Malaysia has taken a significant step toward resolving a long-standing gas distribution dispute between the federal government and the state of Sarawak. An agreement reached on January 7, 2024, between Prime Minister Anwar Ibrahim and Sarawak Premier Abang Johari Openg aims to harmonize the roles of national oil company Petronas and Sarawak’s state-owned Petros. This move comes as Malaysia stands as the world's fifth-largest exporter of Liquefied Natural Gas (LNG), a position highlighted in the International Gas Union’s World LNG Report 2024.
Petronas, with a history of contributing RM1.4 trillion (US$313 billion) to Malaysia's national coffers through oil royalties, taxes, and dividends since its inception, remains central to the nation’s economy. The agreement with Sarawak is crucial for maintaining its operational efficiency and economic contributions. The discussions aim to refine legal implications, respecting Sarawak’s Distribution of Gas Ordinance 2016, which mandates licensing for gas distribution activities within the state.
The agreement ensures that Petronas will not need additional licenses or procedures beyond those stipulated under Malaysia’s Petroleum Development Act (PDA) 1974. This act gives Petronas exclusive control over the exploration and distribution of Malaysia’s oil and gas resources. Despite this, Petros maintains authority over gas distribution in Sarawak as its aggregator, ensuring local influence over the state's substantial LNG exports.
Sarawak plays a vital role in Malaysia's LNG market, contributing nearly 90% of the nation’s exports. This highlights the importance of resolving any disputes that could impact the state's contributions to the national economy. Petronas' potential loss of control over LNG export allocations in Sarawak could lead to a reduction in exports and profits by an estimated RM20 billion annually.
“For projects in Sarawak, Petronas involves Petros, while Petros includes Petronas in exploration, hydrogen ventures and other efforts within Malaysia,” – Anwar Ibrahim
This collaborative approach underscores a commitment to mutual benefits and economic stability. The cooperation between Petronas and Petros is essential for harmonizing operations and maintaining Malaysia's position as a top LNG exporter. Talks between the two entities have been ongoing since July last year to resolve disputes over gas distribution rights in Sarawak. Both parties have committed to full cooperation in all related matters.
Under the new agreement, existing contracts between Petronas and third parties, including Petros, will remain unchanged. This provision ensures that ongoing petroleum activities in Sarawak continue without disruption. The federal government, Petronas, the Sarawak government, and Petros are working to refine various aspects of the agreement, focusing particularly on its legal dimensions.
Sarawak’s ruling Gabungan Parti Sarawak coalition, led by Abang Johari, plays a pivotal role in Prime Minister Anwar Ibrahim's coalition government. Their support is crucial for maintaining Anwar's parliamentary majority. With oil dividends comprising RM32 billion, or 8% of Malaysia’s Budget 2025 revenue, maintaining strong ties with Sarawak is vital for national fiscal health.
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