Amid rising ESG pressure, Malaysia prepares oil and gas firms for green economy

Kuala Lumpur

AS a major energy exporter, Malaysia is taking steps to help oil and gas companies transition to a low-carbon economy at a time when investors and consumers increasingly demand cleaner energy and climate action.

The Malaysia Petroleum Resources Corp (MPRC), a government agency tasked to develop the oil and gas services and equipment (OGSE) industry, said that sustainability is a key pillar under the industry's 10-year blueprint launched in April.

One way it plans to achieve that is to raise awareness among small service providers on the need to adopt sustainable business operations that are in line with environmental, social and governance (ESG) frameworks, said MPRC chief executive Mohd Yazid Ja'afar in an email interview with The Business Times.

The agency aims to have at least 70 OGSE companies adopting and reporting their sustainable business operations by the end of this decade, from only 32 out of the industry top 100 players currently.

There are 2,800 active OGSE companies in Malaysia, more than double that in other oil-producing countries like Norway and the United Kingdom.

Almost all, or 98 per cent of these Malaysian firms, consist of small and medium-sized enterprises focusing on low-complexity jobs, and most of them rely on state oil giant Petronas for contracts.

Petronas has already announced plans to achieve net zero carbon emissions by 2050, which will see the company reducing its operational carbon footprint while investing more in renewable energy.

"We are cognisant of the growing environmental and social pressures by investors and societies for industries like the OGSE to not only find a more socially responsible path, but also to provide solutions that reduces carbon footprint," said Mr Mohd Yazid.

He added that the success of the industry will be measured not only in terms of its competitiveness and resilience, but also in maintaining the OGSE sector's "social licence to operate".

Petroleum-related revenue accounted for an estimated 22 per cent of the Malaysian government incomes in 2020, contributing RM50 billion (S$16.2 billion) to the national coffers.

That was after a sharp decline from RM83.8 billion, or a 31.7 per cent share in 2019 fiscal revenue as global crude oil prices plunged.

Apart from persistently low world oil prices since 2014 and a volatile demand amid the Covid-19 pandemic, Malaysia's fragmented OGSE industry also has to contend with the challenge to compete in the renewable energy sector as consumers shift to more sustainable sources.

Some renewable energy segments such as offshore wind facilities, of which OGSE capabilities are transferable, offer the opportunity to capture the growing market, according to the industry blueprint.

While oil and gas will continue to play a big role in both job creation and fiscal revenue in years to come, Malaysia is supportive of a low-carbon economy and is making efforts to decarbonise, Minister in the Prime Minister's Department (Economic) Mustapa Mohamed told reporters last month.

The Economic Planning Unit is finalising Malaysia's National Energy Policy that will outline specific action plans for the energy sector's transition towards a low-carbon future, Mr Mustapa has said previously. The document is set to be revealed in the second half of 2021.

Mr Mohd Yazid said that MPRC has been contributing inputs to the central bank's working group in developing sectoral guides specifically for oil and gas from the context of climate change and environmental impact measurement.

These sectoral guides are part of Bank Negara Malaysia's discussion paper on Climate Change and Principle-based Taxonomy, aimed at helping financial institutions assess and classify economic activities that contribute to climate change mitigation and adaptation.

"This implies that OGSE companies have to take charge of their ESG profiles, adopting sustainable business activities to secure financing and also attract investments," added Mr Mohd Yazid.