As far as fossil fuel companies go, Malaysia’s Petroliam Nasional is not the worst of the worst. But it does hold a weighty mid-table position among national oil and gas producers ranked in terms of historic CO2 equivalent emissions, coming higher than the likes of Norway’s Statoil, India’s Oil & Gas Corporation, and Qatar Petroleum. Now, swept up in the “race to zero,” Petronas says that it wants to change. Normally, the carbon reduction pledges of fossil fuel majors are closely scrutinized, but not so for more opaque state-owned producers. So here is an attempt to assess the likelihood of Petronas’ reaching net zero.
“National Treasure”
Petronas has always been reliable, almost predictable. In the 48 years since its founding, it has provided generously for the Malaysian government, its sole shareholder, both in good times and bad, its contributions over that time totaling roughly 1.2 trillion ringgits ($268 billion). Endowed with exclusive control of all oil and gas reserves in the country, it is the single most important and successful state-owned company, alone contributing 20 percent of Malaysia’s annual GDP.
However, given the volatility of energy markets, the need to reduce Malaysia’s dependence on oil money has been self-evident for some time now. By right, Petronas should play the lead role in this assignment. But the pace of change has not been anywhere near enough to confront the realities of the energy transition.
Smokescreen
In November 2021, Petronas announced its “aspiration” to achieve net-zero carbon emissions by 2050, and has since launched a full-scale public relations offensive to that end. The form has been relatively late in making its sustainability play, seeing that some oil majors declared emissions reduction targets years earlier. Even so, Petronas does not seem to have benefitted from the extra time, because its decarbonization plan is much alike in substance, or rather the lack of it.
Like its peers, Petronas has not committed to cutting production, meaning it will continue drilling as normal or more vigorously. Instead, it claims that increased efficiencies will help reduce direct and indirect emissions from operations, while other mechanisms will be used to capture or cancel out emissions.
Petronas’ plan to keep growing conventionally is in complete opposition to the urgent calls of climate scientists to end all exploration for fossil fuels. This is the case with many other state oil and gas companies, which also seem to be doubling down on production, perversely due to planned cuts by the private sector.
There is one disclaimer: the mid-term cap for emissions from Malaysian operations – 49.5 MtCO2e by 2024 – should preclude any increase in absolute emissions. But this actually gives the company quite a bit of leeway considering that its emissions last year stood at 43.8 MtCO2e despite its higher production levels. Fixing emissions “at a high level” while continuing to develop assets indefinitely is a new trick in the books of fossil fuel giants (evidently Petronas included) that ends up doing more total damage to the climate.
Reducing emissions is, of course, a costly proposition, and with resources pulled in different directions between payments to the government, new upstream production, and investments in non-fossil fuels, money is tight. Petronas is budgeting 20 percent of its capital expenditure for “new energy,” as it calls projects involving hydrogen and renewables; the rest is going into business-as-usual, the dirty core business. But the company has it backward: To align with a 1.5-degree pathway, at least 77 percent of capital expenditure must be invested in low-carbon technology.
More critically, though, the firm is wagering too much on carbon capture, use, and storage (CCUS), a technology with limited capacity and questionable efficacy. Only several dozen CCUS projects are active around the world, and none exist in Southeast Asia, save for a few studies in Indonesia. True enough, the International Energy Agency has endorsed CCUS, but mainly for hard-to-abate sectors such as cement and steel production and only secondarily for what little fossil fuel should rightly remain in use by 2050.
Petronas, as it happens, not only needs CCUS to reduce emissions, but also to develop its bountiful high-CO2 gas resources. It is setting up the region’s first CCUS in Sarawak to start by the end of 2025. However, the development costs for this project alone will set the company and consequently the government back more than $1.2 billion in net present value. And herein lies a key problem with Petronas’ obsession with CCUS: without significant political will, it is simply not commercially viable.
In order to mature, CCUS needs to be supported by policy incentives and regulatory frameworks, in the form of carbon pricing mechanisms, which are currently absent in the region, except for Singapore. Although Malaysia did mention a carbon tax and an emissions trading scheme in its latest five-year economic plan, there are valid fears that these may not be realized, or not realized fast enough.
The point is that carbon removal is more of a delay tactic than anything else, grounded in the idea of “gradual transition,” rather than the rapid transition that climate science increasingly stresses. The net-zero effort of Petronas and other carbon majors, as they try to look like they are part of the solution rather than part of the problem, is a matter of “institutional survival” in the low-carbon economy of the future.
Their chicanery is not working. The industry has to commit in practice to ceasing all exploration, winding down extraction faster rather than slower, and spending on low-carbon technologies like there’s no tomorrow. At present, there is not a single fossil fuel major that is fully Paris-aligned. Still, private companies are constantly in the public eye, while national companies, despite possessing two-thirds of the remaining reserves of discovered oil and gas globally, manage to avoid most of the pressure and scrutiny.
While Petronas may be as a whole ahead of state companies as far as written sustainability pledges go, it is hardly an excuse for filling its climate manifesto with the usual placebos as a substitute for taking the difficult but necessary actions.