AS the world rapidly shifts towards electric vehicles (EVs), the implications for traditional oil giants like Petronas are profound and concerning.
The rise of battery electric vehicles threatens to disrupt the traditional fuel market, prompting questions about the sustainability of Petronas's business model.
According to Bloomberg NEF, demand for petrol is projected to peak around 2026, with a subsequent decline of nearly two-thirds from its peak levels by 2050.
Diesel demand is expected to follow a similar trend, peaking around 2029 and declining by one-third by 2050.
This decline is primarily driven by the increasing adoption of electric vehicles (EVs) and improvements in fuel efficiency.
With projections indicating a significant decline in demand for petrol and diesel, many Malaysians are left wondering: will Petronas suffer as consumers increasingly embrace battery electric vehicles?
The fear of dwindling profits looms large, as the company has historically relied on fuel sales as a cornerstone of its revenue.
Malaysians are concerned that as more Malaysians opt for electric cars, the demand for fossil fuels will inevitably decline, leading to potential financial strain on the national oil company.
This scenario raises alarms about job security, economic stability, and the future of Malaysia's energy sector as a whole.
Some going as far as expressing dismay that the government is promoting the sale of electric vehicles, which may result in a significant shrinking of the company's profit, which has been a significant contributor to Malaysia's wellbeing.
Petronas' Profits and Nation-Building: A Delicate Balance
As Malaysia's national oil company, Petronas plays a crucial role in the country's economic development and nation-building efforts.
Over the years, Petronas has been a significant contributor to the Malaysian government's coffers, providing a steady stream of dividends, taxes, and cash payments that have totalled RM1.4 trillion since the company's inception.
This substantial contribution has enabled the government to fund various infrastructure projects, social welfare programs, and economic initiatives aimed at improving the lives of Malaysians.
From building schools and hospitals to investing in public transportation and renewable energy, Petronas' profits have been instrumental in driving Malaysia's progress as a nation.
As the demand for traditional fuels like petrol and diesel decreases, Petronas may face challenges in maintaining its current level of profitability.
This scenario has raised alarm bells among Malaysians who have grown accustomed to the stability and growth that Petronas' contributions have brought to the country.
However, while these concerns are valid, it is crucial to recognize that the oil industry is not facing imminent decline; rather, it is undergoing a significant transformation that positions it for future growth.
What else can Petronas do with Malaysia's crude oil?
For most of us, we imagine crude oil mostly turned into fuels like petrol, diesel, and jet fuel or kerosene, but in reality, its versatility extends far beyond these familiar products.
What most of us don't realise is that in the early days of the oil industry in the early 1900s, the primary focus of refineries was on producing kerosene for lamps and heating.
Back then petrol, which was considered a waste product, made up only a small fraction of the refined output.
Thanks to the invention of the internal combustion engine 1800s, petrol and diesel became a key product of refineries.
Kerosene which we all remember as fuel for lamps and lanterns have gone on to become jet fuel.
When Malaysia began producing oil in the 1970s, the refining industry was still heavily focused on transportation fuels. Gasoline, diesel, and jet fuel made up the bulk of refined products.
Today, the refining industry has evolved to meet changing market demands. While fuels still account for a significant portion of refined products, the share of crude oil being converted into petrochemicals has grown substantially.
Estimates suggest that by 2050, petrochemicals could account for over 50 per cent of the growth in oil demand, surpassing transportation fuels.
Some refiners are even exploring technologies to directly convert crude oil into chemicals, with the goal of producing up to 80% chemicals per barrel of crude.
What's Petronas waiting for?
Nothing, really.
The Pengerang Integrated Complex (PIC) in Johor is considered a landmark project in Malaysia's petrochemical journey not just because it is huge and cost of a lot of money.
PIC is a result of Petronas looking ahead and seeing the importance of petrochemical in the future and was part of their plant to position the country as a major player in the global petrochemicals market.
The decision to build the complex was made in the early 2010s as part of the country's Economic Transformation Programme, which aimed to create a more dynamic and progressive oil and gas industry.
Construction of the facilty which covers 6,242 hectares began in 2015, a year after Petronas made its final investment decision in 2014 can completed in 2019.
The PIC has a refining capacity of 300,000 barrels per day (bpd) and is designed to produce approximately 3.6 million tonnes of petrochemical products annually.
Given that Malaysia's overall oil production of around 660,000 bpd, Pengerang represents nearly 45 per cent of Malaysia's total refining capacity.
While the PIC may not be the largest petrochemical complex in the world, it is a significant investment for Malaysia and a crucial step in the country's efforts to become a regional hub for the petrochemical industry.
The petrochemicals business has emerged as a more desirable and profitable segment compared to traditional fuels, driven by several key factors that highlight its potential for sustained growth and profitability.
As global wealth rises, so does the consumption of goods that rely on petrochemicals, such as plastics, synthetic fibers and fertilisers.
According to the International Energy Agency (IEA), petrochemicals are projected to account for over a third of the growth in oil demand through 2030 and nearly half by 2050.
In contrast to the slim profit margins associated with traditional fuels, the petrochemical sector often enjoys significantly higher margins.
For instance, higher-value petrochemical products like polyethylene and propylene can account for a substantial portion of oil companies' downstream earnings—up to 40% in some cases.
This profitability is driven by the diverse applications of petrochemicals in various industries, including automotive, construction, and consumer goods, which are less susceptible to the price volatility that often plagues the fuels market.
Compared to other petrochemical complexes worldwide, the PIC is notable for its integrated design, The Pengerang Integrated Complex (PIC) in Johor, Malaysia, has a significant capacity for petrochemical production.
It is worth noting that PIC has the capability of skewing its production to generate 73% petrochemical compared to fuels as it can crank out 2.5 million tonnes of petrochemical products every year out of the total capacity for 3.4 million tonnes.
This clearly shows that Petronas has a plan in place to weather the EV transition by shifting it's strategic focus on this high-value segment of the market.
While the transition to electric vehicles may raise concerns about Petronas' future, the company's proactive strategies, investments in EV infrastructure, and focus on petrochemicals suggest that it is well-positioned to navigate the changing energy landscape.
By balancing its core business with new growth opportunities, Petronas can continue to contribute to Malaysia's economy while supporting the shift towards a more sustainable future. Thus, Malaysians can remain optimistic about Petronas' role in the evolving energy sector.
Apart from the shift towards petrochemicals, the national oil company has also laid out comprehensive plans to transition into renewable energy as part of its broader strategy to achieve net-zero carbon emissions by 2050.
Although small, Petronas is moving directly into the EV charging business through Gentari. Mos tof us can see how this can help them recover some of the revenue that may be lost to electric vehicles but the plan doesn't stop there.
They are also actively investing in renewable energy infrastructure, which includes solar, wind, and hydrogen projects. Petronas aims to build 30-40 GW of renewable energy capacity by 2030, though not necessarily all in Malaysia, indicating a significant commitment to scaling up its renewable energy portfolio.
Apart from building a charging network, Gentari is a comprehensive clean energy solutions arm with fingers in renewable energy, hydrogen, and green mobility.
For instance, the acquisition of Amplus Energy Solutions in India allows Petronas to generate over 600 MWp of renewable energy annually in one key future market.
This proactive approach suggests that while the company is rooted in traditional oil and gas, it is also making significant strides towards a more sustainable and diversified energy future.
While we are right to have concerns about the future, there are compelling reasons to view Petronas as a company that is evolving and positioning itself to thrive in a sustainable energy future.