One of the most ambitious projects of Petronas, Malaysia’s national oil company, will soon be fully operational.
The Pengerang Integrated Complex (PIC), in the southern state of Johor, is poised to transform the country’s footprint in oil refining and petrochemical production.
Spread across 2,550 ha and the result of a US$27 billion investment in partnership with Saudi Aramco, PIC will house a new site of downstream oil operations.
However, at a time when the world is increasingly stressing the importance of green development and phasing out fossil fuels, are Malaysia and Petronas making the right bet?
SIGNS OIL IS PAST PEAK DEMAND
There are signs oil is now in a decline. The sudden demand destruction caused by the pandemic, when oil consumption fell by a record of 8.6 million barrels per day (bpd) according to the International Energy Agency, accelerated the plans by key oil and gas (O&G) companies to wean off fossil fuels.
COVID-19 was particularly harmful because oil is primarily used in the transportation sector, which accounts for 57 per cent of total oil demand. Lockdowns are designed to force people to stay put, and this means not driving or flying.
Unsurprisingly, the financial results of O&G companies showed record losses for 2020, including Exxon (US$22.4 billion), Shell (US$21.7 billion), Petronas (US$5 billion) and most others.
Oil demand is expected to return to pre-pandemic levels by 2022, at around 100 million bpd, as vaccination rates tick upwards and movement restrictions are lifted.
TECH AND POLITICS: HEART OF NEW THREATS TO OIL
Technological advances and politics are at the heart of the new threats to the oil industry.
Renewables are already the cheapest compared to fossil fuels in many places, after taking into account both capital cost and maintenance and fuel costs.
Modern renewables (solar photovoltaics and wind energy) have benefited from tremendous cost reduction. They have enjoyed incremental technological gains, scale economies and learning-by-doing.
Back in 2013, the construction cost of 1 kilowatt of solar PV capacity was above US$4,000, but by 2018 it was already below US$1,848, according to the US Energy Information Agency.