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Malaysia: steering Asia’s offshore wave

19.03.2014 / Energyboardroom

Key stakeholders of the energy world will descend upon Kuala Lumpur at the end of March to attend the 2014 Asia Offshore Technology Conference (OTC).

The fact Kuala Lumpur has been chosen to spearhead this year’s central upstream summit is a declaration that Malaysia has unequivocally emerged as the poster child of the vast ASEAN hydrocarbon ecosystem. In contrast to its neighbor Indonesia, it has cultivated a premier oil and gas (O&G) environment based on three core pillars: anticipation, innovation and sustainability.

Buoyed by decades of robust economic growth, the O&G industry has long been the backbone of the nation’s economy. Indeed, in 2013 the sector yielded 41 percent of the country’s revenue and contributed to 20 percent of the national GDP.

In its role as custodian of the nation’s O&G resources, the growth story of Malaysia is entwined with the founding of Petronas, the champion of the country’s local supply chain development since its conception in 1974.

Hosting the inaugural 2014 OTC Asia conference is a further example of Petronas’ ambassadorial role. The NOC has evolved into a colossus of the energy world and is today considered one of the ‘new seven sisters.’ Its astute and enduring management earned the company a formidable business reputation, blazing a trail for Malaysian businesses to extend their influence overseas.

Nonetheless domestically, like the bulk of the ASEAN states, Malaysia is confronting profound energy demand challenges. Malaysia – Southeast Asia’s second biggest crude producer – is anticipated to be a net oil importer by 2020.

Sterling economic growth, swelling urbanization and surging power consumption have compounded national energy insecurity and threatened to thwart Prime Minister Najib Razak’s Economic Transformation Program.

To abate perhaps the strongest economic headwind, the Malaysian government has sought to proactively revitalize the country’s O&G sector and reverse a dwindling production trend.

From 2004 to 2009, daily crude output plummeted 32 percent, reaching 560,000 bpd, pushing down energy exports and contributing to a ballooning fiscal deficit.

Through initiating a stream of top-down fiscal inducements, Malaysia’s O&G industry has attracted foreign investor capital, North Sea technical expertise (particularly Norwegian) and perhaps most importantly for exploration and production (E&P) longevity: investor confidence.

Incentivized by tax breaks, international oil majors such as, ExxonMobil and Royal Dutch Shell, deepwater specialists like Murphy Oil Corp and smaller firms such as Newfield Exploration Co. have all entered the Malaysian hydrocarbon market.

Targeting three core technical E&P spheres: Enhanced Oil Recovery, deep-water drilling, and marginal fields, Malaysia’s fiscal incentives and approximately a USD 30 billion quest to maximize its O&G potential looks to be paying off.

Following the award by Petronas of its latest Production Sharing Contract (PSC) to UK-based upstream player Salamander Energy, Malaysia reached an impressive milestone of 100 active PSC contracts. The achievement is testimony to the country’s forward thinking petroleum resource management and demonstrates Malaysia’s ability to attract FDI.

In 2012, according to Wood Mackenzie, Malaysia discovered the fourth largest amount of hydrocarbons in the world – the first time a Southeast Asian state has been in the top ten for many years. Moreover, last year’s domestic crude output surmounted a 20-year low and looks set to topple the 630,000 bpd over the next year.

Driven by Asia’s insatiable thirst for natural gas, Malaysia is also determined to remain a gas and LNG exporting powerhouse. Indeed, today, gas contributes up to 60 percent of Malaysia’s total oil and gas output.

According to BP‘s review of world energy, Malaysia was the second-largest LNG exporter in 2012.

With recent discoveries in offshore Sarawak and Sabah, aggressive gas exploration plays look set to come into fruition, with output expected to achieve record figures by 2020, easing export concerns and domestic gas insecurity.

Testament to Malaysia’s desire to be at the epicenter of Asia’s long term energy framework, PETRONAS is scheduled to deploy its first FLNG facility in 2015, which holds a 1.2 million tonnes per annum capacity.

This game changing facility possesses a shelf life of over 20 years and will facilitate zealous APAC LNG demand – the fastest growing energy source in Asia.

Bolstered by its geographical position in the heart of the great Asian sea lanes and with over a third of oil shipments passing through the Straits of Malacca, Malaysia has a natural competitive, trading advantage.

Building on this strategic foundation, the country has worked hard to mold an increasingly attractive business environment, developing infrastructure and a large skillful talent pool.

Today, Malaysia has emerged to challenge Singapore’s regional hub status and is now perceived as a suitable HQ playground for O&G companies across the value chain, particularly offshore service companies.

Ultimately, guided by the three-pillar mindset, Malaysia is a clear example that a mature hydrocarbon market does not mean a dead market. The three day long OTC Asia event presents a business, networking and technical opportunity for oil and gas executives to enter Malaysia’s upstream growth journey.

Article by Stephen Wager

EVENT: OTC ASIA, 2014, 25-28 MARCH 2013, KUALA LUMPUR, MALAYSIA

To read more articles and interviews on Malaysia, and to download the latest free report on the country, click here.

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