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SABAH: MARGINAL BENEFACTOR OR FUTURE ACTIVE PLAYER IN OIL AND GAS INDUSTRY

SABAH: MARGINAL BENEFACTOR OR FUTURE ACTIVE PLAYER IN OIL AND GAS INDUSTRY. Presented by: DATUK MOHD. HASNOL AYUB CEO INSTITUTE FOR DEVELOPMENT (SABAH). 1.0 BACKGROUND 2.0 PAST DEVELOPMENT IN THE OIL AND GAS 3.0 CURRENT DEVELOPMENT 4.0 CHALLENGES TO JUMP START

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SABAH: MARGINAL BENEFACTOR OR FUTURE ACTIVE PLAYER IN OIL AND GAS INDUSTRY

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  1. SABAH: MARGINAL BENEFACTOR OR FUTURE ACTIVE PLAYER IN OIL AND GAS INDUSTRY Presented by: DATUK MOHD. HASNOL AYUB CEO INSTITUTE FOR DEVELOPMENT (SABAH)

  2. 1.0 BACKGROUND • 2.0 PAST DEVELOPMENT IN THE OIL AND GAS • 3.0 CURRENT DEVELOPMENT • 4.0 CHALLENGES TO JUMP START 5.0 FUTURE EXPECTATIONS 6.0 THE WAY FORWARD CONTENTS

  3. 1.0BACKGROUND • The Oil industry concentrates more capital than any other Industry. • The global economy is more sensitive to the oil and gas development more than to other industries. • The stronger economies in the world such as the United States, Europe, China, Japan, Korea and Taiwan testified that they have successfully maximized on their available resources. • Malaysia is one of the world’s largest natural gas and crude oil reserves and Sabah contributes 14% of natural gas and 30% of crude oil reserves. • Sabah reserves could increase significantly due to deepwater discovery and development of several new offshore fields. • Sabah will become the second largest oil producing state after Terengganu. 3

  4. As of 2009: Malaysia Ranked 14 in the Gas World Reserve. Current reserves will last 38 years.

  5. NEW DEEPWATER DISCOVERIES OF CRUDE OIL IN SABAH WITH PSC INTRODUCED SINCE 1993

  6. 2.0 PAST DEVELOPMENT IN THE OIL AND GAS • Oil and gas industry in Sabah has been in operation for over 30 years and yet the local players are incapable of supporting the oil and gas industry. • Small players are competing with each others and the surviving companies find it difficult to grow. • In 2009, oil and gas is the biggest contributor for Sabah’s GDP as compared to other sectors. 6

  7. 7 2.1 CONTRIBUTIONS OF OIL AND GAS Sabah GDP by NKEA Sectors – 2009 (Current Price)

  8. 2.2 COMPARISON OF ACHIEVEMENTS IN THE OIL AND GASVALUE CHAIN Exploration & Production Energy Refining State/Country Marketing Storage Petrochemical Brunei Sarawak Achievement Gap Sabah

  9. 3.0 CURRENT DEVELOPMENT • Since the Third Industrial Master Plan(IMP3), Malaysia has designated four petrochemical zones, including Kertih (Terengganu), Gebeng (Pahang), PasirGudang-TanjungLangsat (Johor) and Bintulu (Sarawak). • The latest to be developed is Pengerang (Johor) involving CAPEX of RM20b. • Similar progression for an integrated petrochemical industry in Sabah that links the entire range of the oil and gas value chain beginning from upstream exploration and production to the final stage of manufacturing is possible due to large reserves of oil and gas. • Thanks to the initiatives of PETRONAS in bringing oil and gas projects onshore with a combined investment capital of RM45 billions which supported the desire of the State Government to further the development of the industry to the value-added level. 9

  10. 3.1 INITIATIVES OF PETRONAS FOR THE DEVELOPMENT OF OIL AND GAS SECTOR IN SABAH Kimanis PP SOGT & SSGP Lahad DatuPP SOGIP Ph1 – SAMUR and Ph2 - Mitsui LD Re-Gas Terminal

  11. 3.2 INITIATIVES OF SABAH GOVERNMENT FOR THE DEVELOPMENT OF THE OIL AND GAS SECTOR IN SABAH

  12. 3.3EXPECTED BENEFITS FROM THE INITIATIVES PETRONAS AND THE STATE GOVERNMENT 5% ROYALTY + VALUE ADDED JOBS INVESTMENT GROWTH OF STATE’S GDP (RM) 18.72 BILLION- SIGNIFICANT SPIN OFF TO LOCAL ECONOMY 24,653 JOB OPPORTUNITIES EXPECTED TO BE CREATED FOR SABAHANS

  13. SABAH GOVERNMENT INITIATIVE 1: SIPITANG OIL AND GAS INDUSTRIAL PARK (SOGIP) SIPITANG OIL AND GAS INDUSTRIAL PARK (SOGIP) SOGIP Ph1 – SAMUR and Ph2 - Mitsui

  14. WHAT IS SOGIP INTENDED FOR? • To capture the opportunities as a result of PETRONAS initiatives in developing the SOGT, the Sabah-Sarawak Gas Pipeline (SSGP), Kimanis Power Plant and SAMUR in line with PETRONAS Masterplan; • To capture opportunities offered by the presence of oil and gas supplies at the vicinity and transform these opportunities into industrial developments and create jobs for local Sabahans; • To gear up Sabah into a high income economy by means of high value added activities; • To attract Foreign Director Investments (FDI) and facilitate technology transfer through joint venture ; and • To bring development to the Sipitang, and other nearby district i.e. Beaufort, Tenom, and Keningau through spillover effects.

  15. PHASING OF SIPITANG OIL AND GAS INDUSTRIAL PARK (SOGIP) Phase 1 - SAMUR (1.25 MT/YR UREA Production) – (Area: 620 Acres) To provide the necessary Infrastructure (Basic Road, Drainage, Water Supply & Compound Lighting) required for the development of SAMUR. Phase 2 –Mitsui ( 1.0 MT/YR Ammonia Production) – (Area: 690 Acres) To provide the necessary Infrastructure (Basic Road, Drainage, Water Supply & Compound Lighting) required for the development of Ammonia Plant Phase 3 – (Area: 2450 Acres) - Development of basic infrastructure for 2,450 Acres of Industrial Land

  16. Warehousing • To retain the control of the State in the Park, Sipitang Oil and Gas Development Corporation SdnBhd (SOGDC) will manage for the implementation plan of the required facilities and infrastructure in SOGIP for the next two (2) years. SOGIP BUSINESS MODEL Manpower Supplies Marine Facilities (Jetties and Berthing) IT Infrastructure Warehousing • SOGIP COMMON FACILITIES Waste Management Workers’ Camp CUF Security, Emergency & Fire Fighting

  17. KEY BENEFITS OF THE BUSINESS MODEL • SYSTEMATIC -All the common facilities must be control by SOGDC. Therefore, it has to be thoroughly involved in the planning, designing, building and operating the common facilities; • INCREASE EFFICIENCY-increase efficiency of resources and save cost to potential investors; • ENABLING-Enabling new companies to directly ‘plug into’ the existing infrastructure that includes ready land, a networked community of companies, a comprehensive set of amenities and utilities, and a pro-and –friendly-business environment; • OUTSOURCE- SOGDC can outsource the management of the services to capable and credible providers while maintaning ownership of those facilities and services; and • FOCUSED- The next level of facilities that SOGDC should be looking into supporting subsea activities such as fabrication and barge landing.

  18. EXPECTED IMPACTS OF SOGIP • Development of infrastructure (water, access road etc) will magnetize the future investment in SOGIP. • Create spin-off to Sabah economy and spur the support service establishments in the region, such as:- Food and beverage • Hardware suppliers • Residential and Training Development • Hotelindustry • Plant Maintenance Services • Logistic providers

  19. EXPECTED IMPACTS OF SOGIP(CONT.)

  20. EXPECTED IMPACTS OF SOGIP (CONT.)

  21. CURRENT DEVELOPMENT IN SOGIP: SABAH AMMONIA UREA (SAMUR)

  22. 4.0 CHALLENGES TO JUMP START • 4. Undeveloped Downstream Activities of Petrochemical Industries • 5. Undeveloped Downstream Facilities for Petrochemical Industries • 2. Instability of Power Generation 3. Inability of Manpower • 6. Poor Condition of Physical and Supporting Infrastructures • 7. Low Level of Local Contractors Penetration Into The Industry • 1. Unavailability of Gas as Feedstock to Investors

  23. CHALLENGES 1: UNAVAILABILITY OF GAS AS FEEDSTOCK TO INVESTORS • Gas should be immediately made available for the state to prevent lost of potential investments. • Retaining 30 per cent of the production of urea and ammonia as feedstock for the creation and growth of downstream activities in other related industry in Sabah.

  24. CHALLENGES 2: INSTABILITY OF POWER GENERATION

  25. CHALLENGES 3: INABILITY OF MANPOWER • Oil and gas industries require specialized human resource. • Training for human capital development especially in skilled (eg. welders) and semi-skilled workforce. This will contribute job creation during the construction and operation.

  26. 7 CHALLENGES 4: UNDEVELOPED DOWNSTREAM ACTIVITIES OF PETROCHEMICAL INDUSTRIES Currently, there are only 5 industries utilising natural gas as compared to 9 industries in Peninsular Malaysia. There are more industries to be captured… Natural Gas Utilisation in Sabah

  27. CHALLENGES 4: UNDEVELOPED DOWNSTREAM ACTIVITIES OF PETROCHEMICAL INDUSTRIES (CONT.) Potential Industries need to be captured

  28. CHALLENGES 5: UNDEVELOPED DOWNSTREAM FACILITIES FOR PETROCHEMICAL INDUSTRIES • Development of Basic Infrastructure; • Supply of Skilled and Unskilled Manpower; • Training Centre/Maritime Academy for Oil & Gas Industry (Extension of UniversitiTeknologi PETRONAS in Sabah); • Marine Vessels and Support Services; • Fabrication Yards; • Equipment and Machinery Supply and Services; • Oil & Gas Supply Base and Storage Facilities; • Food and Catering Services; • Shipbuilding & Repair Service; and • Transportation & Logistics Services.

  29. CHALLENGES 6: POOR CONDITION OF PHYSICAL AND SUPPORTING INFRASTRUCTURES • Cooperation from the relevant authorities isneededto ensure the smooth sailing project execution especially in land acquisition matters for Right of Ways (ROW) and other related matters. • Need financial support from the Federal Government for the provision of basic facilities and infrastructures. • CHALLENGES 7. LOW LEVEL OF LOCAL CONTRACTORS PENETRATION INTO THE INDUSTRY • Lack of exposure among the small players due to the absence of petrochemical centre such as Bintulu and Miri in Sarawak. • Absence of Specific VDP for Sabah that will ensure fair distribution on works/contracts. • Serious development of the oil and gas industry is needed to develop Sabah local players from upstream to downstream industries.

  30. 5.0FUTURE EXPECTATIONS • 4. Developed Downstream Activities of Petrochemical Industries • 5. Developed Downstream Facilities for Petrochemical Industries • 2. Stability of Power Generation 3. Ability of Manpower • 6. Excellent Condition of Physical and Supporting Infrastructures • 7. Low Level of Local Contractors Penetration Into The Industry • 1. Availability of Gas as Feedstock to Investors

  31. FUTURE EXPECTATION 1: AVAILABILITY OF GAS AS FEEDSTOCK TO INVESTORS • Ensure the security of oil and gas supply to Kimanis Power Plant, SOGIP, SAMUR and Bintulu. This also make the plan to supply gas to KKIP possible. • Connecting the gas supply to KKIP will give a competitive advantage and attract more investors to KKIP. • Open up the possibility for secondary oil recovery in ERB west and surrounding fields to support the depleting oil production. • Open up huge opportunities to the hydrocarbon market and production of end products.

  32. FUTURE EXPECTATION 2: STABILITY OF POWER GENERATION Extension of Sabah – Sarawak Gas Pipeline to Kota Kinabalu Industrial Park to Supply Gas to Power Plant • The objective of extending the Sabah-Sarawak Gas Pipeline is to make available natural gas to the Independent Power Producers power plants and the existing and potential industrial users in the KKIP area and the areas located in the vicinity of the proposed pipeline e.g. Papar, LokKawi, Penampang and Kota Kinabalu. • Key Outcomes • Back Up Power Supply • The estimated volume required is 135 mmscfd. With the completion of the extension pipeline to the existing source of supply would act as a back-up i.e. it would only supply natural gas whenever there is a shutdown in the Sabah Oil and Gas Terminal. • Boost of businesses confidence among investors.

  33. FUTURE EXPECTATION 2: STABILITY OF POWER GENERATION (CONT.) • SOGIP Power Plant (200MW) • SOGIP Power Plant will address the immediate needs of electricity demand in Sabah (especially in Sipitang Oil and Gas Industrial Park (SOGIP) • Key Outcomes • Additional 200 MW of cleaner and stable energy supply to the state; • Reduce the yearly lost from industrial losses RM4.59billion/per year due to power interruption and boost business confidence of investors to SOGIP; • Stable power supply; • Creation of more 300 jobs for Sabahans from top management to supporting staff during operations and 2,418 jobs during construction; and • Transfer of technology and knowledge will take place to local manpower and contractors.

  34. FUTURE EXPECTATION 2: STABILITY OF POWER GENERATION (CONT.) • The Kimanis Power Plants (300 MW ) and LahadDatu Power Plants (300 MW ) are needed to support the electricity supply to industrial parks and end consumers in Sabah. • Reduced power interruptions in the state with additional 600 MW to the grid. • Address immediate demand and growing needs of electricity. • Operations and construction create job opportunities. FUTURE EXPECTATION 3: ABILITY OF MANPOWER • Training Centre/Maritime Academy for Oil & Gas Industry (Extension of UniversitiTeknologi PETRONAS in Sabah). • Human resource development in oil and gas industries is needed to ensure continuous manpower supply to the oil and gas industries. • Opportunities for Sabah human capital development especially in skilled (eg. welders) and semi-skilled workforce. This will contribute job creation during the construction and job creations for operation.

  35. 7 FUTURE EXPECTATION 4: DEVELOPED DOWNSTREAM ACTIVITIES OFPETROCHEMICAL INDUSTRIES Natural Gas is a catalyst to spur the Petrochemical and downstream industries. PETRONAS’ experiences in Peninsular Malaysia on how natural gas creates economic spin off in a period of 10 years.

  36. DEVELOPED OIL PRODUCTS AND USES IN SABAH LPG & Fuel Gas Chemicals : Benzene Toulene Jet Fuel Kerosene Diesel Gasoline Fuel Bitumen

  37. DEVELOPED NATURAL GAS END PRODUCTS IN SABAH

  38. DEVELOPED DOWNSTREAM INDUSTRIES FROM NATURAL GAS

  39. DEVELOPED PETROCHEMICAL DOWNSTREAM INDUSTRIES

  40. DEVELOPED OTHER RELATED INDUSTRIES Rubber Related Industries Plastic Industries Manufacturing Industries Agriculture Processing Industries

  41. FUTURE EXPECTATION 5: DEVELOPEDDOWNSTREAM FACILITIES FOR PETROCHEMICAL INDUSTRIES Gas Separation Plant What is Kimanis GSP? • To design and built an LPG extraction plant and its export facilities to enhance the value of Sabah gas at SOGT. • GSP will extract components of natural gas (i.e. propane and butane) into LPGwhich SOGT is not designed for. • Hence, GSP will increase value of the hydrocarbon resources produced from SOGT • With the growing demand of LPG in Sabah, GSP will capture the potential GDP. • Current Sabah’s LPG demand : 352 MT/d which is expected to grow at least 2% annually • GSP will transmit the LPG via pipeline. However, other means of transmission will be considered during the detail feasibility studies.

  42. FUTURE EXPECTATION 6: EXCELLENT CONDITION OF PHYSICAL AND SUPPORTING INFRASTRUCTURES Worker’s Quarters Barge Landing Offshore Oil Platform Jetty Fabrication Yard Port

  43. FUTURE EXPECTATION 6: EXCELLENT CONDITION OF PHYSICAL AND SUPPORTING INFRASTRUCTURES (CONT.) Freight Forwarding Tank farm Containers Storage Transportation Warehousing and storage facility

  44. FUTURE EXPECTATION 6: EXCELLENT CONDITION OF PHYSICAL AND SUPPORTING INFRASTRUCTURES (CONT.) Freight Forwarding Tank farm Containers Storage Transportation Warehousing and storage facility

  45. FUTURE EXPECTATION 6: EXCELLENT CONDITION OF PHYSICAL AND SUPPORTING INFRASTRUCTURES (CONT.) Custom clearance Procurement Immigration Clearance

  46. FUTURE EXPECTATION 7: LOW LEVEL OF LOCAL CONTRACTORS • PENETRATION INTO THE INDUSTRY 2.0 PAST DEVELOPMENT • Local players need Vendor Development Program specifically for Sabah to develop local players. • IDS to get assistance from PETRONAS VDP Division to develop the customised VDP program for Sabah. PETRONAS leadership and direction for Sabah to progress into the oil and gas industries. 48

  47. STATE GOVERNMENT INITIATIVE 2: FORMULATION OF MASTER PLAN FOR PETROCHEMICAL INDUSTRY IN SABAH • The state needs support from PETRONAS to include the State’s Master Plan for Petrochemical Industry in Sabah be included in the Petronas’ Master Plan. • The Master Plan will include the following:- • Study, identify and propose downstream development opportunities for gas related, heavy and other supporting industries suitable for implementation; • Identify and determine the infrastructure requirements for the selected industrial developments including utilities and road connections to the current systems outside the boundaries of the Industrial Park; • Study the current and future land use of SOGIP; • Submit engineering design concepts and proposal based on the findings of land use study and soil investigation works carried out during the study; • Carry out Strategic Environmental Assessment (SEA) of SOGIP and the adjacent environmental receptors; • Carry out logistics study for SOGIP; • Carry out traffic assessment; • Carry out preliminary topographical site survey; • Carry out nominal amount of soil investigation for the design of the Park; • Propose plans and strategies, policies and incentives for the development and implementation of the oil and gas industries in Sabah; and • Propose that The state’s need, policy and direction for the industry should be included in the PETRONAS’ master plan.

  48. 6.0 THE WAY FORWARD • The state need greater supports from Petronas(such as the supports received by Pengerang, Johor or Bintulu, Sarawak. • Industry experts are forecasting that the real focus of oil and gas industry is in the southern part of Malaysia (Pengerang, Johor) that will result in the creation of “Greater Singapore” trading hub with20 billion plan for Refinery and Petrochemicals Integrated Development Project (RAPID) to be the biggest oil storage hub. • The State to aggressively engaging in negotiations with preferred investors oversea to be partners in equity participation in the upstream and downstream activities. • The need a very strong political stand so that the oil and gas industry will not repeat the history of logging industries and the palm oil plantations. • Upstream and downstream activities in the oil and gas should not be by passing Sabah.

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