It said although an improving economy together with ongoing fuel subsidies was contributing to a recovery in fuel consumption, fuel demand faces downside pressures from high global oil prices and energy transition initiatives.
It forecasted that Malaysia’s real gross domestic product (GDP) growth would register at 4.2% in 2023 and further improve to 4.42% in 2024.
“The near-term outlook for fuel consumption points to the upside, but the pace of demand growth could slow down in the long term as the government plans to implement policies aiming to cut fuel subsidies and accelerate energy transition initiatives,” BMI said in its Malaysia’s energy transition outlook report today.
It noted the government’s ongoing subsidies now have become a critical issue against the backdrop of elevated global oil and gas prices, putting significant pressure on the government to cover rising costs.
“Though the government has not announced drastic measures to cut subsidies, we can expect a complete reduction in fuel subsidies for high-income groups.
“Such policy moves could constrain oil demand growth going forward because car ownership tends to be higher amongst high-income households,” it said.
BMI said the government’s move to cut fuel subsidies will be met with resistance from industries especially manufacturing entities which rely heavily on subsidies for industrial production.
“However, we expect the government will continue to maintain fuel subsidies for public transportation services to keep transportation costs down,” BMI said.
EV penetration rate
BMI estimates demand for electric vehicles (EVs) in Malaysia would far outstrip that of internal combustion engine cars within the 2023-2032 forecast period.
Total EV sales are projected to quadruple in 2023, although the country’s EV penetration rate (EV sales as a percentage of total vehicle sales) will stay at just 1.8%.
However, BMI said the pace of growth in the electrification of the transport industry would face challenges related to the lack of affordable EV models and the slow expansion of charging infrastructure.
“Though the Malaysian government postponed the implementation of the B20 biodiesel programme in 2022, it indicates in its National Energy Transition Roadmap (NETR) that it will establish a B30 mandate for land transport by 2030,” it added.
BMI said that given the country’s abundant feedstock of palm oils, biodiesel offers significant opportunities to diversify away from traditional fossil fuels.
Malaysia has become relatively self-sufficient in refined fuel supply since two greenfield refineries were commissioned between 2021 and 2022.
BMI said the refining industry continues to operate at higher utilisation rates to accommodate export opportunities and reduce dependence on imports.