EIA: Country Analysis Brief: Malaysia - April 2017 - eng (pdf)

Malaysia is the world's third-largest exporter of liquefied natural gas, the second-largest oil and natural gas producer in Southeast Asia, and strategically located amid important routes for seaborne energy trade.

Malaysia's energy industry is a critical sector of growth for the entire economy and has accounted for nearly 20% of the country's total gross domestic product in recent years.1 New tax and investment incentives, which started in 2010, promote oil and natural gas exploration and development in the country's deepwater and marginal fields, energy efficiency measures, and use of alternative energy sources. These fiscal incentives are part of the country's economic transformation program to leverage its resources and geographic location to become one of Asia's top energy players by 2020.2 Another key pillar in Malaysia's energy strategy is to become a regional oil and natural gas storage, trading, and development hub that will attract technical expertise and downstream services that can compete within Asia.

Malaysia, located within Southeast Asia, has two distinct parts. The western half contains the Peninsular Malaysia, and the eastern half includes the states of Sarawak and Sabah, which share the island of Borneo with Indonesia and Brunei. The country's western coast runs along the Strait of Malacca, an important route for the seaborne trade that links the Indian and Pacific Oceans. Malaysia's position in the South China Sea makes it a party to various disputes among neighboring countries over competing claims to the sea's oil and natural gas resources. Although it has bilaterally resolved competing claims with Vietnam, Brunei, and Thailand, an area of the Celebes basin remains in dispute with Indonesia. Potential territorial disputes with China, Vietnam, and the Philippines could emerge as the country's exploration initiatives move into the deepwater areas of the South China Sea.

Several major upstream and downstream oil and natural gas projects have been commissioned in Malaysia during the past few years as part of the country's strategy to enhance output from existing oil and natural gas fields. The incumbent and long-ruling Barisan Nasional party (BN), which won the May 2013 general election, is slated to remain in power until the next election scheduled for 2018. The BN party has a track record of promoting hydrocarbon investment, and it intends to continue boosting oil and natural gas production, reforming the energy sector to attract more investment, providing fiscal incentives to expand the use of Malaysia's renewable energy, and developing the country's energy infrastructure. Significantly lower oil and natural gas prices since the latter half of 2014 have negatively affected Malaysia's export revenues and hydrocarbon investment. However, in an effort to lower its fiscal deficit, the country has reduced its energy subsidies to end users and raised economic consumption taxes in the past few years.3 Malaysia aims to diversify its fuel slate and move further downstream to become an oil and natural gas trading hub.