Policy and Targets
Background and the Role of Reductions in Meeting Environmental and Economic Objectives
Between 2012 and 2021, oil production in Malaysia rose and peaked in 2016 before falling to the lowest level in 2021, significantly lower than that in 2012. The volume of gas flared fell to its lowest level in 2021, but due to the even more significant decline in oil production, the flaring intensity did not fully track this significant downward movement. There were 56 individual flare sites in the last flare count, conducted in 2019.
Gas flaring volume and intensity in Malaysia, 2012–21
Malaysia has ratified both the Paris Agreement and the Kyoto Protocol/ It submitted its first NDC to the UNFCCC in 2016 and an update in 2021. Malaysia has committed to reducing its carbon intensity (GHG emissions as a percent of GDP) relative to 2005. The updated NDC increased the unconditional contribution for carbon-intensity reduction from 35 percent in the 2016 submission to 45 percent. All seven GHGs are covered, but flaring and venting are not mentioned in the NDC, even though it notes the importance of the oil and gas industry as a key sector of the Malaysian economy.
Malaysia has historically taken a strategic approach to domestic energy issues, starting with the National Petroleum Policy, 1975 (efficient utilization of petroleum resources); the National Energy Policy, 1979 (efficient utilization of energy and elimination of wasteful and nonproductive use); and the National Depletion Policy, 1980 (prolonging the life span of the nation’s oil and gas reserves. It has continued adjusting and expanding these policies with follow-up initiatives. At the macroeconomic level, successive Malaysia Plans have aimed to put the country, its people, and economy on a growth trajectory. These aims include sustainable growth and the reduction of GHG emissions, with tCO2e a year per unit of GDP as a sustainable consumption and production indicator.
Despite the focus on sustainable development and environmental protection across these key government initiatives, no regulations or government policies explicitly cover gas flaring and venting. Instead, these topics are treated in confidential documents, such as the production and operations procedures and guidelines, and licensing arrangements, such as PSCs and risk service contracts.
Targets and Limits
There is no evidence of any specific government-imposed flaring or venting-related targets or limits in the sources consulted. However, Petroleum Nasional Berhad (Petronas), the national oil company, has publicly pledged to reach net-zero carbon emissions by 2050. It will do so by deploying (among other levers) its operational strengths to reduce gas flaring and venting, capture methane emissions, and optimize production operations.
Legal, Regulatory Framework, and Contractual rights
Primary and Secondary Legislation and Regulation
The Petroleum Development Act, 1974, forms the basis for all oil- and gas-related activities in Malaysia, defining items such as hydrocarbon ownership and the role of Petronas. The Petroleum Development Act, 1974 and Petronas’ Memorandum and Articles of Association, 1983, define the rights and responsibilities of Petronas. The Petroleum Regulations, 1974, complement the Petroleum Development Act, 1974 regarding license applications and data provision. The Gas Supply Act, 1993, covers gas transport and the related metering issues. The regulator in charge of it is defined in the Energy Commission Act, 2001.
The Environmental Quality Act, 1974, established the principles of environmental protection. It is supported by the Environmental Quality (Clean Air) Regulation, 2014, and the Environmental Quality (Prescribed Activity) (Environmental Impact Assessment) Order, 2015. The limitations set on air pollutants also apply to oil and gas operations across upstream, midstream, and downstream operations.
The Malaysia-Thailand Joint Authority Procedures for Production Operations, 2009, is an intercountry agreement governing production operation procedures in shared areas. It sets ground rules for flaring and venting. The requirements for exemptions from these rules appear comparable to those stipulated in confidential arrangements with contractors and operators.
The Petronas Procedures and Guidelines for Upstream Activities (PPGUA) state detailed country-specific requirements, including the key provision that upstream activities are to be carried out in line with good and modern petroleum practices, including flaring and venting. Although not a regulation, these guidelines carry significant weight, given the influence of Petronas as the hydrocarbon resource owner with a direct reporting line to the prime minister.
Hydrocarbon and environmental matters are subject to national laws and jurisdiction. Flaring and venting are not publicly regulated but are governed by Petronas’ commitments.
Associated Gas Ownership
Following Section 2 of the Petroleum Development Act, 1974, ownership and exclusive exploration and development rights over oil and gas are vested in Petronas. Subject to an approved development plan, Petronas has the option of maintaining title to the associated gas that is neither used in operations nor marketed. As with all other PSCs, title to cost oil and gas and the contractor’s share of profit oil and gas is transferred to the PSC contractor. By contrast, under risk service contracts, which are fee-based, no title to any oil and gas produced is transferred.
Regulatory Governance and Organization
The Petroleum Development Act, 1974, vests the powers and responsibilities over hydrocarbon resources in Petronas. Petronas is under the control and direction of the prime minister (Section 3 of the Petroleum Development Act, 1974). The prime minister also has the power to make regulations relating to the exploration and exploitation of hydrocarbons (Section 7), which he or she may delegate (Section 7A). The Malaysia Petroleum Management (MPM) within Petronas carries out the regulatory responsibilities assigned to Petronas, making it the upstream regulator in Malaysia.
Based on the Environmental Quality Act, 1974, the minister of environment and water is responsible for managing the environment and limiting waste, emissions, and other environmentally adverse factors. In line with Section 3, he or she appoints the director-general of environmental quality, who administers the provisions of the Environmental Quality Act, 1974; the Environmental Quality (Clean Air) Regulation, 2014; and other laws and regulations. On issues such as emissions management, the responsible Petronas department (MPM for upstream activities and the health-safety-environment department for activities covering all business lines) typically liaises with the director-general of environmental quality.
Regulatory Mandates and Responsibilities
The MPM is in charge of production-licensing arrangements with external companies, including the terms of contracts; controls the work programs and budgets; and oversees compliance with guidelines and regulations. As flaring- and venting-related matters are captured in the PPGUA (typically referred to in confidential licensing arrangements), the MPM has significant influence over the treatment of associated gas.
Based on the responsibilities vested in the minister of environment and water, according to Section 3 of the Environmental Quality Act, 1974, its subordinate director-general of environmental quality can issue emission licenses and carry out monitoring activities and assessments across upstream, midstream, and downstream operations. Given the MPM’s authority over upstream operations, it can be assumed that any upstream-specific action will be carried out in close coordination.
Monitoring and Enforcement
By monitoring the implementation of the PPGUA, the MPM gains insights into the remaining lifecycle of upstream activities, including the use of associated gas, across the country’s portfolio. The MPM can set gas supply targets for the operator and conduct quarterly performance reviews. It also sets annual flaring or venting limits. If these limits are exceeded, the operator needs to notify the MPM and provide a mitigation plan. The MPM can then, at its sole discretion, issue an exemption. Noncompliance can lead to legal and financial consequences.
Flaring or Venting without Prior Approval
Section 10 of the Malaysia-Thailand Joint Authority Procedures for Production Operations, 2009 bans flaring and venting without prior approval except in the following circumstances:
- during well cleaning and testing periods (not exceeding 48 hours)
- in emergencies, such as shutdowns or pressure relief
- during maintenance (not exceeding one week)
- during temporary equipment failure (not exceeding 72 hours)
- during gas release from facilities when alternative uses of gas are not economic.
Authorized Flaring or Venting
Section 10 of the Malaysia-Thailand Joint Authority Procedures for Production Operations, 2009, in alignment with the requirements of the PPGUA, requires prior approval of any flaring or venting other than those that occur under conditions listed in the preceding section. The PPGUA gives the MPM the authority to set gas supply targets and approve plans for associated gas. Any planned flaring or venting requires justification.
The PPGUA provides guidance regarding the field development plan and its review and approval, including the arrangement for any potential gas flaring system in the overall development. As a key principle, all new developments must be designed for zero continuous flaring and venting.
Section 34 of the Environmental Quality Act, 1974, in conjunction with the First Schedule of the Environmental Quality (Prescribed Activity) (Environmental Impact Assessment) Order, 2015 entitles the minister of environment and water to ask for an EIA for upstream oil and gas developments, including pipeline and storage construction plans (no requirements for installations specific to flaring and venting). The director-general of environmental quality reviews and approves or rejects the development plans based on the submitted report. In case of rejection, a resubmission with an improved development concept is typically allowed.
No evidence regarding economic evaluations could be found in the sources consulted.
Measurement and Reporting
Measurement and Reporting Requirements
The PPGUA provides guidance regarding minimum technical requirements and the approval process for metering systems. Flaring and venting volumes need to be reported, in line with measurement requirements, every month (see the Monitoring and Enforcement section of this case study).
In line with Section 8 of the Malaysia-Thailand Joint Authority Procedures for Production Operations, 2009, the license holder must maintain production reports, including volumes of flared and vented gas, and submit them to the authorities. Sections 12–15 also detail metering and measurement requirements.
Measurement Frequency and Methods
According to Section 8 of the Malaysia-Thailand Joint Authority Procedures for Production Operations, 2009, the license holder must keep daily operations logs and measure production daily and monthly. Section 14 states that the metering system should be in accordance with the standards of the American Gas Association or the American Petroleum Institute.
No evidence regarding engineering estimates could be found in the sources consulted.
In line with Section 8 of the Malaysia-Thailand Joint Authority Procedures for Production Operations, 2009, the license holder must keep the records of the operations logs and production reports for at least a year.
Data Compilation and Publishing
In its annual and biannual sustainability reports, Petronas publishes flaring and venting data. In its role as Malaysia’s national oil company, it also provides country-wide data for NDC purposes.
Fines, Penalties, and Sanctions
Following Section 7 of the Petroleum Development Act, 1974, any violation of the act’s provisions can be sanctioned with imprisonment or fines. Section 29 of the Environmental Quality (Clean Air) Regulation, 2014 provides for imprisonment or fines for violations of the provisions of the Environmental Quality Act, 1974. The PPGUA is aligned with the above provisions, in that any noncompliance with their guidelines, including the provisions on flaring and venting, can lead to legal and financial consequences. No evidence could be found in the sources consulted that these provisions have been explicitly applied to flaring- or venting-related contraventions.
Termination clauses are typically covered in the PSCs and risk service contracts, none of which is publicly available. They state that any noncompliance with the MPM requirements (including the PPGUA) can be sanctioned. Section 24 of the Environmental Quality (Clean Air) Regulation, 2014, gives the director-general of environmental quality the right to issue a prohibition order to discontinue operations, if necessary, to safeguard public health, safety, or welfare. Section 22 allows the director-general to impose additional requirements on operations or take any other appropriate measure deemed necessary.
The Third Schedule of the Environmental Quality (Clean Air) Regulation, 2014 on limit values and technical standards, covers the midstream and downstream oil and gas sectors but not the upstream sectors.
Fiscal and Emission Reduction Incentives
No evidence regarding fiscal and emission reduction incentives could be found in the sources consulted.
Use of Market-Based Principles
No evidence regarding the use of market-based principles to reduce flaring, venting, or associated emissions could be found in the sources consulted.
Negotiated Agreements between the Public and the Private Sector
No evidence regarding negotiated agreements between the public and the private sector could be found in the sources consulted.
Interplay with Midstream and Downstream Regulatory Framework
Section 1 of the Gas Supply Act, 1993 regulates gas supply to consumers through pipelines. The processing or refining of petroleum or manufacturing of petrochemical products from petroleum is reserved for Petronas. Any exception requires the prime minister’s approval (Section 6 of the Environmental Quality Act, 1974). There is no evidence in the sources consulted that any exceptions or privileges for using associated gas have been granted.