Possibility of Malaysia’s Transformation to Net Oil Importer

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Within ASEAN, Malaysia is a major oil-exporting country; however, it is expected to become a net oil-importing country in the near future. This issue brings concerns over Malaysia’s energy security, particularly on the aspect of oil import dependency. The International Energy Agency (IEA) has predicted in a new report that Malaysia would become a net importer of oil and gas in 2017 as a result of rising domestic demand. IEA executive director Maria van der Hoeven said Malaysia, which is the world's third oil and gas exporter at present, would become like neighbouring Indonesia by that year. As an energy exporting country, Malaysia’s energy industry is crucial to its economy, especially the oil and gas industries. 

Although the gas industry is now the largest contributor to the government’s revenue, the oil industry still provides a significant contribution to Malaysia’s economy. The value of oil exports has accounted for approximately 10% of Malaysia’s GDP in the last five years. 

However, Malaysia’s status as a net oil exporter is at the brink as its oil wells are maturing and oil production is waning. On the other hand, the country’s oil consumption remains on an increasing trend driven by the country’s strong economic development.

Economists and market analysts differ on whether the continued decline in oil prices has indeed resulted in Malaysia becoming a net importer of oil. Last year, the country derived about 30% (or RM64.6 bil) of its annual revenue from the oil and gas (O&G) sector. Hence, whether it has become a net importer or exporter of oil is a big concern. The inconsistent implementation of subsidy elimination which obstructs other efforts to decrease oil consumption could be the main reason for Malaysia to transform into a net oil-importing country. At the same time, oil production rates are declining very fast after they peaked in 2004. 

On the contrary, the transformation could be delayed if Malaysia takes the options to rigorously eliminate subsidies and put more investment into enhancing production. The combined effect of these options on the transformation year are significant mainly because of the timely deviation of the oil consumption trajectory. According to RHB Research, Malaysia is now a net oil importer. “Malaysia has turned into a net oil importer in January–August due to a larger import of petroleum products while crude oil exports shrank during the period. It imported a net amount of RM3 bil in the first eight months compared with a net export of RM2.1 bil in 2013,” says RHB Research.

However, others disagree. “If it is just crude oil, no we have not become a net oil importer. But if we add on trade for petroleum products, yes we are a net oil importer now,” says Maslynnawati Ahmad, chief economist of MIDF Amanah Investment Bank to FocusM. AllianceDBS Research chief economist Manokaran Mottain is of the view that Malaysia is still a net exporter of oil. “As Malaysia is still a net exporter of oil, sustained low prices may likely pose adverse impacts on the overall economy. Falling crude oil prices are a double-edged sword to the government's finances,” says Manokaran in a Nov 6 research report. Subjects such as the unexpected effect of efficiency improvements, or the rebound-effect, are particularly motivating. Efficiency improvement in this subject may be translated as lower price per energy unit, thus may reduce the desired effect of subsidy elimination. It has options which may delay the transformation and concurrently improve energy security by slowing down the expected increase of oil import dependence.

While market observers watch and debate on the issue, the continued decline of crude oil prices is having a global impact. The sharp drop dealt a blow to the Malaysian petroleum sector. According to Bloomberg data, the price of Brent crude oil has slide 31.8% since June 19 when it climbed to US$115.06 (RM386.60) per barrel.