Malaysia could lose RM300 bil in oil revenue over next 10 years, warns economist

A senior fellow with IDEAS says Malaysia needs to diversify its sources of revenue to become less dependent on oil. (AFP pic)

PETALING JAYA: A senior fellow at the Institute for Democracy and Economic Affairs (IDEAS) said today Malaysia is set to lose more than RM300 billion in income over the next 10 years if crude oil prices remain low.

Renato Lima de Oliveira, an assistant professor at the Asia School of Business, said based on a field study, if the oil price remained at US$30 per barrel until 2030, the world could expect a decrease of US$170 billion in capital investment in new production capacity and US$616 billion in government revenue.

Malaysia, de Oliveira said, was expected to lose US$1.7 billion in new capital investment and a reduction in income from oil and gas of about US$7.1 billion every year, adding that this would put further pressure on the country’s finances.

“In the short run, the oil sector is suffering from a decline in demand from the Covid-19 pandemic. About 57% of all oil demand is used for transportation, and lockdown measures have brought mobility to a halt. Stay at home policies hit the oil sector particularly hard,” he said during a webinar discussion organised by the Centre for Market Education (CME).

De Oliveira also said the situation showed the need for Malaysia to diversify its sources of revenue to become less dependent on oil, as well as to take innovative measures in the oil and gas sector to reduce costs.

He noted that top oil producers Saudi Arabia and Russia had been in a price war since March.

“At the time, there were less than 150,000 cases of Covid-19. But in a matter of days, the World Health Organization declared it a pandemic and more and more countries adopted mobility restrictions, which further created a surplus in the oil market,” he said.

He said members of the Organisation of Petroleum Exporting Countries (OPEC) had enough oil reserves to produce, at current rates, for 86 years.

“With the rapid cost decline of renewable energy and advances made in electric vehicles and battery technology, Saudi Arabia and other Opec countries may shift their calculation from restricting output to preserving reserves,” de Oliveira said. - FMT