Although different in nature, oil and gas are products obtained from the same source - petroleum. Derived from the Latin word petro or rock and oleum or oil, “petroleum” is meant to be understood as fluid found in rock. Petroleum naturally occurs in liquid, gas, semi-solid or solid forms. It is a mixture of hydrocarbon and non-hydrocarbon molecules found in the sub-surface of the earth’s crust. Hydrocarbons are organic compounds that contain bonded carbon and hydrogen atoms. Methane, n-butane, benzene and cyclo-hexane are some examples of the hydrocarbons.

The common misconception is that oil and gas are contained in a basin or lake since the term “reservoir” is often used. They are not found in large holes of the subsurface nor are they found in caves. They are found in the pores of rocks. When magnified, rocks have miniscule pores which allow oil and gas to percolate. In this sense, the rock has a similar characteristic of a sponge. Oil and gas can move within the rock and it is the nature of the rock which determines the movement of the oil and gas.

Petroleum needs 65 to 350 million years to develop. Interestingly, petroleum is made from a micro-organism called plankton, which are found in abundance in most pelagic zones or bodies of fresh water and are a major food source for fish such as shrimps, jellyfish and whales. 

Figure 1: Deposition and burial of organic matter

Deposits of the dead plankton are accumulated in a rock structure called the source rock. Plankton, algae, spores, pollen and plants which have been buried and exposed to increased temperature and pressure are transformed to kerogen, a prerequisite for the formation of hydrocarbons. When enough hydrocarbons are produced, they would then be expelled.

Figure 2: Microscopic view of reservoir rock

The hydrocarbons flow through a carrier rock before they reach the reservoir rock which then serves as a transporter. It is far from a trap or a seal rock but supports the hydrocarbons as it migrates through capillary pressure and buoyancy. For an oil reservoir to form, porous rock needs to be covered by a non-porous layer such as salt, shale, chalk or mud rock that does not allow hydrocarbons to leak from the structure.

Figure 3: Oil migration into reservoir rock

Trap rock retains the hydrocarbons in the reservoir rock. Without a seal rock, hydrocarbons cannot be retained. The hydrocarbons will flow until they reach another reservoir with a trap and seal rock. Seal rock is impermeable and made up of fine grains or salt such as shale, anhydrite and gypsum. Its impermeability prevents the migration of hydrocarbons and retains the hydrocarbon in a reservoir under a trap. Reservoirs exist anywhere from the land surface to 30,000 ft (9,000 m) below the surface and are in a variety of shapes, sizes and ages. The hydrocarbons will stay in the reservoir until they are discovered, extracted and processed into oil and gas products like the hydrocarbons that lie in the reservoirs found in the Malay, Sabah and Sarawak basins of Malaysia.

The state of oil and gas in Malaysia

Oil and gas is produced in most parts of the world. Malaysia, China, India, Indonesia and Australia are five proven oil reserve holders in the Asia-Pacific region. Despite the depletion of oil and gas reservoirs in Malaysia, aggregate production capacity is expected to rise with the development of new offshore oil and gas fields. New investment opportunities in the bid to enhance output from existing fields and to develop new deepwater offshore fields are encouraged by the government. Most of the oil comes from offshore fields located on the Malay basin in the west and the Sabah and Sarawak basins in the east. Much of the country’s oil reserves are found off Peninsula Malaysia, while much of the natural gas production comes from Eastern Malaysia and offshore Sabah and Sarawak.

Petroleum exploration in Malaysia started in early 1900 when oil was first discovered in Sarawak and oil production began in 1910. Since then, oil companies were granted exclusive rights by the respective state governments for the exploration and production of natural resources. With the implementation of the Petroleum Development Act in 1975, PETRONAS became the sole custodian of all petroleum resources in Malaysia.Expenditure and profits that stem from these explorations and production are managed by Production Sharing Contracts (PSC). PSCs are signed between PETRONAS and a resource extraction company or group of companies. PSCs determine the amount of the extracted resources each involved party will receive. Extraction companies, who are referred to as contractors, assume all risks and source the funds required for the production of the resources.

All foreign and private companies including ExxonMobil, Shell, Chevron, and BP must operate through PSC with PETRONAS. Related policies like energy policies are designed and overseen by the Economic Planning Unit (EPU) and the Implementation and Coordination Unit (ICU). They report directly to the Prime Minister.Malaysia has the world’s 14th largest natural gas reserve and 23rdlargest crude oil reserve with the production of 2000 million cubic feet per day of natural gas and 730,000 barrels per day (bpd) of crude oil. One barrel is equivalent to 159 litres while gas is measured in cubic feet. One cubic foot is equivalent to 28.3 litres. PETRONAS and its PSC partners are actively exploring offshore areas and focusing on deepwater fields on the eastern continental shelf. Approximately 615,100 sq km of acreages are available for oil and gas exploration and of these, 36% are covered by PSC.

The oil and gas industry in Malaysia remains confident as it actively conducts enhanced oil recovery (EOR) in the midst of depleting oil and gas reservoirs. Through EOR technology, the amounts of crude oil that can be extracted from existing oil fields are expected to yield a promising return. With the support from the government, PETRONAS and its partners will continue with the exploration and production of oil and gas to meet the escalating global energy demand.


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