The Sarawak government’s oil and gas company, Petroleum Sarawak Bhd (Petros), is continuing negotiations with Petroliam Nasional Bhd (PETRONAS), reaffirming that the state will work together both upstream and downstream activities.
“PETROS will work with PETRONAS in both upstream and downstream activities.” Abang Johari stated during a press briefing at the Asia Pacific Petroleum Conference (APPEC) 2024 in Singapore.
He added, “There may have been some misinformation in recent reports, but the relationship between PETROS and PETRONAS is on track”.
As Malaysia is positioned to have one of the largest gas reserves at an estimated 28.9 trillion cubic feet in the South China Sea, the Sarawak-state-based PETROS is strengthening its partnership with PETRONAS to work together to dominate the oil and gas exploration in Sarawak waters.
This unified approach is seen as a strong collaborative partnership that benefits the nation despite Sarawak’s recent control as the sole gas aggregator, with more than 60% of the gas supply originating in Sarawak.
Addressing speculation that the talks between the two entities had reached an impasse, Abang Johari clarified that the deadline for concluding the discussions remains set for before October 1, 2024 and that no conflict exists between Petros and PETRONAS.
When pressed about possible legal action from PETRONAS, Abang Johari expressed surprise.
“We are unaware of any legal proceedings. If you need further clarification on that, I would advise you to ask PETRONAS directly,” he said.
This comment alludes to industry speculation over potential friction between the state-controlled Petros and the national oil company PETRONAS as Sarawak moves to increase its control over its own resources via the Distribution of Gas Ordinance (DGO) Act 2016.
As PETROS transitions into the role of Sarawak’s sole gas aggregator, concerns have arisen within the industry about potential disruptions to long-term contracts and the negative effect on the Federal Government via PETRONAS.
Sarawak is a major LNG exporter, with key partners including South Korea and Japan. However, the Premier moved quickly to reassure stakeholders that existing contracts would remain unaffected.
“Nothing will change in terms of supply,” he said. “Sarawak has equity in LNG operations, and we have no interest in jeopardizing our long-standing relationships with our customers. These contracts will be honoured without interruption.”
Abang Johari also emphasized that Sarawak’s involvement in both the upstream and downstream sectors ensures a stable supply of oil and gas.
“The integration of Petros into Sarawak’s oil and gas landscape will be seamless. We understand the concerns, but I can assure you that supply continuity will be maintained,” he stated, highlighting Sarawak’s commitment to fulfilling its role as a reliable energy provider.
The move for PETROS to take over Sarawak’s oil and gas resources comes at a pivotal time for the state and could have significant implications for the federal structure and economic balance in Malaysia if it is not addressed through the right approach and strong collaborative framework.
More so the growing autonomy of Sarawak in managing its resources reflects broader ambitions to reclaim control over the state’s natural wealth—long a point of contention under the Malaysia Agreement 1963 (MA63), which guaranteed Sarawak certain rights when it joined the Malaysian Federation.
Sarawak Premier
Greater Autonomy and Economic Benefits
Petros’ assumption of control over oil and gas trading within Sarawak is viewed by many as a victory for state autonomy. The ability to manage its own resources is a long-standing demand from Sarawak, and its realization marks a significant shift in the state’s relationship with the federal government.
Despite being one of Malaysia’s most resource-rich states, Sarawak continues to face significant poverty, particularly in its rural regions. With a GDP per capita of RM72,411—the fourth-highest in the country—the state still grapples with income inequality, with many rural households earning well below the national average.
The Sarawak Premier has expressed hope that greater control over Sarawak’s oil and gas resources will allow the state to invest in areas that directly benefit the people, particularly in underserved areas, but the state could not attain the success without the help of PETRONAS, who spent significant investment in developing the upstream oil and gas activities in Sarawak.
While the move towards greater autonomy is largely seen as a positive development for Sarawak, it does raise concerns about federal-state relations which Sarawak Premier is fully aware of.
The Sarawak state acknowledges the existence of PETRONAS, a national entity that serves as a major contributor to federal revenues, and the state’s increasing control over its upstream resources could lead to reduced contributions to federal coffers. This, in turn, may spark tensions between the federal government and resource-rich states like Sarawak and Sabah.
That leaves PETROS no choice but to engage in a reluctant-but-convenient partnership with PETRONAS in the name of national unity.
The on-going commercial negotiations on gas distribution between the state of Sarawak and PETRONAS must align with the principles of federalism, where states have the ability to manage their own affairs while still contributing to the broader national interest.
Balancing Autonomy and Unity
As Sarawak embarks on this new chapter in its economic history through this partnership, the state’s leaders will need to navigate the complex interplay of local interests, national priorities, and global energy markets.
The focus on Sarawak as the major natural gas hub in the region will ensure that this newfound autonomy translates into real economic benefits for its people. With the right leadership and through strategic collaboration with federal-owned entities, the increased revenues from oil and gas could provide the state with the resources it needs to address its most pressing challenges, from rural poverty to infrastructure development.
Achieving these goals will require more than just resource control—it will require strategic collaboration with an experienced team, sound governance from both sides, and a commitment beyond political narrative to achieve an equitable development of shared prosperity under the spirit of the federation.
Lastly, the future success of PETROS hinges on its strong partnership with PETRONAS, to capture broader opportunities together and not limited to achieving state autonomy and control, but to building a greater nation called Malaysia.
