Analyst challenges claims of windfall profits at Petronas

 Samirul Ariff Othman says those making such claims overlook how the system actually works.

Samirul Ariff Othman (right) responds to Isham Jalil’s accusation that Petronas had not revealed its ‘additional net profit’ arising from the Mideast crisis.

PETALING JAYA:

 An oil and gas analyst pushed back against claims that Petronas is quietly reaping windfall profits from the current global energy crisis, saying such arguments overlook how the system actually works.

Samirul Ariff Othman, an adjunct professor at Universiti Teknologi Petronas, said recent criticism directed at Petronas and its president and CEO Tengku Muhammad Taufik Aziz was based on an oversimplified reading of both market dynamics and the company’s role.

The criticism followed a televised interview on Friday (April 3) in which Tengku Taufik outlined why higher global oil prices do not automatically translate into extraordinary profits for Petronas.

Among the critics was former Umno Supreme Council member Isham Jalil, who argued that the explanation was too basic and failed to address the key issue.

“If prices go up, of course Petronas should be making more money. The real question is how much extra profit are they making,” Isham said, adding that Petronas had not disclosed the “additional net profit” arising from the crisis.

He also questioned Malaysia’s crude trade structure, saying the country exports higher-value oil while importing cheaper crude, suggesting this should generate profits even if import volumes are higher.

Isham further argued that Petronas had not sufficiently addressed gains from LNG exports, while placing greater emphasis on rising costs.

Only for public understanding

Responding to the criticism, Samirul said the CEO’s remarks were never intended to be a detailed financial breakdown. “What was presented was a high-level explanation for public understanding. That is appropriate in that setting,” he said.

He noted that detailed profit and cost figures are typically disclosed through formal financial reports, not during a public interview, particularly when the crisis has unfolded over a short period.

“You cannot simply produce precise profit numbers in real time for an ongoing situation. That comes through structured reporting.”

Samirul said the assumption that higher oil prices automatically lead to higher profits misses how the system behaves during a crisis. “At a glance, markets see price. But systems absorb shock,” he said.

While global oil prices have surged close to US$120 per barrel, he said this has been accompanied by sharp increases in costs. Shipping rates through key routes such as the Strait of Hormuz have risen by up to three times, while insurance premiums in conflict zones have increased by as much as 337%, the highest in two decades.

“These are not marginal increases. They significantly reshape cost structures across the system,” he said, adding that crude oil prices themselves have risen by about 40%, increasing input costs for refining and processing.

LNG contracts do not reprice overnight

Addressing Isham’s point on LNG, Samirul said the assumption that higher global prices immediately translate into higher profits is inaccurate because a large portion of the commodity is sold under long-term contracts, often spanning 10 to 20 years.

These contracts typically use pricing formulas linked to oil benchmarks with a lag, fixed within a range or negotiated ahead of time. “This means when prices spike suddenly, revenue does not instantly jump in the same way,” he said.

He added that even when prices adjust upward, it often happens with a delay, and not all volumes are exposed to spot market prices. “At the same time, the cost of producing, liquefying and transporting LNG also rises during a crisis. So the net effect is far more moderate than people assume.”

Samirul said Isham’s argument treated Petronas as if it is a single-segment oil seller, despite the fact the national oil company operates upstream, midstream and downstream, with each segment affected differently.

He pointed to Petronas’s latest financial results, which showed that despite elevated energy prices, profit after tax declined to about RM45.5 billion in the 2025 financial year, from around RM55 billion the year before.

“If there were clear windfall profits across the system, you would expect to see that reflected in the overall numbers. Instead, what we see is pressure on margins,” he said, adding that gains in upstream operations are often offset by rising costs and weaker performance elsewhere, particularly in downstream activities.

Addressing Isham’s point on crude trade, Samirul said Malaysia’s position reflects structural realities and pointed to the fact that Malaysia has been a net importer of crude oil since around 2014 or 2015.

Domestic production is around 350,000 barrels per day, while refinery demand is closer to 700,000 barrels per day, creating a gap that must be filled through imports.

“This is not a simple buy-low-sell-high situation. It is about matching refinery configurations and meeting domestic fuel demand.”

At the same time, Malaysia remains a major exporter of natural gas and LNG, though Samirul noted that LNG revenues are moderated by long-term contractual structures.

What Petronas returns to the system

Samirul also addressed the broader claim that Petronas retains excess profits, saying the company contributed a significant portion of its earnings back to the government.

Over the past five years, Petronas has accounted for more than 20% of federal government revenue, with dividends typically ranging between RM20 billion and RM32 billion annually. Cumulatively, since 1974, Petronas has contributed about RM1.6 trillion to the national coffers.

“These funds support public expenditure, including subsidies and infrastructure.”

Samirul said the debate reflects a broader misunderstanding of how energy systems function under stress.

“The narrative that higher prices automatically mean higher profits is appealing, but it does not hold in an integrated system facing disruption,” he said, adding that in this environment, every price increase is matched by increases in cost, risk and operational complexity.

He said that while scrutiny is important, public discourse should reflect how the system actually operates, adding that the issue is not hidden profit, but “misunderstood complexity.” - FMT