Negotiations between Petronas and Petros, Sarawak’s state-owned oil and gas company, are still ongoing. At the heart of the dispute is Sarawak’s insistence that Petros be designated as the sole gas aggregator in the state.

At present several issues remain unresolved: the fate of Petronas’s long-term export contracts, governance issues relating to the gas value chain, and the broader implications of the proposed deal to Malaysia’s energy framework.

FMT explores these key concerns and what may lie ahead.

The core dispute 

At its core, the dispute is over control of Malaysia’s oil and gas sector — along with billions in revenue. Experts estimate that if Sarawak’s demands are fully met, the state could benefit by up to RM20 billion annually at Petronas’s expense.

The players 

Petronas, Malaysia’s national oil company, is wholly owned by the federal government. Established under the Petroleum Development Act 1974 (PDA), it has full ownership of all oil and gas resources nationwide, both on and offshore, and exclusive rights to explore, produce and manage them.

As the country’s energy giant, Petronas leads largescale projects, oversees both upstream and downstream operations, and serves as a crucial revenue contributor to the nation.

Petros, Sarawak’s state-owned oil and gas company, was established in 2017 to oversee and develop the state’s energy sector. While Petronas governs Malaysia’s national resources, Petros is tasked with ensuring Sarawak plays a central role in managing and benefiting from its own energy assets.

However, Sarawak’s push for Petros to be designated as the sole gas aggregator under the DGO raises significant implications for control and revenue distribution.

How a gas aggregator works

A gas aggregator plays a pivotal role in the value chain, purchasing gas from upstream producers, consolidating supply, and then selling it to downstream buyers—typically at prices it sets.

Beyond that, the aggregator’s responsibilities include the construction, management and operation of key infrastructure, including pipelines and processing facilities, ensuring the consistent delivery of gas that meets technical specifications, managing supply disruptions, and responding to fluctuations in global demand.

Since 1974, Petronas has fulfilled this role, earning a reputation for reliability and performance. Its longstanding relationship with key markets—most notably Japan—has positioned it as one of the region’s most trusted LNG suppliers.

Replacing such a well-established aggregator is by no means a simple task. It risks disrupting the continuity, credibility and supply assurances that Malaysia’s global partners—particularly in East Asia—have come to expect.

The big question

Petros is looking to replace Petronas as Sarawak’s sole gas aggregator—purchasing gas from upstream producers and reselling it to customers. This shift would give Petros control over pricing, a role traditionally held by Petronas.

The proposed change presents a significant challenge. Petronas has signed several long-term LNG export contracts with companies in various countries, including Japan and South Korea, many spanning 20- to 30-year terms. These contracts are still in force—and do not allow for unilateral changes in pricing or terms.

If Petros raises gas prices, Petronas would either have to absorb the additional cost, cutting into its margins, or risk breaching binding agreements—an unacceptable scenario.

By seeking to enforce the DGO, Sarawak is asserting control in a way that could affect Petronas’s ability to meet its existing and future obligations to international buyers.

What the PM said

In February, the prime minister reaffirmed that the PDA remains the overarching law governing oil and gas activities nationwide, including in Sarawak. At the same time, the federal government acknowledged Sarawak’s right to regulate downstream gas through the DGO.

It was also agreed that Petronas and its subsidiaries will honour all existing contractual obligations, including long-term international supply agreements, and will not be required to obtain additional licences to operate in Sarawak beyond those mandated by the PDA.

However, Sarawak’s legal notice to Petronas Carigali for allegedly operating without a licence, suggests that the state is at odds with the prime minister on a significant term of the agreement.

What Sarawak said

Sarawak wants to take on the role of gas aggregator so it can have more control over how gas is used and priced in the state. By giving this job to Petros, Sarawak hopes to make sure there is enough gas for local factories, power stations and industries under the Sarawak Gas Roadmap 2030.

The state also wants to attract more investment and grow its economy. Sarawak believes this is its right under the law, and it wants to play a bigger role in helping Malaysia become a clean energy hub.

How much more gas?

In supporting Sarawak’s gas roadmap and energy requirements, the prime minister had on Feb 17 told the Dewan Rakyat that Petros would be guaranteed up to 1.2 billion cubic feet per day in natural gas, up from 450 million cubic feet per day, for its domestic needs.

Sarawak plans to utilise the additional supply for new power stations and petrochemical plants. However, there are concerns that local demand may not be sufficient to absorb the full output.

“At this point, I think there are no confirmed off takers or large demand centres to absorb this gas,” an industry analyst told FMT, although he believes there is “a chance” that the Bintulu and Samalaju industrial areas could absorb it.

Gas supply contracts typically require a guaranteed demand commitment. That raises the question: where will these new demand centres emerge, and when will they begin off-taking?

Impact on ordinary Malaysians

Any reduction in Petronas’s profits is likely to translate into smaller dividend payments to the federal government—and, in turn, fewer energy subsidies for the public.

Asrul Hadi Abdullah Sani, partner at ADA Southeast Asia, warns:

“The impact of government expenditures related to energy subsidies will be significant. It could lead to a reduction in government handouts as dividends from Petronas are anticipated to decrease.

“Additionally, the rise in fuel and electricity costs will affect the prices of goods and increase the cost of living for those in the middle income group (M40) and below.”

Oil and gas analyst Jamil Ghani said:

“Malaysia’s extensively subsidised fuel regime will get a true reality check, and it is the working people who will be hit hardest. All the data centres that rely on cheap electricity will also have a second look at things.”

What happens next?

Petronas and Petros remain locked in direct talks, with both the federal and Sarawak governments prepared to step in if negotiations falter.

No firm deadline has been set, leaving the final outcome—and its implications for Sarawak’s industrial ambitions, Petronas’s export strategy and the cost of energy for all Malaysians—all unresolved.

How this affects the country

Granting Petros the sole aggregator role could reduce Petronas’s revenue by between RM10 billion to RM20 billion and affect its ability to pay annual dividends of between RM30 billion to RM50 billion to the government, placing pressure on the federal budget.

It may also set a precedent for other states to form their own oil and gas firms, leading to fragmentation of Malaysia’s energy sector.

Investor concerns are already emerging, as seen by ConocoPhillips’s withdrawal from the RM13.7 billion Salam-Patawali deepwater oil and gas project off Sarawak’s coast, and Shell MDS (Malaysia) Sdn Bhd’s lawsuit against Petronas and Petros over gas supply rights in Sarawak.

Without the economies of scale available to Petronas, Petros may need foreign partners, raising questions over energy sovereignty and supply-chain efficiency.

The broader impact could include slower growth, higher costs, and increased fiscal and regulatory uncertainty.

Drawing the line

Should Petros be handed sole authority over gas in Sarawak? How would Petros’s appointment reshape energy governance in Malaysia? What would the Petros’s appointment do to Petronas’s existing and future business, the scale of its operations, its financial viability and its role as contributor to national revenue?

At stake is more than just a state’s ambition—it is the ability to manage the delicate balance between federal authority and regional autonomy.

The outcome could determine whether Malaysia maintains a cohesive energy ecosystem or suffers its fragmentation, and the ensuing consequences.

A careful balance must be struck—taking into account national interests, Petronas’s statutory role, its growth over the past five decades, the adverse impact it may have on the national oil company’s hitherto successful business model, and Sarawak’s own ambitions.