Oil and Gas Equipment in Malaysia
Petroleum exploration and exploitation in Malaysia began over a century ago, with production of less than 100 barrels per day. Today, Malaysia's petroleum industry has grown into a multi-billion dollar business, producing 600,000 barrels (bpd) of oil and 4.7 billion cubic feet of gas per day.
Prospects for Malaysia's oil and gas industry remain bright and the sector should experience healthy growth rates. During the past five years, some US$6.6 billion have been spent on exploration and production. Sixty percent of Malaysia’s crude reserves remain undeveloped.
According to the government's Eighth Malaysia Plan, US$16.2 billion are supposed to to be invested by the petroleum industry during 2001-2005. Of this, Petronas (National Petroleum Corporation) and its production sharing contractors are expected to spend US$10.9 billion (67.5 percent) on exploration, development and production. Petronas has been partnering with several major players (such as ExxonMobil and Shell) over the last 20 years both in Malaysia and abroad. Fourteen multinational oil companies have operations in Malaysia. Exploration is becoming more costly and requiring advanced technology as new sites are further offshore in ultra-deep waters. Nevertheless, Petronas--a global player with world-class capabilities--is well positioned to take on the challenge.
In an effort to coax oil and gas companies to explore deeper waters, Malalysia has developed a new set of Production Sharing contract (PSC) terms for deepwater ventures. Since deepwater exploration and exploitation will require advanced technology equipment, it should favor U.S. products because of their state-of-the-art technology.
Malaysia is adapting well to changing business needs and the increased exploration risk associated with mature shallow water areas and high-risk deepwater areas. Petronas’ strategy to continuously review PSC arrangements and diversify exploration and developmental activities to include both oil and gas bodes well for keeping Malaysia in step with world exploration activities.
Petronas was incorporated in 1974 as Malaysia’s national petroleum corporation. Vested with the entire ownership of the nation’s oil and gas resources under the Petroleum Development Act 1974, Petronas has now become a fully-integrated, international petroleum corporation participating in all sectors of the industry.. In addition to ensuring the equitable exploitation of Malaysia’s oil and gas reserves, Petronas has contributed significantly in adding value to these resources and assuring a stable supply of fuel to power the nation’s growing energy needs. It has also ventured into the global market by establishing various business ventures in 26 countries and is now positioning itself as a multinational oil corporation.
Petronas is actively engaged in the exploration, development, and production of crude oil and natural gas, not only in Malaysia but other countries as well. In Malaysia, these activities are undertaken and managed through Production Sharing contracts (PSC) with a number of international oil and gas companies. Currently Malaysia has about 45 oil fields in production and several others under development. These oilfields produce high quality blends of crude. Out of 218 gas fields discovered in Malaysia, around 15 are already in production with several more under development.
Malaysia is currently the world’s third largest liquefied natural gas (LNG) supplier and producer, after Indonesia and Algeria. The Petronas Bintulu LNG complex houses the MLNG, MLNG 2 and MLNG 3 plants. The three plants’ combined capacity of 23 million tons per year, together with ancillary facilities which include six LNG storage tanks and two loading jetties, make the Bintulu LNG complex the world’s largest LNG production facility in a single location. In 2002, Malaysia earned US$3.26 billion from the export of LNG, which amounted to 5.6 percent of the country’s GDP. Japan, South Korea, and Taiwan are the principal buyers of LNG from Malaysia. Malaysia’s share of the Japanese LNG market is 25 percent; 49 percent of the Taiwanese; and 21 percent of South Korea's. Petronas’ total investment in its LNG business over the last 20 years (including upstream gas production facilities, downstream gas liquefaction facilities, and LNG transport and port facilities) amounted to US$9.87 billion.
Oil and gas exploration and downstream facilities account for about 60% of U.S. investment in Malaysia. Total U.S. investment in the oil and gas sector, downstream and upstream combined, is estimated at US$8.0 billion. Exxon Mobil Corporation’s subsidiary, ExxonMobil Exploration and Production Malaysia Inc., is the largest oil producer in Malaysia and the largest supplier of gas to Peninsular Malaysia, producing approximately 280,000 barrels of oil and 1.4 billion cubic feet of gas per day. Shell is the second largest oil and gas producer in Malaysia. Occidental Petroleum Company (Oxy) made a series of major gas and condensate discoveries in East Malaysia in the 1990s but sold its rights to Shell a few years ago. Triton (U.S.) and its partners have made some successful hydrocarbon discoveries in the Malaysia-Thailand Joint Development Area in the South China Sea. In 1998, Petronas signed production sharing contracts with U.S.'s Amerada Hess to explore two offshore blocks in Malaysia.
In 2002, five new oil fields and three new gas fields began operating in Malaysia. In addition, 94 development wells were drilled and 60 worked-over during the year, while 246,475 line kilometers of seismic data were acquired for exploration and developmental purposes. Three new PSCs were signed in 2002 as efforts continue to increase the nation’s oil and gas production capacity and reserves.
Malaysia is expected to maintain its current oil production level of 600,000 barrels per day (bpd) during 2001-2005. In 2002, crude oil production was 597,000 bpd, close to the production target of 600,000 bpd set for the year under the National Depletion Policy. With an additional 103,000 bpd from condensing, national oil production reached 700,000 bpd in 2002. The production of natural gas for 2002 was 1,708,200 million standard cubic feet.
Malaysia is blessed with a broad, shallow continental shelf (330,000 sq. km) and some deepwater prospective areas. In total, Malaysia has approximately 500,000 square kilometers available for oil and gas exploration of which 205,500 square kilometers are currently covered by Production Sharing Contracts (PSC). Until 1993, exploration and production were carried out in the broad continental shelf (water depth of 25 to 200 meters) off the coast of the states of Sabah and Sarawak in East Malaysia, and off Terengganu's coast in Peninsular Malaysia. The country’s deeper offshore areas, with water depths of 200 meters or more, have only more recently been opened to oil and gas exploration. To date, exploration in the continental shelf has resulted in discoveries of 123 oil fields and 218 gas fields. In January 2003, oil and gas reserves were estimated to be 3.2 billion barrels of crude oil and 87.5 trillion cubic feet (tcf) of natural gas. At current rates of production, oil reserves in Malaysia are expected to last about 15 years and gas reserves-- 36 years. As a result of increasing overseas activities, Petronas has accumulated additional international reserves of about 3.71 billion barrels of oil equivalent, including its share of reserves in the Malaysia-Thailand Joint Development Area.
In 1997, a more liberal petroleum arrangement for the shallow water area was introduced. The 1997 PSC is a self-adjusting formula of cumulative revenue/cumulative cost designed to provide incentives to encourage smaller oil and gas discoveries. The introduction of the new PSC terms and added incentives has, as expected, spurred interest in mature and high-risk areas.
Efforts to search for oil and gas have recently extended to some of the more unconventional areas, such as deepwater, where, in the past, very limited exploration was carried out, due to technological constraints and high investment costs. Petronas has introduced the Deepwater Production Sharing Contract that provides added incentives to production sharing contractors to undertake explorational activities in the prospective deepwater areas. Since the 1993 signing of its first deep water PSC with Mobil, Petronas has awarded 12 blocks under the Deepwater PSC terms to 10 multinationals (Petronas Carigali, Mitsubishi Corporation, Murphy Sarawak/Sabah Oil Co. Ltd., Amarada Hess Malaysia Ltd., Nippon Oil Exploration Malaysia Ltd., Japex Sarawak Offshore Ltd., Norsk Hydro Sarawak A.B., Shell Sabah Selatan Sdn Bhd, Exxon/Mobil and Sabah Shell Petroleum Co. Ltd.).
On January 16, 2003, Petronas awarded the latest two PSCs for deepwater Blocks L and M off Malaysia's coast to Murphy Oil Corporation of U.S. and Petronas Carigali. The PSCs mark the seventh and eighth Malaysian blocks awarded to Murphy. Under the terms of the PSCs, Murphy Sabah Oil Co. Ltd, a wholly-owned subsidiary of Murphy, owns 60 percent and 70 percent working interests, respectively, in the two blocks. Petronas Carigali, the exploration and production arm of Petronas, owns the remaining 40 and 30 percent interests. The PSC contractors will acquire and process 500 square km of 3D seismic data in each block and drill two exploration wells in each block to a minimum depth of 7,000 meters. The minimum financial commitment for each block is US$21 million.
In July of 2002, Murphy Oil Corp announced it had made a significant oil discovery on the Kikeh prospect in Block K, off Sabah coast--the first deepwater oil discovery in Malaysia. The exploration encountered several hundred feet of high quality oil reservoirs which Murphy Oil plans to further test and evaluate by drilling on site. An initial estimate indicates the well contains 120 million barrels of oil.
Petronas, which is interested in buying gas as well as developing the East Natuna gas field in the Indonesian part of the South China Sea, plans to sign a memorandum of agreement for that purposes in the near future. The size of the gas reserve in East Natuna alone is almost the same as the combined size of all gas reserves in Malaysia, with about 80 tcf.
Malaysia remains committed to completing the US$800 million Thai-Malaysia Gas Pipeline project--a 50-50 joint venture between Petronas and Petroleum Authority of Thailand. The joint venture will build, own, and operate a gas pipeline and a gas separation plant. The proposed project is to supply gas from Southern Thailand to Peninsular Malaysia from a 7,520 square km offshore oil exploration area called the Malaysia-Thailand Joint Development Area (JDA). The JDA is ready to come on-stream in mid 2002. However, the first gas from this field will be delayed due to delays in the construction of the proposed gas separation plant and transmission pipeline. To date, exploration and appraisal activities in the JDA have found 15 gas fields with estimated reserves of about 9 tcf. Upstream investment at the JDA will continue to be carried out in the next three to four years to develop the upstream resources and related downstream infrastructure by Petronas Carigali, Triton Oil company, and PTTEP International Ltd., the three main operators.
On August 8, 2003, Petronas received its first natural gas delivlery from West Natuna, Indonesia, marking a milestone in the relationship between Malaysia and Indonesia, as well as between Petronas and its Indonesian counterpart Pertamina. The natural gas form West Natuna is delivered via a 100-km, 18-inch pipeline from Hang Tuah's moveable offshore production platform in Indonesian waters to the Duyong gas platform off the coast of Peninsular Malaysia. On that same day, Petronas and Pertamina of Indonesia signed a Memorandum of Understanding to facilitate the conclusion of a Gas Sales Agreement (GSA) from South Sumatra to Malaysia. The GSA, which is expected to be concluded soon, will result in the supply of 300 million standard cubic feet of gas per day to Malaysia for 20 years. Delivery of the gas is expected to begin in 2005.
The multi-billion dollar Trans ASEAN Gas Pipeline (TAGP) project is taking shape, despite a delay in the Thai-Malaysia Gas Pipeline project. Several cross-border gas pipelines in the region have been either completed or agreements firmed up. Besides Malaysia, ASEAN countries such as Thailand, Indonesia, Vietnam and the Philippines have begun building their own gas pipeline networks for domestic consumption. In the ASEAN region, there are currently around 5,000 km of offshore and 2,300 km of onshore pipelines which are either operational or under construction. These gas pipeline networks will evolve into an integrated regional pipeline system (i.e., the TAGP). As Malaysia is strategically located in South East Asia, it could well serve as the hub for the planned gas grid.
Oil & Gas Equipment
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The Malaysian market for oil and gas equipment in 2002 was estimated at US$550 million. Malaysia's oil and gas equipment requirements are supplied mostly through imports, as there is very little local production of oil and gas equipment. Equipment requirements are expected to continue being supplied by imports for the next several years.
Malaysia uses mostly American-made oil and gas equipment and tools with at least 60 percent of imports coming from the U.S. Lagging far behind the U.S., the other major competitors are UK, Japan, Germany, and Singapore. Exxon/Mobil, which produces almost half of Malaysia’s present hydrocarbon output, usually specifies equipment meeting American Petroleum Institute (API) standards. A sizeable percentage by value of Petronas Carigali’s equipment is also American-made due to the generally recognized reliability of U.S equipment. Triton, Amerada Hess, and Murphy are likely to be joining existing producers Exxon/Mobil and Shell in the next few years as large hydrocarbon producers. The U.S.is likely to gain market share in Malaysia for oil and gas equipment over the next five years, as more hydrocarbon will be produced by U.S. firms. However, Japanese equipment suppliers and contractors are doing well in getting projects in the downstream sector of this industry, and they are usually more aggressive than other foreign firms in pursuing business in Malaysia.
As the sedimentary basins of Malaysia become more and more explored, there is an increasing tendency for the remaining prospects to become less lucrative. In view of this, and to increase their chances of success, oil companies must consider innovation and state-of-the art technology in their oil and gas exploration and exploitation to discover more reserves and allow for feasible development of marginal fields. As state-of-the-art technology is usually associated with U.S. equipment, the percentage of imports from the U.S. of drilling and boring equipment and tools will increase in the next few years. Also, deepwater exploration and exploitation will require advanced technology equipment which will, again, favor U.S. products.
There is no specific supplier of rigs to Malaysia. Whenever a rig is required by any of the oil companies, a worldwide search is conducted for the most suitable rig at the best leasing price. Platforms, modules, and jackets are supplied/fabricated by local engineering firms. There are several local yards capable of doing the fabrication.
All PSC contractors in Malaysia need to purchase their oil and gas equipment and supplies through local agents licensed by Petronas. Local contractors and suppliers who wish to do business with Petronas are first required to register with its Licensing and Registration Department. The guidelines and registration form can be obtained from:
Petronas, Registration & Licensing Department
Group Tenders & Contracts
Level 66, Tower 1
Petronas Twin Towers
50088 Kuala Lumpur
There are no import duties on oil and gas exploration, drilling, and production equipment. Oil and gas equipment used in Malaysia must comply with either the American National Standard Institute (ANSI) or the British Standard Institute (BSI) standards. This is strictly enforced with the standards being specified in all equipment purchase or leasing contracts. Furthermore, the majority of the oil and gas insurance underwriting firms require that only equipment which complies with ANSI or BSI standards can be used if insurance coverage is required.