Production growth is set to outpace consumption growth in the Malaysian oil sector due to positive demand forecasts for oil within the Asian region, said Ernst & Young in a June 5, 2013 report on the oil, gas and energy (OGE) sectors.

“(However,) domestic demand for oil will be negated with the removal of fuel subsidies and the switch towards coal-fired power plants,” it added.

Ernst & Young predicts that the growth trend is reversed for gas, where consumption growth will outpace domestic production growth. That’s because Malaysia’s gas price continues to be the lowest in Asean and gas remains the preferred energy fuel by power companies.

Ernst & Young said Malaysia’s future growth trajectory in OGE is supported by a range of government initiatives and incentives, as well as significant private sector investments in the OGE sectors and subsectors.

On March 29, 2013, three new incentives were introduced to develop marginal oil fields in Malaysia. Two other incentives, announced in Budget 2013, are aimed to encourage the transformation of Malaysia from a producer to a global integrated trading hub for oil and gas.

Then there is the Global Incentive For Trading (GIFT) programme, aimed to encourage international trading companies, specifically those that trade in petroleum-related products, to use Malaysia as their regional base for storage and trading operations. The programme also aims to develop and strengthen the downstream value chain of the oil and gas industry in the country.

Today, Malaysia produces almost 2% of the world’s natural gas. It operates extensive liquefied natural gas (LNG) facilities and provides around 13% of the world’s LNG exports, sold largely to Japan, South Korea and Taiwan.

Malaysia’s oil reserves are currently ranked as the third largest in the Asia-Pacific region after China and India. Malaysia is a net exporter of oil and gas with nearly 40% of Malaysia’s total revenue derived from petroleum resources.

Ernst & Young noted that in the medium term, world oil demand is expected to grow moderately at 1.5% per year, propelled by demand from developing countries. Consumption growth in developing countries is expected to moderate in the longer term as their economies mature, as subsidies are phased out and as other fuels penetrate their fuel mix, notably natural gas.

“Global growth in oil demand will remain well below gross domestic product growth, reflecting efficiency improvement in vehicle transport – partly induced by environmental pressures to reduce emissions, especially in OECD countries.

“On the supply side, non-OPEC oil supply is expected to continue its upward climb, driven by high prices and advances in upstream technology opening up new frontiers, for example, deep water offshore and shale liquids,” it added.