ENERGY, OIL AND NATURAL GAS IN MALAYSIA

ENERGY AND ELECTRICITY IN MALAYSIA

Energy production, consumption, and marketing have changed tremendously since the early 1970s. Historically, three state firms have dominated energy generation and distribution, but in 1994 the government allowed private producers into the market, and 15 independent producers were in operation by 2005. Still, all oil and gas resources are vested in state-owned Petroliam Nasional Berhad (Petronas). From 1971 to 2001, energy production increased from 4,770 kilotons of oil equivalent (KTOE) to 77,623 KTOE, as energy use increased from 6,032 KTOE to 51,608 KTOE. In the same period, oil sources fell from 72.4 percent of total electricity production to 8.6 percent, while natural gas increased from 0 percent to 78.1 percent. The remainder of electricity production in 2001 was provided by hydropower (9.9 percent) and coal (3.4 percent).

Malaysia’s proven oil reserves declined from a peak of 4.3 billion barrels in 1996 to 3.0 billion barrels in 2005, but the country has engaged in offshore development to increase oil production. Malaysia also has 75 trillion cubic feet of proven natural gas reserves, and liquefied natural gas production increased from 12.9 million tonnes in 1996 to 20.9 million tonnes in 2005, most of which is exported. In official statistics, employment in electricity and gas supply is combined with employment in water supply; from 1980 to 2005, these industries’ share of total employment increased from 15.7 percent to approximately 28.4 percent. [Source: Library of Congress, 2006]

Electricity - production: 118 billion kWh (2012 est.), country comparison to the world: 31. Electricity - consumption: 112 billion kWh (2012 est.), country comparison to the world: 29. Electricity - exports: 88 million kWh (2010 est.), country comparison to the world: 73. Electricity - imports: 33 million kWh (2010 est.), country comparison to the world: 103. Electricity - installed generating capacity: 25.24 million kW (2009 est.), country comparison to the world: 32 Electricity - from fossil fuels: 91.7 percent of total installed capacity (2009 est.), country comparison to the world: 73. Electricity - from nuclear fuels: 0 percent of total installed capacity (2009 est.), country comparison to the world: 145. Electricity - from hydroelectric plants: 8.3 percent of total installed capacity (2009 est.), country comparison to the world: 118. Electricity - from other renewable sources: 0 percent of total installed capacity (2009 est.), country comparison to the world: 163. [Source: CIA World Factbook][Source: CIA World Factbook]

Pipelines in Malaysia

Pipelines: condensate 3 kilometers; gas 1,757 kilometers; liquid petroleum gas 155 kilometers; oil 30 kilometers; refined products 114 kilometers (2010). In 2004 Malaysia had 7,281 kilometers of pipelines: 5,047 kilometers for gas, 1,841 kilometers for oil, 279 kilometers for condensate, and 114 kilometers for refined products.

The Malaysian government has proposed building a pipeline across northern Malaysia — bypassing the Malacca Strait — that could lower transportation costs and avoid risks of pirate attacks on tankers. Associated Press reported: “The proposed 50 billion ringgit ($14.2 billion) project would involve building a 320-kilometer pipeline across northern Malaysia, linking ports on the two coasts, officials in northern Kedah state announced last week. The plans, which have yet to be finalized, also call for at least one coastal refinery that could process 200,000 barrels daily. Crude oil would be refined in Kedah, pumped through the pipe to Kelantan on the east coast and then loaded onto tankers bound for Japan, China and South Korea, completely bypassing Singapore and the Malacca Strait. "There are proposals to have a refinery and a pipeline that will take it across. As far as I know, it is still at a discussion stage. Nothing has been finalized," a government official said. "It's primarily for commercial purposes because they think they can transport the oil at a lower cost and also avoid some of the risks relating to heavy traffic at the Straits of Malacca." [Source: AP, April 18, 2007]

Petroleum and Natural Gas in Malaysia

Malaysia has fairly large deposits of oil and natural gas. The oil and gas sector supplied about 35 percent of government revenue in 2011. Terengganu is a center of Malaysia’s oil and gas industry. There is also oil north of Borneo and offshore to the east and west. Crude oil from Brunei’s Seria field has been imported to a nearby refinery in Lutomg, Sarawak.

Malaysia’s energy supplies are limited, In 2003, gas reserved actually fell. At current input levels, oil production is supposed to stop after around 2020 and natural gas after 235.

Crude oil - production: 603,400 bbl/day (2011 est.), country comparison to the world: 29 Crude oil - exports: 269,000 bbl/day (2012 est.), country comparison to the world: 27 Crude oil - imports: 199,100 bbl/day (2009 est.), country comparison to the world: 34. Crude oil - proved reserves: 2.9 billion bbl (1 January 2013 es), country comparison to the world: 30. Refined petroleum products - production: 649,700 bbl/day (2008 est.), country comparison to the world: 28. Refined petroleum products - consumption:542,900 bbl/day (2011 est.), country comparison to the world: 34. Refined petroleum products - exports: 213,800 bbl/day (2008 est.), country comparison to the world: 30. Refined petroleum products - imports: 178,200 bbl/day (2008 est.), country comparison to the world: 29. [Source: CIA World Factbook]

Natural gas - production: 66.5 billion cubic meters (2010 est.), country comparison to the world: 14. Natural gas - consumption: 35.7 billion cubic meters (2010 est.), country comparison to the world: 27. Natural gas - exports: 31.99 billion cubic meters (2010 est.), country comparison to the world: 13. Natural gas - imports: 2.94 billion cubic meters (2010 est.), country comparison to the world: 44. Natural gas - proved reserves: 2.35 trillion cubic meters (1 January 2012 es), country comparison to the world: 16. [Source: CIA World Factbook]

Early Development of Petroleum and Natural Gas in Malaysia

Petronas was not the first company to extract oil or gas in Malaysia. Royal Dutch Shell began oil exploration in Sarawak, then under the White Rajahs, at the end of the 19th century. In 1910, the first oil well was drilled in Miri, Sarawak. This became the first oil producing well known as the Grand Old Lady. Shell was still the only oil company in the area in 1963, when the Federation of Malaya, having achieved independence from Britain six years before, united with Sarawak and Sabah, both on the island of Borneo, and became Malaysia. The authorities in the two new states retained their links with Royal Dutch Shell, which brought Malaysia's first offshore oil field onstream in 1968. [Source: Wikipedia]

Meanwhile, the federal government turned to Esso, Continental Oil, and Mobil, licensing exploration off the state of Terengganu, in the Malay Peninsula, the most populous region and the focus of federal power. By 1974, however, only Esso was still in the area. It made its first discoveries of natural gas in that year and then rapidly made Terengganu a bigger producer of oil than either Sarawak or Sabah. By 1974, Malaysia's output of crude oil stood at about 81,000 barrels per day (12,900 m3/d).

Technology developed in the 1970s for exploration and drilling offshore greatly helped the oil and gas industry in Malaysia to take off. The local geography included a combination of broad basins of sedimentary rock with calm and shallow waters around the Sunda Shelf, making exploration for gas and oil relatively easier and more successful than in most areas of the world. Malaysian crude turned out to be mostly high quality with low sulfur content. +

Petronas

Petronas, short for Petroliam Nasional Berhad, is a Malaysian oil and gas company that was founded on August 17, 1974. Malaysia’s national oil company, it has its headquarters in the Petronas Towers, one of the world’s tallest buildings, in downtown Kuala Lumpur. It has traditionally been regarded as a company that provided fuel for fuel-starved Japan, South Korea and China. The CEO for the company has his office on the 82nd floor.

Petronas runs the world’s largest natural gas plant in Sarawak. Much of the facility is devoted to turning gas into LNG which can be transported around the world in tankers. It also owns the world’s largest fleet of LNG tankers. Petronas provides the Malaysian government with steady dividends from its profits. Since inception in 1974, Petronas have paid the government RM 403.3 billion, with RM 67.6 billion in 2008. The payment represents 44 percent of the 2008 federal government revenue.

Petronas is wholly owned by the Malaysian government and has been vested with the entire ownership and control of petroleum and natural gas resources in the country. Since its founding it has grown from merely being the manager and regulator of Malaysia’s upstream sector into a fully integrated oil and gas corporation, ranked among the Fortune Global 500 largest corporations in the world. Fortune ranks Petronas as the 68th largest company in the world in 2012. It also ranks Petronas as the 12th most profitable company in the world and the most profitable in Asia.[Source: Petronas website]

According to Petronas much of the company’s “success can be attributed to our ability to strike a balance between being a state-owned entity and a full-fledged commercial organisation. As a state-owned entity, Petronas is responsible for the effective management of Malaysia’s oil and gas resources, to add value to this national asset and to ensure the orderly and sustainable development of the nation’s petroleum industry. As a business entity, we conduct our operations in a prudent and commercially oriented manner to compete effectively in the increasingly challenging global business environment, while maximising returns to our shareholders.

Petronas is not to be confused with the Brazilian oil company Petrobras. Key people: Tan Sri Shamsul Azhar Bin Abbas, Group CEO and President. Revenue: US$ 97.35 billion (2012); Net income: US$ 21.91 billion (2012); Total assets: US$ 157.37 billion (2012); Total equity US$ 89.29 billion (2012); Employees: 39,236 (2010); Website: www.Petronas.com.my. [Source: Wikipedia +]

Since its incorporation, Petronas has grown to be an integrated international oil and gas company with business interests in 35 countries. As of the end of March 2005, the Petronas Group comprised 103 wholly owned subsidiaries, 19 partly owned outfits and 57 associated companies. Together, these companies make the Petronas Group, which is involved in various oil and gas based activities. The Financial Times has identified Petronas as one of the "new seven sisters": the most influential and mainly state-owned national oil and gas companies from countries outside the OECD. +

The group is engaged in a wide spectrum of petroleum activities, including upstream exploration and production of oil and gas to downstream oil refining; marketing and distribution of petroleum products; trading; gas processing and liquefaction; gas transmission pipeline network operations; marketing of liquefied natural gas; petrochemical manufacturing and marketing; shipping; automotive engineering; and property investment.

Petronas provides a substantial source of income for the Malaysian government, with 45 percent of the government's budget dependent on Petronas' dividend, moreover in 2011 government actual balance has 5 percent deficit of Gross Domestic Product. In fiscal year 2003-2004 the company posted record profits of $6 billion. Most of that money went into the state treasury.

Early Petronas History

Several factors converged in the early 1970s to prompt the Malaysian government into setting up a state oil and gas company, as first proposed in its Five Year Plan published in 1971. Former Chief Minister of Sarawak, Tun Abdul Rahman Ya'kub was one of the people who proposed the idea of Malaysia setting up their own oil company. These were years in which power in the world oil industry began to shift away from the majors, which then controlled more than 90 percent of the oil trade, toward the Organization of Petroleum Exporting Countries (OPEC), as well as a proliferation of new private and state companies joining in the search for reserves. By 1985, the majors, reduced in number from seven to five, were producing less than 20 percent of the world total. It seemed that Malaysia would either have to join the trend or continue to leave its oil and gas entirely to Royal Dutch/Shell and Esso, multinational corporations necessarily attuned to the requirements of their directors and shareholders, rather than to the priorities the government of a developing country might seek to realize. [Source: Wikipedia]

Further, an agreement between Malaysia and Indonesia, signed in 1969, had settled doubts and disputes about each country's claims over territorial waters and offshore resources at a time when both were heavily indebted to Organization for Economic Co-operation and Development (OECD) governments and banks as well as to the International Monetary Fund (IMF) and the World Bank. Setting up a state oil and gas company, through which the government could get international capital but avoid tangling with foreign oil companies or governments, had worked for Indonesia: why not for Malaysia as well? The oil crisis of 1973–74 made the government even more aware of Malaysia's dependence on foreign oil and foreign capital in general.

The Malaysian government chose to create a state company, rather than using taxes, production limits, leasing, or other familiar instruments of supervision. The government wanted, and needed, the cooperation of the majors but also sought to assert national rights over the use of the country's resources. A state company, having both supervisory powers over the majors and production activities of its own, was a workable compromise between allowing the majors full rein and excluding them, along with their capital and expertise, altogether.

Petronas was established in August 1974 and operates under the terms of the Petroleum Development Act passed in October 1974. It was modeled on Pertamina, the Indonesian state oil and gas company founded in 1971 in succession to Permina, which had been set up in 1958. According to the 1971 plan, Petronas' goals would be to safeguard national sovereignty over oil and gas reserves, to plan for both present and future national need for oil and gas, to take part in distributing and marketing petroleum and petrochemical products at reasonable prices, to encourage provision of plant, equipment, and services by Malaysian companies, to produce nitrogenous fertilizers, and to spread the benefits of the petroleum industry throughout the nation.

Petronas' first move was to negotiate the replacement of the leases granted to Royal Dutch/Shell on Borneo and to Esso in the Peninsula with production-sharing contracts, which have been the favored instrument, alongside joint ventures, ever since. These first contracts came into effect in 1976. Allowing for royalties to both federal and state governments, and for cost recovery arrangements, they laid down that the remainder would go 70 percent to Petronas and 30 percent to the foreign company. Esso began oil production in two offshore fields in 1978, exporting its share of the supply, unlike Petronas, whose share was consumed within the country.

Petronas went downstream for the first time in 1976, when it was chosen by the Association of South East Asian Nations (ASEAN) to begin construction on the second ASEAN joint industrial project, a urea plant. The subsidiary, ASEAN Bintulu Fertilizer (ABF), is based in Sarawak and now exports ammonia and urea all over the world. Also in 1976, Malaysia became a net exporter of oil, but exports were at such a low level as to make the country ineligible to join OPEC. This situation benefited Malaysia, and Petronas, by allowing the company a degree of commercial and political flexibility and reinforcing Petronas' chief purpose, Malaysian self-reliance.

Petronas Growth Gas in the 1980s

The Malaysia government was determined to develop Malaysia's natural gas as well as its oil Shipping Company (MISC), of which it owned 61 percent. These were to take LNG exports out of Malaysia, save the cost of hiring foreign tankers, and expand the country's fleet under its own control—in contrast to cargo shipping, which was controlled by international conferences. Shell BV, the Royal Dutch/Shell subsidiary that was building the LNG plant off Sarawak with Japanese and Asian Development Bank aid, accepted production sharing with Petronas. After negotiations lasting from 1977 to 1982, Petronas concluded contracts with Tokyo Electric Power and Tokyo Gas for the sale and delivery of LNG through to the year 2003. Malaysia LNG was to send almost the entire output of its Bintulu gas fields to Japan, under these contracts and another one, signed in 1990, to supply Saibu Gas of Fukuoka, in southwestern Japan, for 20 years from 1993. In 1982 Petronas Carigali formed an exploration and production company with Société National Elf Aquitaine of France. [Source: Wikipedia]

Petronas went into refining and distribution in 1983. It initiated the construction of refineries at Malacca and at Kerteh in order to reduce its dependence on Royal Dutch/Shell's two refineries at Port Dickson and Esso's refinery in Sarawak. These two majors, and other foreign companies, already covered much of the domestic retail market, but the new subsidiary Petronas Dagangan was given the initial advantage of preference in the location of its stations. By 1990, 252 service stations carried the Petronas brand, all but 20 on a franchise basis, and another 50 were planned. Some were set up on grounds of social benefit rather than of strict commercial calculation.

As production from Royal Dutch/Shell and Esso's existing fields moved nearer depletion, the companies sought new fields and new contracts. At the same time the government and Petronas aimed to encourage the replacement of fast-depleting oil within Malaysia itself and simultaneously to foster heavy industries which could help reduce the country's overwhelming dependence on exporting its natural resources. In 1980, petroleum products accounted for 88 percent of the country's commercial consumption of energy, the rest being provided from hydroelectric plants in Sarawak, too far away from the main population centers to become a major alternative. Five years later, gas accounted for 17 percent, hydroelectricity for 19 percent, coal for 2 percent, and petroleum products for 62 percent of such consumption, and about half of each year's gas output was being consumed in Malaysia.

The Petronas venture responsible for this shift in fuel use, and—along with Malaysia LNG—for Malaysia's becoming the third largest producer of LNG in the world, was the Peninsular Gas Utilization Project (Projek Penggunaan Gas Semenanjung), the aim of which was to supply gas to every part of the Peninsula. Its first stage was completed in 1985, following the success of smaller gasification projects in the states of Sarawak and Sabah, and involved the extraction of gas from three fields in the Natuna Sea, between the Peninsula and the island of Borneo; its processing in a plant at Kertih on the Peninsula's east coast; and its distribution to the state of Terengganu by pipeline and abroad via an export terminal.

Petronas’s Battle with Oil and Gas Depletion

The Seligi field, which came onstream at the end of 1988 and was developed by Esso Production Malaysia, was one of the richest oilfields so far found in Malaysia waters, and further concessions to the majors would encourage exploration of the deeper waters around Malaysia, where unknown reserves could be discovered. Meanwhile, computerized seismography made it both feasible and commercially justifiable to re-explore fields which had been abandoned, or were assumed to be unproductive, over the past century. In 1990, Petronas invited foreign companies to re-explore parts of the sea off Sabah and Sarawak on the basis of new surveys using up-to-date techniques. [Source: Wikipedia]

Another way to postpone depletion was to develop sources of oil, and of its substitute, natural gas, outside Malaysia. Late in 1989, the governments of Vietnam and Myanmar (Burma) invited Petronas Carigali to take part in joint ventures to explore for oil in their coastal waters. In 1990, a new unit, Petronas Carigali Overseas Sdn Bhd, was created to take up a 15 percent interest in a field in Myanmar's waters being explored by Idemitsu Myanmar Oil Exploration Co. Ltd., a subsidiary of the Japanese firm Idemitsu Oil Development Co. Ltd., in a production sharing arrangement with Myanma Oil and Gas Enterprise. Thus began Petronas' first oil exploration outside Malaysia. In May 1990, the governments of Malaysia and Thailand settled a long-running dispute over their respective rights to an area of 7,300 square kilometers in the Gulf of Thailand by setting up a joint administrative authority for the area and encouraging a joint oil exploration project by Petronas, the Petroleum Authority of Thailand, and the U.S. company Triton Oil.

Petronas, with its policies of promoting self-reliance, helping to develop associated industries, and varying the sources and uses of oil and gas, played an important role in the Malaysian economy as a whole. Under governments which—by current, if not historical, Western standards—were strongly interventionist, the contribution of oil taxes to the federal government's revenue hovered at around 12 percent to 16 percent until 1980, when it showed a marked increase to 23 percent, followed by another leap to 32 percent in 1981. From then until 1988 the proportion fluctuated between 29 percent and 36 percent. Petronas was not just another big oil company: it controlled a crucial sector of the economy and remained, for better or worse, an indispensable instrument of the state.

During 1997, Petronas heightened its diversification efforts. The firm set plans in motion to build three petrochemical plants in Kuantan as well as an acetic facility in Kerteh. Its first LPG joint venture in China was launched that year and the company acquired a 29.3 percent interest in Malaysia International Shipping Corporation Berhad (MISC). In 1998, Petronas' tanker-related subsidiary merged with MISC, increasing Petronas' stake in MISC to 62 percent. That year, Petronas introduced the Petronas E01, the country's first commercial prototype engine. The company also signed a total of five new production sharing contracts (PSCs) in 1998 and 1999, and began oil production in the Sirri field in Iran.

Petronas entered the new century determined to expand its international efforts. The company forged deals for two new exploration plots in Pakistan and began construction on the Chad-Cameroon Integrated Oil Development and Pipeline Project. By 2002, Petronas had signed seven new PSCs and secured stakes in eight exploration blocks in eight countries, including Gabon, Cameroon, Niger, Egypt, Yemen, Indonesia, and Vietnam. The firm also made considerable progress in its petrochemicals strategy, opening new gas-based petrochemical facilities in Kerteh and Gebeng. By 2003, Malaysia was set to usurp Algeria as the world's second-largest producer of LNG with the completion of the Malaysia LNG Tiga Plant. In 2004, Minister in the Prime Minister's Department, Datuk Mustapa Mohamed, stated that Petronas contributed RM 25 Billion to the country's treasury accounting for 25 percent of revenue collected via dividends and other revenues.

Petronas continues to focus on international exploration projects as 40 percent of revenue in 2008 was derived from international projects such as Iran, Sudan, Chad and Mauritania. The company's international reserves stood at 6.24 billion barrels oil equivalent in 2008. In addition in looked for energy in Malaysian waters further offshore. On January 17, 2013, Petronas issued a statement that an onshore oil and gas discovery has been made in the state after drilling a test well about 20 kilometers away from the city of Miri in northern Sarawak. The well was found to have a net hydrocarbon thickness of 349 meters. It had flow rates of 440 barrels of crude oil per day and 11.5 million standard cubic feet of gas per day. The find is the first onshore oil discovery in Malaysia in 24 years.

Petronas Overseas Interests

Petronas is quite involved in development of oil and gas fields outside of Malaysia. Petronas entered the international arena when we secured our first overseas venture as an upstream operator in Vietnam in 1991. It made its first overseas oil find off the south coast of Vietnam in 1996. It now has a $2 billion deal to develop Iran’s South Pars oil field, and is building a regasification terminal in Wales. It is the controlling shareholder in Engen, a big South African oil refiner with 1,400 gas stations.

Petronas has exploration and production presence in over 22 countries in Southeast Asia, the Middle East, Central Asia, Latin America and Africa. International reserves in Africa, Southeast Asia, the Middle East and Central Asia stand at 6.56 billion boe, comprising nearly a quarter of Petronas’ total reserves.

In 2003, international exploration produced 344,000 barrels per day, representing a fifth of the company’s total output. To drum up business Malaysia has pushed it regional and religious status in Southeast Asia and the Middle East as an alternative to the non-Muslim imperialist Western nations. In some cases, Petronas has forged ties with pariah governments that Western companies are not allowed to business with. In Burma, for example, it took over the Yetagan gas project from Premier Oil, a British company.

Petronas Divisions and Businesses

Petronas owns and operate four refineries---two in Malacca and one in Kertih and a forth in in Durban, South Africa---with a total refining capacity of more than 448,000 barrels per day. The petroleum products from these refineries are marketed through our network of service stations in several countries, including in Indonesia, Malaysia, South Africa, Sudan and Thailand. [Source: Petronas website]

The domestic retail arm Petronas Dagangan Berhad (PDB) operates a network of more than 900 Petronas service stations nationwide. The Kertih IPC and the Gebeng IPC provide ready sites for petrochemical plants with the provision of industrial gases and utilities via the Centralised Utility Facilities, ports and a railway link for a more efficient delivery system. Since 1992, the IPCs have grown to become home to more than 20 petrochemical plants.

Petronas’ Gas & Power Business is engaged in the processing, liquefaction, transmission, marketing and trading of LNG and gas. It also participates in power generation and utilities business, which adds synergistic value in the integrated gas value chain.

Petronas LNG Complex in Bintulu, Sarawak is one of the world’s largest LNG production facilities at a single location with a combined capacity of about 23 million tonnes per annum. The company is one of the largest equity owners of LNG production capacity in the world and have delivered over 6,000 cargoes on time and without fail since 1983. Petronas has interests in more than 10,000 kilometers of natural gas pipelines worldwide, including in Argentina, Australia, Thailand and Indonesia.

Petronas' proven capability in operating a fully integrated LNG operation is among the company’s greatest strengths. Petronas’ strategic acquisition of Star Energy plc in 2008 has enabled our expansion into the gas storage business, to further strengthen our position as an integrated global LNG player. Petronas has the capability to design, build, operate and maintain gas processing and transmission pipeline infrastructure to world-class standards.

Petronas' Logistics and Maritime Business is mainly undertaken by our shipping subsidiary, MISC Berhad. MISC is Malaysia's leading international maritime corporation and is currently the third largest shipping conglomerate in the world by market capitalisation. The principal businesses of MISC consist of ship owning, ship operating, other shipping related activities, owning and operating of offshore floating facilities as well as marine repair, marine conversion and engineering and construction works.

MISC has grown from being purely a shipping line in 1968 to become a fully integrated maritime, offshore floating solutions, heavy engineering and logistics services provider. This was brought about when MISC became a subsidiary of Petronas in 1998, a move that produced synergistic benefits especially in the field of oil & gas transportation. Its modern and well-diversified fleet of more than 100 vessels with a combined tonnage of more than 8 million deadweight tonnes (DWT) traverses the globe, calling at most major ports around the world.

MISC is a world-renowned LNG owner-operator of 29 LNG carriers, with over two decades of experience for safety, reliability and on-time deliveries, providing a wide range of business solutions and is a one-stop centre for LNG transportation. MISC’s petroleum arm AET Inc Limited provides high-quality transport solutions and operates a young technically advanced and professionally managed fleet of VLCC’s, aframax and product tankers from strategic locations of London, Singapore and Houston. AET is also the world’s largest owner-operator of aframax tankers and currently occupies the leading share of the US Gulf ship-to-ship transfer business through its comprehensive lightering operations.

Malaysian Palm Oil and Biofuel

Nippon Oil, Toyota and the Malaysian state-run oil company Petronas are working together to create a biofuel made from palm oil. Malaysia has said it will set aside six million tons of palm oil---40 percent of the nation’s crop---for biodiesel. There is a rush of investment into the sector and construction of plants that make ethanol from palm oil. Indonesia is also developing palm oil for fuel. There are plans to develop six million hectares for palm oil and sugar cane, mostly in Sumatra, Kalimantan and Irian Jaya, at a cost of $20 billion. Lots of rainforest will be cleared to make way for these ambitions.

The New York Times reported in June 2010, “Palm oil is driving the destruction of some of Southeast Asia’s last tracts of untouched rainforest and leading to huge emissions of gases that spur global warming. Biofuel goals meant to fight climate change are worsening the problem by giving growers an even greater incentive to destroy virgin forests and peatlands that serve as huge carbon sinks, environment advocates say. The forests provide livelihoods to indigenous people and are the only home to endangered species like the orangutan and the Sumatran tiger. [Source: New York Times, June 3, 2010]

And now it is quickly gaining use as a diesel fuel substitute, particularly in Europe, where demand is being driven by a European Union goal requiring that 10 percent of all transportation fuel should come from renewable sources by 2020. While the Union requires that such fuels must generate fewer emissions than conventional sources, it fails to take sufficient account of rainforest clearance, making the standard meaningless, the advocates say. Global demand for biofuels has created “a very rapid increase in palm oil plantations, really a huge increase,” Alex Kaat, a spokesman for Wetlands International, an advocacy group based in the Netherlands, told the New York Times. “Deforestation and palm oil go hand in hand. It’s definitely a very, very dirty fuel.” [Ibid]

Malaysia has said it will set aside six million tons of palm oil---40 percent of the nation’s crop---for biodiesel. There is a rush of investment into the sector and construction of plants that make ethanol from palm oil. Indonesia is also developing palm oil for fuel. There are plans to develop six million hectares for palm oil and sugar cane, mostly in Sumatra, Kalimantan and Irian Jaya, at a cost of $20 billion. Lots of rainforest will be cleared to make way for these ambitions. [Ibid]

Palm oil’s use for fuel, particularly in Europe, that is now driving the industry’s expansion, Kenneth Richter, a biofuels campaigner at the environmental group Friends of the Earth, told the New York Times. Nusa Urbancic, of the advocacy group Transport & Environment in Brussels, said that while figures showed that palm oil offered carbon savings of 56 percent over fossil fuels, they did not take into account the deforestation driven by its production. Much of the forest now being cleared for palm oil is peatland, with marshy soils that are crucial holders of methane, a greenhouse gas even more potent than carbon dioxide. Environmentalists argue that abandoned grasslands could be used for palm cultivation, but the industry’s hunger for enormous plantations to create economies of scale, and its close links with timber extraction, create relentless pressure for forest clearance, Mr. Kaat told the New York Times. Logging companies, often affiliated with palm oil companies, generally begin by removing valuable hardwood trees, and then drain swamps and burn vegetation, releasing enormous volumes of greenhouse gases, he said. [Ibid]

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Malaysia Tourism Promotion Board, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated June 2015

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