THE P E T R O L E U M IN D U S T R Y IN M A L A Y S I A
by
M U H A M M A D A N U A R A D N A N
A thesis submitted for the degree of Doctor of Philosophy in the University of London
June 1978
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C il A B S T R A C T
Th e a i m of this t h e s i s is to s t u d y the e v o l ution, s t r u c t u r e , a d m i n i s t r a t i o n , e f f e c t s a n d f u t u r e p r o s p e c t s of the p e t r o l e u m i n d u s t r y i n M a l a y s i a in the c o n t e x t of the
c h a n g i n g i deas a n d c o n c e p t s that are i n f l u e n c i n g the p e t r o l e u m i n d u s t r y at pre s e n t .
T h e d i s c o v e r y of p e t r o l e u m d e p o s i t s i n the o f f s h o r e a r e a s of M a l a y s i a i n the e a r l y 1 9 7 0 '3 p r o m i s e s to act as a c a t a l y s t to f u t u r e d e v e l o p m e n t . Th e p r o d u c t i o n of crude p e t r o l e u m h a s i n c r e a s e d s i g n i f i c a n t l y a n d h a s e m e r g e d as one of the l e a d i n g a c t i v i t i e s i n M a l a y s i a today.
¥e are p r o p o s i n g to ex a m i n e s e v e r a l a r e a s in the d e v e l o p m e n t of the p e t r o l e u m i n d u s t r y - p e t r o l e u m r e s e r v e s a n d p r o d u c t i o n , r e f i n e r y cap a c i t y , crude oil pricing, p r o d u c t s u p p l i e s a n d p r ices, g o v e r n m e n t l e g i s l a t i o n a n d p e t r o l e u m r e v e n u e c o n t r i b u t i o n s to the economy. It ha s b e e n p r e d i c t e d that p e t r o l e u m r e s e r v e s are l i m i t e d at p r e s e n t a n d w o u l d be d e p l e t e d s o m e t i m e i n the b e g i n n i n g of 1 9 9 0 * s. W i t h the
i n c r e a s i n g d e m a n d for l o c a l crude in r e f i n e r i e s , the p r o b l e m m i g h t b e c o m e wo r s e . B y the e n d of 1 9 7 0 * 3 > it i® p r e d i c t e d that t here is a n e c e s s i t y to e x p a n d local r e f i n e r y c a p a c i t y to cope w i t h the g r o w t h i n d e m a n d for p e t r o l e u m pro d u c t s .
Ever since the 1973 'Oil Crisis' and subsequent developments, the structure of the product prices in this country has changed with the increase in crude prices. This has led to 'under- recoveries' to oil companies, px’oduct shortages and hoarding.
This has also led the Government to involve more and more
intervention in the industry especially with the establishment of Petroliam Nasional Berhad (PETRONAS), the National Oil
Company.
We c o n c l u d e the the s i s b y e m p h a s i s i n g the n e c e s s i t y o f i n s t i t u t i n g a p r o g r a m m e d d e v e l o p m e n t (con s e r v a t i o n ) of our p e t r o l e u m r e s o u r c e s a n d l o c a l p a r t i c i p a t i o n i n i n v e s t m e n t s in the u p s t r e a m ph a s e of the i n d u stry. The c o n s e r v a t i o n m e a s u r e w o u l d e n s u r e s u f f i c i e n t s u p p l i e s of crude p e t r o l e u m for our f u t u r e n e e d s .1 A r e a s o n a b l e t i m e — p r o d u c t i o n f u n c t i o n w o u l d e n a b l e P E T R O N A S to i n v o l v e in e x p l o r a t i o n , r e f i n i n g a n d
d i s t r i b u t i o n f u n c t i o n s a n d e n s u r e r e a s o n a b l e price a n d a d e q u a t e s u p p l y of p e t r o l e u m p r o d u c t s in the future. T h i s is also
r e a s o n a b l e i n v i e w of the p r o b l e m s i n v o l v e d in the r e c y c l i n g of
"surplus" oil m o n e y a c c r u e d to the G o v e r n m e n t as a r esult of a r a p i d d e p l e t i o n of our oil res o u r c e s .
A C K N O W L E D G E M E N T S
I n w r i t i n g this t h e s i s , i am i n d e b t e d to m a n y pe o p l e a n d i n s t i t u t i o n s that it is not p o s s i b l e for me to m e n t i o n all of t h e m here. W h i l e I e x p r e s s m y g r a t i t u d e to t h e m all, X m u s t m e n t i o n some s p e c i f i c a l l y .
Fi r s t a n d foremost, I p a r t i c u l a r l y w o u l d like to t h a n k m y s u p e r v i s o r , t e a c h e r an d m e n t o r P r o f e s s o r E d i t h Pe n r o s e who w i l l i n g l y t o o k me as h e r s t u d e n t a n d gave me m u c h of h e r time to r e a d m y w o r k t h r o u g h o u t the course a n d for h e r i n v a l u a b l e h e l p a n d u n d e r s t a n d i n g , w i t h o u t w hose l e a r n e d g u i d a n c e a n d i n s p i r a t i o n , this t h e s i s w o u l d have n e v e r b e e n com p l e t e d .
T h e v a r i o u s r e s p o n d e n t s a n d i n f o r m a n t s — oil
e x e c u t i v e s a n d g o v e r n m e n t o f f i c i a l s - who h e l p e d me d u r i n g m y f i e l d w o r k i n M a l a y s i a , X w i s h to e x p r e s s m y gra t i t u d e to t h e m for k i n d l y a l l o w i n g me to i n t e r v i e w them, but who m u s t r e m a i n a n o n y m o u s .
To the V i c e - C h a n c e l l o r of the N a t i o n a l U n i v e r s i t y of M a l a y s i a , the D e a n of the F a c u l t y of E c o n o m i c s an d
M a n a g e m e n t a n d the H e a d of the E c o n o m i c D e v e l o p m e n t a n d P l a n n i n g of the U n i v e r s i t y , m y sincex’e t h a n k s for g r a n t i n g me the s t u d y le a v e to e n a b l e me to p ursue the r e s e a r c h at L o n d o n U n i v e r s i t y . M y t r i p to L o n d o n was m a d e p o s sible b y a s c h o l a r s h i p a w a r d e d b y the C o m m o n w e a l t h S c h o l a r s h i p
C o m m i s s i o n i n L o n d o n . F u n d s for f i e l d r e s e a r c h a n d t r a v e l e x p e n s e s in M a l a y s i a w e r e p r o v i d e d b y a grant f r o m the
A c a d e m i c S t a f f R e s e a r c h Fund, N a t i o n a l U n i v e r s i t y of M a l a y s i a w h i c h m a d e p o s s i b l e the tr i p s to v a r i o u s pa r t s of the c o u n t r y for the p u r p o s e of int e r v i e w s .
M y t h a n k s are also due to the l i b r a r i a n s a n d s taff of the f o l l o w i n g l i b r a r i e s in w h i c h I c o l l e c t e d the m a t e r i a l s for this th e s i s : Sh e l l C e n t r e in Lo n d o n , I n s t i t u t e of
P e t r o l e u m L o n d o n , S c h o o l of O r i e n t a l a n d A f r i c a n Studies L i b r a r y , N a t i o n a l U n i v e r s i t y of M a l a y s i a L i b r a r y , F a c u l t y of E c o n o m i c s a n d A d m i n i s t r a t i o n L i brary, S h e l l M a l a y a T r a d i n g B e r h a d a n d P E T R O N A S L i b r a r y in K u a l a L u m p u r .
X a m v e r y g r a t e f u l to Cik S a b a r i a h a n d Mr s F o n s e k a for t y p i n g the th e s i s at short no t i c e a n d what mo r e for e x p e r t l y h a n d i n g the b i g job of t y p i n g f r o m m a r k e d up pages into r e a d a b l e copy.
I w o u l d like to m e n t i o n that the r e s p o n s i b i l i t y for lapses a n d s h o r t c o m i n g s as this w o r k m i g h t c o n t a i n is
e n t i r e l y mine. I f this t hesis a w a k e n s some i n t e r e s t a m o n g the r e s e r c h e r s of e c o n o m i c s a n d oil i n d u s t r y e x e c u t i v e s a n d g o v e r n m e n t s e r v a n t s a n d s t i m u l a t e s t e c h n i c a l a n d s c i e ntific studies in this sub j e c t i n the country, I shall c o n s i d e r m y l a b o u r a m p l y r e w a r d e d .
C i i i )
I s h o u l d also m a k e s p e c i a l m e n t i o n o f the m o r a l sup p o r t g i v e n b y m y par e n t s at e v e r y stage of m y r e s e a r c h ; a n d but for the w a y t h e y s u s t a i n e d me w i t h
s y m p a t h y a n d e n c o u r a g e m e n t d u r i n g m y p e r i o d s of d i s a p p o i n t ment, g l o o m a n d d e s p o n d e n c y , X might not h a v e s u c c e s s f u l l y
p r e s e r v e d i n m y c a r e e r of r e s earch.
L a s t but not least, I shall be f a i l i n g m y d u t y as a h u s b a n d if X h a d not a c k n o w l e d g e d w i t h g r a t i t u d e the s a c r i f i c e s m a d e b y m y wife, Y a n g H a l i m a h a n d m y children, S h a h r i z a i l a a n d A d l a i n M a r s i t a , who s i l e n t l y s u f f e r e d b e i n g a l m o s t n e g l e c t e d for the past three a n d h a l f years. S u f f i c e to s a y that t h e y bore w i t h me a d m i r a b l y the t e n s i o n s a n d
" d e p r e s s e d 11 m o m e n t s d u r i n g the p e r i o d of this s t u d y in L o n d o n a n d i n M a l a y s i a .
C O N T E N T S
L I S T O F TABLES
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A B S T R A C T
A C K N O W L E D G E M E N T S ii -
L I S T O F C H A P T E R S V -
X l l -
L I S T OF F I G U R E S AN D M A P S x v l -
L I S T OF A B B R E V I A T I O N S x v l l l
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CONTENT O F CHAPTERS Pages
CHAPTER 1 : INTRODUCTION 1
1.1 Importance of the Study 1
1.2 Objectives of the Study 5
1.3 Limitations of the Study 9
CHAPTER 2 :: PETROLEUM INDUSTRY DEVELOPMENT
SCENARIOS' IN MALAYSIA 12
2.1 Historical Development of Oil
Trade in Malaysia 12
2.1.1 The Early Oil Trade in
Malaysia 1886 to 1919 12
2.1.2 The Changing Structure of
Oil Trade After 1920 23
2.1.3 The Oil Trade After the
Second World War 26
2.2 Crude Oil Production Scenarios 34
2.2.1 The Beginning of the Crude
Oil Producing Industry 34
2.2.2 The Miri Oilfields in
Sarawak 45
2.2.3 Production History of the
Miri Field Till World War 11 4 9 2.2.4 The Petroleum Industry
Production During the - Second World War
2.2.5 Post-War Production of Miri Field
52 60
PETROLEUM IN THE ENERGY STRUCTURE OF
MALAYSIA 69
3.1 Energy Use by Types 69
3.2 Energy Use by Sectors 72
3.3 Pattern of Consumption of
Petroleum Products in Malaysia 74
3.4 Energy Consumption in Relation
to Gross National Product 79
C o n s u m p t i o n 19 7 6 to 199° 81
C H A P T E R
C H A P T E R
3.5.1 M e t h o d o l o g y 81
a) E x t r a p o l a t i o n Of Past
T r e n d s 83
b) M i c r o - A p p r o a c h Or E n d - U s e
A n a l y s i s 83
c ) M a c r o —A p p r o a c h 84
a) A s s u m p t i o n s
84 E s t i m a t i o n s O f C o n s u m p t i o n
R e q u i r e m e n t s F r o m 1976 to 1990 87 3.6
3.7 Tlie E s t i m a t e d C o n s u m p t i o n P a t t e r n O f P e t r o l e u m P r o d u c t s
F r o m 1 9 7 6 to 199° 88
3.8 L i m i t a t i o n s O f F o r e c a s t s A n d P r o j e c t i o n s
t: P O S T - W A R C R U D E O I L E X P L O R A T I O N A N D
93
D E V E L O P M E N T 95
4.1 S c e n a r i o Of Crude Oil E x p l o r a t i o n 95 4.2 P o s t - W a r Oil E x p l o r a t i o n I n
M a l a y s i a 100
4.3 Oil C o n c e s s i o n A r e a s A n d Oil A n d Gas F i e l d s
4.4 D r i l l i n g s A n d C r u d e Oil P r o d u c t i o n H 3 4.5 I n v e s t m e n t s A n d Costs I n C r u d e Oil
P r o d u c t i o n 1 0
4.6 C rude Oi l A n d N a t u r a l Gas R e s e r v e s 130
5s R E F I N I N G C A P A C I T I E S A N D P R O D U C T S U P P L I E S 5.1 T h e E a r l i e s t R e f i n e r y I n L u t o n g ,
S a r a w a k "£38
5.2 T h e E s t a b l i s h m e n t Of R e f i n e r i e s In P e n i n s u l a M a l a y s i a 1 ^ 5.3 T h e C u r r e n t R e f i n i n g C a p a c i t i e s I n
P e n i n s u l a M a l a y s i a 1^9 5.3.1 S h e l l R e f i n e r y A t Port
D i c k s o n 1^9
C H A P T E R
CHAPTER
Cviil
5.3.2 E s s o R e f i n e r y At Port D i c k s o n
5.4 Cr u d e Oil T h r o u g h p u t s A n d P r o d u c t s Ou t p u t P r o m T h e M a l a y s i a n R e f i n e r i e s
5.4.1 Cr u d e Oil T h r o u g h p u t s
1970-1975
5*5 C h a r a c t e r i s t i c s Of C r u d e Oil T h r o u g h p u t s I n M a l a y s i a n R e f i n e r i e s
5.6 R e f i n e r y Y i e l d P a t t e r n
5*7 M a l a y s i a n M a r k e t D e m a n d B a r r e l 5.8 S u p p l y - D e m a n d R e l a t i o n s h i p I n
R e f i n e r y C a p a c i t i e s
I O I L P R O D U C T M O V E M E N T S A N D D I S T R I B U T I O N S 6.1 G e n e r a l P a t t e r n O f Oil M o v e m e n t s
A n d T r a d e
6.2 D i s t r i b u t i o n s O f I m p o r t e d Petrole'um P r o d u c t s B e f o r e I 963 6.3 L o c a l D i s t r i b u t i o n s A n d E x p o r t s 6.4 M e t h o d s O f D i s t r i b u t i o n Of
R e f i n e r y P r o d u c t s A f t e r 1 9 6 3 6.5 D i s t r i b u t i o n Of I m p o r t e d
P e t r o l e u m P r o d u c t s
6.6 D e p o t N e t w o r k A n d T a n k a g e C a p a c i t i e s
6.7 Oil C o m p a n i e s S u p p l y L o g i s t i c s
I T H E S T R U C T U R E O F T H E P E T R O L E U M P R O D U C T M A R K E T
7.1 R e g i o n a l C o n s u m p t i o n Of P e t r o l e u m P r o d u c t s
7.2 Oil M a r k e t i n g C o m p a n i e s I n M a l a y s i a
7*3 P r o d u c t P r o f i l e O f O i l C o m p a n i e s A n d T h e i r M a r k e t C l a s s i f i c a t i o n s
150
151
151
156 161 165 167
175 176
181 182
185
193 197 204
212 212
217
220
C H A P T E R
CHAPTER 9
7
.k
M a r k e t Sh a r e s OP Oil C o m p a n i e s 7.5 C o m p e t i t i v e S t r u c t u r e X n P r o d u c tM a r k e t i n g C h a n n e l s
7 . 6 H o s p i t a l i t y A r r a n g e m e n t B e t w e e n Oil C o m p a n i e s
7.7 N e w C o m p e t i t i o n A n d T h e R i s e A n d Fa l l Of T h e " I n d e p e n d e n t " M a r k e t e r s 7 .7*1 T h e i r Rise A n d E n t r y Into
T h e M a r k e t
7.7.2 T h e A c t i v i t i e s O f T h e I n d e p e n d e n t M a r k e t e r s 7.7.3 T h e i r F a l l A n d E x i t
: M A R K E T I N G P R A C T I C E S A N D PRI C E S OF I M P O R T E D A N D D O M E S T I C C R U D E OILS
8.1 S u p p l y A r r a n g e m e n t s Of I m p o r t e d Crude Oils T o M a l a y s i a n R e f i n e r i e s 8.2 T h e Price O f I m p o r t e d A n d D o m e s t i c
C rude Oi l s to M a l a y s i a n R e f i n e r i e s 8.2.1 B e f o r e T h e Oil C r i s i s
8 . 2 . 2 A f t e r T h e Oil C r i s i s
8.3 M a r k e t i n g P r a c t i c e s O f D o m e s t i c Crude Oil E x p o r t s
8 .^- P E T R O N A S I n v o l v e m e n t I n C r u d e Oil M a r k e t ing
8.5 M a j o r P r o b l e m s in P r e s e n t M a r k e t i n g A r r a n g e m e n t s a n d P r a c t i c e s
8.5 T h e F u t u r e Price Of Cr u d e Oils
: S T R U C T U R E O F P R I C E S A N D CO S T S O F P E T R O L E U M P R O D U C T S
9*1 H i s t o r i c a l D e v e l o p m e n t Of P e t r o l e u m P r o d u c t P rices
9.1.1 Pr o d u c t Price S t r u c t u r e B e f o r e Th e O p e n i n g Of R e f i n e r i e s I n P e n i n s u l a M a l a y s ia.
9.1.2 T h e P e r i o d Of C o n t i n u o u s
"Price Wars"
226
237 244
250 250
253 254
257
257
260 260 264 276
282
283 285
291 291
294 299
C ix l
9,2 P r o d u c t Prices, Costs A n d M a r g i n s B e t w e e n D o m e s t i c R e f i n e r s A n d I m p o r t e r s
9*3 Costs C o m p o n e n t s Of T h e M a l a y s i a n P e t r o l e u m I n d u s t r y
9. A- P r o f i t a b i l i t y Of the P e t r o l e u m I n d u s t r y
^9.5 Refinery Production Costs
9«.g T h e S t r u c t u r e Of Oil P r o d u c t P rices A f t e r the Oil C r i s i s of 19 7 3
9*.f6.1 Rationale.Tbr P r o d u c t Price I n c r e a s e s B y Oil C o m p a n i e s
i) Price
197^
I n c r e a s e s Of J a n u a r y
i i ) Price
1975
I n c r e a s e s Of O c t o b e r i i i ) Price
1977
I n c r e a s e s Of J a n u a r y
9* 7 G o v e r n m e n t A p p r o v a l F o r P r o d u c t P r i c e I n c r e a s e s
9. '8 E f f e c t s O f Pr o d u c t Price I n c r e a s e s O n T r a d e C h a n n e l s (Retail A n d N o n - Re ta'il )
9*8.1 R e t a i l T r a d e C h a n n e l s 9.'^. 2 N o n - R e t a i l T r a d e C h a n n e l s
9..'9 C o m p a r a t i v e P e t r o l e u m P r o d u c t Prices A n d R e c o v e r i e s
9J!t) A c t i o n / M e a s u r e s T a k e n B y the
G o v e r n m e n t I n R e l a t i o n to P r o d u c t S u p p l i e s
9 .I0 I Th e I m p l e m e n t a t i o n Of
C o n t r o l Of S u p p l i e s Ac t Of I 961
9 1'O. 2 Governiiient P o l i c y G u i d e l i n e s F o r Price I n c r e a s e s
9-iO. 3 Pre s e n t P r o b l e m s O f S u p p l i e s A n d P r ices Of P e t r o l e u m
Pro d u c t s
9 . H C r i t i q u e Of the P r e s e n t A r r a n g e m e n t 9.1-2 M a r k e t R e a d j u s t m e n t A n d S u p p l y
P r o b l e m s
9.13 D e s k e w i n g Of T h e P r o d u c t Pr i c e S t r u c t u r e
304
311
314 318 323
323 324
326 327 329
333 333 341
346
349
349
352
354 356 358
361
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CHAPTER
10: G O V E R N M E N T L E G I S L A T I O N , S T A T E I N T E R V E N T I O N A N D P A R T I C I P A T I O N A N D I N D U S T R Y C O N T R I B U T I O N T O G O V E R N M E N T R E V E N U E
10.1 T h e D e v e l o p m e n t O f Oil L e g i s l a t i o n a n d P o l i c i e s In M a l a y s i a
1 0 . 1 . 1 Th e C o n c e s s i o n S y s t e m 1 0 . 1 . 2 T h e Pr o f i t S h a r i n g
A r r a n g e m e n t or T h e 50:50 M o d e l
1 0 . 1 . 3 P e t r o l e u m D e v e l o p m e n t Act A n d T h e C o n c e p t of P r o d u c t i o n S h a r i n g
1 0 . 2 T h e P r o d u c t i o n S h a r i n g A r r a n g e m e n t 1 0 . 3 T h e M e t h o d s U s e d B y T h e M a l a y s i a n G o v e r n m e n t to I n t e r v e n e I n the Oil In d u stry
1 0 . 3 * 1 Cr u d e Oil E x p o r t s A n d E a r n i n g s
1 0 . 3 . 2 T a x a t i o n A n d D u t i e s
1 0 . 4 P E T R O N A S F i n a n c i a l A r r a n g e m a t W i t h T h e G o v e r n m e n t
1 0 . 5 T h e D i s t r i b u t i o n Of C r u d e Oil P r o d u c t i o n B e t w e e n T h e M a l a y s i a n G o v e r n m e n t A n d P E T R O N A S Arid Oil C o m p a n i e s
1 0 . 6 T h e F u t u r e T r a d e P r o s p e c t s F o r P e t r o l e u m
1 0 . 6 . 1 M a r k e t F o r M a l a y s i a n C rude Oils
1 0 . 6 . 2 M a r k e t F o r P e t r o l e u m P r o d u c t s 1 0 . 6 . 3 M a r k e t F o r N a t u r a l Gas
11: S U M M A R Y OF M A J O R C O N C L U S I O N S A N D P O L I C Y I M P L I C A T I O N S
11.1 S u m m a r y O f M a j o r C o n c l u s i o n s 1 1 . 2 P o l i c y I m p l i c a t i o n s
1 1 . 2 . 1 C o n s e r v a t i o n v e r s u s D e p l e t i o n P o l i c y
1 1 . 2 . 2 O p p o r t u n i t i e s F o r U p s t r e a m R e f i n e r y C a p a c i t y
367 367 368
372
375 379
384
386 388
401
403
407
4d>3 413 416
419 419 422 422 426
3. A
3.B
5. A
6 ,A
6 .B
6.a
9.A
10 .A
10 .B
11 .A
Cxil
1 1 . 2 . 3 S t r a t e g y for E x p a n d i n g R e f i n e r y C a p a c i t y
1 1 . 2 . ^ E n d - P r o d u c t D e v e l o p m e n t s
M a t h e m a t i c a l C a l c u l a t i o n for P e t r o l e u m P r o d u c t R e q u i r e m e n t s of M a l a y s i a f r o m 1 9 7 5 to 1990
428 434 1 1 . 2 . 5 R e c y c l i n g the " S u r p l u s ”
Oil M o n e y 437
1 1 . 2 . 6 R e s e a r c h a n d D e v e l o p m e n t i n A l t e r n a t i v e E n e r g y S o u r c e s
444 446 1 1 . 3 C o n c l u s i o n
11. k A r e a s for F u r t h e r R e s e a r c h
A P P E N D I X
M a l a y s i a : G r o s s D o m e s t i c P r o d u c t I 97O - I 99O
(in M i l l i o n M$) 447
448 T h e R e f i n e r y A g r e e m e n t s : B a s i c P r i c i n g
O f Produc ts i n M a l a y a 457
T h e P e t r o l e u m O r d i n a n c e of I 883 as a m e n d e d
i n 1 8 8 6 455
D u t y S t atus o n P e t r o l e u m P r o d u c t s in
P e n i n s u l a M a l a y s i a 469
1 M a i n S t r u c t u r e o f R o y a l D u t c h / S h e l l G r o u p of C o m p a n i e s
2 F l o w of Oil a n d the Sh e l l G r o u p of C o m p a n i e s i n M a l a y s i a
3 F l o w o f S e r v i c e s a n d the S h e l l G r o u p of C o m p a n i e s in M a l a y s i a
b Esso Standard Malaya Berhad 480
Record of Petroleum Product Price Changes in
Peninsula Malaysia From 1956 to 1976 ' 484
Record of Petroleum Product Price Changes in
East Malaysia From 1971 to 1976 494
T h e P rofit S h a r i n g A g r e e m e n t or the 50:50 C o n c e p t
499 M a n a g e m e n t S h a r i n g a n d the P e t r o l e u m
D e v e l o p m e n t Act 511
M a l a y s i a : P e t r o l e u m I n d u s t r y E x p e n d i t u r e b y 517 C a t e g o r y
T a b l e
•2.1 2.2
2.3 2.4
2.5
2.6
2.7 2.8
3.1
3.2
3.3
3.4 3.5 3.6
3.7
4.1 4.2' 4.3
LIST OF TABLES
Page K e r o s e n e I m p o r t s of M a l a y a fr o m 1892
to 1923 (in cases) 17
M a l a y a n T r a d e in P e t r o l e u m P r o d u c t s f r o m
19 2 4 to 1 9 4 0 (in *000 units) 24-25
T r a d e i n P e t r o l e u m P r o d u c t s f r o m 1 9 4 6 to
1968 (in 1000 units) 28-29
M a l a y s i a : P r e - W a r Crude Oil P r o d u c t i o n a n d N a t u r a l Gas P r o d u c t i o n a n d R o y a l t y P a y m e n t f r o m I 9II to 1940
A n n u a l P r o d u c t i o n o f Crude P e t r o l e u m in East I n d i e s f r o m 19 4 2 to 1945 ( K ilolitres
of 6,29 b a r r e l s of 42 US gallons) 58-59 M a l a y s i a : P o s t - W a r Crude P r o d u c t i o n , Oil
R o y a l t y a n d N a t u r a l Gas P r o d u c t i o n
N u m b e r of W e l l s D r i l l e d in S a r a w a k a n d
Sabah. 1954 till I 963 65
62
P o s t - W a r E x p l o r a t i o n E x p e n d i t u r e s in M a l a y s i a
f r o m 1 9 4 7 to I 963 (in Mg) 66
73 P e n i n s u l a M a l a y s i a : C o m m e r c i a l M a r k e t
D e m a n d for E n e r g y C o n s u m p t i o n f r o m i 960 to
1975 (in T r i l l i o n B T U / y r ) 7Q
P e n i n s u l a M a l a y s i a : E n d - U s e r s of P r i m a r y E n e r g y b y S e c t o r s I 96O - I 975 (in T r i l l i o n BTU)
M a l a y s i a : C o n s u m p t i o n P a t t e r n a n d G r o w t h of P e t r o l e u m P r o d u c t s 1 9 7 0 - 1 9 7 5 (in !000
b a r r e l s ) • 76
M a l a y s i a : Share D i s t r i b u t i o n of P e t r o l e u m
P r o d u c t s 1 9 7 0 - 1 9 7 5 (in p e r c e n t a g e ) 78 A n n u a l G r o w t h R a t e s of Gross D o m e s t i c
P r o d u c t a n d E n e r g y D e m a n d (°/0) ®2 M a l a y s i a : E s t i m a t e d C o n s u m p t i o n a n d G r o w t h
of P e t r o l e u m P r o d u c t s 1 9 7 6 — 1990 (in *000
bar r e l s ) 89
M a l a y s i a : E s t i m a t e d Share of D i s t r i b u t i o n
of P e t r o l e u m P r o d u c t s 92
E x p l o r a t i o n W e l l s D r i l l e d a n d F o o t a g e I 956-
I 976 115
M a l a y s i a : Crude Oil P r o d u c t i o n i 960— 1976
(in *000 b a r rels) 121
Oi l C o m p a n i e s I n v e s t m e n t in E x p l o r a t i o n ,
T e r m i n a l F a c i l i t i e s a n d P r o d u c t i o n F a c i l i t i e s
I 973- I 976 (in M g m i l l i o n ) 123
4.4 4.5
4 . 6
4.7
5.1 5.2 5.3 5.4 5.5
5.6 5.7
6.1 6,2 6.3 6.4
6.5 6.6
6.7 6.8 6.9
6.10
6.11
(xiii}
B r e a k d o w n of C osts of D i f f e r e n t C r u d e Oils 126 in I 969 (US $ per barrel)
Oil P r o d u c t i o n Costs by C o u n t r i e s in 1 9 7 6 128 R e c o v e r a b l e R e s e r v e s b y C o u n t r i e s 132 P r o d u c t i o n F o r e c a s t s b y C o m p a n i e s
(in ’000 b a r rels)
L u t o n g R e f i n e r y P r o d u c t i o n fr o m 19 2 2 to 1 9 7 0 (ln '000 l o n g tons)
C r u d e I n t a k e of M a l a y s i a n R e f i n e r i e s
M a l a y s i a : D i s t r i b u t i o n P a t t e r n of Re f i n e r y P r o d u c t b y A r e a s i n 1975
133
140-141 152
158 Cr u d e Oi l s P r o c e s s e d b y R e f i n e r i e s in
M a l a y s i a 1 9 7 1 - 7 6 (in mil. ba r r e l s )
P r o d u c t Y i e l d for crude oils p r o c e s s e d i n M a l a y s i a n R e f i n e r i e s
C o m p a r i s o n of P e t r o l e u m Pro d u c t Y i e l d s on the Basis of E x i s t i n g D e s i g n C a p a c i t y
(Units in BPCD)
T y p i c a l P e t r o l e u m P r o d u c t s D e m a n d (in °/0) E s t i m a t e d S u r p l u s / D e f i c i t of P e t r o l e u m P r o d u c t s o n the basis of c o m p a r i s o n b e t w e e n R e f i n e r y C a p a c i t i e s a n d D e m a n d
F o r e c a s t in I 98O, 1-985 a n d 1990 (in. BPCD) 169
Cr u d e P e t r o l e u m I m p o r t s of M a l a y s i a b y
S o u r c e s I 965— 1974. ^ ^
Cr u d e P e t r o l e u m E x p o r t s of M a l a y s i a b y S o u r c e s 1 9 6 5 - 1 9 7 4
183 D i s t r i b u t i o n M e t h o d s of P e t r o l e u m P r o d u c t s
i n M a l a y s i a in 19 7 5 (in *000 b a r rels)
O w n e r s h i p of V a r i o u s D i s t r i b u t i o n M e t h o d s of P e t r o l e u m in M a l a y s i a (by °/o)
Unit S u p p l y a n d D i s t r i b u t i o n Co s t s of Oil P r o d u c t s i n M a l a y s i a (in $ per b a rrel)
Unit M a r k e t i n g a n d T r a n s p o r t a t i o n Co s t s i n B o r n e o a n d P e n i n s u l a M a l a y s i a
I m p o r t s of P e t r o l e u m P r o d u c t s in 1 9 7 5 1 9 4 — 195 S o u r c e s of D o m e s t i c Sup p l i e s for P e t r o l e u m
P r o d u c t s i n M a l a y s i a in 1975 (Product f i g u r e s i n *000 barrels)
D e p o t O p e r a t i n g Costs in P e n i n s u l a M a l a y s i a a n d B o r n e o b y the Shell G r o u p of C o m p a n i e s
1 9 7 2 ~ 1 9 7 5 203
D i s p o s a l o f Crude Oil b y the S h e l l G r o u p of C o m p a n i e s (in m i l l i o n US barrels)
7.2 7.3 7-^
7-5
7.6
7.7 7.8
7.9 7.10
7 . H
8.1
9.1
9-2
9.3
9 A
9.5 9.6 9.7
P e t r o l e u m P r o d u c t s 1 9 7 1 ~ 1 9 7 6 (in 213 m i l l i o n barrels)
M a l a y s i a : M a r k e t Sh a r e s o f P e t r o l e u m
P r o d u c t s b y R e g i o n s 1 9 7 1 “,19 7 6 (in °/o) 215 M a l a y s i a : M a r k e t S hares b y P r o d u c t s
I 97I-.I976 (in 0/0) 216
P r o d u c t P r o f i l e of Oil C o m p a n i e s in
M a l a y s i a 221
R e t a i l a n d N o n - R e t a i l M a r k e t C o n f i g u r a t i o n for P e t r o l e u m P r o d u c t s in
P e n i n s u l a M a l a y s i a in 1976 (in *000 t
b a r r e l s ) 2 2 S-
Sale of P e t r o l e u m P r o d u c t s in P e n i n s u l a M a l a y s i a b y C o m p a n i e s 1971 to 1976
(in mil. b a r r e l s ) 2 2 9 — 230
M a r k e t Sliares b y C o m p a n i e s in P e n i n s u l a
M a l a y s i a 1971 to 1 9 7 6 (in °/0) 231-232 Sa l e s of P e t r o l e u m P r o d u c t s in E a s t
M a l a y s i a b y C o m p a n i e s 1971 to 1 9 7 6
(in mil. bar r e l s ) ' 234
M a r k e t S h a r e s b y C o m p a n i e s in E a s t Malaysia-
1 9 7 1 to 1 9 7 6 (in °/o) 235
Sales of P e t r o l e u m P r o d u c t s b y C o m p a n i e s in M a l a y s i a 1971 to 1 9 7 6 (in mil, b a r r e l s ) 236 Oil C o m p a n i e s R e t a i l O u t l e t s for G a s o l i n e or P e t r o l in P e n i n s u l a M a l a y s i a 1 9 6 5 — I 976
(Selected years) 242
C r u d e Oil Cost I n c r e a s e s in M a l a y s i a f r o m
D e c e m b e r I 972 to J u l y 1977 (sd-ected dates) 274
L a n d e d Cost B u i l d - u p for I m p o r t e d P r o d u c t s B e f o r e a n d A f t e r Oil C r i s i s
of 1 9 7 3 306
C o m p e t i t i v e M a r g i n s B e t w e e n D o m e s t i c
R e f i n e r s a n d I m p o r t e r s N o n — R e f i n e r s i n 303 3 s e l e c t e d p r o d u c t s
D i f f e r e n c e s B e t w e e n Re t a i l , C o n t r a c t u a l and
C o n s u m e r / R e s e l l e r P r i c e s for M a j o r P e t r o l e u m 3^0 P r o d u c t s ( $ 1 .G)
Cost C o m p o n e n t s of P e t r o l e u m P r o d u c t s
(figures rounded) 312
Cost B r e a k d o w n of P e t r o l e u m P r o d u c t s
(figures rounded) 313
P r o f i t M a r g i n per b a r r e l of P r o d u c t s 1970
to 1 9 7 6 316
R e f i n e r y P r o d u c t i o n Costs in M a l a y s i a f r o m
1970 to 1 9 7 5 319
9.8
9.9
9.10
9.11 9.12
9.13
10.1 10,2 10 .3 10 ,4 (a) 10.4(b) 1 0.5
10.6
10.7 10.8 10.9
(xv 1
P r o d u c t Price I n c r e a s e s R e q u e s t e d b y the Oil C o m p a n i e s at R e t a i l l e v e l s (in $ per l . G
a c r o s s the products)
Pr i c e I n c r e a s e s for P e t r o l e u m P r o d u c t s at R e t a i l L e v e l A p p r o v e d b}r the G o v e r n m e n t
(M$ p e r l . G K u a l a L u m p u r pump price)
P e n i n s u l a M a l a y s i a : P e t r o l Pr i c e s a n d D e m a n d 1 9 7 1 to 1975
P e n i n s u l a M a l a y s i a : D i e s e l Oil P r i c e s a n d D e m a n d 1971 to 197^
D i e s e l a n d K e r o s e n e R e t a i l Price in S e l e c t e d Neighbouring- C o u n t r i e s i n 1975
(5 A s e a n C a p i t a l C i t i e s a n d 1 Non«*Asean City) C o m p a r a t i v e P e t r o l e u m Pri c e s in S e l e c t e d C o u n t r i e s (in M$ per l.G)
M a l a y s i a : E x p o r t P e r f o r m a n c e of M a j o r P r o d u c t s 1 9 7 0 ~ 1 9 7 6
R o y a l t i e s f r o m P e t r o l e u m I9 6 9.-I976 (in M $ >0 0 0)
Oil I n d u s t r y I n c o m e T a x a t i o n 1970 to 19 7 5 M a l a y s i a n G o v e r n m e n t R e v e n u e s f r o m P e t r o l e u m 19 4 7 to 197^ ~ I m port D u t i e s
M a l a y s i a n G o v e r n m e n t R e v e n u e s f r o m P e t r o l e u m I963 to 19 7 6 (in. M$) ~ E x c i s e D u t i e s
T h e D i s t r i b u t i o n of Crude Oil P r o d u c t i o n b e t w e e n the G o v e r n m e n t a n d P E T R O N A S a n d Oil C o m p a n i e s f r o m 19 7 7 to 1952 (in >000 barrels) The Matching of Estimated Crude Oil Availability With Crude Oil Requirements to Determine Balance in the Oil Account from 1977 to 1982 (in '000 barrels
Demand for Energy 1985 Energy Supplies WOCA 1985
Potential Export Market For Petroleum Products in the Far East
328
330 334 334
340 347
387 3 90 394 398-39 400
405
406 408 408 416
LIST OF MAPS
M a p / F i g u r e Page
4.1 a A r e a s E x p l o r e d i n P e n i n s u l a M a l a y s i a 106 I 9 7 6 - I 9 9 O
4.1 b A r e a s E x p l o r e d in E a s t M a l a y s i a 107 4.2 A r e a s E x p l o r e d : C o n c e s s i o n v e r s u s -^Qg
C o n t r a c t A r e a s
4 . 2 . a C o n t r a c t A r e a s i n P e n i n s u l a M a l a y s i a 109 4 . 2 . b C o n t r a c t A r e a s in E a s t M a l a y s i a 110 4 . 3 . n Oil a n d Gas F i e l d s in S a r a w a k a n d ^
S a b a h
4.3»k Oil a n d Gas F i e l d s in P e n i n s u l a
M a l a y s i a 114
6 .3 .a L o c a t i o n s of Oil a n d S t o r a g e D e p o t s
i n P e n i n s u l a M a l a y s i a 200
6.3.b L o c a t i o n s of Oil a n d S t o r a g e D e p o t s
in E a s t M a l a y s i a 201
6.4 P e t r o l e u m P r o d u c t M o v e m e n t P a t t e r n
of M a l a y s i a 207
L I S T OF F I G U R E S A N D D I A G R A M S F i g u r e
2,1 K e r o s e n e I m p o r t s into M a l a y a b y 18 S o u r c e s 1 8 9 2 - 1 9 2 3
2 . 2 . a.' - M a l a y a n P e t r o l e u m Pr o d u c t I m p o r t s f r o m I 926 to 1940 (in tons)
M a l a y a n P e t r o l e u m Pr o d u c t R e - E x p o r t s
f r o m 1 9 2 6 to 19 4 0 (in tons) 31 2.2.b(i) M a l a y a n P e t r o l e u m Pr o d u c t I m p o r t s in
P o s t - W a r Y e a r s up to the E s t a b l i s h m e n t of R e f i n e r i e s in P e n i n s u l a M a l a y s i a
(in tons) 32
(ii) M a l a y a n P e t r o l e u m P r o d u c t R e - E x p o r t s
in P o s t - W a r Y e a r s up to the E s t a b l i s h m e n t of R e f i n e r i e s i n P e n i n s u l a M a l a y s i a
(in tons) 33
2.3 O n s h o r e Oil P r o d u c t i o n f r o m M i r i F i e l d in S a r a w a k f r o m 19 1 1 to' I 967 (in US b a r r e l s )
(xy££L
3.1 P r o j e c t e d C o n s u m p t i o n of* P e t r o l e u m P r o d u c t s
in M a l a y s i a 1 9 7 6 1° 19 9 0 ^0
4.4 E x p l o r a t i o n W e l l s D r i l l e d a n d F o o t a g e 118 4.3 C o m p a r i s o n b e t w e e n C o m p a n y M a r g i n a n d T e c h n i c a l ^ 7
C o s t s b y C o u n t r i e s (Fields)
4.6 M a l a y s i a O f f s h o r e O f f t a k e ver s u s R e q u i r e m e n t s
1 9 7 7 - 1 9 9 2 135
5.1 L u t o n g R e f i n e r y P r o d u c t i o n of P e t r o l e u m P r o d u c t s F r o m M i r i a n d S e r i a Cr u d e s f r o m 1922 to 1972 142 5.2 R e f i n e r y C a p a c i t y in M a l a y s i a to me e t
P r o d u c t R e q u i r e m e n t s T i l l 1990. 170 6.1 Oil T r a d e M o v e m e n t s a n d the R e l a t i o n s h i p s
b e t w e e n M a l a y s i a a n d O t h e r Oil E x p o r t i n g a n d I m p o r t i n g C o u n t r i e s in the R e g i o n
(Far East) *^7
6.2 S u p p l y a n d D i s t r i b u t i o n Costs i n P e n i n s u l a M a l a y s i a a n d E a s t M a l a y s i a i n c l u d i n g B r u n e i
b y the S h e l l G r o u p of C o m p a n i e s 192 6.5 P r o d u c t s D i s t r i b u t i o n P a t t e r n of S hell
L u t o n g R e f i n e r y i n S a r a w a k 208 7.1 M a r k e t i n g N e t w o r k of Oil C o m p a n i e s i n S a b a h
a n d S a r a w a k 218
7.2 M a r k e t i n g N e t w o r k of Oil C o m p a n i e s in
P e n i n s u l a M a l a y s i a 219
7*3. M a r k e t Sha r e s b y C o m p a n i e s in P e n i n s u l a
M a l a y s i a a n d E a s t M a l a y s i a 1 9 7 1 — 1 9 7 6 (in °/0) 233 8.1 Cr u d e Oil Cost I n c r e a s e s to M a l a y s i a n R e f i n e r i e s
(US $ per b a rrel) 275
9.1 R e l a t i o n s h i p b e t w e e n A v e r a g e Price, A v e r a g e
Cost a n d Net Pr o f i t I 970- I 9 7 5 . 317
9.2 P r o d u c t s P r i c e T r e n d I 956- I 977 331 9*3 E f f e c t o f Pr i c e D i f f e r e n t i a l B e t w e e n P r e m i u m
M o g a s / R e g u l a r M o g a s o n °/o P r e m i u m M o g a s / T o t a l
M o g a s 336
9.4 Gas Oil: R e t a i l / C o n s u m e r Price D i f f e r e n t i a l
vs. P r o d u c t Dem a n d . 338
LIST OF ABBREVIATIONS
A S E A N A s s o c i a t i o n of S o u t h e a s t A s i a n N a t i o n s BP B r i t i s h P e t r o l e u m
C O N O C O C o n t i n e n t a l Oil C o m p a n y
E C A F E E c o n o m i c C o m m i s s i o n for A s i a a n d the F a r Ea s t
E M I E x x o n M a l a y s i a I n c o r p o r a t e d E S M B E s s o S t a n d a r d M a l a y a B e r h a d
GDP Gross D o m e s t i c P r oduct
GN P Gross N a t i o n a l P r oduct
HFO H e a v y F u e l Oil
LFO L i g h t Fu e l Oil
L P G L i q u i f i e d P e t r o l e u m Gas
M T I M i n i s t r y of T r a d e s a n d I n d u s t r y N E P N e w E c o n o m i c P o l i c y
OP E C O r g a n i z a t i o n of P e t r o l e u m E x p o r t i n g C o u n t r i e s
P E T R O N A S P e t r o l e u m N a s i o n a l B e r h a d (National Oil Co)
PDA P e t r o l e u m . D e v e l o p m e n t A c t SMTB S h e l l M a l a y a T r a d i n g B e r h a d SMP S e c o n d M a l a y s i a P l a n
SPC S i n g a p o r e P e t r o l e u m C o m p a n y SSB S a r a w a k S h e l l B e r h a d
SS P L S a b a h Sh e l l P e t r o l e u m L i m i t e d T M P T h i r d M a l a y s i a P l a n
Please N o t e : All Dollars quoted in the Thesis are Malaysian Dollars unless otherwise stated.
Exchange Ra,tes;
M£ 4,39 = Stg £1 2,50 = US $1
1
C H A P T E R 1. I N T R O D U C T I O N
1 .1 I m p o r t a n c e O f S t u d y
T h e r e is no s h o r t a g e of p u b l i s h e d w o r k s o n the e c o n o m i c s o f the p e t r o l e u m i n d u s t r y a n d works d e a l i n g w i t h the m a j o r oil p r o d u c i n g c o u n t r i e s such as A m e r i c a , Me x i c o , V e n e z u e l a a n d the M i d d l e East. Th e w r i t i n g s of such famous
1 2 3 4
oil e c o n o m i s t s like F r a n k e l , A d e l m a n , P e n r o s e , C a s s a d y , H a r t s h o r n 5 a n d m a n y ot h e r s are well k n o w n in the oil an d
a c a d e m i c circles. Frankel* s p i o n e e r i n g w o r k s d i e d b a c k to 1946 a n d dealt w i t h the b a s i c pr o b l e m s of the oil industry;
a c o m p l e t e w o r k o n the s t r u c t u r e of costs a n d p rices of the w o r l d oil m a r k e t was done b y A d e l m a n ; P e n r o s e has a n a l y s e d the effect o n some M i d d l e E a s t e r n e c o n o m i c s of the p r e s e n c e of the i n t e r n a t i o n a l oil i n d u s t r y i n the a r e a a n d the i n t e r p l a y of the oil r e s o u r c e s in the pol i t i c s a n d e c o n o m i c d e v e l o p m e n t of these c o u n t r i e s , as w e l l as the role of the O r g a n i s a t i o n of P e t r o l e u m E x p o r t i n g C o u n t r i e s or OPEC; C a s s a d y * s w o r k i n i t i a t e d in 1 9 ^ 9 b y the A m e r i c a n P e t r o l e u m I n s t i t u t e , e x p l o r e d the
g e neral u n d e r s t a n d i n g of the e c o n o m i c s t r u c t u r e and the
1 F r a n k e l , F.H. E S S E N T I A L S OF P E T R O L E U M - A K e y to Oil E c o n o m i c s , F r a n k Cass a n d C o m p a n y Ltd. 2 n d E d i t i o n , L o n d o n I 969
2 A d e l m a n , M. T H E W O R L D P E T R O L E U M M A R K E T , J o h n H o p k i n s Press, B a l t i m o r e 1971.
3 P e n rose, E. T H E L A R G E I N T E R N A T I O N A L F I R M IN D E V E L O P I N G C O U N T R I E S — T h e I n t e r n a t i o n a l P e t r o l e u m I n d u s t r y , A l l e n a n d Unwin, L o n d o n 19 7 8 a n d T H E G R O W T H OF F I R M S , M I D D L E E A S T O I L AN D O T H E R E S S A Y S — F r a n k Cass a n d C o m p a n y Ltd. L o n d o n 1971*
4 Ca s s a d y , R. (J r .) P R I C E M A K I N G A N D P R I C E B E H A V I O U R IN T H E P E T R O L E U M I N D U S T R Y . K e n n i k a t Press, N e w York, 1954.
5 H a r t s h o r n , J.E. O I L C O M P A N I E S A N D G O V E R N M E N T S , Faber a n d Faber, L o n d o n I 9 6 7 .
b e h a v i o u r of the p e t r o l e u m i n d u s t r y e s p e c i a l l y in the areas of price m a k i n g p r o c e d u r e s i n the A m e r i c a n p e t r o l e u m industry;
a n d H a r t s h o r n ' s s t u d y w h i c h c o n c e r n e d the r e l a t i o n s h i p b e t w e e n oil c o m p a n i e s a n d the G o v e r n m e n t of the p r o d u c e r c o u n t r i e s serves the f o u n d a t i o n stone for the c h a n g i n g r e l a t i o n s b e t w e e n oil c o m p a n i e s a n d g o v e r n m e n t s in m a n y less d e v e l o p e d oil
p r o d u c i n g c o u n t r i e s e s p e c i a l l y in the e a r l y 1 9 7 0 s * A l m o s t all these c r e d i t e d w o r k have, h o w e v e r b e e n c o n f i n e d to the p r o b l e m s of the giant i n t e r n a t i o n a l firms a n d the m a j o r oil p r o d u c i n g c o u n tries. T h e p r o b l e m s c o m m o n l y f a c i n g the s mall oil
p r o d u c i n g c o u n t i n e s as w e l l as oil i m p o r t i n g c ountries,
p a r t i c u l a r l y those w h i c h are not d o m i c i l e s of the i n t e r n a t i o n a l oil c o r p o r a t i o n s , h a v e b e e n l a r g e l y o v e r l o o k e d . Howe.ver , the r e a l i t y of t hese p r o b l e m s w h i c h came to li g h t r e c e n t l y r e s u l t e d in a n u m b e r of wo r k s b y a^ n u m b e r of e c o n o m i s t s in a n u m b e r of
6 7 8 9
c o u n t r i e s s u c h as N i g e r i a , I n d i a , I n d o n e s i a , I r a n a n d few others. A l t h o u g h p r i m a r i l y b a s e d on the s p e c i f i c c o u n tries, all the m a j o r i ssues p r e s e n t e d b y the v a r i o u s a u t h o r s h a v e b e e n d i s c u s s e d u s i n g the b a c k g r o u n d of i n t e r n a t i o n a l events.
6 Sch a l t z , T H E P E T R O L E U M I N D U S T R Y O F N I G E R I A , O x f o r d U n i v e r s i t y P r e s s L o n d o n 1958, an d P e a rson, S.R. P E T R O L E U M A N D T H E N I G E R I A N E C O N O M Y , H a r v a r d U n i v e r s i t y Press, 19^5.
7 D a s g u p t a , B. T H E O I L I N D U S T R Y I N I N D I A. F r a n k Cass, L o n d o n 1971*
8 S r i t u a A r i e f , T H E O I L I N D U S T R Y I N I N D O N E S I A . Th e Manage ment of R e s o u r c e s in a D e v e l o p i n g E c o n o m y , S r i t u a A r i e f Associai D j a k a r t a 1 9 7 6 a n d Oei, H.L. P E T R O L E U M R E S O U R C E S A N D E C O N O M I C D E V E L O P M E N T ; A C o m p a r a t i v e S t u d y of M e x i c o a n d I n d o n e s i a , U n p u b l i s h e d P h D T h e s i s U n i v e r s i t y of T e x a s , 1 9 6 ^.
9 F e s h e r a k i , F. D E V E L O P M E N T O F T H E I R A N I A N OIL I N D U S T R Y - I n t e r n a t i o n a l a n d D o m e s t i c A s p e c t s , P r a e g e r P u b l i s h e r s , N e w
Y o r k 1976.
3
T h e p r e s e n t r e s e a r c h o n the e c o n o m i c issues
r e l a t i n g to the p e t r o l e u m i n d u s t r y of M a l a y s i a is the first of its k i n d u n d e r t a k e n at this level. It a t t e m p t s to e x amine some of the m a j o r issues f a c i n g the oil i n d u s t r y p a r t i c u l a r l y those r e l a t i n g to the p r o d u c t i o n of crude oil, refining,
d i s t r i b u t i o n , m a r k e t i n g , p rices a n d costs of curdes a n d
p e t r o l e u m p r o d u c t s a n d f i n a l l y the c o n t r i b u t i o n s of the i n d u s t r y to the fi s c a l r e v e n u e of the G o v e r n m e n t .
E s s e n t i a l l y , there are four m a i n r e a s o n s for the i m p o r t a n c e of this s t u d y a n d t h e y are d i s c u s s e d below.
(•j.) I n the i m m e d i a t e a f t e r m a t h of the w o r l d wide^ i n f l a t i o n of 1 9 7 3 - 1 9 7 ^ a m i the a s s o c i a t e d q u a d r u p l i n g of crude p e t r o l e u m prices, the d i s c o v e r i e s of p e t r o l e u m d e p o s i t s in the M a l a y s i a n s e c t o r of T h e S o u t h C h i n a Sea gave the p r o m i s e of a vast ne w p o t e n t i a l s ource of we a l t h . T h e P e t r o l e u m E c o n o m i s t in its N o v e m b e r 197^- i ssue p o i n t e d out that "a s u c c e s s i o n of oil a n d
gas d i s c o v e r i e s m a i n l y i n 1 9 7 3 ~ 1 9 7 ^ opens the p r o s p e c t that, w i t h the e x c e p t i o n of t i n y state of Brunei, M a l a y s i a m a y b y the end of the de c a d e h a v e the h i g h e s t per c a p i t a export r e v e n u e s f r o m crude a n d L N G of a n y S o u t h E a s t A s i a n n a t i o n " .10
( 2) T h e p r o d u c t i o n of crude p e t r o l e u m i n c r e a s e d f r o m b e i n g i n s i g n i f i c a n t to h i g h l y s i g n i f i c a n t a n d has e m e r g e d as one of the l e a d i n g a c t i v i t i e s in M a l a y s i a n r e s o u r c e d e v e l o p m e n t . W i t h the a n t i c i p a t e d i n c r e a s e i n d o m e s t i c p r o d u c t i o n of crude
p e t r o l e u m , e x p o r t s of crude a n d p a r t l y r e f i n e d p e t r o l e u m in
10 P E T R O L E U M E C O N O M I S T . Nov. 197^> P P • •
4
1 9 7 7 are e x p e c t e d to i n c r e a s e b y a b o u t 2 ’J°/0 to 63 . 9 m i l l i o n b a r r e l s per a n n u m or 1 7 5 * 0 0 0 b a r r e l s per day. T h i s wi l l raise the value of exports to about M$2,135 m i l l i o n (this does not take into a c c o u n t the price i n c r e a s e since J a n u a r y 1977)* T h i s w i l l m a k e p e t r o l e u m the s e c o n d h i g h e s t f o r e i g n e x c h a n g e e a r n e r a f t e r rubber. 11
(3 ) Cr u d e p e t r o l e u m a n d n a t u r a l gas r e p r e s e n t v i r t u a l l y the o n l y i n d i g e n o u s e n e r g y s o urces a v a i l a b l e in the country.
W i t h the e x c e p t i o n of m i n o r coal d e p o s i t s in S a b a h a n d a
n e g l i g i b l e a m o u n t of h y d r o - e l e c t r i c p o w e r g e n e r a t i o n , M a l a y s i a is e n t i r e l y d e p e n d e n t o n p e t r o l e u m for its e n e r g y r e q u i r e m e n t s . I n 19 7 5 M a l a y s i a p r o d u c e d 37*25 m i l l i o n b a r r e l s of p r i m a r y
e n e r g y a n d c o n s u m e d 32.08 m i l l i o n b a r r e l s g i v i n g a n excess
c a p a c i t y of 5 m i l l i o n bar r e l s . Out of this 90 per c e n t of total p r o d u c t i o n a n d c o n s u m p t i o n is p r o v i d e d b y the p e t r o l e u m sector.
I n 1970, p e t r o l e u m p r o v i d e d S h percent of e n e r g y needs a n d is e x p e c t e d to m e e t over 90 pe r c e n t of the e n e r g y needs b y I 9 8 5 .12
(4) S p e c u l a t i o n ab o u t the e x i s t e n c e of p e t r o l e u m d e p o s i t s o c c u r r e d l o n g b e f o r e 1 9 7 3 * but it was o n l y a b o u t this time that the p o t e n t i a l i m p o r t a n c e of p e t r o l e u m b e c a m e a serious p o l i t i c a l c o n s i d e r a t i o n . T h e a n n o u n c e m e n t b y the late Pr i m e M i n i s t e r in P a r l i a m e n t i n 1 9 7 ^ of flie e s t a b l i s h m e n t of P E T R O N A S (Pe t r o l e u m N a s i o n a l B e r h a d ) , the N a t i o n a l P e t r o l e u m C o r p o r a t i o n L i m i t e d ,
c h a n g e d the w h o l e p o l i t i c a l a t m o s p h e r e . A p a t h y was r e p l a c e d b y
11 See G o v e r n m e n t of M a l a y s i a . E C O N O M I C R E P O R T 1 9 7 6 / 7 7 , M i n i s t r y of F i n a n c e , G o v e r n m e n t Pri n t e r , K u a l a L u m p u r 1 9 7 6 . 12 A S I A R E S E A R C H B U L L E T I N . D e c e m b e r 31, 1976, S i n g a p o r e
PP-272 .
a f e e l i n g of e u p h o r i a but also b y a c o n c e r n that the n e w l y f o u n d r e s o u r c e s h o u l d be l o c a l l y contro l l e d .13
T h e p r i n c i p a l focus of this s t u d y is o n the post 1970 d e v e l o p m e n t of p e t r o l e u m e c o n o m y in M a l a y s i a , p a r t l y b e c a u s e the d e v e l o p m e n t p r i o r to 1970 was v e r y l i m i t e d an d
p a r t l y b e c a u s e of the h i g h l y s i g n i f i c a n t ev e n t s that ha v e t a k e n place in the past fo u r years. It is d u r i n g this p e r i o d that the o u tput of p e t r o l e u m has e x p a n d e d t h r e e f o l d f r o m its p r e — 70 peak; its price has q u a d r u p l e d since the 1 9 7 3 oil * c r i s i s 1 , an d P E T R O N A S was e s t a b l i s h e d t h r o u g h the P e t r o l e u m D e v e l o p m e n t A c t .
1 .2 O b j e c t i v e s O f T h e S t u d y
I n the a f t e r m a t h of the I 969 riot, the M a l a y s i a n g o v e r n m e n t a n n o u n c e d the N e w E c o n o m i c P o l i c y (NEP) in t heir d e v e l o p m e n t p l a n o b j e c t i v e s in the future. T h e o v e r r i d i n g o b j e c t i v e s of this n e w d e v e l o p m e n t p o l i c y is that of n a t i o n a l unity. T h e N E P c o m p r i s e s two aims or p rongs the first of w h i c h is to e r a d i c a t e p o v e r t y a m o n g s t all M a % s i a n s a n d s e c o n d l y to r e s t r u c t u r e the m u l t i r a c i a l , m u l t i c u l t u r a l a n d m u l t i l i n g u a l M a l a y s i a n s o c i e t y so that the i d e n t i f i c a t i o n of race w i t h e c o n o m i c f u n c t i o n a n d g e o g r a p h i c a l l o c a t i o n is r e d u c e d a n d e v e n t u a l l y e l i m i n a t e d . 14 T h e G o v e r n m e n t b e l i e v e s that b o t h
13 A d n a n , M.A. ’'Critical Is s u e s in P e t r o l e u m D e v e l o p m e n t in M a l a y s i a ” , a p a p e r p r e s e n t e d at a s e m i n a r o r g a n i s e d b y the M a l a y s i a n E c o n o m i c C o n v e n t i o n , M a y 1 9 — 21, I 9 7 7 , K u a l a Lum p u r .
14 See G o v e r n m e n t of M a l a y s i a , S E C O N D M A L A Y S I A P L A N , G o v e r n m e n t P r i n t e r , K u a l a L u m p u r I 97O; M I D - T E R M R E V I E W O F T H E S E C O N D M A L A Y S I A P L A N 1 9 7 1 - 1 9 7 5 , G o v e r n m e n t P r i n t e r , K u a l a L u m p u r 1973; a n d T H I R D MALAYSIA. PL A N 1 9 7 6 - 1 9 8 0 , G o v e r n m e n t
P r i nter, K u a l a L u m p u r , 1976.
t hese o b j e c t i v e s co u l d be a t t a i n e d or r e a l i s e d t h r o u g h the r a p i d e x p a n s i o n of the e c o n o m y ov e r time.
T h e first p r o n g of the NEP aims at i m p r o v i n g the e c o n o m i c c o n d i t i o n s a n d q u a l i t y of life of all races b y d i r e c t l y i n c r e a s i n g t h e i r a c c e s s to land, p h y s i c a l capital, t r a i n i n g a n d o t h e r f a c i l i t i e s , thus p e r m i t t i n g t h e m to share mo r e e q u i t a b l y in the b e n e f i t s of the e c o n o m i c growth. To
en s u r e that the p o o r are p r o v i d e d w i t h s u f f i c i e n t o p p o r t u n i t i e s to p a r t i c i p a t e in a n d b e n e f i t f r o m the p r o c e s s of e c o n o m i c
growth, the G o v e r n m e n t seeks t h r o u g h the s e c o n d p r o n g of the N E P a f a i r e r d i s t r i b u t i o n a m o n g the ra c e s of the o p p o r t u n i t y to p a r t i c i p a t e in the wi d e r a n g e of e c o n o m i c a c t i v i t y . T h r o u g h the s e c o n d prong, the G o v e r n m e n t aims at p r o v i d i n g such
a s s i s t a n c e for all r a c i a l groups i n the c o u n t r y to find e m p l o y m e n t , s ecure p a r t i c i p a t i o n a n d a c q u i r e o w n e r s h i p a n d c o n t r o l in the v a r i o u s s e ctors of the economy. S u b s e q u e n t l y , the d i s t r i b u t i o n a l o b j e c t i v e s of the N E P mu s t d e p e n d on
a c c e l e r a t e d e c o n o m i c g r o w t h a n d m o b i l i s a t i o n of the r e s o u r c e s b o t h n a t u r a l a n d p h y s i c a l a v a i l a b l e i n the c o u n t r y in or d e r to e r a d i c a t e p o v e r t y a n d f a c i l i t a t e the r e s t r u c t u r i n g of society.
T h e N E P ha s b e e n c o n c e i v e d b y the G o v e r n m e n t as the a g e n d a that w i l l guide the n a t i o n for the next 20 years at least f r o m 1970 1° 1990. A m o n g s t the v a r i a b l e s that h a d b e e n e m p h a s i s e d , one of the d r i v i n g f orces is that of e n e r g y
sector. E n e r g y e s p e c i a l l y f r o m p e t r o l e u m r e s o u r c e s is one of the k e y f a c t o r s in the d e v e l o p m e n t p r o c e s s o f a n y society.
Th e M a l a y s i a n s o c i e t y if it d e v e l o p s e c o n o m i c a l l y a n d s o c i a l l y at the t r e m e n d o u s rate as r e q u i r e d b y the N E P w i l l n e e d the
7
(rapid d e v e l o p m e n t of the e n e r g y e c o n o m y e s p e c i a l l y the p e t r o l e u m r e s o u r c e s sector. T h i s s h o u l d be centered a r o u n d p r o v i d i n g a d e q u a t e a m o u n t s of this type of e n e r g y so that it c o u l d be a d a p t e d e f f i c i e n t l y to the p r o c e s s of d e v e l o p m e n t a n d e c o n o m i c growth. A b o v e all, the f i s c a l r e v e n u e s f r o m the p e t r o l e u m r e s o u r c e s f o u n d i n the c o u n t r y c o u l d be u t i l i s e d to a c h i e v e the o b j e c t i v e s of the N E P earlier.
T h e d i s c o v e r y o f oil in S a r a w a k (then C o l o n y of the B r i t i s h Borneo) i n 1911 has r e s u l t e d in the p r o d u c t i o n of crude oil w h i c h is m a i n l y e x p o r t e d a n d c u r r e n t l y at the rate of
some th r e e a n d h a l f m i l l i o n b a r r e l s a year. Its effect o n the M a l a y s i a n e c o n o m y has b e e n i m p o r t a n t ever since a n d y i t h
f u r t h e r d e v e l o p m e n t a n d a d d i t i o n a l d i s c o v e r i e s , the rate of p r o d u c t i o n c a n be i n c r e a s e d s u b s t a n t i a l l y d u r i n g the decade.
A n d d u r i n g the cou r s e of the s e a r c h for oil, there h a v e b e e n v e r y s u b s t a n t i a l d i s c o v e r i e s of n a t u r a l gas i n the area. The
crude oil a n d gas d i s c o v e r e d c o u l d be u t i l i s e d to f u r t h e r the e c o n o m i c d e v e l o p m e n t of the country.
To a s s e s s the d e v e l o p m e n t of the p e t r o l e u m i n d u s t r y of M a l a y s i a since 1911, a n a n a l y s i s of its h i s t o r y , e c o n o m y , m a r k e t s t r u c t u r e a n d c o n t r i b u t i o n s to the o v e r a l l d e v e l o p m e n t a n d g r o w t h in the c o u n t r y is m a d e w i t h s p e c i f i c a t t e n t i o n gi v e n to the i d e n t i f i c a t i o n a n d e v a l u a t i o n of some of the forces
c o n t r i b u t i n g to the p r o g r e s s of the ind u s t r y , p a r t i c u l a r l y the e c o n o m i c i n f l u e n c e s l e a d i n g to the i m p o r t a n c e of the i n d u s t r y in the f u t u r e for the country, e s p e c i a l l y ti l l the end of the century, w h i c h is c o n c u r r e n t w i t h the t e r m i n a l p e r i o d of the NEP, i.e. 1990.
