The Malaysian government is focused on efforts to enhance output from existing oil and natural gas fields and to advance exploration in deepwater areas. New tax and investment incentives introduced in 2010 aim to promote oil and natural gas exploration and development. Their target is to increase aggregate production capacity by 5 percent per year up to 2020 to meet domestic demand growth and to sustain crude oil and LNG exports to overseas markets. Malaysia also aims to become a regional oil storage and trading hub, taking advantage of its strategic location in the center of the Asia-Pacific region astride key shipping lanes.
Malaysia’s western coast runs alongside the Strait of Malacca, an important route for the seaborne energy trade that links the Indian and Pacific Oceans. Malaysia’s position in the South China Sea makes it a party to various disputes among neighboring countries over competing claims to the sea’s resources. While it has bilaterally resolved competing claims with Vietnam, Brunei, and Thailand, an area of the Celebes basin remains in dispute with Indonesia. Potential risks of territorial disputes with China, Vietnam, and the Philippines could emerge as exploration initiatives move into the deepwater areas of the South China Sea.