Malaysia’s energy needs face Chinese pushback in South China Sea

Malaysian Prime Minister Anwar Ibrahim has insisted gas and oil exploration will continue despite objections by Beijing.

Petronas logo with the company's twin towers in the background.
Malaysia's state-run Petronas is exploiting gas reserves in the South China Sea [File: Bazuki Muhammad/Reuters]

Kuala Lumpur, Malaysia – When Malaysian Prime Minister Anwar Ibrahim made his first official visit to China earlier this month, Chinese officials questioned Malaysia’s oil and gas exploration within its exclusive economic zone (EEZ) in the South China Sea.

China was concerned that state-owned energy company Petronas “carried out a major activity at an area that is also claimed by China,” Anwar said in response to a parliamentary question on April 4.

Anwar said he told his Chinese counterparts that Malaysia considers the area Malaysian territory and “therefore Petronas will continue its exploration activities there”.

The exchange highlights Beijing’s increasing efforts to pressure Kuala Lumpur not to exploit energy resources under its control, even as Anwar looks to deepen Sino-Malaysian ties, analysts say.

Beijing claims sovereignty over more than 90 percent of the South China Sea via its “nine-dash line”, which cuts into the EEZs of Vietnam, the Philippines, Malaysia, Brunei and Indonesia.

In 2016, an international arbitration panel at The Hague ruled that there was no legal basis for Beijing’s claims over the strategic waterway. Under the United Nations Convention on the Law of the Sea, countries have special rights to exploit natural resources within their EEZ, which extends 200 nautical miles (370km) from the coastline.

“Given that it’s Anwar’s first visit to Beijing in his newfound capacity as Prime Minister, I believe China would have found it opportune to try to convince Malaysia to cease energy work in those concerned areas, especially off Sarawak,” Collin Koh, a research fellow at the Singapore-based Institute of Defence and Strategic Studies, told Al Jazeera.

Koh said Beijing is aware of Malaysia’s deep economic ties with China and the economic leverage it is capable of using to prod Kuala Lumpur on the issue.

China has been Malaysia’s largest trading partner for 14 consecutive years, with bilateral trade reaching $203.6bn in 2022.

While Anwar did not name the exploration site under dispute, he was widely understood to be referring to the Kasawari gas field located about 200 km (124 miles) off the coast of Sarawak state in Malaysian Borneo.

Chinese vessels and aircraft have repeatedly entered waters and airspace near the gas field in recent years, drawing protests from Kuala Lumpur.

In 2021, then Malaysian Foreign Minister Saifuddin Abdullah said he expected more Chinese vessels to enter the area “for as long as” Petronas developed the site, which was discovered in 2011 and contains an estimated 3 trillion cubic feet of recoverable gas resources.

“Kasawari certainly gets as much pressure as any other drilling site in the South China Sea [from Chinese ships],” Greg Polling, director of the Asia Maritime Transparency Initiative based in Washington, DC, told Al Jazeera.

“We’ve historically seen the CCG [Chinese Coast Guard] focus on harassing the offshore supply vessels contracted to keep rigs and drilling ships operating,” said Polling, explaining that Chinese ships have been known to intentionally risk collision in order to pressure companies to stop taking contracts servicing the rigs.

Polling said that the Chinese Coast Guard disrupts operations at Kasawari, Vietnam’s Nam Con Son gasfield and Indonesia’s Tuna gasfield because they are the only major projects developed inside the nine-dash line.

South China Sea
China claims about 90 percent of the South China Sea, despite overlapping claims by Vietnam, the Philippines, Malaysia, Brunei and Indonesia [File: Jam Sta Rosa/AFP]

Despite its expansive claims in the South China Sea, Beijing has said it wishes to work with Malaysia to handle its differences through dialogue and consultation.

Koh said Beijing and Kuala Lumpur have exercised restraint over the issue despite their differences.

“There’s as yet nothing drastic undertaken beyond the posturing of their maritime forces, whereas the diplomatic communications between these two capitals have largely stayed out of public limelight — to avoid inflaming the situation — via backchannel,” Koh said.

“China is keen to cultivate a friendly Malaysian government under Anwar, and it’ll appear that both countries continue to emphasise the so-called ‘big picture’ of their comprehensive relations that encompass areas of concord more than just the South China Sea dispute.”

The richness of the Kasawari field, which Petronas CEO Tengku Muhammad Taufik Tengku Aziz has said is big enough to ensure his company remains one of the world’s top five exporters of liquefied natural gas, demonstrates how high the stakes in the South China Sea have become.

Malaysia’s oil and gas industry is a major pillar of the economy, accounting for about 20 percent of gross domestic product (GDP), according to the Malaysian Investment Development Authority.

The Kasawari gasfield’s estimated 3 trillion cubic feet of recoverable gas reserves alone constitute approximately 10 percent of Malaysia’s natural gas reserves, said Yeah Kim Leng, an economics professor at Malaysia’s Sunway University who is a member of an advisory committee to Anwar.

“Slated to begin operations this year, the oil field is therefore a key asset to sustain the country’s oil and gas export earnings and meeting its domestic energy needs both directly and indirectly through imports,” Yeah told Al Jazeera.

The gas field is expected to produce up to 900 million cubic feet of gas daily once in operation.

Petronas declined to comment on China’s activities near its operations in the South China Sea.

A spokesperson, however, said the Kasawari development, which includes the world’s largest carbon capture and storage project, will be crucial to the company’s efforts to achieve net zero carbon emissions by 2050.

“Kasawari Gas Field project, off the coast of Sarawak is the beginning of Petronas’ adoption of CCS for high carbon dioxide fields,” the spokesperson said, adding that the project is expected to capture more than 3.3 million metric tonnes of carbon dioxide (CO2) per year upon its completion in 2026.

Source: Al Jazeera