and Petros in reaching a new arrangement.
“So I know some people are spreading either malinformed, misinformed or viciously informed articles about a confrontation between ourselves and Petros. Yes, the discussions and negotiations are difficult, but we have done so in a constructive, professional and engaging manner. Channels of communication remain open,” he said.
However, he highlighted the need for both parties to understand the constraints each side faces with current developments.
He stressed the importance of finding a “win-win” solution, stressing that national interests must remain at the forefront of any agreement as PETRONAS has a role, not only as a company, but for the country.
He further noted that while State laws apply, federal regulations also govern the operations on platforms that ensure reliable gas supply.
“Every soul on board those platforms serving the power and industry needs and giving you your uninterrupted, safe and reliable, secure gas is also working for federal law.”
“Both parties recognise that each other has aspirations and duties, and it is in that spirit that conversations are happening now. We want to continue being a partner to the region. And I know some of you have questioned, where is the negotiation going? We want to build a win-win partnership. We want to help each other grow based on the understanding of each other’s strengths, but most importantly, the constraints.
“And we always act in the country’s best interests at heart. And I cannot act or negotiate without considering the implications to the country,” he added. — DayakDaily
