Malaysia’s Oil and Gas Sector: Constant Expectations despite Diminishing Returns
Bhattacharya, Pritish; Hutchinson, Francis E. | March 2022
Abstract
Since the oil and gas (O&G) sector’s take-off in the 1970s, this natural bounty has yielded myriad benefits to Malaysia. While not falling into the ‘resource curse’ of an unquestioned reliance on natural resources, the O&G sector is nonetheless a key enabler for many aspects of the country’s economy and public finances.
Malaysia’s current account shows the significance of the sector, which has long accounted for a sizable proportion of merchandise exports and foreign exchange earnings. In 1990, for instance, the country’s global exports of fuel and derived products totaled US$5.4 billion and made up 18.3 per cent of all merchandise exports. In 2019, just before the COVID crisis struck, the corresponding figures were US$34.5 billion and 14.5 per cent.
Beyond those in the country’s ledgers, indications of the O&G sector’s skyrocketing success are everywhere – most visibly in the country’s much-vaunted infrastructure. Examples include but are not limited to: the Petronas Towers, the erstwhile tallest buildings in the world and centrepiece of Kuala Lumpur’s skyline; Putrajaya, the country’s administrative capital; and the Kuala Lumpur International Airport.
The sector has also underpinned many of Malaysia’s economic nationalist aspirations. Today, the government-owned corporate giant, Petronas, is a source of pride and, in 2021, was the nation’s sole Fortune Global 500 company. The government has also sought to foster an eco-system of local firms in the O&G sector to diversify the economy and foster more technologically-intensive tasks. And, when demand calls, it has used the country’s national flagship firm to bail out capsizing corporate captains.
However, there are growing signs that, going forward, the sector will no longer be able to play such an outsized role. One statistic suffices to illustrate this trend. In 2009, as much as 40 per cent of government revenue was derived from O&G-related sources; in 2021, however, the corresponding figure had plummeted to a mere 19.2 per cent.
Despite the O&G segment’s prodigious potential, it faces a number of structural constraints and policy challenges. In order to analyse these, this paper will first set out the historical development of the sector and the Malaysian government’s long-term policy objectives. The subsequent sections will look at the key challenges facing the sector and then conclude.
Citation
Bhattacharya, Pritish; Hutchinson, Francis E.. 2022. Malaysia’s Oil and Gas Sector: Constant Expectations despite Diminishing Returns. © ISEAS Yusof Ishak Institute. http://hdl.handle.net/11540/14894.ISSN
2335-6677
Keywords
Household Energy Consumption
Industrial Energy Consumption
Results-Based Monitoring And Evaluation
Evaluation Techniques
Evaluation Studies
Evaluation Methods
Commercial Energy
Urban Development Finance
Trade Finance
Small Business Finance
Rural Finance
Roundtable on International Trade and Finance
Regional Development Finance
Public Service Finance
Public Finance
Project Finance
Private Finance
Nonbank Financing
Non-Bank Financial Institutions
Municipal Finance
Local Government Finance
Local Currency Financing
Limited Resource Financing
International Financial Institutions
Infrastructure Financing
Industrial Finance
Government Financial Institutions
Government Finance
Financing of Infrastructure
Financial Sector Development
Financial Regulation
Domestic Energy
Energy Demand
Energy Prices
Energy Pricing Policy
Energy Supply
Primary Energy Supply
Development Indicators
Social Participation
Low Income Groups
Income Generation
Newly Industrializing Countries
Taxation
Public Accounting
National Budget
Municipal Bonds
Local Government
Local Taxes
International Monetary Relations
International Financial Market
International Banking
Central Banks
Business Financing
Capital Resources
Budgetary Policy
Capital Needs
Corporate Divestiture
Capital Instruments
Pension Funds
Insurance Companies
Banks
Portfolio Management
Fiscal Administration
Economics of Education
Development Banks
Subsidy
Default
Default risk
Solar battery
Renewable energy resource
Green Energy
Power resource
Electric power
Energy development
Renewable energy resource
Energy assistance
Energy tax credit
Electric power consumption
Cost effectiveness
Supply and demand
Prices
Energy resource
Energy consumption
Price Indexes
Infrastructure
Use tax
Taxing power
State of taxation
Tax-sales
Tax revenue estimating
Tax planning
Spendings tax
Special assessments
Tax administration and procedure
Sales tax
Real property and taxation
Progressive taxation
Effect of taxation on land use
Effect of taxation on labor supply
Intergovernmental tax relations
Inheritance and transfer tax
Energy tax
Tariff
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