Malaysia has pulled out of a cross-border agreement with Brunei to develop offshore oil and gas reserves.
Malaysia’s state-owned Petronas oil company halted discussions earlier this month, according to sources, on collaboration over several drilling projects along the maritime boundary or inside the Malaysia-Brunei Commercial Arrangement Area.
The delays will reduce oil and gas production and reduce income for both the Malaysian and Bruneian authorities.
The Malaysian government has purportedly complained about the revenue split, which was agreed by the previous government of Najib Razak before his defeat the May 2018 general election.
Prime Minister Mahathir Mohamad, 94, since returning to power as head of the Pakatan Harapan (PH) coalition has reportedly taken a tough approach with Brunei and demanded a larger slice of profits.
Brunei is seen as keen to restart negotiations and open another source of natural gas, putting it in a weak bargaining position.
The BP World Energy Outlook forecast that at its present rate of extraction, Brunei will have no fossil fuel resources left in 15 years.
PetroleumBrunei is hoping to work with Petronas to exploit several gas-rich fields to supply Brunei’s LNG (liquefied natural gas) refinery at Lumut.
In October 2010, French oil and gas giant Total agreed to sell its near 87-per-cent stake in a maritime block to Royal Dutch Shell for US$300 million. The deal has now been amid the Malaysian opposition.
A solution after last week looks far less likely as Mahathir has created a political crisis by bringing down the ruling PH coalition, leaving Malaysia’s royal leaders to try to establish a new government.
Falling fossil-fuel incomes have hit Brunei, which is accustomed to extreme wealth. The oil-rich kingdom has the world’s biggest residential palace. A reported US$1.4 billion was spent by Sultan Hassanal Bolkiah on his palace, which has 1,788 rooms, 257 bathrooms and 7,000 luxury vehicles in more than 100 garages.
This year unemployment is projected to rise above 9.1 per cent, the highest level in Asean. Foreign workers continue to arrive, mainly from India, Bangladesh and the Philippines, to take jobs Bruneians do not want.
The authorities offer 0 per cent income tax and residents receieve free health care, free education and housing development funding.
But social welfare will be under threat if new oil and gas sources are not found.
The dispute has created uncertainty for fossil-fuel companies operating within Malaysian territory, which is expected to reduce investment in future extraction projects.
Shell was hoping to exploit large reserves off the coast of Borneo. Picture credit: YouTube
