Malaysia Full Profile

November 2010

Downstream Monitoring Service-Asia (DMS-A)

MALAYSIA Market Profile

Malaysia | Market Profile

Strategic Advisors in Global Energy | www.pfcenergy.com | [email protected]

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Table of Contents

Summary of Conclusions ...................................................................... 4 Malaysia quickly returns to growth ................................................. 4

Downstream Regulatory Environment ................................................... 6

Refining ................................................................................................. 9

Product Supply & Demand .................................................................. 16

Product Distribution ............................................................................. 23

Marketing ............................................................................................. 26

Competitive Environment .................................................................... 28

Prices & Margins ................................................................................. 31

Annex .................................................................................................. 34 Market Context ............................................................................. 34 Abbreviations ............................................................................... 36




Summary of Conclusions

Malaysia quickly returns to growth

Economic roadmap to spur investments in logistics

Malaysia’s downstream oil sector is poised to enter a renewed period of growth, spearheaded by product distribution and storage projects aimed at developing the country as a key player in Southeast Asia’s oil trading market, complementing Singapore’s role as the incumbent regional trading hub. The government, through the recently unveiled Economic Transformation Program (ETP) has identified the creation of a regional storage and trading infrastructure as one of the entry point projects for the oil, gas & energy sector. The landmark investment in the streaming of additional storage capacities is the proposed Pengerang deepwater terminal in the southern state of Johor, estimated to cost RM 4.8 bn (US$ 1.5 bn) and with a total crude and oil product storage capacity of 5 million cu.m. Vopak is partnering with local player, Dialog, in a JV which will control 90% of the special purpose vehicle responsible for the development of the project, while the Johor state government will hold the remaining 10%.

Apart from foreign operators such as Vopak and Trafigura, there are also new players which have emerged as key investors in Malaysia’s oil product and logistics segment. This includes MISC, a subsidiary of PETRONAS, which recently acquired a 50% stake in Vitol Tank Terminals International (VTTI) for US$ 839 mn, giving the company direct participation in the terminal being developed at Tanjung Bin, Johor by VTTI’s unit, ATT Tanjung Bin. This facility is set to open in 2012 with the capacity of 841,000 cu.m. In addition, a local company, KIC Oil & Gas is building a terminal on a reclaimed island off Tanjung Bin with total crude and product capacity of 1 million cu.m and slated for completion in August 2011.

Refining projects in the pipeline

Throughout 2009 and into early 2010, several private sector-led grassroots refinery projects have been announced in Malaysia which sought to leverage on the country’s domestic growth, export opportunities as well as government incentives. With domestic crude distillation capacity of 546.3 mb/d as of end-2009, fairly well-balanced against product demand, the proposed facilities are likely to be export-oriented units. Although most of these projects have yet to make material progress as of now, there is also the likelihood that some additional refining capacity will be added in the near term. For instance, the relocation of Gulf Petroleum’s proposed plant from the state of Perak to the Port Dickson area, adjacent to Shell and ExxonMobil’s facilities appears to demonstrate the company’s determination to build a refinery in Malaysia.

Meanwhile, PETRONAS also seems to be gearing up to augment their domestic supply capacities especially at their Melaka refining complex which houses the Melaka I and II refineries with combined refining capacity of 228 mb/d. The NOC has reportedly completed debottlenecking at the Melaka II plant (JV between PETRONAS and ConocoPhilips) which increased crude distillation capacity as well as the installation of a hydrocracking unit in 3Q10.




Local press indicate that PETRONAS is also looking into expanding the 100 mb/d Melaka I refinery, with the feasibility study set to be complete by 1Q11. Furthermore, the company’s petrochemicals unit PETRONAS Chemicals Group has disclosed that PETRONAS is also considering the development of a grassroots integrated refinery and petrochemicals complex in Peninsular Malaysia, although no additional details on this proposal have been divulged.

Fuel retail segment going strong

The outlook for the domestic fuel retail sector remains positive, underpinned by continued vehicle fleet growth as well as stable margins for motor fuels under Malaysia’s Automatic Pricing Mechanism (APM), which regulates gasoline and diesel pump prices. Another key factor in the vibrancy of the retail market is the aggressive network expansion strategy undertaken by PETRONAS Dagangan Berhad (PDB), the domestic marketing arm of PETRONAS. This has resulted in PDB overtaking Shell as the biggest retailer in terms of network size by end-2009 although the company still trails the IOC in motor fuel sales. PDB’s ambition to overtake Shell as market leader, anchored by retail growth, will likely sustain the impetus for network expansion for the industry as a whole as other players also seek to expand and capture increasing demand growth in the market. ■




Downstream Regulatory Environment Following the Petroleum Development Act in 1974 which created PETRONAS as Malaysia’s NOC, amendments in 1975 and 1981 vested regulatory functions in the domestic downstream industry to the Ministry of Trade and Industry (MITI) and the Ministry of Domestic Trade and Consumer Affairs. PETRONAS, which exercises regulatory powers in the upstream sector, is also mandated to generate added value to the country’s oil and gas resources and has expanded into the R & M segment from the 1980s onwards. IOCs continue to maintain refining and marketing assets in Malaysia while there is a likelihood of new, private entrants to the country’s refining landscape if recent proposed grassroots projects go through. In addition, the oil products storage sector has been highlighted as a growth sector under the government’s Economic Transformation Program (ETP). Retail prices of motor fuels remain regulated by the government through the Automatic Pricing Mechanism (APM), although steps have been taken in July 2010 to reduce fuel subsidy spending. The prices of RON 95 gasoline and retail diesel were hiked while RON 97 gasoline is no longer subsidized, with prices determined through a managed float. Euro 2M fuel specifications were implemented in September 2009, with sulfur content in both gasoline and diesel set at 500 ppm. The government plans to adopt Euro 4M standards by 2011 although fuller details have yet to be disclosed. Meanwhile, the deadline for the mandatory 5% biodiesel program has been pushed back to June 2011 from January 2010 and will initially cover the central regions of Peninsular Malaysia.

Overview

The defining legislation for Malaysia’s oil & gas industry is the Petroleum Development Act (PDA) 1974, which created PETRONAS as the NOC and vested the company with sole ownership and control over all oil and gas resources in Malaysia. The PDA also provides PETRONAS with the right to process and market oil products. However, the NOC does not play a regulatory role in the downstream sector, unlike the upstream segment where regulation of domestic E&P is administered by PETRONAS’s Petroleum Management Unit. Following amendments to the PDA in 1975 and 1981, regulatory functions in the downstream sector are exercised by the Ministry of International Trade and Industry (MITI) with respect to licenses for the manufacturing of refined oil products while the Ministry of Domestic Trade and Consumer Affairs is responsible for issuing licenses for the distribution and marketing of oil products.

The 1974 PDA and subsequent amendments did not nationalize foreign oil companies, which allowed IOCs such as ExxonMobil and Shell to retain majority ownership of their refining assets in Malaysia. At the same time, PETRONAS was also tasked with generating added value to the country’s oil & gas resources. To this end, the NOC’s domestic marketing subsidiary, PETRONAS Dagangan (PDB) was incorporated in 1982 and commenced retail operations in the same year. This was followed by streaming of PETRONAS’s first refinery at Kertih in 1983. The downstream sector, inclusive of the petrochemicals industry, is a significant contributor to Malaysia’s economic activity. According to the government, the oil & gas industry accounted for 13.1% of the country’s Gross Domestic Product (GDP) in 2009 or RM 68.3 bn (US$ 19.3 bn), of which the downstream industry’s share stood at RM 28.8 bn (US$ 8.2 bn). Since early 2009,




several grassroots refinery projects have been announced, riding on robust domestic demand, export opportunities as well as government incentives, although none of these proposals have made much progress as of now. On the other hand, the government, under the recently launched Economic Transformation Program (ETP), highlighted oil products logistics and storage segment as a growth area within the oil & gas sector. It is envisioned that Malaysia could emerge as a regional oil product storage hub, alongside Singapore as the city-state has limited land available for future investments. Local companies such as MISC, a subsidiary of PETRONAS and the Dialog Group have already embarked on developing product terminals, particularly in the southern state of Johor, in partnership with foreign operators including Vitol and Vopak.

Pricing

The retail prices of gasoline, diesel and LPG in Malaysia are controlled by the Ministry of Domestic Trade and Consumer Affairs via an Automatic Pricing Mechanism (APM). The APM was established to provide stable margins for oil companies and stable prices for consumers. It is comprised of fixed elements such as operating expenses, dealers’ commission and company profit, including variable costs. Thus when product costs rise the APM calculates how much of the increase should be subsidized by the government in order to comply with the fixed retail price. The government kept gasoline and diesel retail prices unchanged throughout 2009, incurring spending on fuel subsidies that amounted to RM 5.3 bn (US$ 1.5 bn). Of this, the direct subsidy on gasoline came to RM 3.4 bn (US$ 962 mn) while for diesel, the cost was RM 1.9 bn (US$ 538 mn). In a move to reduce subsidy spending, on 16 July 2010 the government increased the price of subsidized RON 95 gasoline from RM 1.80/liter (US$ 0.55/liter) to RM 1.85/liter (US$ 0.56/liter) and stopped subsidizing the premium RON 97 gasoline. The price of RON 97 is currently determined through a managed float according to the APM. On the same day, the price of retail diesel was hiked from RM 1.70/liter (US$ 0.52/liter) to RM 1.75/liter (US$ 0.53/liter) while the price of LPG increased to RM 1.85/kg (US$ 0.56/kg) from RM 1.75/kg (US$ 0.53/kg).

The government does not regulate the price of HFO, jet fuel and non-retail diesel as well as the product prices for industrial uses.

Fuel specifications

Malaysia implemented the Euro 2M fuel standards for gasoline and diesel in September 2009, with the sulfur limit in both reduced to 500 ppm. At the same time, RON 92 was phased out and replaced with RON 95 as the standard unleaded gasoline. PETRONAS was the first retailer to introduce RON 95 gasoline by making the fuel available at two service stations in May 2009 and also became the first to market Euro 2M-compliant diesel in late August through their Dynamic Diesel product. According to MITI’s Review of the National Automotive Policy in October 2009, the government has set the target of adopting Euro 4M specifications for gasoline and diesel by 2011 and has mandated the Ministry of Natural Resources and Environment to set up the roadmap, although no




additional details have been disclosed thus far. Reports indicate that under Euro 4M, the sulfur limit for both will be set at 50 ppm, while the benzene content in gasoline will be reduced from 5% of volume to 1%. Most recently, Shell announced that they will be installing a gasoil desulfurization unit at their 109 mb/d Port Dickson refinery although the completion date was not disclosed. Meanwhile, rollout of the mandatory B5 biodiesel (5% palm methyl ester) at service stations has been delayed to June 2011 from the earlier implementation date of January 2010. The biodiesel will be supplied initially to consumers in the central region of Peninsular Malaysia before being made available nationwide, although no timeframe has been set for the second stage. According to local press, the major retailers have each been allocated RM 1 mn (US$ 304,305) to support capital expenditure for upgrading their terminals and depots to handle B5 biodiesel, including at the Klang Valley Distribution Terminal jointly owned by PETRONAS, Shell, and ExxonMobil. Since February 2009, PETRONAS has supplied B5 biodiesel to government agencies located in the central region, namely the Ministry of Defence and the Kuala Lumpur City Hall (DBKL) amounting to 4,000 diesel-powered vehicles. The total volume of B5 biodiesel demand in 2009 amounted to 5.49 million liters.




Refining

Refinery Inputs

In 2009 Malaysia’s five active refineries had a total crude processing capacity of 546.3 mb/d and utilized a mix of domestic and imported crude and other feedstocks. Domestic crude continued to account for some 70% of overall processing in 2009 and remains the primary feedstock for PETRONAS’s Kertih and Melaka I refineries. The three other refineries, including PETRONAS’s JV Melaka II facility, rely on imported crudes in addition to domestic grades. The 128 mb/d Melaka II refinery, co-owned by PETRONAS and ConocoPhilips, processes primarily medium, high sulfur crudes imported from the Middle East although is set to process the first batch of Russia’s ESPO crude in June or July 2010. Shell’s 109 mb/d Port Dickson refinery processed primarily imported crudes from Asian, Australian and African sources which accounted for 56% of overall crude supply. Light domestic crude was the other significant source of feedstock at 38% of total crude processing in 2009.

Total Crude Processing

0

5,000

10,000

15,000

20,000

25,000

30,000

2005 2006 2007 2008 2009E

'000 tonnes

Total Crude Processed Of Which Local

Crude Exports by Destination - 2009

India13.2%

South Korea3.9%

Others48.9%

Thailand12.3%

Singapore7.7%

Australia13.9%

Total Crude Production

30,000

31,000

32,000

33,000

34,000

35,000

36,000

37,000

2005 2006 2007 2008 2009E

'000 tonnesCrude Imports & Exports

0

5,000

10,000

15,000

20,000

2005

20

06

2007

20

08

2009

E

'000 tonnes

Imports Exports




Crude/Feedstock Imports and Exports – MalaysiaChange

mt/y 2002 2003 2004 2005 2006 2007 2008 2009 09Imports 7,083 7,921 7,953 8,031 8,048 9,453 9,457 9,295 -1.7%Exports 18,100 18,747 19,245 18,994 17,262 16,962 16,970 16,690 -1.7%Net imports -11,017 -10,826 -11,292 -10,963 -9,214 -7,509 -7,513 -7,395 n/aSource: PFC Energy from national sources

/08

Crude Balance – MalaysiaChange

mt/y 2002 2003 2004 2005 2006 2007 2008 2009 09/08Total supply 23,821 26,200 26,749 25,164 25,172 26,458 26,469 25,299 -4.4%Domestic Production 34,838 37,026 38,041 36,127 34,386 33,967 33,982 32,694 -3.8%Net imports -11,017 -10,826 -11,292 -10,963 -9,214 -7,509 -7,513 -7,395 n/aTransfers/backflows - - - - - - - -Use 23,821 26,200 26,749 25,164 25,172 26,458 26,469 25,299 -4.4%Refinery input 22,870 25,344 25,334 24,339 24,909 26,571 26,776 25,088 -6.3%Stocks/statist. diff. ** 951 856 1,415 825 263 -113 -307 211 n/a* Includes net imports of NGLs and other refinery input. ** Includes direct uses of crude and NGLs.

Source: PFC Energy from national sources and others

n/a




Ports with Oil Terminals, Bunkering – 2009

Port Ownership/Operator Berths Max Vessel Dimensions (DWT)

Bunkering

3 General Cargo Wharves 25,000

2 Container Terminals 55,000

1 Dry Bulk Cargo Wharf, 3 LNG Jetties 65,000

1 Petroleum Jetty 30,000

1 LPG Jetty 51,000

Kemaman 11 berths + 1 LPG Export Terminal 150,000Terrathree Sdn. Bhd. (available at

East Wharf and delivered by truck or wharf pipeline)

Esso Production Malaysia Inc. (EPMI) 2 crude terminals 250,000

Petronas Penapisan Sdn. Bhd. (PPSB) 1 berth 85,000

Kota Kinabalu 12 berths 16,000 NK Management & Supplies, Shell Timur Sdn. Bhd.

Kuantan 15 berths 40,000 Ban Hoe Leong Marine Suppliers Sdn. Bhd.

Biawak Oil Jetty (2 berths)Senari Terminal (5 berths), Pending Terminal (5 berths)2 wharves + 4 jetties 150,000

Shell 1 jetty 6,000

Lahat Datu 2 berths 25,000 Shell Malaysia Ltd.

Malacca 1 jetty 10,000

Sarawak Shell Berhad 3 wharves 125,000

6 berths

Penang 11 berths + 1 pier Sin Soon Hock Sdn. Bhd.

Shell Refining Co.1 jetty with storage capacity: HFO (1000 t), diesel (1400 t), gasoline (700 t), kerosene (600 t).

18,000

Esso Standard Malaysia1 jetty with storage capacity: white oil (33,000 t), black oil (43,000 t), crude (100,000 t)

19,500

Shell Refining Co. / Esso Standard Malaysia 1 SBM, crude discharging rate of 4,500 t/h 100,000

Bintulu

Kertih

Kuching Petronas, Shell, Esso Cheang Fong Marine & Supplies, Petronas

Source: PFC Energy from Lloyds

Pasir Gudang

Labuan KIC Oil and Gas, NK Management & Supplies, Shell Malaysia Ltd.

Miri Cheang Fong Marine & Supplies

Ban Hoe Leong Marine Suppliers Sdn. Bhd., Maska Dagang Sdn. Bhd.104,000

Lay-up facilities available for 20 VLCC-sized vessels in the Johor River Anchorage. Container Terminal, Liquid Bulk Terminal (4 berths) handles oil products, chemicals and LPG, with supporting terminal tank farm (517,451 t). Vegetable Oil Jetties (4 berths) handle palm oil and soft oils, with supporting tank farm (462,500 t). Break Bulk Terminal, Dry Bulk Terminal, Multi-Purpose Terminal.

Port Dickson

Ban Hoe Leong Marine Suppliers Sdn. Bhd., BP Malaysia Sdn. Bhd.,

Dickson Marine Company Sdn. Bhd., GEM Resources Sdn. Bhd., Petronas




Ports with Oil Terminals, Bunkering – 2009 Continued

Port Ownership/Operator Berths Max Vessel Dimensions (DWT) Bunkering

Northport (Malaysia) Bhd.

Northport & Southpoint: Container Terminal (12 berths), Break Bulk Terminal (8 berths), Dry Bulk (3 berths), Liquid Bulk (4 berths handling chemicals, oil products and crude)

Ban Hoe Leong Marine Suppliers Sdn. Bhd., BP Malaysia Sdn. Bhd.,

GEM Resources Sdn. Bhd., Petronas, R.T. Technologies

Westports Malaysia Sdn. Bhd.

9 Container Berths, Liquid Bulk Terminal (4 main jetties + 1 bunkering jetty), Dry Bulk Terminal (4 berths + 1 cement jetty), Break Bulk Terminal (5 berths).

1.3 million barrel bunker storage facility in Westport

Pulau Langkawi 1 Oil Tanker berth + 3 berths + 1 jetty + 1 sub jetty 6,000

Sandakan 1 oil jetty + 5 berths 30,000NK Management & Supplies, Shell

Malaysia Ltd., Thien Sheng Packing and Forwarding Sdn. Bhd.

Sapangar Bay Terminal1 oil terminal + 1 new container terminal under construction (2 berths)

30,000

Sibu 1 wharf 8,000 Huo Heng Oil, Cheang Fong Marine & Supplies, Shell Malaysia Ltd.

7 berths 120,000

1 Bulk Cargo Jetty 5,000

1 SBM 300,000

Tanjung LangsatL-shaped twin berth (outer and inner berths) handling petrochemicals/liquid bulk

30,000

Tanjung Pelepas8 berths + reclamation of additional 6 berths in Phase 2 (construction will be in stages)

BP Malaysia Sdn. Bhd., ExxonMobil Marine Fuels, GEM Resources Sdn.

Bhd., Maska Dagang Sdn. Bhd.

Tanjong Batu Oil Jetty 30,000

6 berths 16,000Tawau Dieseline can be obtained from the

oil jetty via pipelines

Source: PFC Energy from Lloyds

Port Klang

Sungai UdangBan Hoe Leong Marine Suppliers Sdn. Bhd.,BP Malaysia Sdn. Bhd.,

GEM Resources Sdn. Bhd., Petronas




Malaysia Refining Infrastructure




Refinery Capacity & Indicators

Malaysia had a total crude processing capacity of 546.3 mb/d as of end-2009, unchanged year-on-year, with refining capacity roughly balanced with demand. However, an additional capacity of 47 mb/d is slated to come online in 2010 following the scheduled completion of the debottlenecking exercise at the 128 mb/d Melaka II refinery, bringing total capacity to 175 mb/d. The streaming of the additional capacity is expected to reduce the persistent deficit of gasoline which has required imports from Singapore, and could potentially allow for additional exports. Future investments will likely be focused on fuel quality upgrades with the Malaysian government backing the implentation of Euro IV specifications for motor fuels in 2011. While capacity expansion at existing facilities seems limited, a number of grassroots refinery projects are being planned by private sector entities. The announced investments appear to be driven by the prospects of continued strong domestic demand growth and integrated export opportunities, as many of the potential investors have existing foreign distribution networks for refined products. In addition to growing market demand, new investments are supported by the country’s strategic geographic position as well as government incentives to promote domestic regional development. One of the first two grassroots projects is the 350 mb/d Merapoh refinery in the northern state of Kedah, spearheaded by privately-owned Merapoh Resources Corporation which claims to have secured agreements for financing, crude supply and product offtake with the likes of Saudi Aramco and CNPC. However, progress on what would be Malaysia’s biggest refinery appears to have stalled with no recent indication that the project is still going forward. The second grassroots refinery is being proposed by Gulf Petroleum in the Port Dickson area, adjacent to Shell and ExxonMobil’s facilities, and will be part of an integrated refining complex with crude distillation capacity ranging between 100 mb/d to 150 mb/d. The company had originally planned to locate the integrated complex in the northern state of Perak but the change in site location appears to indicate that Gulf Petroleum is determined to back a facility in Malaysia. However, as with the Merapoh refinery there has been little visible progress on the project.

Capacity and Utilization Rate

300

350

400

450

500

550

600

2002

2003

2004

2005

2006

2007

2008

2009

E

mb/d

88%

90%

92%

94%

96%

98%

100%

Crude distillation capacity Utilization rate




2009 Refining Capacities – Malaysia

Name/Location - Company (mb/d) (mb/d) (mb/d) (mb/d) (mb/d) (mb/d) (mb/d) (mb/d)National Total 546.3 76.0 39.0 - 36.0 - - 24.0Kertih - Petronas 123.3 - - - - - - -Melaka II - Petronas 128.0 68.0 - - 36.0 - - 24.0Melaka I - Petronas 100.0 - - - - - - -Port Dickson - Esso Malaysia 86.0 - - - - - - -Port Dickson - Shell Refining Co B h d

109.0 8.0 39.0 - - - - -Source: PFC Energy * Excludes Lubricants Hydrocracking

ExxonMobil 65.00%, Others 35.00%Others 49.00%, Shell 51.00%

ConocoPhillips 47.00%, Petronas 53.00%Petronas 100.00%

Petronas 100.00%

TCK

Ownership

Coking

Conversion capacities

Crude distilllation

capacity

Vacuum distillation FCC HCK* Resid HCK VB

2009 Refining Capacities – Malaysia

Name/Location - Company (mb/d) (mb/d) (mb/d) (mb/d) (mb/d) (mb/d) (mb/d) (mb/d)National Total 86.4 98.5 - - 10.8 - - 8.2

- - - - - - - -27.5 58.5 - - 10.8 - - 4.023.5 19.0 - - - - - -19.5 11.0 - - - - - -15.9 10.0 - - - - - 4.2

Source: PFC Energy

Port Dickson - Esso Malaysia BerhardPort Dickson - Shell Refining Co Berhad

Melaka II - PetronasMelaka I - Petronas

Kertih - Petronas

Isomerization Oxygenate Lubes AsphaltAlkylationReforming MD Desulf Polymerizati

on

2009 Refining Complexity Indicators – Malaysia

Name/Location - Company (index) (index) (%) (%) (%) (%) (%) (%)National Total 4.6 2.5 28.4% 7.1% 4.4% 15.8% 2.0% 18.0%

1.0 1.0 - - - - - -9.6 5.3 90.9% - 18.8% 21.5% 8.4% 45.7%3.2 1.0 - - - 23.5% - 19.0%3.3 1.0 - - - 22.7% - 12.8%4.9 3.4 35.8% 35.8% - 14.6% - 9.2%

Source: PFC Energy

Port Dickson - Esso Malaysia BerhardPort Dickson - Shell Refining Co Berhad

Melaka II - PetronasMelaka I - Petronas

Kertih - Petronas

APIM as % of CDU

Thermal Process as % of CDU

Gasoline ProductionConversion

ratio, in FCC equivalent

FCC/HCK as % of CDU

Nelson Complexity

Total

Gasoil desulf as %

of CDUReforming

as % of CDU

Conversion Capacities

Conversion




Product Supply & Demand

Product Supply

Net refining production in Malaysia decreased 5.9% year-on-year in 2009, the first decline in refining output since 2005. Domestic production fell in tandem with lower crude intake, which decreased by 6% over the same period. The primary driver for lower product yields was plant shutdowns to facilitate debottlenecking throughout 2009, particularly at PETRONAS’s Melaka refining complex. Declines in production were most evident in naphtha and kerosene production which decreased by 15.3% and 13.6% respectively. The only exception to the decline was gasoil, which is also the single biggest component of the country’s refining output, recording a production increase of 1.9% in 2009. Despite Malaysia being a net gasoil importer and with demand down by 1.1 the country had a 1.2% increase in gasoil export volumes over 2008 accounting for much of the increased production volumes. Despite lower refining output in 2009, Malaysia remains a net product exporter although the country runs a persistent deficit in gasoline and gasoil. The dependence on light and middle distillate imports could narrow in the near term following the reported installation of a hydrocracking unit at PETRONAS’s JV Melaka II refinery in 3Q10 which also expanded the plant’s crude distillation capacity. The NOC’s plan to expand their other Melaka facility together with a number of grassroots private sector-led projects in the pipeline could also bring in additional supply to the domestic market as well as increase future export volumes.

0

5,000

10,000

15,000

20,000

25,000

30,000

2002 2003 2004 2005 2006 2007 2008 2009

mt/y Oil Products Production

LPG Gasoline Kerosene/Jet fuel Gasoil HFO Other products

LPG4.4%

Gasoline18.5%

Kerosene/Jet fuel11.7%

Gasoil38.3%HFO

7.8%

Other products

19.4%

Oil Products Production - 2009




Refining Processing & Production – MalaysiaChange

mt/y 2002 2003 2004 2005 2006 2007 2008 2009 09/08Refinery intake 22,870 25,344 25,334 24,339 24,909 26,571 26,776 25,088 -6.3%

of which crude 14,838 17,127 16,810 18,216 16,797 17,320 18,638 17,520 -6.0%Net production * 21,495 22,576 22,999 21,438 23,484 25,307 26,482 24,916 -5.9%LPG 897 932 897 822 1,118 1,228 1,208 1,088 -9.9%Naphtha 993 1,241 1,148 1,014 1,548 1,892 2,350 1,992 -15.3%Kerosene 2,984 3,350 3,284 3,074 3,475 3,372 3,384 2,924 -13.6%Gasoline 4,460 4,584 4,724 4,245 4,607 5,285 5,066 4,599 -9.2%Gasoil 8,401 9,062 9,611 9,161 8,752 9,033 9,364 9,541 1.9%HFO 2,332 1,763 1,813 1,777 1,933 1,990 1,994 1,936 -2.9%Other products 1,428 1,644 1,522 1,345 2,051 2,507 3,116 2,835 -9.0%Product yield (% wgt) **LPG 3.92% 3.68% 3.54% 3.38% 4.49% 4.62% 4.51% 4.34% -0.17%Naphtha 4.34% 4.89% 4.53% 4.17% 6.21% 7.12% 8.78% 7.94% -0.84%Kerosene 13.05% 13.22% 12.96% 12.63% 13.95% 12.69% 12.64% 11.65% -0.99%Gasoline 19.50% 18.09% 18.65% 17.44% 18.50% 19.89% 18.92% 18.33% -0.59%Gasoil 36.73% 35.76% 37.94% 37.64% 35.14% 34.00% 34.97% 38.03% 3.06%HFO 10.20% 6.96% 7.16% 7.30% 7.76% 7.49% 7.45% 7.72% 0.27%Other products 6.25% 6.49% 6.01% 5.52% 8.24% 9.44% 11.64% 11.30% -0.34%Refinery losses/fuel 6.01% 10.92% 9.22% 11.92% 5.72% 4.76% 1.10% 0.69% -0.41%* Excluding refinery fuels & losses. **Based on total production, including refinery fuels & losses.

Source: PFC Energy from IEA and local sources




Product Demand

Malaysia’s oil product demand decreased 0.2% year-on-year in 2009, marking a second consecutive year of declining consumption. Demand was impacted by the economic downturn, as the export-oriented domestic economy shrank by 3.6% over the same period. Declining industrial and manufacturing activity was the main driver in decreasing gasoil and HFO consumption, which decreased by 1.1% and 0.7% year-on-year respectively. Gasoil remains the single largest component of the country’s oil product demand, accounting for 37.2% of overall consumption in 2009 and consumption could increase in the near term on the back of the improving economy in the first three quarters of 2010.

Meanwhile, gasoline consumption remained strong in 2009, increasing by 1.4% year-on-year, supported by stable pump prices and strong passenger car sales, with new registrations breaching the half-a-million mark for the second year in a row. The demand outlook for gasoline is likely to stay strong on resilient private consumption, although fuel sales could be crimped by gradual withdrawal of subsidies by the government. The price of standard RON 95 gasoline increased in mid-July 2010, together with the ceasing of subsidies for premium RON 97 grade gasoline, with prices now determined through a managed float according to the Automatic Pricing Mechanism (APM).

0

5,000

10,000

15,000

20,000

25,000

30,000

2002 2003 2004 2005 2006 2007 2008 2009

mt/y Demand Breakdown by Product

LPG Gasoline Jet Fuel Gasoil HFO Other products

LPG5.9%

Gasoline36.8%

Jet Fuel8.5%

Gasoil37.2%

HFO8.0%

Other products

3.7%

Demand Breakdown - 2009




Oil Product Demand – MalaysiaChange Structure

mt/y 2002 2003 2004 2005 2006 2007 2008 2009 09/08 2009LPG 1,542 1,437 1,542 1,510 1,520 1,474 1,475 1,427 -3.3% 5.9%Gasoline 6,948 7,360 7,839 8,211 7,517 8,600 8,842 8,966 1.4% 36.8% Leaded - - - - - - - - n/a - Unleaded 6,948 7,360 7,839 8,211 7,517 8,600 8,842 8,966 1.4% 36.8%Naphtha/petchem feedstocks 280 282 270 197 288 398 387 393 1.7% 1.6%Jet fuel 1,785 1,852 2,056 2,010 2,152 2,155 2,112 2,077 -1.7% 8.5%Other kerosene 92 93 86 81 79 76 75 66 -11.8% 0.3%Gasoil 8,689 9,050 9,657 8,672 8,541 9,512 9,167 9,067 -1.1% 37.2% Diesel 4,680 5,019 5,439 5,076 5,046 4,859 5,283 5,225 -1.1% 21.4% Other gasoil (1) 4,009 4,031 4,218 3,596 3,495 4,653 3,884 3,841 -1.1% 15.7%HFO 2,953 1,545 1,737 1,953 1,901 2,202 1,963 1,948 -0.7% 8.0%Lubricants 212 217 224 231 235 238 239 241 1.0% 1.0%Bitumen 83 89 92 96 106 129 127 136 7.3% 0.6%Other products 64 51 51 51 55 67 65 70 7.0% 0.3%Total demand 22,648 21,976 23,554 23,011 22,394 24,851 24,452 24,392 -0.2% 100.0%Int'l marine bunkers 90 73 88 84 90 70 66 83 25.8%Consumption (Thousand tons per year per 1,000 capita)All products 943.27 877.29 920.80 880.64 840.62 914.65 881.79 861.60 -2.3%Gasoline 289.38 293.81 306.45 314.24 282.17 316.53 318.86 316.70 -0.7%Diesel 194.92 200.36 212.63 194.26 189.41 178.84 190.52 184.57 -3.1%Source: PFC Energy from national sources

0

50

100

150

200

250

-8%-6%-4%-2%0%2%4%6%8%

10%12%

2002 2003 2004 2005 2006 2007 2008 2009

GDP vs. Oil Product Demand

Total demand Total retail fuels GDP (US$ billions)

-20%-15%-10%

-5%0%5%

10%15%20%25%

2002 2003 2004 2005 2006 2007 2008 2009

Retail Fuels Demand Growth

Gasoline Diesel

Vehicle Fleet Information – Malaysia

Change2002 2003 2004 2005 2006 2007 2008 2009 09/08

Vehicles in circulation (1,000) 12,022 12,819 13,765 14,816 15,791 16,814 17,972 19,017 5.8%Passenger cars 5,069 5,500 5,987 6,552 7,024 7,504 8,057 8,602 6.8% Diesel cars 608 660 718 786 843 901 967 1,032 6.8% Gasoline cars 4,461 4,840 5,269 5,766 6,181 6,604 7,090 7,570 6.8%Light and heavy trucks 713 740 772 805 837 871 909 936 3.0%Buses 51 53 55 57 60 62 64 67 4.Motorcycles 5,843 6,165 6,572 7,008 7,458 7,943 8,487 8,940 5.3%Other 346 361 378 393 412 433 454 472 3.9%Key indicatorsPassenger cars per 100 inhabitants 21.11 21.95 23.41 25.08 26.37 27.62 29.06 30.38 4.6%New passenger car registrations (1,000) 320 301 338 366 382 474 535 520 -2.8% of which diesel cars n/a n/a n/a n/a n/a n/a n/a n/a n/aDiesel cars as % of passenger car fleet 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% n/aReplacement rate in years * 15.83 18.27 17.70 17.91 18.41 15.82 15.05 16.54 9.9%* Total passenger cars divided by new registrations

Source: PFC Energy from National sources

0%




-8%-6%-4%-2%0%2%4%6%8%

10%12%

2002 2003 2004 2005 2006 2007 2008 2009

LPG Demand

-10%

-5%

0%

5%

10%

15%

20%

2002 2003 2004 2005 2006 2007 2008 2009

Gasoline Demand

-4%-2%0%2%4%6%8%

10%12%

2002 2003 2004 2005 2006 2007 2008 2009

Jet Fuel Demand

-8%-6%-4%-2%0%2%4%6%8%

10%12%

2002 2003 2004 2005 2006 2007 2008 2009

Diesel Demand

-20%

-10%

0%

10%

20%

30%

40%

2002 2003 2004 2005 2006 2007 2008 2009

Other Gasoil Demand

-60%-50%-40%-30%-20%-10%

0%10%20%30%40%

2002 2003 2004 2005 2006 2007 2008 2009

HFO Demand




Product Supply/Demand Balance

Malaysia, a net product exporter, experienced a 6.6% year-on-year increase in volumes in 2009 spurred by robust increases in HFO and LPG volumes on weakening domestic consumption. Gasoil exports also improved slightly, growing by 1.2% although the country is a net importer of gasoil. This deficit

lumes still amounted to more than 3.6 , falling by 26% year-on-year in 2009 due to

shrinking domestic demand coupled with higher production.

could narrow in the near term on increased supply of middle distillates due to the installation of additional conversion units as well as the planned expansion of domestic refining capacity.

Meanwhile, total oil product import volumes decreased slightly by 1.8% year-on-year in 2009, primarily on the incremental reduction in gasoline imports. Gasoline is the single largest imported product based on volume, accounting for 42.2% of overall product imports, but import volumes declined by 1.9% on lukewarm demand growth which increased by 1.4% in 2009. Stagnant consumption has narrowed Malaysia’s gasoline supply deficit, although total import vomillion tons in 2009. Gasoil imports plunged sharply

-8,000

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

2002 2003 2004 2005 2006 2007 2008 2009

mt/y Oil Products Net Imports

LPG Gasoline Kerosene/Jet fuel Gasoil HFO Other products

LPG3.8%

Gasoline42.2%

Kerosene/Jet fuel

3.5%

Gasoil17.8%

HFO24.3%

Other products

8.5%

Oil Products Imports - 2009

Oil Product Imports and Exports – MalaysiaChange Structure

mt/y 2002 2003 2004 2005 2006 2007 2008 2009 09/08 2009Total product imports 7,220 7,116 8,980 7,961 7,734 8,452 8,725 8,565 -1.8% 100.0%LPG 329 664 280 479 308 320 302 329 8.9% 3.8%Gasoline 2,514 2,521 3,517 3,778 3,331 3,821 3,680 3,611 -1.9% 42.2%Jet fuel 128 95 49 235 246 250 277 296 6.9% 3.5%Gasoil 1,457 1,530 1,868 1,296 1,274 1,457 2,055 1,521 -26.0% 17.8%HFO 2,326 1,604 2,399 1,742 2,227 1,923 1,703 2,078 22.0% 24.3%Other 466 702 867 431 348 681 708 730 3.1% 8.5%Total product exports 8,158 9,012 8,912 8,435 9,535 9,780 10,120 10,790 6.6% 100.0%LPG 1,345 762 257 1,786 1,591 2,085 1,966 2,141 8.9% 19.8%Gasoline 13 44 531 83 371 376 362 355 -1.9% 3.3%Jet fuel 1,491 1,554 1,133 1,389 1,420 1,377 1,496 1,605 7.3% 14.9%Gasoil 1,439 1,995 1,850 1,718 1,163 873 1,231 1,246 1.2% 11.5%HFO 1,627 1,728 2,531 1,216 2,198 1,341 1,188 1,449 22.0% 13.4%OSou

ther 2,243 2,929 2,610 2,243 2,792 3,728 3,877 3,994 3.0% 37.0%rce: PFC Energy from IEA and national sources




Oil Product Balance – MalaysiaChange

mt/y 2002 2003 2004 2005 2006 2007 2008 2009 09/08Total supply 21,863 23,372 25,326 23,792 23,033 25,163 25,301 22,787 -9.9%Refinery gross prod. 22,801 25,268 25,258 24,266 24,834 26,491 26,696 25,013 -6.3%Net imports -938 -1,896 68 -474 -1,801 -1,328 -1,395 -2,226 n/a LPG -1,016 -98 23 -1,307 -1,283 -1,765 -1,664 -1,812 n/a Gasoline 2,501 2,477 2,986 3,695 2,960 3,445 3,318 3,256 -1.9% Jet fuel -1,363 -1,459 -1,084 -1,154 -1,174 -1,127 -1,219 -1,309 n/a Gasoil 18 -465 18 -422 111 584 824 274 -66.7% HFO 699 -124 -132 526 29 582 515 629 22.1% Other -1,777 -2,227 -1,743 -1,812 -2,444 -3,047 -3,169 -3,264 n/aUse 21,863 23,372 25,326 23,792 23,033 25,163 25,301 22,787 -9.9%Inland market 22,648 21,976 23,159 23,011 22,394 24,851 24,452 24,392 -0.2%Int'l marine bunkers 90 73 88 84 90 70 66 83 25Refinery fuels 1,375 2,768 2,335 2,901 1,425 1,264 294 172 -41.4%Transfers/backflows - - - - - - - -Stocks/statist. diff. -2,250 -1,445 -256 -2,204 -876 -1,022 489 -1,860 n/aSource: PFC Energy from IEA and national sources

.8%

n/a




Product Distribution A majority of oil products are transported within Malaysia via road and coastal tankers, as pipeline infrastructure remains limited with only one multi-product pipeline in operation. The 130 km long pipeline transports gasoline, diesel, and jet fuel from PETRONAS’s Melaka refining complex and the two refineries in Port Dickson operated by Shell and ExxonMobil respectively, and terminates at the Klang Valley Distribution Terminal, located south of the capital Kuala Lumpur. There is also a spur to the Kuala Lumpur International Airport for moving jet fuel. Both the multi-product pipeline and KVDT are jointly owned by PETRONAS’s domestic arm, PETRONAS Dagangan (40%), Shell (40%), and ExxonMobil (20%). The two biggest retailers in terms of volume, PETRONAS Dagangan (PDB) and Shell operate the majority of product terminals and depots in the country. Both companies have made additional investments to upgrade and improve their distribution capacities to meet increasing product demand. For instance, in August 2010 Shell announced that they have struck an agreement with Westports for the sublease of a 25 acre terminal at Port Klang. With a tenure of 14 years, the company will initially store gasoline and diesel at this facility. Meanwhile, PDB controls a network of 16 terminals and depots, inclusive of their joint ownership of KVDT, with the most recent addition being the Lumut terminal which was commissioned in January 2009 to supply products to the central and northern regions of Peninsular Malaysia. Furthermore, in April 2009 the company completed the expansion of both the Kuantan and Pasir Gudang terminals in order to augment distribution capacities in the southern and eastern regions of the peninsular. PDB and Shell also each have a 20% stake in ASSAR Chemical Dua, a JV company that is developing the Central Oil Distribution Terminal in the east Malaysian state of Sarawak. PDB will be the operator of this facility with a total storage capacity of 420,000 cu.m, set to be completed by October 2010. Non-retail players have also been active in Malaysia’s oil products logistics and storage segment, particularly in the southern state of Johor in partnership with foreign operators, taking advantage of the limited availability of land in Singapore which remains the regional oil product trading and storage hub. The government has recognized Malaysia’s potential in this sector, identifying storage and trading as a growth area for oil & gas under the newly launched Economic Transformation Program (ETP). The most recent capacity addition in Johor came in April 2010 as both Phase 1 and 2 of the Langsat Terminal (One) facility were streamed with a combined capacity of 400,000 cu.m, primarily storing naphtha, middle distillates and HFO. The terminal is a JV with 80% of the company held by Centralised Terminals while PUMA, a wholly-owned subsidiary of Trafigura, owns the remaining 20%. Reports indicate that Trafigura has already leased the entire capacity of the terminal for a period of seven years. MISC, a subsidiary of PETRONAS, has an indirect interest in Langsat Terminal (One) as the company owns 45% of Centralised Terminals while 55% is controlled by local company, Dialog. MISC has stepped up their participation in oil product logistics by acquiring 50% of Vitol Tank Terminals International (VTTI) for US$ 839 mn, a transaction completed in September 2010. Within Malaysia, this gives MISC direct interest in the terminal at Tanjung Bin, Johor being developed by VTTI’s subsidiary, ATT Tanjung Bin (ATB). With a capacity of 841,000 cu.m, this facility is set to begin operations in 2012. Another significant storage investment is being undertaken by local company, KIC Oil & Gas through their Asia Petroleum Hub project. The company is developing a terminal with a capacity of 1 million cu.m located on a reclaimed island off Tanjung Bin in Johor. Construction work began in July 2007 and the project was set for completion in 2009 but this has been delayed until August 2011 due to additional work needed to stabilize the site. It was reported that stabilization activities has increased the cost of the project to RM 2 bn (US$ 608 mn) from the initial estimate of RM 1.7 bn (US$ 517 mn). The biggest planned facility to date is the Pengerang Terminal in Johor with a storage capacity of 5 million cu.m including crude, oil products and petrochemicals. Set to be the first deepwater terminal in Southeast Asia, this project will be developed by a special purpose vehicle (SPV) with 90% controlled by a JV between DIALOG and Vopak while the Johor state government will hold the remaining 10%.




According to DIALOG, in October 2010 the company was given exclusive rights by the Johor state government to undertake the venture at Pengerang. The project remains at an early stage as the detailed feasibility study and environmental impact assessment is still being conducted.

Malaysia Gasoline Flow Diagram - thousand barrels per day

Gasoline Production 107.6 mb/d

Gasoline Imports 115.24 mb/d

Gasoline Total Supply 220.13 mb/d

Gasoline Domestic Sales 208.8 mb/d

Gasoline Exports 11.33 mb/d

Gasoline Wholesale Sales 4.82 mb/d

Gasoline Retail Sales 203.98 mb/d

Gasoline Stock Adjustment + 2.71 mb/d

Malaysia Gasoil Total Flow Diagram - thousand barrels per day

Gasoil Total Production 194.58 mb/d

Gasoil Total Imports 48.52 mb/d

Gasoil Total Total Supply

224.67 mb/d

Gasoil Total Domestic Sales 184.9 mb/d

Gasoil Total Exports 39.77 mb/d

Gasoil Total Wholesale Sales 78.34 mb/d

Diesel Retail Sales 106.56 mb/d

Gasoil Total Stock Adjustment + 18.43 mb/d




Malaysia Logistical Infrastructure




Marketing

Network & Indicators

The combination of expanding vehicle fleet, and stable retail margins for motor fuels under Malaysia’s regulated Automatic Pricing Mechanism (APM) mean that retail network expansion continues to be on the upward trend, in line with the slight increase in motor fuels demand in 2009. The overall network reached 3,139 service stations as of end-2009, up 2.9% year-on-year compared to 3,051 sites in 2008. Retail growth is also supported by the aggressive network expansion strategy pursued by PETRONAS Dagangan, the domestic marketing arm of Malaysia’s NOC, PETRONAS as they seek to augment market leadership in the all-products segment by becoming the leading fuel retailer by sales volumes. Although PETRONAS Dagangan (PDB) continues to trail Shell in motor fuels market share in 2009, the company has moved ahead of the IOC for the first time in terms of network size. The outlook for the retail segment remains positive, as fuel retailers are likely to intensify network expansion buoyed by the prospect of economic growth and vehicle fleet expansion. In addition, PDB is not showing any signs of slowing down as the company has increased capital expenditure in their FY2011 period (1 April 2010 to 31 March 2011) to RM500 mn (US$ 152 mn), compared to RM 371 mn (US$ 106.8 mn) in FY2010, with the bulk of the investments allocated for retail expansion. This is likely to spur other players to augment their respective retail segments in order to keep pace with PDB, albeit at lower levels compared to the company’s aim of developing 30 new sites annually. Although Shell, still the leading motor fuels retailer with 36.5% market share, has not announced any major retail investment plans, the company is making incremental additions especially in East Malaysia which remains relatively untapped compared to Peninsular Malaysia. Meanwhile the smallest retailer BHPetrol is planning to open between 15-20 service stations per year until 2013-2014 as the company aims to have a network of 400 retail outlets by then, compared to 325 sites as of end-2009. The ambition of ExxonMobil is more modest, as the IOC is only looking to add between five to ten new outlets per year with the company concentrating on their rebranding program.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2002 2003 2004 2005 2006 2007 2008 2009

m cu.m/y Motor Fuel Retail Sales

Retail Diesel Sales Retail Gasoline Sales

4.304.404.504.604.704.804.905.005.105.205.305.40

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

2002 2003 2004 2005 2006 2007 2008 2009

m cu.m/y/siteRetail Network & Throughputs

Service Stations Average Annual Throughput




Retail Indicators – MalaysiaChange

m cu.m/y 2003 2004 2005 2006 2007 2008 2009 09/08Total number of service stations 2,677 2,740 2,811 2,919 2,961 3,051 3,139 2.9%Service stations per 1,000 vehicles 0.21 0.20 0.19 0.18 0.18 0.17 0.17 -2.8%Service stations per 1,000 sq. km 8.12 8.31 8.53 8.85 8.98 9.25 9.52 2.9%Motor fuel retail sales (m cu.m/y) 13,453 14,388 14,615 13,689 14,513 15,506 15,633 0.8%Gasoline 9,935 10,579 11,073 10,134 11,553 11,876 12,042 1.4%

as % of total gasoline demand 99.9% 99.9% 99.8% 99.8% 99.4% 99.4% 99.4% 0.0%Diesel 3,518 3,808 3,543 3,555 2,960 3,630 3,591 -1.1%

as % of total diesel demand 58.8% 58.7% 58.5% 59.1% 51.1% 57.6% 57.6% 0.0%Average annual throughputs per site (m cu.m/y)Gasoline only 3.71 3.86 3.94 3.47 3.90 3.89 3.84 -1.4%Diesel only 1.31 1.39 1.26 1.22 1.00 1.19 1.14 -3.9%Gasoline & diesel 5.03 5.25 5.20 4.69 4.90 5.08 4.98 -2.0%Source: PFC Energy




Competitive Environment

Malaysia’s fuel retail market is dominated by two main players, Shell and PETRONAS Dagangan (PDB) with a combined network and motor fuels market share of 58.3% and 71.5% respectively in 2009. Two other IOCs, ExxonMobil and Chevron also have a significant retail presence although ExxonMobil had undertaken rationalization of their assets, specifically from 2004 to 2007. Since then, the IOCs have embarked on limited network expansion as well as adjustments to their branding and non-fuel strategies. The smallest retailer, Boustead Petroleum (BHPetrol) is looking to make further gains in the domestic retail market by investing in network expansion, although the company still remains concentrated in Peninsular Malaysia. While retail growth is a key feature in all of the oil companies’ strategies, non-fuel services are also equally vital and continue to attract investments. This is particularly relevant considering pricing constraints embedded within the Automatic Pricing Mechanism (APM), although this does provide stable margins for fuel retailers. At the same time, non-fuel offerings will provide a platform for higher site returns if and when motor fuels pricing is fully deregulated in Malaysia. The government had stopped subsidizing RON 97 gasoline in mid-July 2010 as a measure to cut spending on fuel subsidies, with the price of the premium grade now determined through a managed float based on the APM. PDB, which overtook Shell as the biggest retailer in 2009, is also recording improvements in their non-fuel business alongside investing in network expansion. The company reported that the average daily revenue from their ‘Mesra’ branded c-stores has increased by 10.9% on a CAGR basis over the last five years, bolstered by what is likely the highest coverage of c-stores in the industry at 65%. The c-store segment is also a key element in Chevron’s strategy to gain market share as the IOC has widened their portfolio of brands, adding ‘Xpress Point’ to the existing range of ‘Star Mart’ and ‘Mart’ brands at Caltex service stations. Developed by one of their local branded marketers, the introduction of ‘Xpress Point’ is meant to provide Chevron’s dealers with more choice in terms of adopting the appropriate c-store offering for their sites. On the other hand, ExxonMobil is replacing their ‘Tiger Mart’ and ‘Mobil Mart’ branded c-stores with ‘On the Run’. This rebranding is taking place in tandem with the company’s decision to streamline their Malaysian retail operations under the ‘Esso’ brand. This involves renaming all existing ‘Mobil’ sites, a process that began in April 2008 in the southern state of Johor and has been extended to the Klang Valley in 2009. The company plans to complete this process by 2012.

Retail Networks and Throughputs by Company – MalaysiaChange

as of 31 Dec2007 2008 2009 09/08

Shell 874 904 910 0.7% 29.0% 6.27 125.8% 1.26Petronas 832 892 919 3.0% 29.3% 5.96 119.6% 1.20ExxonMobil 570 530 560 5.7% 17.8% 3.38 67.9% 0.68Boustead Petroleum 285 305 325 6.6% 10.4% 4.01 80.6% 0.81Chevron 400 420 425 1.2% 13.5% 2.96 59.4% 0.59Source: PFC Energy n/a n/a n/a n/a - 0.00 - 0.00

Number of service stations% of total network

average t'puts

Site Effective-

ness

as % of nat'l avg




0.01.02.03.04.05.06.07.0

m cu.m/y/site

Average Annual T'put per Site for Top 4 - 2009

Shell29.0%

Petronas29.3%

ExxonMobil17.8%

Boustead Petroleum

10.4%

Other13.5%

Network Breakdown for Top 4 - 2009

Shell36.5%

Petronas35.0%ExxonMobil

12.1%

Boustead Petroleum

8.3%

Other8.0%

Motor Fuels Market Share for Top 4 - 2009

Shell37.0%

Petronas34.8%

ExxonMobil12.4%

Boustead Petroleum

8.0%

Other7.8%

Gasoline Market Share for Top 4 - 2009

Shell34.9%

Petronas35.6%ExxonMobil

11.0%

Boustead Petroleum

9.7%

Other8.9%

Diesel Market Share for Top 4 - 2009




Detailed by company coverage is now provided in a supplementary DMS-A publication, Major Retail Operators




Prices & Margins Retail gasoline and diesel pump prices were unchanged throughout 2009, following a series of price adjustments in the previous year which saw two price hikes in mid-2008 on rising crude prices. However, the government began reducing controlled prices in August 2008 as crude prices retreated. Meanwhile, RON 92 gasoline was phased out in September 2009 and replaced by RON 95 as the standard unleaded gasoline which was set at RM 1.80/liter (US$ 0.51/liter). In a move to reduce spending on fuel subsidies, in mid-July 2010 the government increased RON 95 gasoline price to RM 1.85/liter (US$ 0.56/liter). In addition, the retail price of diesel was also hiked to RM 1.75/liter (US$ 0.53/liter) from RM 1.70/liter (US$ 0.52/liter). Furthermore the government stopped subsidizing the premium RON 97 gasoline with the price now determined through a managed float according to the Automatic Pricing Mechanism (APM).

Regular Gasoline – MalaysiaRM per liter 2005 2006 2007 2008 2009

Ex-refinery price 1.45 1.67 1.77 2.11 1.50

Gross distribution margin 0.12 0.20 0.15 0.15 0.30

Subsidy 0.05 0.00 0.00 0.05 0.00

Full-tax price 1.53 1.87 1.92 2.21 1.80

in %

Ex-refinery price 95.1% 89.4% 92.2% 95.4% 83.3%

Gross distribution margin 8.1% 10.6% 7.8% 7.0% 16.5%

Tax -3.2% 0.0% 0.0% -2.4% 0.2%Source: PFC Energy's Global Retail Service

Automotive Diesel – MalaysiaRM per liter 2005 2006 2007 2008 2009

Ex-refinery price 1.61 1.84 1.95 2.53 1.61

Gross distribution margin 0.06 0.07 0.07 0.08 0.09

Subsidy 0.58 0.37 0.44 0.60 0.00

Full-tax price 1.09 1.53 1.58 2.01 1.70

in %

Ex-refinery price 147.5% 120.1% 123.6% 125.6% 94.5%

Gross distribution margin 5.3% 4.3% 4.3% 4.0% 5.4%

Tax -52.8% -24.4% -27.9% -29.6% 0.1%Source: PFC Energy's Global Retail Service




Regular Gasoline

-0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4

2005

2006

2007

2008

2009

RM/liter Ex-refinery price Gross distribution margin Subsidy

Automotive Diesel

(1.0) (0.5) 0.0 0.5 1.0 1.5 2.0 2.5 3.0

2005

2006

2007

2008

2009

RM/liter Ex-refinery price Gross distribution margin Subsidy




Detailed monthly data on prices and margins for this market is now available as part of PFC Energy’s Global Retail Service (GRS). This service provides ongoing comparative analysis of the price deregulation process, as well as up-to-date monitoring of end-consumer prices and

distribution margins. The GRS also analyzes the full fuel retail value chain, portraying the margin situation (fuel, non-oil), costs, capital expenditure, and profitability. For further

information, please refer to the client site of the Global Retail Service or contact [email protected]

mailto:[email protected]




Annex

Market Context

Real GDP Growth & GDP per Capita

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2002 2003 2004 2005 2006 2007 2008 20090

1,0002,000

3,000

4,0005,000

6,000

7,0008,000

9,000

Real GDP growth GDP per capita (US$)

Unemployment & Inflation

0%

1%

1%

2%

2%

3%

3%

4%

4%

2002 2003 2004 2005 2006 2007 2008 20090.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Unemployment rate (left-hand axis)Consumer inflation (right-hand axis)

Key Economic Indicators – Malaysia

Change2002 2003 2004 2005 2006 2007 2008 2009 09/08

Geography and DemographyArea (1,000 sq.km) 330 330 330 330 330 330 330 330 0.0%Population (1,000) 24,010 25,050 25,580 26,130 26,640 27,170 27,730 28,310 2.1%Density (inhabitants per sq.km) 72.8 76.0 77.6 79.2 80.8 82.4 84.1 85.9 2.1%EconomyTotal GDP (US$ bn) * 100.8 110.2 124.8 138.0 157.0 186.1 221.6 207.4 -6.4%GDP per capita (US$) * 4,200 4,399 4,877 5,282 5,895 6,850 7,992 7,324 -8.3%Real GDP growth 5.4% 5.8% 6.8% 5.3% 5.8% 6.2% 4.6% -3.6% n/aConsumer inflation 1.8% 1.2% 1.4% 3.1% 3.6% 2.0% 5.4% 0.6% -88.9%Unemployment rate 3.4% 3.6% 3.5% 3.5% 3.4% 3.0% 3.3% 3.7% 11.1%Trade balance (current US$ bn) 19.0 25.7 27.5 33.2 30.5 37.1 51.1 40.1Exchange rate (Local Currency per US$)Annual average 3.80 3.80 3.80 3.79 3.68 3.45 3.34 3.50 4.8%Year-end 3.80 3.79 3.80 3.79 3.53 3.32 3.49 3.40 -2.5%* Using IMF Current Prices

Source: PFC Energy from IMF, OECD and national sources

New Passenger Car Registrations

0

100

200

300

400

500

600

2002 2003 2004 2005 2006 2007 2008 20090.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

New passenger car registrations Diesel cars as % of total

1,000 Passenger Car Equipment Rate

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 200940.5%41.0%41.5%42.0%42.5%43.0%43.5%44.0%44.5%45.0%45.5%

Passenger cars per 100 inhabitants

Passenger cars as % of total fleet




Primary Energy Production & Demand

0 20 40 60 80 100

Pro

duct

ion

Dem

and

Oil Gas Solid fuels & other Electricity (nuclear & hydro)

mmtoe

Primary Energy Production & Demand

0

20

40

60

80

100

120

2002 2003 2004 2005 2006 2007 2008 20090.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0%

Total productionTotal demandOil product demand as % of total demand

mmtoe

Primary Energy Indicators – MalaysiaChange Structure

mmtoe 2002 2003 2004 2005 2006 2007 2008 2009 09/08 2009Total primary energy production 79.5 83.6 86.5 91.0 92.6 94.5 95.9 92.4 -3.6% 100.0%Oil 34.5 35.6 36.5 34.4 33.5 34.2 34.6 33.2 -4.0% 35.9%Gas 43.5 46.6 48.5 55.0 57.0 58.1 58.5 56.4 -3.6% 61.0%Solid fuels & other 0.2 0.1 0.2 0.4 0.5 0.6 0.6 0.6 n/a 0.6%Electricity (nuclear & hydro) 1.3 1.3 1.3 1.2 1.6 1.7 2.2 2.2 n/a 2.4%Total primary energy demand 51.5 51.9 52.2 57.0 61.1 63.2 62.8 59.6 -5.0% 100.0%Oil products 22.7 22.0 23.2 23.1 22.5 24.9 25.6 25.3 -0.9% 42.5%Gas 24.0 24.4 22.0 26.4 29.7 29.7 30.2 28.3 -6.3% 47.5%Solid fuels & other 3.6 4.2 5.7 6.3 7.3 7.1 5.0 4.0 -20.0% 6.7%Electricity (nuclear and hydro) 1.2 1.3 1.3 1.2 1.6 1.5 2.0 2.0 n/a 3.4%RatiosEnergy consumption per capita (toe) 2.15 2.07 2.04 2.18 2.29 2.33 2.26 2.11 -6.9%Energy intensity (toe/US$ m of GDP) 511.1 471.4 418.8 412.9 388.9 339.7 283.3 287.6 1.5%Oil product demand as % of total demand 44.1% 42.4% 44.5% 40.5% 36.8% 39.4% 40.7% 42.5% 4.3%Oil production as % of oil demand 151.7% 161.5% 157.0% 148.9% 149.0% 137.2% 135.3% 131.0% -3.2%Total production as % of total demand 154.3% 160.9% 165.6% 159.7% 151.6% 149.5% 152.8% 154.9% 1.4%Source: PFC Energy from local sources, IEA, and BP Statistical Review




Abbreviations

b/d barrels per day bcf billion cubic feet boe barrels of oil equivalent cu.m cubic meter JV joint venture l liter mmboe million barrels of oil equivalent Mt million tons Mtoe million tons of oil equivalent na not available or not applicable ns non significant PFC Petroleum Finance Company PSC Production Sharing Contract POS point of sale (i.e. filling station) sq. ft square feet mboe thousand barrels of oil equivalent per day mb/d thousand barrels per day mgal thousand gallons mgal/mo thousand gallons per month

Malaysia Full Profile

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