Petronas-Sarawak gas dispute: LNG excluded in terms agreed by PM Anwar and state premier, says law minister

KUALA LUMPUR: Malaysia’s national oil company Petronas’ recognition of Sarawak government-owned Petros as the state’s gas aggregator excludes liquified natural gas (LNG), the government disclosed on Tuesday (Feb 4).

This is among the terms of the settlement between Petronas and Sarawak regarding the east Malaysia state’s efforts for more control over its oil and gas resources, said Azalina Othman Said, Minister in the Prime Minister’s Department (Law and Institutional Reform), in a parliamentary reply.

She added that the agreement was struck at a meeting between Prime Minister Anwar Ibrahim and Sarawak premier Abang Johari Openg on Jan 7.

Petronas and Petros have been in talks since July last year to resolve disputes over gas distribution rights in the state.

Under Malaysia’s Petroleum Development Act (PDA) 1974, Petronas has exclusive control over exploration and distribution of the country’s oil and gas resources.

But in February 2024, Sarawak appointed Petros, or Petroleum Sarawak Berhad, as the state’s sole gas aggregator under its Distribution of Gas Ordinance 2016. Under Sarawak’s state laws, a gas aggregator procures natural gas for distribution or supply, and develops and maintains the state’s gas distribution network.

The eastern state – which has made a series of moves to position itself as an economic powerhouse in Malaysia – contributes almost 90 per cent of Malaysia’s LNG exports.

Malaysia was the world’s fifth-largest exporter of LNG in 2023, according to the International Gas Union’s World LNG Report 2024.

Azalina was responding to a question by Member of Parliament Chong Chieng Jen, who represents the Stampin constituency in Sarawak.

He had sought details of the terms of settlement between Petronas and Sarawak with regard to Sarawak's rights to the oil and gas extracted from the state.

PETRONAS NOT REQUIRED TO OBTAIN LICENCE IN SARAWAK

Last month, Malaysia Prime Minister Anwar Ibrahim expressed confidence the issues between Petronas and Petros had been resolved.

He said Petros had authority over gas distribution in Sarawak as its gas aggregator, but that Petronas would retain its national authority over oil and gas.

“For projects in Sarawak, Petronas involves Petros, while Petros includes Petronas in exploration, hydrogen ventures and other efforts within Malaysia,” Anwar was reported as saying at a press conference in Abu Dhabi on Jan 14.

He said both sides agreed the PDA 1974 remains the “overarching framework” for governance in Malaysia’s oil and gas industry.

“All existing agreements are intact, as disturbing them would complicate relationships with major international companies. This has been mutually accepted,” he said.

In her written parliamentary reply on Monday, Azalina said that based on the agreement between Anwar and Abang Johari, Petronas and its subsidiaries are not required to obtain a licence or comply with additional procedures to conduct petroleum operations in Sarawak beyond what is outlined in Act 144, which is the PDA 1974.

Sarawak’s Distribution of Gas Ordinance 2016 had stipulated any party carrying out gas distribution activities in the state should apply for a licence.

All existing agreements between Petronas and third parties, including Petros, that relate to petroleum activities in Sarawak will remain valid and must continue without changes, Azalina said. Petronas and Petros have committed to full cooperation in all related matters.

The federal government, Petronas, the Sarawak government and Petros are refining several aspects of the agreement, including the legal implications, said Azalina, the country’s de facto law minister.

WHY SARAWAK-PETRONAS NEGOTIATIONS CLOSELY WATCHED

The negotiations between Petronas and Sarawak have been closely watched due to the high economic and political stakes involved.

Sarawak’s ruling Gabungan Parti Sarawak coalition, led by Abang Johari, is crucial to Anwar’s parliamentary majority and his coalition government’s hold on power, analysts have noted.

Meanwhile Petronas has, since its inception, contribution RM1.4 trillion (US$313 billion) to national coffers through oil royalties, taxes and dividends, analysts noted.

Oil dividends made up RM32 billion in Malaysia’s Budget 2025, or 8 per cent of Malaysia’s revenue, Kuala Lumpur-based analyst Amalina Anuar wrote in an analysis published by Singapore’s ISEAS-Yusof Ishak Institute’s Fulcrum website in November.

Losing control of LNG export allocations in Sarawak could reduce Petronas' exports and cut its Sarawak-based profits, estimated to be up to RM20 billion annually, she wrote.

Sarawak’s push for greater oil and gas autonomy could lead other states to push for higher oil royalties, she added.