Malaysian political earthquake could rock B.C. LNG sector

Opposition’s surprising win likely to lead to changes for energy player Petronas

The geopolitical upheaval triggered by the Malaysia elections, in which an opposition coalition came to power for the first time since the country’s founding more than six decades ago, will likely have aftershocks for national energy giant Petronas, observers say.

But the exact extent of the impact on the company, one of the biggest international players in B.C. and Western Canada’s energy scene despite cancelling the $36-billion Pacific NorthWest LNG project last year, is still unclear, and analysts say Canadian investors and industry officials will need to stay on their toes.

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Malaysia’s four-party coalition Pakatan Harapan (PH) emerged victorious over Barisan Nasional (BN) in the May 9 election, winning 113 of 222 seats in the Dewan Rakyat, the lower house of the Malaysian parliament. Another party informally aligned itself to PH after the vote, bringing the ruling coalition’s seat total to 121.

Including incarnations before the party’s official founding in 1973, BN had governed the country uninterrupted since 1957.

“The result is nothing short of a political earthquake, although there are still many unknowns at this stage,” said Steve Jenkins, Wood Mackenzie’s vice-president of chemicals consulting, in a note.

“The impact of the change in government in Malaysia on its oil, gas and chemicals sector is likely to be tied in to changes in the country’s wider economic policy, but could be dramatic in their own right.”

At the end of May, Petronas confirmed that it is taking a 25% stake in LNG Canada, the joint venture led by Shell Canada that includes PetroChina, Korea Gas Corp. and Mitsubishi.

Petronas is also reportedly a potential buyer of Chevron’s Kitimat LNG project and is the largest holder of land in the natural-gas-rich north Montney region. The company’s subsidiary, Progress Energy Canada Ltd., employs 300 to 400 people in Calgary.

Jenkins said the key policy change that can affect Petronas in the election’s wake is the possible abolishment of Malaysia’s goods and services tax, which was promised in PH’s campaign. The incumbent BN originally introduced the tax in 2015 to diversify the tax base and to reduce reliance on Petronas revenue, but the abolishment of that tax would mean Malaysia would have to find another revenue stream – either from Petronas or through royalty changes in other sectors.

Petronas is also likely to see changes to its budgets and finances, especially for future investments and exploration, Jenkins said – along with decreased autonomy.

“The newly elected government will need to act quickly to establish confidence and stability in its ability to manage the economy, to calm financial markets and to set out a clear budget which will begin to shed light on how it intends to address some of its campaign pledges,” Jenkins said. “Given the size of Petronas within the Malaysian economy and its historic role in providing a significant part of the country’s revenue, there could potentially be quite an impact on its management and operations.”

Omar Allam, founder and CEO of Ottawa-based Allam Advisory Group, also noted that transparency, accountability and good governance became a central issue in the election, which means Malaysia’s new government will likely focus on investment opportunities that fit the new standards.

Canada, Allam said, fits well into that profile theoretically, but he added that the ongoing Kinder Morgan pipeline dispute is a major litmus test for many foreign investors like Malaysia who have their eyes on the Canadian business environment.

“There’s that possibility for any market,” Allam said about Petronas’ possible reconsideration of its position in B.C. and Alberta in light of the election. “You have to look at the strength, credibility and resilience of Petronas, as well as how it’s governed and the strategic investments they have in LNG and oil/gas markets. Then you flip that around, and you ask yourself, ‘What’s the investment climate in Canada? How secure and effective is our market at attracting investment, in providing the right conditions?’

“How the federal government, other stakeholders deal with the Kinder Morgan issue will be the tale of the tape,” he added. “We can talk, conduct the best studies and present a great picture of Canada, but when you peel the onion, the reality is that you are going to run into an issue like this…. Canada has a good story to tell. We do have a good track record, but the reality is, we have to execute.”

The key, Allam said, is for Canadian stakeholders to fully map out a strategic plan for engaging Malaysia from a foreign-investment perspective, then delivering on whatever promises Canada can make as a market. That goes beyond natural resources and Petronas, he said, explaining that there will likely be increased appetite from Malaysian transportation, financial services and sustainable technology due to a new government taking a fresh look at everything.

In a written response, B.C. Jobs, Trade and Technology Minister Bruce Ralston did not mention Petronas or LNG by name, but noted the opportunity to diversify the economic relationship beyond the energy sector.

“In addition to natural resources, Malaysia presents growing opportunities in the clean-tech sector,” Ralston said in the statement. “B.C.’s planned participation in an upcoming water and clean-tech trade show in Singapore this summer will support B.C. companies exploring clean-tech opportunities in Malaysia, amongst other markets in the region…. The B.C. government is watching the change in government in Malaysia with interest, and continues to seek opportunities to expand B.C.’s trade presence in [Southeast Asia].”

© Copyright Alaska Highway News

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