Petronas–Sarawak dispute could undermine investor confidence, LNG exports, analysts warn

Borneo Post

03-05-2025

Azmi says that any disputes raised would only be detrimental to all parties involved, namely the federal government, the Sarawak government, Petronas and Petros. — Bernama photo
KUALA LUMPUR (May 3): The Sarawak government should respect the agreement with the federal government as outlined in the Petroleum Development Act 1974 (PDA 1974), instead of creating disputes involving the operations of Petronas Carigali Sdn Bhd (PCSB) at the Miri Crude Oil Terminal, according to an analyst.
Dr Azmi Hassan, a geostrategist from the Nusantara Academy for Strategic Research, said that any disputes raised would only be detrimental to all parties involved, namely the federal government, the Sarawak government, Petroliam Nasional Bhd (Petronas) and Petroleum Sarawak Bhd (Petros).
'Petronas has operated in Sarawak for decades, so why are they being 'disturbed' now when the provisions in the PDA are clear? Such interference creates legal complications and, in this case, affects foreign investor confidence.
'It undermines the positive perception of foreign investors, and we're now seeing the consequences – US oil firm ConocoPhillips has reportedly announced its withdrawal from a project in Sarawak,' said the National Professors Council Fellow.
Media reports previously stated that ConocoPhillips had withdrawn from operating the deepwater Salam-Patawali oil and gas project off Sarawak, worth an estimated RM13.7 billion (US$3.13 billion).
The report also alleged that the decision to pull out was driven by regulatory uncertainty stemming from ongoing disputes between Petronas and the Sarawak government.
Commenting further, Azmi said that if the issue remains unresolved, it risks greater losses for the country through missed collaboration opportunities with global oil and gas giants such as Shell and ExxonMobil in Sarawak.
Yesterday, Petronas confirmed to Bernama that its subsidiary PCSB had received a notice from the Sarawak Ministry of Utility and Telecommunication last Wednesday related to gas processing and distribution.
The national oil company told Bernama that PCSB is legally authorised under the PDA 1974 to conduct its activities and has complied with all applicable laws.
Meanwhile, Universiti Malaya sociopolitical analyst Datuk Prof Dr Awang Azman Awang Pawi said the Sarawak government is clearly asserting a different interpretation based on state rights as stipulated in the Malaysia Agreement 1963 (MA63), even though the PDA 1974 remains a recognised federal law.
He said no formal breach has occurred so far, as there has been no court ruling or announcement of the cancellation of the joint agreement.
'However, Sarawak's issuance of a notice and enforcement action constitutes a direct challenge to Petronas' exclusive authority under the PDA 1974, which has been the foundation of Malaysia's oil and gas industry model for nearly 50 years,' he said.
He added that the issue is not only legal in nature but also a test of Malaysia's federalism, particularly in the management of natural resources, highlighting differing interpretations of the PDA 1974, MA63 and the Oil Mining Ordinance 1958 (OMO 1958).
Awang Azman warned that if not wisely handled through joint negotiations or legal review, this could lead to a trust crisis between the federal and state governments, negatively impact investments, and weaken the national energy strategy.
At the same time, he said any disruption to Petronas' exploration and production activities in Sarawak would have more serious effects on the national oil and gas industry, including potential disruptions to both national and global supply chains.
This is because Sarawak is Malaysia's main producer of liquefied natural gas (LNG), and any disruption to Petronas' operations in the state could jeopardise exports and long-term contractual commitments to countries such as Japan and South Korea, he said.
He said an open conflict between the state government and Petronas may cause international investors to view Malaysia as a risky investment destination in policy and legal aspects.
'It also raises the risk of dual power structures. If Petronas adheres to federal law while Sarawak enforces state law, it creates legal ambiguity that necessitates either a federal-state legal resolution or court action,' he said.
Awang Azman added that the conflict could also hinder cooperation talks between Petros and Petronas, ultimately delaying strategic investments such as new gas field developments and energy infrastructure. – Bernama gas investment lead oil PDA 1974 Petronas sarawak