Malaysian Oil and Gas Legal Framework: The Effects of Royalties Demanded Towards Achieving Sustainable Energy

Malaysia is a world producer of oil and gas industry, making it a critical sector in Malaysia, having the world's 23rd largest crude oil reserves and also 14th largest natural gas reserves. Administration is governed mainly by the Petroleum Development Act (PDA), the overall legal framework vested in the Petroliam Nasional Berhad (Petronas), that have exclusive rights to explore, win, and obtain petroleum resources. Petronas, being owned wholly by the Malaysian government, operates under agreements concurrently with both the federal and state governments, at the current set royalty rates of 5%. This research paper analyse this legal frameworks that governs the oil and gas sector and examines the effects of royalties demanded on the industry's contributions to achieving sustainable energy goals. The paper focuses on understanding the royalty structures and rates, which, at its core, impact all investment decisions, innovation, and the transition to renewable energy sources within Malaysia's energy landscape. The methodology applied involves a comprehensive review of all relevant laws, regulations, and current policies pertaining to the oil and gas sector in Malaysia. Key findings indicate that current royalty structures in Malaysia's oil and gas sector indeed have significant implications for sustainable energy development. Impact of these royalties on both federal and state levels, highlighting further their potential in enhancing state revenue, while raising possible deterrence of energy production and affecting long-term sustainability. The study highlights the importance of aligning royalty policies with sustainable energy objectives. The paper also addresses the issue by recommending the best practices from other countries with successful oil and gas frameworks that Malaysia could adopt.

royalty, sustainable energy, oil and gas

1. Abdullah, S. M. (2024, March 27). Kelantan Govt hopes to receive higher “Wang Ihsan” payment this year: New Straits Times. NST Online. [Google Scholar] [Crossref]

2. AnasAlamFaizli.(2013)‘Malaysia’sOilRoyaltyRumble.AnasAlam Faizli. https://aafaizli.com/malaysias-oil-royalty-rumble/ [Google Scholar] [Crossref]

3. Christopher, Ong. L. (2020). Rajah and Tann Asia, ‘Lawyers Who Know Asia, Oil Regulations in Malaysia’. https://www.christopherleeong.com/our-work/publications [Google Scholar] [Crossref]

4. Eugene Thean Hock Lee. (2013). Scope For Improvement : Malaysia’s Oil And Gas Sector’, https://refsa.org/wp-content/uploads/2020/10/pdfslide.net_og-scoping-report-malaysia [Google Scholar] [Crossref]

5. Faizli. A.A, April 2013, ‘ Malaysia’s Oil Royalty Rumble’, https://aafaizli.com/malaysias-oil-royalty-rumble/ -final-20130701-compressed.pdf [Google Scholar] [Crossref]

6. Hock Lee. E. T, 2013 ‘ Scope For Improvement : Malaysia’s Oil And Gas Sector’, https://refsa.org/wp-content/uploads/2020/10/pdfslide.net_og-scoping-report-malaysia-final-20130701-compress ed.pdf [Google Scholar] [Crossref]

7. Hussain Yusri Zawawi, Mohd Rizal Mohd Yaakop, Jazimin Zakaria and Aziawati Zakaria. (2018). Analysing petroleum royalty demand by the Kelantan state government against the federal government. International Journal of Advanced Scientific Research and Management, Volume 3 Issue 2. [Google Scholar] [Crossref]

8. Institute of Strategic and International Studies (ISIS) Malaysia. (2020), ‘Malaysia’s slick politics of oil’. https://www.isis.org.my/2020/05/10/malaysias-slick-politics-of-oil/ [Google Scholar] [Crossref]

9. Kosai.A. (2018). How do we get that 20% Royalty without Upsetting the Oil Cart?. Linkedin. https://www.linkedin.com/pulse/how-do-we-get-20-royalty-without-upsetting-oil-cart- animah-kosai [Google Scholar] [Crossref]

10. Nambiar, P. (2022, January 16). What the Kelantan Oil Royalty Issue is all about. Free Malaysia Today. [Google Scholar] [Crossref]

11. Norfadhilah Mohd Ali. (2009). Sustainability Of Petroleum And Environmental Control In The Malaysian Petroleum Law. Universiti Sains Islam Malaysia. https://oarep.usim.edu.my/bitstreams/d8f4f4ba-3162-49c5-84ed-f8586234dbcb/downl oad [Google Scholar] [Crossref]

12. Norfadhilah, M., A. (2009). Sustainability Of Petroleum And Environmental Control In The Malaysian Petroleum Law [Google Scholar] [Crossref]

13. O. Ogolo and P. Nzerem. (2021). A Delayed Royalty Framework For Investments In The Exploration And Production Of Hydrocarbon, Petroleum Research. https://doi.org/10.1016/j.ptlrs.2021.04.004. [Google Scholar] [Crossref]

14. Predeep Nambiar. (2022). What the Kelantan Oil Royalty Issue is all about. Free Malaysia Today.https://www.freemalaysiatoday.com/category/nation/2022/01/17/what-the-kelan tan-oil-royalty-issue-is-all-about/ [Google Scholar] [Crossref]

15. Routledge Taylor & Francis Group. (2022).‘What is Sustainable Energy and Why Do We Need it?’ [Google Scholar] [Crossref]

16. Sharifah Mahsinah Abdullah. (2024). Kelantan Govt hopes to receive higher “Wang Ihsan” payment thisyear.NewStraitsTimes.NSTOnline. https://www.nst.com.my/news/nation/2024/03/1031019/kelantan-govt-hopes-receive- higher-wang-ihsan-payment-%C2%A0year [Google Scholar] [Crossref]

17. Zawawi, H. Y., Yaakop, M. R. M., Zakaria, J., & Zakaria, A. (2018). Analyzing petroleum royalty demand by the Kelantan state government against the federal government. International Journal of Advanced Scientific Research and Management, 3(2), 93-97. [Google Scholar] [Crossref]

• Conflict of Law in the Safeguarding of Malaysian Intangible Cultural Heritage: A Way Forward
• Alternative Dispute Resolution in India: A Brief Overview Justice Delayed is Justice Denied. - William E. Gladstone
• The Role of Museums in Safeguarding Cultural Heritage Rights: Balancing Access and Repatriation
• An Evaluation of the Universal Declaration of Human Rights' Significance and Application in Nigeria
• The Role of International Law in Shaping National Immigration Policies.