Modest gas profit share likely for Sarawak

PETALING JAYA: While the gas aggregation negotiations between Petroleum Sarawak Bhd (Petros) and Petroliam Nasional Bhd (PETRONAS) remain unresolved, Kenanga Research expects the final aggregator margin to be “modest”.

While the details of the gas aggregation profit share for Sarawak are not disclosed, the research house believes that the gas aggregation margin could be close to 10%, based on the example from the United States.

“Petros is likely to receive a lower gas aggregation margin compared to the US model, as PETRONAS will likely continue to earn a portion of the export margin. This is because PETRONAS still owns the liquefied natural gas liquefaction facility and remains the counterparty selling to Japan and South Korea,” it added.

The research house thinks the financial impact on PETRONAS should remain manageable, given the layered cost structure involved in exporting Sarawak’s gas including logistics, liquefaction and payments to upstream producers.

“We are also aware that the state will also announce more details on the gas aggregation agreement soon and final details may differ.

“Secondly, the Sarawak government reiterated its intention to gradually shift towards a more private sector-led growth model to encourage greater market competition,” Kenanga Research said following its Sarawak-focused event in Kuala Lumpur.

It added that while this transition is still at a nascent stage, it reflected a positive long-term direction. The research house explained that Sarawak aims to gradually transition from a state-led to a more private sector-driven growth model.

“We interpret this as a shift towards higher private capital participation in future development projects, reducing the state’s reliance on government funding,” it said.

Kenanga Research expects a potential catalyst for this transition would be the eventual monetisation or listing of state-held assets, especially those under the purview of the Sarawak Economic Development Corp or SEDC.

The research house said the state is looking to mitigate supply concentration risks for critical building materials as part of its broader infrastructure ambitions.

“The state needs to focus on the execution of its sanctioned infrastructure and downstream projects (Borneo Highway, Kuching Urban Transportation System Autonomous Rapid Transit project, methanol plant, etc) to turn self sufficient eventually, enabling the assets to be carved out to the public market for more private capital investment,” it added.

The research house believed opening up markets to outside competitors, especially in key building material areas, will benefit the Sarawak economy in the longer run.

However, it expected the state to face challenges such as manpower mobility and the ease of setting up business entities.

“The state also needs to find ways to improve its domestic economy size to expand the market for foreign players, which will subsequently increase the participation of private capital in the Sarawakian economy,” it added.

Kenanga Research pointed out that Pansar Bhd, which has secured RM2.5bil worth of contracts in Sarawak since early 2024, is in a good position to capitalise on the growth due to its diversified exposure.

It also likes Perdana Petroleum Bhd as it sees minimal balance sheet risk despite the uncertain macro outlook given that its vessel book value has largely been impaired since 2014.