Top challenges for Malaysia's burgeoning oil and gas industry
Oil and gas companies in Malaysia are expected to become increasingly influential as the global economy continues to recover.
Southeast Asia has long been viewed as a vitally important player in the international energy market and this will become even more apparent in the coming years. While the future is bright for Malaysian oil and gas corporations, there will be many different challenges for them to overcome.
Here are just some of them.
Meeting growing demand
The demand for gas and electricity is expected to rise sharply around the world in the next few years and this will place added pressure on Malaysia's energy firms to increase their supplies.
Although a recent report published by the International Energy Agency (IEA) predicted that as much as 18 per cent of the world's electricity would be generated by windfarms by 2050 - compared with just 2.6 per cent in 2013 - there is still likely to be a strong reliance on oil and gas. A separate IEA study found that oil produced by non-members of the Organisation of the Petroleum Exporting Countries (OPEC) reached record highs in October 2013.
Ministers will meet in December 2013 to discuss issues surrounding OPEC production, with reduced output from certain Middle Eastern countries - most notably Saudi Arabia - likely to be top of the agenda. Malaysia has a settled economy and stable government, which means companies based in this part of the world can cover any deficits left by other prominent oil and gas producers in more volatile nations.
The main challenge here is finding enough new sources to cater for the shortfall in oil production elsewhere.
Identifying new oil wells and gas fields
Existing gas fields and oil wells are drying up, so companies need to come up with different solutions. This issue is not exclusive to Malaysia, it is a global problem.
As a recent discovery by Petronas proved, there are plenty of fresh oil and gas sources out there, the hardest part is finding them. The company announced in October 2013 it had made three important gas discoveries in Malaysia, Indonesia and Australia.
In a statement, the organisation said: "For Malaysia, the discovery in Block SK320 proves that there is still hydrocarbon potential in the Sarawak Basin.
"Several oil and gas multinationals have been successful in their recent exploration drilling in Sarawak with several notable discoveries such as NC3/NC8, B14, Tukau Timur Deep, Kuang North and Kasawari. These exploration efforts have also opened up several new hydrocarbon play-types in the basin."
Perhaps the biggest challenge facing Malaysian oil and gas companies in the next few decades will be ensuring their operations are as sustainable as possible.
The government has set some ambitious carbon reduction targets, with Prime Minister Datuk Seri Najib Razak insisting the country can meet its goal of slashing output by 40 per cent per unit of gross domestic product by 2020. This would be calculated on base levels set in 2005.
"In Malaysia, we look for ways to achieve twin goals of development and environmental protection, realising full well that it is a difficult and delicate equilibrium to achieve," he commented in November 2013.
"If we look around the world, many high-income nations achieved prosperity at the expense of the environment, not in concert with it. We take lessons from the experience of others and we are dedicated to striking that delicate balance."
Companies across the globe are trying to make their operations more environmentally friendly and this is particularly difficult for oil and gas firms. Businesses might need to reassess their operations if they are to contribute to Malaysia's major sustainability drive.
Coping with high costs
With many existing wells and fields drying out, oil and liquified natural gas suppliers have been forced to explore new deepwater options and marginal fields in the Malay Basin and Brunei-Sabah.
Writing for Energy Global, Jonathan Lacouture, GlobalData's Lead Analyst for the Asia-Pacific region, said these alternative exploration sites are not as economically viable as their predecessors. Keeping a firm grip on expenditure is something oil and gas businesses are finding increasingly difficult and this problem is unlikely to go away.
In order to ease the burden, the Malaysian government introduced certain tax breaks in 2011 to encourage greater levels of production. While there have been calls for further concessions, Mr Lacouture wrote that the government will "bide its time" and will meticulously assess oil production figures before introducing any more tax measures.