Ladies and Gentlemen,
One and All,
I am pleased to be here during Production Optimisation Week Asia 2011 to speak on Malaysia’s drive towards raising production and meeting the 21st century’s soaring energy needs.
Malaysia is a global oil and gas hub
Malaysia’s oil and gas sector currently contributes a large amount to the country’s gross domestic product. In 2010, Malaysia’s petroleum exports amounted to RM 101.2 billion, up 24 per cent from 2009 – a growth in part due to high oil prices, but also dependent on maintaining and improving production levels to meet and exceed targets. Over the last ten years, exports have been growing at an annual average of 13.5 per cent, a fact that definitely points to production optimisation as the key next step to sustain Malaysia’s growth as a global oil and gas hub.
As a sign of strong investor confidence, the rate at which investments have been streaming into Malaysia has been rising steadily. This will undoubtedly inspire even further investor confidence. Just recently, 1Malaysia Development Bhd and China’s State Grid Corporation have entered into a joint venture that is worth US$11 billion (RM33 billion) to develop energy projects in Sarawak. PetroSaudi, too has signed a joint venture (JV) agreement worth RM8.7 billion with 1Malaysia Development Bhd. The JV focuses on global strategic assets in petroleum-related industries, renewable energy and power for the benefit of lowering the cost of energy in Malaysia.
Earlier in February this year, Prime Minister Datuk Seri Najib Razak led a 100-strong delegation at the Invest Malaysia 2011 Forum in the United Arab Emirates (UAE) to highlight investment opportunities in Malaysia. Abu Dhabi’s Mubadala Development Corp, one of the world’s largest investment organizations, has committed several large investments into Malaysia including the Kuala Lumpur International Financial District. A trade pact between Malaysia and the Gulf Cooperation Council (GCC) was also signed at the forum to enhance economic, commercial, investment and technical ties. Free-trade talks are in the works and are expected to conclude next year. Last year, Malaysia’s total trade with the GCC amounted to RM29.8 billion (US$9.8 billion) compared with RM25.5 billion (US$8.4 billion) in 2009. Furthermore, this year, Matrade lined up six missions to the UAE, Oman and Kuwait as well as the UK, Australia, Turkmenistan, Myanmar and Kazakhstan.
As uncertainties abound in Western economies, now is the best time for wealthy Middle East nations and rising global powers like China to shift their trade and investment focus to Asian economies experiencing stable growth, such as rising star Malaysia – which in a mark of its escalating prominence and importance also chaired the 57-nation Organisation of the Islamic Conference in 2007.
Malaysia is not just oil, gas plays a role too in ensuring energy supply
By and large, the global gas glut is lifted and the demand for liquefied natural gas (LNG) is sharply increasing especially with the recent developments in Japan set to accelerate LNG demand further. Analysts expect such growth to persist over the next ten years with industry commentators predicting global demand to triple to 400 million tons per year by 2020.
Malaysia’s gas reserves currently stand at about 89 trillion cubic feet which is about five per cent of Russia’s reserves and nine per cent of Iran’s reserves. At current production rate, it has a life of about 38 years. While its reserves are relatively less vast, it stands at the door of giant energy markets – China and India besides the neighboring, expanding economies of South-east Asia. Plugging regulatory, commercial, and technological chinks in tandem would enable Malaysia’s gas industry also to reach new heights.
Malaysia is leading the world’s production optimisation with innovative financial strategies and public-private cooperation
Since last year, Malaysia has been focusing on domestic production and exploration. To spur exploration of relatively less-profitable, marginal fields and boost production volumes, the government unrolled various incentives including income tax reductions of up to 25 per cent from 38 per cent, setting the ground for the innovative and ground-breaking Berantai risk service contract (RSC) awarded to the consortium comprised of SapuraCrest Petroleum Bhd, Kencana Petroleum Bhd and Petrofac Energy Development Sdn Bhd .
The suite of government incentives also includes investment tax allowance on capital expenditure, reduction of petroleum income tax, accelerated capital allowance and waiver of export duty for niche EDP companies especially independents.
It is good that public-private cooperation is aligning with the country’s needs for future growth and transformation. Ashley Heppenstall, president and chief executive officer of Lundin Petroleum said that, “We are (They were) particularly encouraged by the recent announcement made (by the Malaysian government) regarding fiscal incentives for small fields that when implemented could accelerate commercialisation of the proven discovery that exists within the block”.
The trail-blazing RSC calls for optimal delivery of production targets and allows for knowledge transfer from joint ventures between foreign and local players in the development of Malaysia’s 106 marginal fields, which cumulatively contain 580 million barrels of oil equivalent (BOE) in today’s high-demand, low-resource energy market. The RSC departs from the production-sharing contract (PSC) first introduced in 1976 and most recently revised last year as the enhanced oil recovery (EOR) PSC which ramps up recovery rate from 26% to 40%; and for the Malaysian people and private partners to both benefit from successfully and viably monetizing these marginal fields, would definitely be good news not only for our country, but also for the world to meet its booming energy needs.
Technology, commercial strategy and regulation must work together to effectively optimize production
I believe the petroleum industry also notices Malaysia’s rising star. Schlumberger Asia chairman, Ainul Azhar Ainul Jamal, commented that oil exploration activities are now moving to the Eastern hemisphere, such as Malaysia, Indonesia, China, Myanmar, Thailand and Australia, adding that oil extraction in this region requires a more complex technology as it is harder to extract hydrocarbons.
Hence, to stay internationally competitive and utilise scarce energy resources effectively, Malaysia and our neighbours in South-east Asia should leverage on proprietary technologies, as supermajor petroleum companies like Total, Royal Dutch Shell and ExxonMobil have been using to meet the 21st century’s surging energy demands whilst maintaining both the economic viability and the environmental sustainability of upstream operations. You could say, the right technologies help us get green, in more ways than one.
Being pro-active and responsible now also allows us to prolong the nation’s energy resources for future generations’ use. We at the Ministry of Finance also aim to work with the industry in deregulating prices and eliminating market distortions to ensure the continued growth of the country’s oil and gas sector.
Even with the reawakening of the oil and gas upstream sector and the rosy outlook for Malaysia’s oil and gas industry, we should not be complacent in upgrading our expertise, technology and commercial/financial strategies. Now, as the sun shines on Malaysia’s oil and gas industry, now is the time for us to make strategic inroads towards having a major role in the global energy business and to help solve the world’s acute energy conundrum.
We must work together, and it is important for us to keep open doors to ensure our shared prosperity and energy security for our grandchildren, and their grandchildren.
Thank you for your time and attention. I look forward to greater, more exciting developments from Malaysia’s oil and gas industry as it collaborates more closely with the MoF, and takes to the world energy centre stage.
DEPUTY MINISTER YB. SEN. DATO’ IR. DONALD LIM SIANG CHAI
MINISTRY OF FINANCE, MALAYSIA
Production Optimisation Week Asia 2011
27 July 2011, Wednesday, The Westin Kuala Lumpur