2025: The Year Everything Shifted For Malaysia's Oil And Gas Sector, Momentum To Continue

By Siti Radziah Hamzah

KUALA LUMPUR, Dec 9 (Bernama) -- Malaysia is entering 2026 with its oil and gas sector still standing firm, but the ground beneath it is shifting faster than at any point in decades.

What was once a stable operating environment is now being reshaped by domestic political pressures and global structural changes. Sabah’s renewed push for its constitutional revenue rights and Sarawak’s accelerating bid for greater control over natural gas are redefining the federal–state balance in ways that could transform national energy governance.

bootstrap slideshow

At the same time, the global oil market is slipping into a structural surplus that is eroding price support worldwide. 

Year-to-date, Brent has averaged US$68.63 per barrel while West Texas Intermediate (WTI) has held at US$65.25 per barrel, levels that have pressured margins across the value chain.

Amid these conditions, Petronas is resizing its workforce by about 10 per cent, affecting more than 5,000 employees, as part of wider cost-containment measures triggered by falling crude oil prices and softer demand. 

bootstrap slideshow

The move underscores the rising operational pressure facing national oil companies in a low-price, high-volatility landscape.

For Malaysia, the convergence of these domestic and external shifts signals a consequential year ahead, with decisions in 2026 likely to shape the sector’s trajectory well beyond the near term.

Sabah’s 40 per cent net revenue entitlement, long seen as a dormant constitutional clause, has re-entered the national spotlight after the state’s High Court victory ordering a full recalculation of federal revenue owed from 1974 to 2021. 

Putrajaya’s decision not to appeal the core ruling indicates readiness to engage, even as it challenges specific elements of the judgment.

Any upward adjustment to Sabah’s entitlement will directly influence federal revenue distribution and could alter upstream and infrastructure investment priorities across East Malaysia.

Sarawak, meanwhile, is advancing its structural ambitions. The state’s push for Petroleum Sarawak Bhd (Petros) to assume the role of the natural gas aggregator has unsettled long-standing arrangements, with ongoing negotiations with Petronas already affecting timelines for hook-up and commissioning, call-out and brownfield packages.

Political recalibration is now producing operational friction. But Petronas is not standing still. According to research house BMI, the national oil company is accelerating an international pivot, targeting overseas upstream exposure of around 60 per cent of its portfolio over the next decade, a strategic hedge as Sarawak, which holds roughly 40 per cent of Malaysia’s oil and 60 per cent of its gas reserves, gains greater autonomy.

To reinforce its global footprint, Petronas has stepped up international collaborations, including a memorandum of understanding with Dragon Oil in October 2025 to explore upstream opportunities in Egypt and Turkmenistan. 

Domestically, it has signed technical evaluation agreements with BP, Eni, INPEX, Pertamina, PTTEP and TotalEnergies to assess frontier basins in Peninsular Malaysia.

SPI Asset Management managing partner Stephen Innes describes Malaysia’s 2025 performance as “resilient but not spectacular”, noting sound fundamentals but thinner buffers across upstream and downstream segments.

Fiscal pressures are rising in parallel. The Sabah ruling recalibrates expectations around revenue sharing just as Petronas’ projected RM20 billion dividend for 2026 — its lowest in nine years — narrows federal fiscal headroom. 

While the lower payout allows Petronas to reinvest more aggressively upstream, LNG and low-carbon projects, it also highlights the budget’s continued reliance on petroleum-linked income amid subsidy reform and demographic strain.

Fuel policy also entered a new phase in 2025. The government implemented RON95 subsidy rationalisation in the second half of the year, following last year’s diesel rationalisation, shifting from broad-based subsidies to a more targeted framework. 

Under the new system, eligible Malaysians continue to buy RON95 at RM1.99 per litre, while non-eligible users pay weekly floating prices under the automated pricing mechanism, a move aimed at reducing leakages and easing long-standing fiscal pressure.

These domestic shifts are unfolding against a global market that offers little relief. Demand underperformed in 2025 as China’s recovery stumbled, the European Union faced an industrial slowdown, and US trade measures disrupted supply chains. 

Structural forces from electric vehicle adoption to efficiency gains are eroding oil’s dominance faster than anticipated.

Supply, meanwhile, surged. OPEC+ reinstated around 2.6 million barrels per day (bpd) of earlier cuts, while the United States, Canada, Brazil and Guyana all posted new production highs.

The International Energy Agency projects a surplus of 1.9 million bpd in 2025, widening to 4 million bpd in 2026, with the US Energy Information Administration and BloombergNEF offering similarly bearish outlooks.

Even geopolitical shocks are no longer providing durable price support. Despite attacks on Russian refineries and fresh Western sanctions, Russian crude continues to flow through “shadow fleets”, while discounted cargoes from Venezuela, Nigeria and Iran remain available to Asian buyers. 

China, having stockpiled 0.53 to 0.9 million bpd in 2025, is nearing storage capacity, weakening one of the market’s key stabilising forces.

ABN AMRO expects the latest US sanctions on Russia to be temporary, noting that without secondary sanctions on buyers, Russian barrels will keep reaching markets, albeit at higher logistical costs. With China slowing its stockpiling, the market may soon feel the full weight of oversupply.

The bank forecasts Brent crude to average US$58 per barrel in the first quarter of 2026, ease to US$52 mid-year and end around US$50 — implying a full-year average of US$55 per barrel, consistent with a structural glut rather than a cyclical dip.

Malaysia enters 2026 with real strengths: a robust national oil company, an integrated value chain and a competitive upstream cost base. But the environment around it has fundamentally changed.

Global markets are shifting into surplus, Sabah and Sarawak are redrawing domestic dynamics, and the federal fiscal model must evolve to prevent widening vulnerabilities.

This is not a routine transition. It is a turning point.

-- BERNAMA