KUALA LUMPUR (May 19): Petroliam Nasional Bhd (Petronas) and Petroleum Sarawak Bhd (Petros) are likely to engage in a profit-sharing arrangement, as part of their solution to address the dispute over the control of gas distribution in Sarawak, according to Kenanga Research.
Initial indications suggest that Petros will primarily undertake the role of gas aggregator in this collaborative endeavour, said the house.
This designated function entails Petros procuring gas from upstream entities, notably Petronas and Shell, at prices aligned with prevailing market conditions.
Following the acquisition, Petros will then distribute this gas to domestic consumers, or channel it towards export facilities.
“Nevertheless, the profit sharing between gas producer, aggregator, and LNG liquefaction and export terminal is not clear to us at this juncture, but we can refer to other market’s examples for a rough guidance,” it said in a note summarising key insights from their recent Sarawak-focused event held in Kuala Lumpur.
It said that while the details of the gas aggregation profit share for Sarawak are not disclosed, it believes that the gas aggregation margin could be close to 10%, based on the example from the US.
“In the US model, the gas aggregator is typically the main exporter of LNG, earning approximately 20% of the LNG selling price, with margins fluctuating based on the final LNG selling prices.”
Kenanga added that for Sarawak, Petronas can still export directly to its existing clients in Japan and Korea.
“Hence, Petros is likely to receive a lower gas aggregation margin compared to the US model, as Petronas will likely continue to earn a portion of the export margin. This is because Petronas still owns the LNG liquefaction facility and remains the counterparty selling to Japan and Korea,” said the house.
Last week, the Borneo Post, quoting Sarawak Premier Tan Sri Abang Johari Tun Openg, said Petros and Petronas are close to announcing the deal over the management of natural gas in the state, after more than a year of unresolved dispute between them.
Under the latest talks, Petros will be recognised as the sole gas aggregator in the state, and Sarawak will increase its stake in liquefied natural gas (LNG) through a commercial agreement, Abang Johari was reported as saying.
Discussions between Petronas and Petros concerning the stewardship of natural gas distribution within Sarawak, a significant national gas producer, garnered rising attention since last year.
This started when Sarawak appointed Petros as the sole distributor of gas in the state, under its state laws — in particular, its Distribution of Gas Ordinance (DGO 2016), Oil Mining Ordinance 1958(Amendment), Land Code of Sarawak 1958 and Natural Resources and Environment Ordinance 1993 (NREO).
Although the federal government and Petronas recognised Petros’ role as the state’s aggregator, the national oil firm also wants Sarawak to recognise the Petroleum Development Act (PDA 1974), which gives it authority over oil and gas, even in Sarawak.
In February, Minister in the Prime Minister’s Department (Law and Institutional Reform) Datuk Seri Azalina Othman Said said Petronas and its subsidiaries are not required to obtain a licence, or comply with any additional procedures to conduct petroleum operations in Sarawak, beyond those outlined in Act 144.
However, as these discussions progressed, tensions arose, with the Sarawak state government recently alleging that Petronas’ upstream division had contravened state regulations by operating a crude oil terminal situated in Miri without the requisite licence.
The alleged breach, under Section 7(e) Distribution of Gas Ordinance 2016, involves the operation of a plant owned Petronas Carigali in Miri, according to a letter issued, dated April 30, by the state’s Ministry of Utility and Telecommunication to the company.
Petronas, in a response said it was disputing the accusation, as it has a duty to uphold PDA 1974, and safeguard national interests.
Adding to the complexities, Petronas and Petros are currently embroiled in a legal dispute, following a court decision granting Shell MDS (M) Sdn Bhd, a unit of Shell, the right to suspend payments for natural gas supplies in Bintulu.
This legal action stemmed from the fact that both Petronas and Petros had independently submitted invoices to Shell MDS for the identical gas supply.