Malaysia's Oil Industry: From the First Well in Miri to PETRONAS Upstream and Downstream Operations
•By Shazwan Ismaon
Artikel ini juga tersedia dalam Bahasa Melayu
Loading...
Malaysia is not just an oil-importing nation - it is a significant oil and gas producer in the Southeast Asian region. The country's petroleum industry has a history spanning over 100 years, from a small well in Sarawak to becoming a global LNG powerhouse. This article traces the full journey of Malaysia's oil industry - how oil forms geologically, its discovery history, and PETRONAS operations from upstream to downstream.
Malaysia's oil story began in 1910, when Shell (Royal Dutch Shell) discovered crude oil in Miri, Sarawak. In 1914, the first commercial oil well known as the "Grand Old Lady" at Bukit Tengah began operations. This well is now a protected historical landmark.
Throughout the colonial era, foreign companies - primarily Shell - completely dominated oil exploration and production in Malaya, Sabah, and Sarawak. Malaysia at that time only received small royalties without any control over its own natural resources.
The biggest turning point came in 1974. Under the leadership of Malaysia's 2nd Prime Minister, Tun Abdul Razak, the government passed the Petroleum Development Act 1974 and established Petroliam Nasional Berhad (PETRONAS).
This act gave PETRONAS exclusive rights over all petroleum resources in Malaysia. Foreign companies could still operate, but only through Production Sharing Contracts (PSC) with PETRONAS. This move transformed the national oil industry landscape - from foreign-controlled to self-governed.
To understand the oil industry, we need to know how oil forms underground. This process takes tens to hundreds of millions of years.
Millions of years ago, the shallow seas around Sundaland (the ancient landmass of Southeast Asia) were filled with plankton, algae, and microscopic marine organisms. When these organisms died, their remains sank to the seabed and were buried by layers of mud and sand (sediments).
Layer upon layer of sediment buried this organic material over millions of years. The deeper it was buried, the more pressure and temperature increased. The organic material transformed into kerogen - a carbon-rich solid material.
At depths of approximately 2-4 kilometres and temperatures of 60-120 degrees Celsius, kerogen "cooks" and transforms into crude oil. At temperatures exceeding 120 degrees Celsius, it transforms into natural gas. This process is known as catagenesis.
Oil that forms does not stay in one place. It migrates upward through rock fractures until trapped in specific geological structures. Three essential requirements for oil accumulation:
Malaysia sits atop several major sedimentary basins formed by tectonic movements millions of years ago. According to the Malaysian Investment Development Authority (MIDA), the oil and gas sector remains one of the country's major economic contributors.
Peninsular Malaysia:
Sabah and Sarawak:
Three key factors make Malaysia rich in oil:
The upstream sector encompasses all activities related to finding and extracting crude oil and gas from underground. This is the riskiest phase requiring the largest investment.
PETRONAS uses advanced technology to detect the presence of oil underground:
The success rate in oil exploration is typically only 1 in 5 to 10 wells. This means PETRONAS needs to invest billions of ringgit before finding a single commercially viable oil field.
After confirming profitable reserves, PETRONAS builds production infrastructure:
In this phase, oil and gas are pumped up from depths of 1 to 5 kilometres. At the platform, crude oil is separated from gas, water, and sand before being transported to shore via pipelines or tankers.
According to The Energy Year, Malaysia produces approximately 550,000 to 600,000 barrels of crude oil daily, making it one of the largest producers in Southeast Asia.
The midstream sector connects production to processing. It involves the transportation and storage of oil and gas.
Natural gas is cooled to minus 162 degrees Celsius to become liquid (Liquefied Natural Gas or LNG) at PETRONAS LNG Complex, Bintulu. This complex is among the largest LNG facilities in the world.
Malaysia is currently one of the world's top five LNG exporters, with production capacity exceeding 30 million tonnes per year.
The downstream sector is where crude oil and gas are processed into end products we use every day.
PETRONAS operates several major refineries:
At the refinery, crude oil is heated to 350-400 degrees Celsius in a distillation column. This process separates crude oil into different products based on boiling points:
Naphtha and gas are further processed into basic chemicals such as ethylene, propylene, and polymers. These chemicals become raw materials for producing plastics, synthetic rubber, fertiliser, paint, and textiles.
PETRONAS Chemicals Group (PCG) is among the largest petrochemical producers in Southeast Asia, with operations in several countries.
The closest part to consumers is PETRONAS petrol stations. With over 1,000 stations across Malaysia, PETRONAS Dagangan Berhad manages the retail sale of products including RON95, RON97, diesel, Petronas Primax, and Petronas Syntium lubricants.
Here are some important data points about the national oil and gas industry:
Malaysia's oil and gas industry is undergoing a major transformation. Key challenges and opportunities include:
Oil royalties remain an important political topic in Malaysia. Oil-producing states such as Sabah, Sarawak, Terengganu, and Kelantan continue to demand a larger share of petroleum revenue. Discussions on the distribution of oil revenue between the federal and state governments are expected to continue.
PETRONAS (Petroliam Nasional Berhad) is Malaysia's national oil and gas company established in 1974. It is wholly owned by the Malaysian Government and has exclusive rights over all petroleum resources in the country.
Based on current proven reserves and production rates, Malaysia's oil reserves are estimated to last approximately 15-20 more years. However, new field discoveries and EOR technology could extend this period.
Main production is concentrated in offshore waters - the Malay Basin off Peninsular Malaysia (Terengganu), the Sarawak and Baram Delta Basins off Sarawak, and the Sabah Basin off Sabah.
Both originate from the same organic material but form at different temperatures. Crude oil forms at 60-120 degrees Celsius while natural gas forms above 120 degrees Celsius. Crude oil is a liquid processed into petrol and diesel, while natural gas is used for electricity generation and exported as LNG.
FPSO (Floating Production Storage and Offloading) is a large vessel that functions as a floating refinery at sea. It receives crude oil from subsea wells, processes it onboard, stores the processed oil, and transfers it to tankers for delivery to onshore refineries.
The Malaysian government controls petrol prices through subsidies and the Automatic Pricing Mechanism (APM) to protect the people's purchasing power. RON95 is subsidised, while RON97 follows market prices. Petrol subsidies are among the government's largest expenditures.
GENTARI is a PETRONAS subsidiary established to lead the transition to clean energy. Its main focus is solar energy, clean hydrogen, and carbon capture and storage (CCS) technology. GENTARI represents PETRONAS' commitment to balancing current energy needs with environmental sustainability.
Malaysia is not a major world oil producer in terms of volume (compared to Saudi Arabia or Russia), but it is important regionally. Malaysia's real strength lies in the natural gas and LNG sector, where it is one of the largest global players.
Malaysia's oil and gas industry has a rich history - from the first well in Miri in 1910 to becoming a global LNG powerhouse today. Although oil reserves are declining, transformation through GENTARI and new technologies provides hope for the nation's energy future.
For investors interested in Malaysia's oil and gas sector, understanding the value chain from upstream to downstream is essential for evaluating related companies on Bursa Malaysia.
Open a CDS trading account to invest in oil and gas stocks on Bursa Malaysia as well as international stocks in the US and Hong Kong markets through this link.
Download the free Stock Market Basics ebook to understand how to evaluate companies before investing through this link.