According to the Oil & Gas Journal (OGJ), Malaysia held proven oil reserves of 4 billion barrels as of January 2011. Nearly all of Malaysia’s oil comes from offshore fields. The continental shelf is divided into 3 producing basins: the Malay basin offshore peninsular Malaysia in the west and the Sarawak and Sabah basins in the east. Most of the country’s oil reserves are located in the Malay basin and tend to be of high quality. Malaysia’s benchmark crude oil, Tapis Blend, is of the light and sweet variety with an API gravity of 44° and sulfur content of 0.08 percent by weight.
Energy policy in Malaysia is set and overseen by the Economic Planning Unit (EPU) and the Implementation and Coordination Unit (ICU), which report directly to the Prime Minister. Malaysia’s national oil and gas company, Petroliam Nasional Berhad (Petronas), holds exclusive ownership rights to all oil and gas exploration and production projects in Malaysia, is responsible for all licensing procedures, and is subject to only the Prime Minister, who also controls appointments to the company board. The company holds stakes in the majority of oil and gas blocks in Malaysia. It is the single largest contributor of Malaysian government revenues, (over 40 percent in 2010), by way of taxes and dividends. Since its incorporation in 1974, Petronas has grown to be an integrated international oil and gas company with business interests in over 30 countries. Under legislation enacted in 1985, a 15 percent minimum equity for Petronas is specified in production sharing contracts with all foreign and private companies. ExxonMobil, Shell, and Murphy Oil are the largest foreign oil companies by production volume.
Malaysia’s oil and gas policy has historically focused on maintaining the reserve base to ensure long term supply security while providing affordable fuel to its population. In July 2010, the government introduced subsidy reductions for gasoline, diesel, and liquid petroleum gas (LPG) with the aim of gradually decreasing fuel subsidies to reduce expenditures. Further cuts in fuel subsidies are planned.
Exploration and Production
Total oil production in 2011 was an estimated 630,000 barrels per day (bbl/d), compared with 665,000 in 2010, of which about 83 percent was crude oil. More than half of total Malaysian oil production currently comes from the Tapis field in the offshore Malay basin. Malaysian oil production has been gradually decreasing since reaching a peak of 862,000 bbl/d in 2004 due to its maturing reservoirs. Malaysia consumes the majority of its oil production and domestic consumption has been rising as production has been falling. The government is focused on opening up new investment opportunities by enhancing output from existing fields and developing new fields in deepwater areas offshore Sarawak and Sabah.
ExxonMobil’s enhanced oil recovery project at the Tapis field, which lies 118 miles off Terengganu in 210 feet of water, is due for completion in 2013. Tapis is one of 7 mature fields offshore peninsular Malaysia that ExxonMobil and Petronas have agreed to develop as part of a 25-year production-sharing contract that was finalized in June 2010. Under the agreement, which includes provisions for the deployment of enhanced oil recovery and further drilling to boost output, work is being carried out on all 7 fields – Seligi, Guntong, Tapis, Semangkok, Irong Barat, Tebu, and Palas – with an estimated gross investment of more than $1 billion.
The Commercial Arrangement Area (CAA) in the Malay Basin, which Malaysia shares with Vietnam, also contributes to the country’s oil production. Talisman Energy (Canada) holds operating interests in the Northern and Southern oil fields in the CAA. While the Southern Fields are still under exploration, the Northern Fields development began producing 25,000 bbl/d in August 2009, reportedly rising to 50,000 bbl/d in 2010. Talisman holds a 41.4 percent interest, Petronas holds a 46 percent interest, and PetroVietnam has 12.5 percent. Exploration and development of fields in the area continues.
The 20-year dispute between Malaysia and Brunei over land and sea boundaries was resolved when the two countries signed a boundary agreement in April 2009. Blocks L and M were ceded to Brunei while Limbang, a popular tourist site on the Sarawak-Brunei border, was ceded to Malaysia. In 2010, Petronas and the Brunei government agreed to develop jointly the 2 blocks offshore Borneo Island, signing a 40-year production sharing agreement for newly named Blocks CA1 and CA2. The commencement of drilling was announced in September 2011, along with further joint investment plans.
Deepwater oil production projects under development are all offshore Sabah:
The Kikeh oil field is currently Malaysia’s only producing deepwater oil field. Kikeh is offshore Sabah in 4,400 feet of water and was discovered and is operated by Murphy Oil in partnership with Petronas. It came onstream in 2007 at an initial rate of 20,000 bbl/d; estimated production in 2010 was 68,000 bbl/d of oil and 62 Mmcf/d of gas. However, in June 2011, output had dropped to 52,000 bbl/d due to sand being produced along with the oil. Murphy Oil has been carrying out workover operations to restore production, which is expected to peak at 120,000 bbl/d.
Offshore Sabah in 3,900 feet of water, the Gumusat/Kakap project will include the region’s first deepwater floating production system from 19 subsea wells. Gumusat/Kakap is expected to be onstream in 2012 with production of 135,000 bbl/d, using reinjected associated gas to maintain pressure. Shareholders are Shell, the operator, at 33 percent; ConocoPhillips at 33 percent; Petronas at 20 percent; and Murphy Oil at 14 percent. The system will be connected via pipelines to the new Sabah Oil and Gas Terminal being built in Kimanis, which is expected to be completed by 2012.
Development is also underway at the Kebabangan Northern Hub development project (KBB), to be brought online together with the Gumusat/Kakap and Malikai oil fields between 2012 and 2014. KBB, about 87 miles northeast of Kimanis, will be the hub for the development of deepwater oil and gas assets offshore Sabah. The KBB platform will be located in 460 feet of water and has a design capacity of 825 MMcf/d of gas and 22,000 bbl/d of condensate. It consists of 4 contiguous fields being developed by the Kebabangan Petroleum Operating Company (KPOC), consisting of Petronas, at 40 percent; ConocoPhillips, at 30 percent; and Shell, the operator, at 30 percent.
The Malikai oil and gas field is located nearby and will be tied into the KBB via liquids and dry gas pipelines shortly after first gas comes from KBB. It will supply the Sabah Oil and Gas Terminal. The field was discovered in 2004 at 1,854 feet and field development began in 2009. Malakai is expected to come online by 2014, with production capacity of 60,000 bbl/d. Shell is the operator, with 35 percent interest; in partnership with ConocoPhillips, at 35 percent; and Petronas, with 30 percent.
Malaysia has a relatively limited oil pipeline network because of its island geography, which has increased the importance of tankers for transportation and trucks for distribution of products onshore. Malaysia’s main oil pipelines connect oil fields offshore Peninsular Malaysia to onshore storage and terminal facilities. From the Tapis oil field runs the 124-mile Tapis pipeline, which terminates at the Kerteh plant in Terengganu, as does the 145-mile Jerneh condensate pipeline. The oil pipeline network for Sabah connects offshore oil fields with the onshore Labuan oil terminal. This network is currently expanding following the launch of development projects including the Kebabangan cluster, the Malikai, Gemusat/Kekap, and Kikeh oil fields. For Sarawak, there are a few other oil pipelines connecting offshore fields with the onshore Bintulu terminal. The majority of pipelines are operated by Petronas, although ExxonMobil also operates a number of pipelines connected with its significant upstream holdings located offshore Peninsular Malaysia.
An international oil products pipeline runs from the Dumai oil refinery in Indonesia to the Melaka oil refinery in Melaka City, Malaysia. An interconnecting pipeline runs from this refinery via Port Dickenson to the Klang Valley airport and to the Klang oil distribution center.
Malaysia exported 234,000 bbl/d of crude oil in 2010, down slightly from the 236,000 bbl/d exported in 2009. This was about 35 percent of Malaysia’s crude oil production. The Tapis blend is Malaysia’s major exported crude oil because its high quality and low sulfur content commands premium prices. In 2010, Malaysia imported 205,000 bbl/d of lower-cost crude oil for processing at its oil refineries.
According to OGJ, Malaysia had about 538,580 barrels per calendar day (b/cd) of refining capacity at seven facilities as of January 2011. Malaysia invested heavily in refining activities during the last two decades and is now able to meet most of its demand for petroleum products domestically, after relying on the refining industry in Singapore for many years. Petronas operates three refineries (259,000 b/cd total capacity), while Shell operates two (170,000 b/cd total capacity), ExxonMobil operates one (86,000 b/cd), and Kemanan Bitumen Co. operates another (23,750 b/cd). Kemanan Bitumen refinery largely produces bitumen from heavy crudes.
The Sabah Oil and Gas Terminal, under construction in Kimanis, Sabah, is expected to be completed by the end of 2013. It will receive crude from offshore fields, process and distribute the products via a planned 310-mile pipeline linking Sabah with Bintulu, Sarawak. The terminal will have a processing capacity of 300,000 bbl/d of crude and condensate.