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Our Energy Future

Our Energy Future- PETRONAS
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  JUNE 2013  5 Clockwise from right:  Angsi A platform, offshore Terengganu, Malaysia; Central Utility facilities in Kertih, Terengganu, Malaysia; MegaMethanol plant, SabahCONTENTS MALAYSIA AND PETRONAS 󲀓 A SHARED FUTURE Finding a balance is critical to Malaysia’s energy future EXPLORATION THE KEY TO A SUSTAINABLE ENERGY FUTURE PETRONAS meets the challenge of declining reserves PETRONAS: FINANCING THE ENERGY FUTURE As a state company and a successful multinational, PETRONAS has a special role in Malaysia GOLDEN AGE FOR GAS PETRONAS is poised to be a significant playerin the gas landscape of the next two decades FORGING THE LINKS IN THE PETRONAS VALUE CHAIN Balance, foresight and tough decision-making drive PETRONAS’ downstream business 4. For more informationplease contact Petroliam Nasional Berhad(Company No. 20076-K) Registered Office: Tower 1 PETRONAS Twin TowersKuala Lumpur City Centre50088 Kuala LumpurMalaysia Tel: +603 2051 5000 Fax: +603 2026  67 MALAYSIA Left:  Dulang B platform, offshore Terengganu, MalaysiaMALAYSIA MALAYSIA AND PETRONAS – A SHARED FUTURE Finding a balance is critical to Malaysia’s energy future W ith the fortunes of Ma-laysia and PETRONAS so tightly bound together, the past few years have been a decisive and defining period for one of Southeast Asia’s largest oil pro-ducing nations and its state-run energy multinational.Addressing the complex matrix of strategic, economic and sustainability issues at a time when energy security has become a defining part of public policy is a tough balancing act.For PETRONAS Group Chief Executive Officer Tan Sri Shamsul Azhar Abbas the challenges of recent years – coming as they do against the backdrop of dwin-dling domestic oil supplies – have been a test of the company’s core values.“Since the inception of PETRONAS, its mandate has always been to safeguard and add value to the hydrocarbon resources of the nation. This continues to be the guiding principles of the exist-ence of our company,” Tan Sri Shamsul Azhar Abbas. “At the same time, we were incorpo-rated as a business entity; one that is able to drive its strategies, operations and business decisions based on commercial merit,” he continued. Malaysia’s oil production registered its highest output at about 650,000 barrels per day almost two decades ago. Since then, its output, with the exception of intermittent upticks, has suffered from natural decline. “This is exactly where the challenge lies. And in the past few years, PETRONAS has been aggressive in tackling this challenge,” Falling supply,rising demand Tan Sri Shamsul Azhar Abbas says that falling supply, coupled with the rising consumption typical of one of the ASEAN region’s most dynamic economies, has re-quired concerted action from PETRONAS.“For Malaysia, the foremost energy challenge lies in meeting rising demand, in view of increasing population and economic expansion, whilst at the same time domestic production continues to experience natural decline,” Tan Sri Shamsul Azhar Abbas said.“In this accord, we have undertaken  89 MALAYSIA insights from its Canadian experience.“As I earlier mentioned, we will continue to invest in quality resources internationally and Progress Energy fits this profile,” said Tan Sri Shamsul Azhar Abbas. “Through Progress, PETRONAS now owns the largest acreage in the Canadian Montney, which gives us a very much needed second lease of life.” The opportunity, he said, provides sig-nificant business merits and is mutually beneficial to PETRONAS as well as to the Canadian government and its people.“Despite the possible initial miscon-ception, the Canadian Government concurred that PETRONAS has always operated, first and foremost, as a com-mercial entity. “In fact, we have enhanced this further through a transformation pro-gramme which we have undertaken over the past three years.”He said this included PETRONAS el-evating its corporate governance stand-ing in line with global best practice, even though the company is not obliged to do this. Even so, he added, securing ap-proval in Canada was only the first step.“The real work starts now,” he said. “Beyond the C$5.3billion investment in acquiring Progress, we will also be investing in the Pacific Northwest LNG complex.“The total investment will provide greater monetization value to the molecule compared to the currently depressed gas prices in North America. It will also provide the impetus for eco-nomic growth in the community.” The end of easy oil While PETRONAS’ exploration, acquisi-tion and investment all come within the context of its dwindling reserves, keeping the oil flowing at its current rate has shown the company to be versatile and flexible in adversity.“We have to accept that the days of easy oil is over,” says Tan Sri Shamsul Azhar Abbas. “Most Malaysian fields are already mature and the notion of ‘abun-dant untapped reserves’ is a concept of the past. “This is not an unexpected scenario for us; we have anticipated this inevitable decline. We have to accept the fact that the reserves available today require more cost to develop – be they marginal or deepwater, or both.“Even with huge investments made, there are massive risks involved in mon-etising these difficult reserves.”He said that based on the aggressive initiatives put in place, PETRONAS has successfully reversed the trend of decline with an increased recovery factor.“Whereas the international standards of decline in existing fields are at about 8-9 per cent annually, we have kept ours to at a minimal 2-3 per cent of annual decline,” he said.“As a result, we are able to maintain our current crude production level at around 480,000 barrels per day. A lot of effort have been put in to retain this average; otherwise the decline would be much worse.”Since 2011, PETRONAS has also in-troduced Risk Service Contracts (RSCs), awarding clusters of fields that are mar-ginal and uneconomical to be developed on a stand-alone basis.“The idea is that, while PETRONAS re-mains the project owner, the contractors provide the upfront exploration capital,” he said. “Once these fields become com-mercially viable, we will then start paying remuneration fees based on perfor-mance and services rendered.” Above:  PETRONAS President and Group Chief Executive Officer, Tan Sri Shamsul Azhar AbbasMALAYSIA aggressive efforts to augment both domestic exploration and production to stem and reverse this decline,” he said. “At the same time, we have con-structed the country’s first regasification terminal (RGT) in Melaka to receive LNG imports. This will allow Malaysia to have an open access system, in which domes-tic users can secure their own LNG and use our facility at a fee to regasify gas.”Despite this, he said, efforts in secur-ing supply alone will not be sufficient if demand remains unabated. “The natural gas price in Malaysia is currently one of the lowest in the world and subsidies distort transparency and efficiency. It is vital to ensure that do-mestic demand arises from competitive industries and users which are able to compete at global market energy prices.”He said that while PETRONAS would continue to play a leading role, securing energy security would require a concert-ed effort from key stakeholders such as the government, industries and users. Balancing options Other options open to PETRONAS to ensure supply and safeguard energy security – such as investing in complex technology to increase production of oil and gas from marginal fields and deepwater offshore areas and becoming an aggressive player on the international scene – have been no less challenging.“There were some misconceptions earlier, that we wanted to focus solely on rejuvenating our production within do-mestic waters, but this is not true,” says Tan Sri Shamsul Azhar Abbas. “Moving forward, we will be focus-ing on the quality of our assets and high grading our international portfolio. The focus will be on geology now, not just geography. It is pointless to be present in more than 30 countries globally, if they do not contribute actively to our bottom line,” he said.“We have embarked on a portfolio-rationalising exercise to high-grade our portfolio with quality assets. We have exited from four countries (Timor Leste, Ethiopia, Equatorial Guinea, and Paki-stan) while at the same time investing in countries such as Canada, Australia and Brazil.”Enforcing market discipline has been a key action point with PETRONAS, which has instituted a Portfolio Investment Decision Framework (PIDF) to support this intent. “This ensures clarity and discipline in continuously reviewing our portfolio,” he said.PETRONAS’ growth strategy is under-pinned by the rationale of meeting the long-term energy requirements of its key customers, while adding value via integration, according to Tan Sri Shamsul Azhar Abbas. “An example of this is our unconven-tional play in Canada,” he said. “By having a fully integrated unconventional play from upstream shale to LNG marketing, we will not only add value to Canadian resources, but also provide long term and secure supply to key customers in Asia.” Canadian shale play Late last year, PETRONAS only just gained control of Canada’s Progress En-ergy Resources Corp in a C$5.3billion deal that looked set to founder after a fiery national debate in Canada about foreign control of energy resources.With the company’s increased focus on North American shale reserves, PETRO-NAS has been able to draw some valuable Above:  Angsi platform, offshore Terengganu, Malaysia
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