Boston, MA -- (SBWIRE) -- 01/24/2013 -- BMI View: Production growth is set to outpace consumption growth in the Malaysian oil sector as the removal of fuel subsidies and a move towards coal-fired power plants reduce domestic demand for oil. Production will continue to be strong given our positive demand forecasts for oil within the Asian region. The trend is reversed in gas, where consumption growth will outpace domestic production growth. Malaysia's gas prices continue to be the lowest in the South East Asian region, and gas remains the preferred energy fuel by power companies.

Main trends and developments we highlight for Malaysia's oil and gas sector are:

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- Petronas has announced a plan to raise capital expenditures to US$59bn over the next five years as it aims to increase domestic production. With much of the funds earmarked to support increased exploration and production, we believe this additional investment could pose an upside risk to our outlook for oil and gas production. However, we highlight the financial and political challenges facing Petronas as factors that could diminish the impact of this rise in capex.
- The shift to coal-fired power plants has reduced demand for oil from the power industry. Another factor that is hampering growth in oil consumption is the government's steady reduction of fuel subsidies. In line with these developments, we expect oil consumption to grow to 643,000 barrels per day (b/d) by 2017, an increase of approximately 15.7% from 2012 levels. This increase is in contrast with our production forecast of 894,500b/d by 2017, a jump of 36.9% from 2012 levels. The regional oil export market continues to be attractive especially given Indonesia's surging oil import needs. Mature fields are generally in decline, but ExxonMobil, Royal Dutch Shell and Hess have new projects that should partly offset the falling output. We expect proven oil reserves to decline from 5,700mn barrels in 2012 to 4,790mn barrels by 2017. ExxonMobil has announced that its enhanced oil recovery project at the Tapis field will start in 2013, with an estimated gross investment of more than US$1.0bn.
- Gas supply from the Malaysia-Thailand joint development area and projects such as ExxonMobil's Bintang field is likely to mean continuing growth in Malaysia's gas volumes and exports. We expect gas production to reach 76.4bn cubic metres (bcm) by 2017, an annual average growth rate of 3.3% from 2012 levels. Given substantial gas subsidies, consumption is set to grow faster at an annual average rate of 4.7% from 36.6bcm in 2012 to 45.9bcm in 2017.
- Malaysia's oil export revenues and gas export revenues are set to reach US$8.6bn and US$16.2bn by 2017. At the time of writing we assume an OPEC basket oil price for 2012 of US$107.05/bbl, falling to US$99.10/bbl in 2013.

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