Sarawak is moving quickly to reshape its energy future. After years of asserting its rights, the state is pushing for improved terms with Petronas, a move seen as a watershed moment in federal-state dynamics.

Analysts warn that the stakes are high, with repercussions likely to extend beyond Sarawak and reshape the country’s entire gas ecosystem, from domestic supply to global exports.

The question is not whether Sarawak deserves more, but how much, how quickly, and on what terms – without destroying the national energy framework.

Sarawak’s case

Sarawak’s push for greater control over its gas resources stems from the state’s long-standing pursuit of economic autonomy.

“Sixty per cent of Malaysia’s gas lies off Sarawak’s shores, yet the state retains only a small share for its own use. About 94% is exported as LNG, leaving just 6% for domestic consumption,” oil and gas analyst Jamil Ghani told the New Straits Times recently.

He warned that without a role in gas aggregation, the imbalance would persist, limiting Sarawak’s downstream industrial ambitions.

Still, Jamil stressed that collaboration must prevail over confrontation. The energy sector, he said, is not a zero-sum game. Both the state and nation stand to lose if the system breaks under competing pressures.

Sole aggregator

Sarawak wants state-owned entity Petros to act as the sole gas aggregator, buying from upstream producers and reselling downstream.

The role would grant the state significant pricing leverage and policy influence. However, analysts warn it may be structurally untenable.

“This would allow Petros to buy gas upstream at lower prices and sell it downstream at higher margins,” Jamil said.

“But LNG contracts are locked in. This could cause Petronas to lose heavily while still honouring long-term export commitments.”

Analysts suggest a shared model, with Petros determining pricing and distribution within the state, while Petronas retains control over upstream production and LNG exports, thus balancing state ambition with national stability.

More gas, more money

Two of Sarawak’s headline demands – a fixed RM10 billion annual payout and a threefold increase in gas supply – are also contentious.

Petronas’s capacity to make such large payouts is contingent on aggregator margins, which fluctuate with market prices and demand.

“No energy company can commit to fixed payouts on variable income,” former law minister Zaid Ibrahim wrote on X, warning such a model could bankrupt Petronas.

Likewise, Sarawak’s request for 1.2 billion standard cubic feet of gas per day – up from 450 million now – must be preceded by the state securing binding gas supply agreements, Jamil said.

“Demand must lead supply, not the other way around,” he added.

A more sustainable approach would tie payouts to actual performance – not projections.

Legal clarity

Sarawak also wants Petronas to seek exemptions from the state’s Distribution of Gas Ordinance 2016 for its operations there. This is a request that sits uneasily with the federal government as the Petroleum Development Act 1974 (PDA) vests ownership and regulatory control over all petroleum resources in the national oil company.

Last month, law minister Azalina Othman Said reminded Parliament that the PDA sets out the governing legal framework for Malaysia’s petroleum industry. Overriding it would create overlapping jurisdictions and investor uncertainty, she said.

“What needs to be codified is the primacy of the PDA and a return to investor-friendly policies,” Jamil told FMT. “No business should be left hostage to the weaponisation of regulations.”

Path forward

Analysts say a workable deal must rest on three principles:

• A joint-aggregator model could be established, allowing Petros to lead as regards domestic pricing and distribution, with Petronas exercising authority in all other respects.
• Expansions must be led by demand, not be speculative, with payouts tied to performance, not fixed sums.
• Legal roles must be respected, with the PDA continuing to form the regulatory spine.

Handled this way, the Petronas–Petros deal could become more than a settlement. It could set a model for federal–state collaboration, one that strengthens Sarawak without weakening Malaysia.