All Malaysian oil production occurs offshore and primarily near Peninsular Malaysia. Most of the country's oil fields hold low sulfur crude with gravities in the 35-50o API range. Over half of the country's oil production comes from the Tapis field, which contains 44o API oil with 0.2 percent sulfur content. Tapis serves as a price benchmark for the Asian crude oil market. However, the field's declining output has resulted in increased price competition from an influx of light crude oil exports from West African producers.

A significant amount of Malaysia's oil production is controlled by EPMI through production sharing contracts (PSC) with state-owned Petroliam Nasional Berhad (Petronas). In December 1994, EPMI signed two new 25-year PSCs which allow for continued production from fields containing 1.5 billion barrels of the country's oil reserves and 9.5 trillion cubic feet (Tcf) of its natural gas reserves. These PSCs replaced EPMI's original 1976 contact. Under the new contracts, the Exxon subsidiary will continue to operate 12 key oil fields including Tapis, Guntong, Seligi, Pulai, Bekok, and Kepong. In 1994, EPMI spent an estimated $745 million in upstream investment in Malaysia, including a $500-million production platform jacket for the Guntong D structure. Located about 130 miles offshore Peninsular Malaysia, the Guntong A, B, C, and D structures produce 100,000 b/d. Guntong D production is slated to rise to 80,000 b/d over the next several years after 40 new wells are drilled with the new platform.

In an effort to encourage foreign investment, the government reduced the country's petroleum income tax and crude oil export duty in 1993. In February 1995, further modifications in terms were provided to Shell, which agreed to undertake exploration efforts in deep water off Eastern Malaysia. Besides EPMI, Shell is Malaysia's only other major PSC holder. During most of 1994, Shell was barred from bidding for the offshore exploration blocks by a trade dispute between Malaysia and the United Kingdom. In 1995, Shell subsequently began exploration activities off Sabah in waters as deep as 5,500 feet. Mobil and Occidental also are active in the eastern offshore area. In November 1994, Mobil signed two PSCs which covering deep water concessions near Sarawak. While the PSCs provide Mobil with license for four offshore blocks, two of these are claimed by neighboring Brunei.

In early 1994, Malaysia and Thailand agreed to share equally exploration and development in a new Joint Development Area (JDA) covering 2,800 square miles of the offshore border between the two countries. Located near Thailand's 3.3-Tcf Bongkot gas field, exploration in the JDA since 1994 has resulted in a number of finds, especially of natural gas. In 1995, Petronas and U.S.-based Triton Energy recorded several successes with exploration wells on the Cakerawala structure in JDA's Block A-18. In May 1996, Triton signed gas purchase agreements with Petronas for Block A-18. Cakerawala development plans call for production to start at 300 Mmcf/d in 1999, with a later rise to 700 Mmcf/d by 2001. Conservative estimates currently place the JDA's gas reserves at 7 Tcf.

Refining & Downstream

One key project which has moved forward is the second phase of the $1.4-billion, 200,000-b/d Melaka refinery. The first phase of the Melaka refinery was finished in mid-1994 and consisted of a 100,000 b/d sweet crude distillation unit, which is wholly-owned by Petronas and processes Tapis crude oil. The $900-million, 100,000-b/d Melaka-II second phase is a joint venture between Petronas (45%), Conoco (40%), and Statoil (15%). In addition to another expansion of crude distillation capacity, this venture will construct a 62,000-b/d vacuum distillation unit, 26,000-b/d catalytic cracker, 28,500-b/d hydrocracker, 35,000-b/d desulfurization unit, and 21,000-b/d coker. After an early 1998 start-up, the new plant will refine heavy, sour Middle Eastern crude oil imports. The Melaka-II refinery will be geared mainly towards producing petroleum coke. As of June 1996, construction was about 20 percent completed. In May 1995, Shell announced plans to construct a 90-mile products pipeline connecting the Melaka refinery and the company's 105,000-b/d refinery at Port Dickson to the Kuala Lumpur airport and nearby distribution facilities. The pipeline will be used primarily to carry unleaded and leaded gasoline, diesel, and jet fuel. As of July 1996, the $211-million pipeline was 50 percent completed. It is expected to enter operation by June 1997.

In other downstream activities, Amoco is building a $500-million, 500,000-ton per year (t/y), purified terephtalic acid plant near Kuantan. It will begin operation in late 1996. Due to continuing tanker collisions in the Malacca Straits, the Malaysian government has approved the study of a proposed $970-million, 500,000-b/d crude pipeline which would run from Malaysia's west coast to Songkhla, Thailand. The project also would include smaller product pipelines and an 8-million barrel crude storage facility. Related infrastructure projects could cost $10 billion. If developed, the pipelines would substantially reduce tanker traffic in the congested Straits. Also, the storage facilities could serve as a strategic crude oil reserve for regional countries.

Foreign Activities

NATURAL GAS

Shell and Exxon are Malaysia's largest gas producers, accounting for output of 1.3 billion cubic feet per day (Bcf/d) and 375 Mmcf/d, respectively. Since most of the country's population lives in Peninsular Malaysia, the majority of gas produced here is used for domestic consumption. On Peninsular Malaysia, gas production is fed into the Peninsular Gas Utilization (PGU) transportation system. In 1984, PGU's first phase, PGU-1, came online and served to supply gas to power producers and industrial users on the east coast of the peninsula. PGU-1 also included construction of a gas processing plant at Kerteh. In late 1992, a second phase, PGU-II, then linked a gas distribution center at Kuantan, located south of Kerteh, to a network extending to Kuala Lumpur and south down the peninsula's west coast to Johor Baharu. The PGU-II network is capable of transporting an estimated 1 Bcf/d to Kuala Lumpur. In addition, PGU-II contains a 150-Mmcf/d spur link to Singapore. A 330-mile PGU-III network is expected to enter operation in 1997. It will extend PGU-II's west coast line north from Kuala Lumpur to Thailand. Also, a loop from PGU-I's east coast line will be built to connect with PGU-II's western line at the Thai border.

EPMI and IPC are developing Peninsular Malaysia's offshore gas reserves. EPMI currently is building an offshore platform and pipelines which will connect the Lawit, Bintang, and Jerneh area gas fields to the onshore Peninsular Gas Utilization (PGU) network at Kerteh, on the east coast. EPMI's 1.7-Tcf Lawit field will be an especially important supply source for the PGU grid. Initial output of 50 Mmcf/d is anticipated for 1997. Subsequent gas production is expected to rise to 400 Mmcf/d by 1999 and 600 Mmcf/d by 2001 as new compression facilities are installed. The PGU network also will utilize gas from EPMI's Guntong-D structure. Malaysia's increasing gas production has attracted interest in international gas trade. In 1995, the Association of Southeast Asian Nations (ASEAN) continued discussions regarding the possibility of linking the region's gas pipelines and electrical grids to form a network similar to that found in Europe. Gas produced in the eastern regions of Sabah and Sarawak is primarily used as feedstock for Malaysia's liquefied natural gas (MLNG) plants. In addition, a Sabah Gas Utilization Project aids power generation and methanol production. In Sarawak, Shell recently completed the $540-million offshore Baram Delta Gas Gathering Scheme, which reduces the flaring from associated gas fields by an estimated 170 mmcf/d. Gas subsequently is used for re-injection into oil fields.

Malaysia's first LNG plant, MLNG-I, was constructed at Bintulu in 1983. It currently exports 8 million tons per year (Mmt/y) of LNG to Japan. In early 1996, a consortium comprising Petronas (60%), Mitsubishi (15%), Shell (15%), and the Sarawak state government (10%) completed a $1.6 venture to build a second LNG plant at Bintulu. This plant, named MLNG-II or LNG Dua, consists of three 2.6-Mmt/y liquefaction trains. By April 1996, the LNG Dua consortium had signed a total of six long-term LNG supply contracts, all with Japanese, Taiwanese, and South Korean buyers. Petronas also has acquired five new 4.5-million cubic foot LNG tankers it ordered to meet LNG Dua's export requirements.

ECONOMIC OVERVIEW

ENERGY OVERVIEW

ENVIRONMENT OVERVIEW

OIL AND GAS INDUSTRIES