Monday September 24, 2012
Firing up oil and gas
Transformation Blues - By Idris Jala
COMING from Sarawak and as a former Shell employee, I know very well how important the oil and gas (O&G) industry is not just to Sarawak but the whole of Malaysia. But we have to move beyond being largely upstream producers to increase value at every link in the entire chain.
Many of our numerous O&G projects aim just to do that to bring about higher income, greater value-added, employment opportunities and multiplier effects through the economy which will help everyone. We have the raw material and the land to give us tremendous competitive advantage.
But even here, where one would think there will be minimal opposition, things have been politicised beyond belief to make our task that much harder. That saddens me and makes me want to sing the blues. Let me explain in clear terms what we are aiming at and hopefully clear up at least part of the misconceptions. O&G is a big part of the economy. It contributes 20% of gross domestic product (GDP goods and services produced in a year). In terms of revenue to the Government, it is even more important the national oil corporation, Petronas, accounts for about 40% of tax revenue.
This is a huge contribution to the economy and government coffers. It has enabled two things the Government to use oil revenue to fuel economic growth and O&G has directly contributed to the overall growth in GDP and, hence, incomes too.
But going forward we have problems. Sustaining production at current levels is a challenge unless we discover more and more reserves. Thus, while we can diversify out of O&G we should also take all means to sustain and even increase the contribution to the economy of this sector.
We are using a three-pronged strategy to achieve this. First, we will sustain domestic O&G production the upstream activities by enhancing oil recovery, developing small fields and increasing exploration activities to locate new fields.
Second, we will grow the downstream business substantially. This is an ambitious programme to build terminals, oil storage facilities, increase presence of oil multinationals, create regional fabrication giants and encourage joint ventures with major world-class companies. We want to make Malaysia the number one hub in Asia for oil field services and equipment.
Third, we want to build alternative energy capabilities. We will reduce the energy bill through greater efficiency and look at alternative energy sources such as hydro-power, nuclear and solar.
Let me expand a little bit on the first two to show what is at stake. In terms of enhancing oil recovery, our efforts will lead to a production of 541,000 barrels per day (bpd) even in 2020. Without these efforts, the baseline production is expected to dwindle to just 375,000 bpd by then from just under 600,000 bpd now. That's a 44% difference between doing something and not doing anything.
The extra 166,000 bpd, at today's price of around US$100 a barrel, represents extra revenue from the sale of oil of RM18.7bil a year and shows how important it is to sustain oil production.
Petronas is now involved with Shell Malaysia to carry out two offshore enhanced oil recovery projects, one in Sabah and one in Sarawak which raises the recovery factor to 50% from 36%. It will involve some RM38bil in investments.
In addition, local companies have formed joint ventures with foreign companies to extract more oil from marginal fields which are not economical enough while the big boys themselves continue to make huge investments in the sector.
In downstream, the exciting development is for Malaysia to become a regional oil storage and trading hub in Malaysia. Among things that will be built here is a RM4bil liquefied natural gas (LNG) terminal.
Petronas itself is spearheading a huge RM60bil push into downstream activities via Rapid refinery and petrochemical integrated development with a refinery, naptha cracker and 22 mini-petrochemical complexes in Pengerang.
These projects provide thousands of job and opportunities for business during the construction phase. The great thing is after construction they are productive assets which will contribute to the growth and income of the country for a long time. It is money well spent.
The move downstream is a natural consequence for Malaysia as the largest and most sustainable producer of oil and gas in South-East Asia and availability of land and labour to run the projects. Singapore, with no O&G resources, has become a huge production, storage and trading area and there is no reason why we can't do the same.
Pengerang's proximity to Singapore, the deep water around there, the ready and affordable availability of land, and the supply of indigenous feedstock in the form of oil and gas gives us a fantastic competitive advantage which we must exploit to the full.
Land owners, despite what others say, have been offered a fair deal. As expected, some of them are negotiating for more and, hopefully, they wouldn't succumb to human greed. Pengerang itself will develop economically as there will be demand for all sorts of services, better infrastructure and many employment opportunities.
We need to get Pengerang to make it the premier offshore services and equipment centre for oil and gas in Asia. We have enough of an investment scale in that area too to make that happen.
We don't want to be bogged down by unnecessary, needless political meddling to slow things down here. Anyone who looks at it can see the potential and there is no denying the benefits that will accrue to residents from the development of Pengerang. Just take a look at Kertih in Terengganu for instance.
Pengerang and the oil hub are vitally necessary for the evolvement of the O&G industry to the next stage and to ensure that it continues to contribute and even increase its contribution to the growth of the national economy and, hence, its income too.
Let's all work together towards that.