Sabah is fast emerging as a new focal point for global oil and gas investments. As projects take shape and resource integration continues, the state’s administrative efficiency and upstream execution are reshaping investor perceptions of East Malaysia’s energy landscape.
High-quality projects have strengthened confidence in Sabah’s potential. Some analysts even suggest that Sabah may be surpassing Sarawak as Malaysia’s top destination for foreign investment in the oil and gas sector.
Shamirul Ariff Osman, economist and lecturer at Universiti Teknologi Petronas, told Free Malaysia Today (FMT) that global interest in Sabah is driven not just by geopolitical instability in the Middle East, but also Malaysia’s comparatively stable and attractive investment environment. “This year, intensified conflict between Iran and Israel, coupled with rising tensions in the Red Sea, have raised insurance costs, security risks, and supply chain uncertainties in the Middle East and North America. Investors are seeking lower-risk, high-potential alternatives—and Southeast Asia fits the bill,” he said.
Shamirul noted that while Peninsular Malaysia’s Langkasuka Basin has drawn interest, its underdeveloped infrastructure may delay commercialization. Sabah currently leads in upstream readiness, followed by Sarawak. Despite Sarawak’s strong LNG facilities and active fields like SK318 and SK408, ongoing disputes between state oil company Petros and national oil firm Petronas over exploration rights and revenue-sharing continue to create uncertainty for investors.
Political analyst Dr. Yong Su Venn, Assistant Professor at the University of Nottingham Malaysia, emphasized that unresolved ambiguities in resource governance between federal and state governments remain a structural challenge. “The agreement between Sabah and Petronas lacked clarity in defining responsibilities, leaving key mechanisms vague,” she told FMT.
SMJ Energy: Driving Strategic Growth in Sabah’s Oil & Gas Industry
Since the signing of the Commercial Collaboration Agreement (CCA) with Petronas in December 2021, SMJ Energy—the Sabah state government’s energy investment arm—has rapidly expanded its role, catalyzing the robust development of the state’s oil and gas industry.
Established under the Gabungan Rakyat Sabah (GRS) government, SMJ Energy now holds significant equity positions:
50% in the Semarang production sharing contract,
10% in the LNG9 liquefaction facility, and
25% in the Sabah Ammonia Urea (SAMUR) plant.
It also fully owns Sabah International Petroleum and operates FPSO and FSO units, giving Sabah operational presence across both upstream and midstream segments.
In addition, SMJ Energy holds first right of refusal and buy-back options on four exploration blocks—SB409, SB403, SB306A, and SB306B—offering further leverage in upstream expansion.
New LNG Investment Deepens Sabah’s Upstream Commitments
On July 17, the GRS government signed a Heads of Agreement (HOA) with Petronas, signaling a new phase of strategic LNG investment. Chief Minister Datuk Seri Hajiji Noor announced Sabah’s plan to acquire a 25% equity stake in Petronas’ upcoming ZLNG floating LNG facility, located offshore Sipitang.
Valued at USD 3.1 billion (approximately RM13.2 billion), ZLNG is expected to begin operations in the second half of 2027, with a projected annual output of 2 million tonnes of LNG. Datuk Dr. Dionysia Kibat, CEO of SMJ Energy, described the investment as a pivotal step that aligns with Sabah’s long-term strategy in strengthening its upstream, LNG, and petrochemical portfolio.
In addition, SMJ Energy will also acquire a 40% stake in PFLNG1, with due diligence expected to be completed in the second half of 2025.
Sabah Energy Corporation Secures Supply to Power Industrial Growth
To bolster industrial confidence, Sabah Energy Corporation (SEC)—wholly owned by the state—signed a Gas Sales Agreement with Petronas in March 2025. This ensures a steady gas supply to Esteel Enterprise Sabah Sdn Bhd at the Sipitang Oil & Gas Industrial Park.
Petronas will supply an additional 104 million standard cubic feet per day (mmscfd) of gas to SEC, bringing the total daily volume to 370 mmscfd. Of this, 150 mmscfd will be allocated to Esteel—100 mmscfd for manufacturing and 50 mmscfd for power generation. The deal is valued at RM1 billion annually.
Chief Minister Hajiji Noor called this a major milestone in Sabah’s development, reinforcing energy security and creating downstream opportunities that anchor Sabah’s growing role in the regional economy.
ConocoPhillips and Global Majors Eye Sabah’s Energy Potential
The 2025 Asia Energy Summit further highlighted Sabah’s growing relevance. After withdrawing from Sarawak’s deepwater Salam-Patawali field (Block WL4-00), U.S. oil major ConocoPhillips expressed optimism about Sabah’s prospects.
CEO Ryan Lance said the company is actively engaging with Petronas to explore new investment opportunities in Sabah. ConocoPhillips currently holds operating interests in five Production Sharing Contracts (PSCs) in Malaysia—four of which are offshore Sabah—including Blocks G and J, the Kebabangan cluster (KBBC), and the Ubah cluster, acquired in 2024.
Sabah already hosts two floating LNG facilities—PFLNG1 and PFLNG2, with annual capacities of 1.2 million tonnes and 1.5 million tonnes, respectively. With the addition of ZLNG, Sabah’s LNG infrastructure will be significantly enhanced.
Petronas Pushes Collaborative Upstream Model
Beyond Sabah, Petronas continues building partnerships with global energy players such as ConocoPhillips, Eni (Italy), TotalEnergies (France), and Idemitsu (Japan) to de-risk exploration and boost efficiency.
According to Shamirul, Malaysia’s Production Sharing Contract (PSC) model remains regionally competitive, allowing firms to recover 70% of revenue as costs, while the remaining 30% is taxed—5% each to the federal and state governments.
However, he emphasized the need for institutional reform to sustain investor momentum beyond 2026—particularly in PSC approval efficiency and regulatory clarity in East Malaysia.
“In an inflationary environment with supply chain constraints and high deepwater costs, joint ventures are an effective way to manage risk,” Shamirul explained. “They also bring advanced technologies—particularly in carbon management and digital exploration—that can accelerate Malaysia’s energy transition.”
Sabah’s Energy Ascent Hinges on Strong Policy, Clear Reform
Sabah’s steady rise in the regional oil and gas arena is no accident—it is the result of coordinated investments, sound strategy, and a clear commitment to local value creation.
Finance Minister Datuk Seri Masidi Manjun underlined this at an SMJ Energy event in July, stating that oil royalties alone are not enough. “We must develop local industries and create jobs. Royalties go into a general fund, but a thriving local oil and gas ecosystem delivers direct benefits to our people,” he said.
To that end, the state is also revising its State Sales Tax Ordinance (CJN) to eliminate ambiguity and strengthen enforcement, while ensuring fairness through clear appeal mechanisms.
As the GRS government works to build a self-sustaining oil and gas ecosystem, its success will depend on deeper collaboration with federal agencies—especially Petronas—through streamlined processes, transparent regulations, and investment-friendly reforms.
With its evolving infrastructure, growing LNG portfolio, and strengthening institutional framework, Sabah is positioning itself not just as a beneficiary of Malaysia’s energy wealth—but as a leading force in shaping its future.
VOICE OF ASIA Editorial Note
At VOICE OF ASIA, we believe in amplifying the real voices of the people – especially those too often overlooked in national discourse. This translated article, originally published by Sin Chew, highlights a perspective from Sabah that resonates with our editorial mission: to go beyond headlines and politics, and shine a light on what truly matters to everyday Malaysians.
The original version can be found here.
