INTRODUCTION

This report paper will discuss on topic three in the syllabus of Malaysian Economy
courses which related to the oil and gas industry in Malaysia. The discussion are divided into
three main parts. The first part of this report will summarize on the history of oil and gas
industry in Malaysia. The second part, this report will discuss the contributions of oil and gas
industry to Malaysia. The contributions of the oil and gas industry will discuss more on the
contributions by the Petroliam Nasional Berhad (PETRONAS) which will cover the
contributions in the social, education, technology and economic. This is because PETRONAS
is the only oil and gas company that Malaysian Government has full exclusive right on it. Later,
the last part of this report will elaborate on the impact of falling of oil price to the Malaysia.
Overall, this report will show the benefits and shortcomings of one country in adopting oil and
gas industry as one of the component of the economic structure.

The information in this report are largely depends on the annual report of PETRONAS.
Other than that, this report also referring to the Malaysia economics report by Ministry of
Finance of Malaysia (MoF), publications by PricewaterhouseCoopers Malaysia (PwC) and
Johor Petroleum Development Corporation Berhad (JPDC).

HISTORY OF OIL AND GAS INDUSTRY IN MALAYSIA

According to publication by PwC, Sarawak in East Malaysia was the place for
Malaysias first foray into oil and gas in 1910. Shell was the first to drill oil in Malaysia over
a century ago. Later, Malaysia initially controlled over the oil and gas activities through 1966
Legislation, namely Petroleum Mining Act. Rights to explore and rights to produce was given
to the Shell and Exxon. However, Shell and Exxon have to pay royalties and tax as the return
to the Malaysian Government.

A few years after that, PETRONAS came into establishment in 1974 after the
establishment of Petroleum Development Act (PDA 1974) under New Economic Planning.
That was the starting point for Malaysian Government to have full exclusive rights over oil and
gas resources in Malaysia. This happened when Malaysian Government realized the strategic
value of having more control over its hydrocarbon resources.

Publication of PwC also highlighted that until 2013 only, PETRONAS developed by
maturing local industry with over 4000 oil and gas businesses. That numerous number of oil
and gas businesses were include International Oil Companies, independents, service providers
and equipment manufacturers operating locally such as Shell, Murphy Oil Corporation,
SIEMENS, Schlumberger, Technip, FMC, Petrofac, Deleum, UMW, MMC, and Sapura
Kencana. PETRONAS continued to grow to beyond Malaysian borders. Globally, in 2014,
PETRONAS with 30 million tonnes of liquefied natural gas (LNG) production remains it as
one of the worlds largest LNG producers.
 CONTRIBUTIONS OF OIL AND GAS INDUSTRY TO MALAYSIA
The whole oil and gas industry contribute significantly to the Malaysian economy.
According to PwCs publication, up to 20 percent of gross domestic product (GDP) of Malaysia
were contributed by the oil and gas industry in recent years. To that, crude oil, condensates and
gas was the second largest exports by Malaysia in 2014.

In term of production, Malaysian Economic Report 2016/2017 highlighted that refined

petroleum products output rose by 3.1 percent in 2016. Moreover, the crude oil production in
2016 decreased by 2.1 percent, from 662,000 barrels per day in 2015 to 648,000 barrels per
day in 2016 due to rising number of matured oil fields and prolonged low oil prices while the
natural gas production increased by 9.3 percent in 2016 particularly from Peninsular Malaysia
and Sabah fields. The increment of natural gas output were due to resumption of Sabah-
Sarawak Gas Pipeline and commencement of the Sabah Ammonia Urea (SAMUR) and LNG
Train 9 projects.

The industry also contributed heavily to the civil engineering subsector in Malaysia
where Economic Report 2016/2017 shows this subsector growth at couple-digit of 21.4 percent
in 2016. This were due to construction of Refinery and Petrochemical Integrated Development
(RAPID): Independent Deepwater Petroleum Terminal Phase 2 Pangerang, and Petronas LNG
Complex Bintulu.

Based on publication by JPDC regarding Pangerang Integrated Petroleum Complex

(PIPC), it can be conclude that the oil, gas and energy industry is one of the key factors to the
transformation of Malaysia into high income nation by 2020. The collaboration among various
oil and gas companies aiming to make the industry to sustain, grow and diversify by continue
domestic oil and gas production, grow in downstream, and build alternative energy capabilities.
The utmost mission of the Economic Transformation Programme (ETP) in oil and gas industry
are including create a regional oil storage and trading hub, and increasing petrochemical output.

In 2011, the Johore State collaborate with the DIALOG, Vopak and PETRONAS to
build the Pangerang Terminal. As for 2014, the Petroleum Terminal in Johore shows a positive
updates by having investment value of RM5 Billion while the investment value of LNG
Terminal was about RM4.08 Billion. Below is the figure shows the list of PIPC core activities
which also the contributions of oil and gas industry.

Figure1: PIPC Core Activities; Resource: JPDC Publication

PETRONAS CONTRIBUTIONS TO MALAYSIA

Figure 2: Role of PETRONAS in different places and sectors

Figure 2 above shows the role of PETRONAS that contribute to the productivity of
economic activities in Malaysia and worldwide. The contributions by PETRONAS could come
from ocean and land else well.

According to PETRONAS Annual Report 2016, PETRONAS has built Corporate

Social Investment (CSI) programme which focus on development of community, education
and environment. Their commitment are more to build a better future for Malaysian.

Community wellbeing development strategic shows PETRONAS has improved the life
of people in rural area. They supplied clean water largely in seven villages in Sabah including
Dowokon, Perupok, Patiu, Pulutan and Maliau Layung. The villagers also have been provided
with agricultural training. Overall, about 1,000 villagers improved their quality of life through
installation gravity-fed water supply system. The new water supply system gives each village
own source of water supply, dam and storage tanks. In workforce sector, PETRONAS provided
51,034 employment in 2016 where 28% are women, 80% are Malaysian and 84% are jobs
provided inside Malaysia. The job opportunity given by PETRONAS has increased drastically
where it only employed 18 people in 1974.

In education, PETRONAS has provided better access to education and build pipeline
of potential talents. The development in educational system in Malaysia are including
infrastructure, academic sponsorship and various intellectual programmes. Regarding
infrastructure development in education, collaboration with Majlis Amanah Raya (MARA) has
been done in setting up new Maktab Rendah Sains Mara (MRSM) in Ranau, Sabah and Bintulu,
Sarawak. Moreover, Asrama Harian Luar Bandar (AHLB) in Sabah and Sarawak also has been
funded by PETRONAS.

Other than that, PETRONAS has been invested about RM3 Billion to more than 35,000
students since 1974 under academic sponsorship programmes. In 2015, sponsorship for
Malaysian were given to 93 students of local universities and 123 students of international
universities while in 2016 there were 229 students of local universities and 146 students of
international universities.

There are various programmes done by PETRONAS such as Program Sentuhan Ilmu
PETRONAS (PSIP), Trust School Programme, TRENGLISH Programme, and Discover
PETRONAS @ Schools. Basically the programmes were provided students basic aid, delivered
of professional development programmes for searchers and school leaders, spurred English
proficiency in the State, and provided exposure to students on PETRONAS business
respectively. Moreover, there are 24 institutions under Vocational Institution Sponsorship and
Training Assistance (VISTA) where 11 institutions located in Peninsular Malaysia and 13 in
East Malaysia. The VISTA programme focuses on vocational and technical skills development.
Apart from that, PETRONAS also provided tertiary education which known as Universiti
Teknologi PETRONAS (UTP), Institut Teknologi Petroleum PETRONAS (INSTEP) and
Malaysian Maritime Academy (ALAM).
The contribution by PETRONAS related to the environment development were focus
on protection and preservation of natural environment. The programme known as the Eco
Marine Conservation. That collaboration with Sarawak Foresty Corporation was to protect and
regenerate the dying coral reefs to enhance Sarawaks marine biodiversity.

The PETRONAS contributions in term of technology can be divided into seven

according to PETRONAS Annual Report 2016. In providing various type of technology, it has
126 researchers, 815 technical professionals (TP) groupwide and 198 technical trade specialists
(TTS) groupwide. The technologies provided by PETRONAS are including exploration
technology, enhanced oil recovery (EOR), wells and facilities technology, sustainability gas,
advanced materials, base oil, lubricants and fuel, and petrochemical derivatives and specialty
chemicals.

Lastly, the economic contributions by the PETRONAS may come from its revenue
whether categorized by products or by geographical trade. In 2016 alone, the total revenue
RM204.9 Billion. For revenue by products, that was largely contributed by Petroleum products
(33 percent). Other products that contributed to the revenue collection are natural gas,
petrochemicals, LNG, crude oil and condensates, maritime and logistics, and property. While
revenue by geographical trade, in 2016 PETRONAS contributed largely by international
operations, followed by exports and the smallest was by domestic. The most significant
geographical trade divided into eight segments. In 2016, the countries of Malaysia, Japan,
South Africa, Europe, China, Singapore, Indonesia and Thailand was contributed by 27%,
12%, 9%, 8%, 5%, 4%, 4%, and 4% respectively.
That are all the contributions by PETRONAS that give benefits to economic, education,
social, technology and environment.