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

Abstract

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.