He told FMT that Sarawak claims the right to all resources found within its boundaries, including the continental shelf (the seabed and subsoil beyond territorial waters).
“As far as Sarawak is concerned, the continental shelf extends about 100 miles (160km) from the territorial border,” said Fadillah, a senior leader of Gabungan Parti Sarawak.
He said Sarawak seeks “more empowerment” over its resources premised on “the spirit of the Malaysia Agreement 1963″.
Under the Petroleum Development Act 1974, Petronas is vested with full ownership and exclusive authority over the country’s entire onshore and offshore oil and gas resources.
Fadillah said Sarawak’s right to offshore oil and gas is premised on the state’s Oil and Mining Ordinance 1958, which the state claims was suspended after a national proclamation of emergency in 1969.
“During the emergency, only the federal government could introduce laws. So that’s why the ordinance could not be enforced,” he said.
The state contends that the law was revived after the emergency was lifted in 2011, restoring Sarawak’s rights to all its oil and gas resources as claimed.
The Sarawak state assembly has since also passed the Distribution of Gas Ordinance 2016, which provides for Sarawak to take over Petronas’s role as gas aggregator in the state.
The ordinance will allow Sarawak’s state-owned oil company, Petros, to control all buying, selling, price-fixing, supply and distribution of liquid natural gas in the state.
Negotiations between Petronas and Petros in that regard are ongoing, with Fadillah hopeful that a commercial arrangement will see Petronas continuing with offshore exploration, and Petros taking over all onshore activities.
Fadillah, who is federal minister for energy transition and water transformation, acknowledged that both parties would have their own take on what would constitute a fair arrangement. “What we want to achieve is a ‘win-win’ arrangement for both the state and the federal governments,” he said.
Mutual gain
Sarawak’s move to transfer aggregator rights to Petros will undoubtedly boost the state’s oil and gas-related revenues.
It would also allow Kuching to control its exports. Currently, 95% of LNG produced in the state is exported. However, the state wants to reserve up to 30% for local consumption under the Sarawak Gas Roadmap 2030.
For now, Sarawak has guaranteed sufficient LNG supply to allow Petronas to fulfil all its existing export contracts, including to Japan, but what will happen when those contracts expire remains unclear.
Industry observers, however, have warned against limited Petronas involvement in Sarawak saying it will neither benefit Sarawak’s nor Malaysia’s O&G sector.
Sarawak has been Malaysia’s O&G star performer, but a lot of that success is down to a strong Petronas presence in the state.
O&G production from exploration to distribution requires extensive investment, especially for offshore sites. It involves building costly infrastructure for Sarawak’s local O&G sector, including the Asean Bintulu fertilizer plant and an LNG complex in Bintulu.
The federal government has also channelled substantial resources to Sarawak’s O&G industry, which includes negotiating trade rules with other governments to facilitate exports.
It has also secured Sarawak’s offshore sites through the deployment of the nation’s armed forces in the South China Sea, where multiple incursions, particularly by Chinese vessels, have taken place.
An industry analyst, speaking on condition of anonymity, said: “Petros will need Petronas for its advice and experience in the medium term – at least for the next five to 10 years. Petronas has immense experience in how upstream and downstream activities are run.
“Petros, having only been established in 2018, will need to tap on that experience. I don’t think they can operate everything – exploration, production, distribution, and the like – by themselves.
“Of course, human capital can be acquired, but it cannot be fully operational instantaneously. So, you know, there’s no benefit to either party in jeopardising the existing relationship,” the source said. - FMT
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