Malaysia’s Indo-Pacific Energy Strategy

Malaysia is geographically well positioned to benefit from energy trading between the Indian Ocean and the Pacific. 

In addition to its trade relations, Malaysia has significant hydrocarbon reserves. Malaysia also has a huge potential of renewable energy.

1. Malaysia is at the center of the Indo-Pacific energy trade

Malaysia is uniquely positioned to benefit from the growth of renewable energy. Indeed, the country has significant renewable energy resources to draw on.

Malaysia is a leading producer of hydrocarbons in Southeast Asia, although Malaysia’s role in the oil export business is becoming increasingly negligible. Instead, Malaysia has become an oil importer. This is partly due to the fact that Malaysia has a growing population on Peninsula Malaysia. Secondly, it is due to the fact that Malaysia’s energy consumption has increased over the past decades. This has significantly restricted oil exports. 

The geopolitical impact of declining oil exports in Southeast Asia is considerable. China and the wider East Asia region are important oil importers. East Asia needs a continuous supply of oil due to the high degree of industrialization.

For the East Asian countries this means a dramatic change in their energy strategy. Southeast Asia has significant hydrocarbon resources and was previously able to export some of this fuel to East Asia.  Now most of the oil comes from the Middle East. Southeast Asia was also better suited to fulfill the role of oil exporter than the countries of the Middle East ever could. The problem is that most of the oil reaching China and East Asia flows through the Strait of Malacca. Geographically, the Strait of Malacca runs in a southwestern direction off the coast of  Peninsula Malaysia and Singapore.

The Strait of Malacca is one of the most dangerous waterways in the world. For large ocean-going vessels, the Strait is difficult to cross, but it is the hub of the energy world. Everyone has to pass through this bottleneck to reach the East Asian energy markets. Singapore, an island off the south coast of Peninsula Malaysia, is a hub. Singapore, located south of Malaysia, is like a rest stop for energy supply chains coming from the Indian Ocean to the Western Pacific. The ships are piling up off the Strait of Malacca to enter the South China Sea. As the country closest to the Strait and Singapore, Malaysia benefits from this interdependence in energy trading. Singapore is therefore a key factor for Malaysia’s overall energy security

2. Malaysia’s growing importance in future energy trading

The fact that China has to import medium crude oil from the Gulf is a major inconvenience for the Chinese energy industry, chemical industry and manufacturing industry. Importing crude oil from Saudi Arabia and the Gulf States is a logistically cumbersome process. This naturally favors both Malaysia and Singapore in the Indian-Pacific region as an intermediate hub between East and West. Malaysia benefits from Singapore’s growth as a maritime trading center, but the overall energy architecture of the region is much more complex than one might initially expect. Why is this so? The region is currently the focus of civil engineering projects, as it is considered an important component in promoting the construction of the new Silk Road. The Malaysian peninsula plays such an important role in the Indian-Pacific region. China and Thailand are planning to build a canal that will run north of the border of the Malaysian peninsula through Thailand. This would connect the Indian Ocean to the West Pacific and bypass trade through the Strait of Malacca. Interestingly, the construction of the canal would have little impact on India’s energy security in the Indian-Pacific region, which is relatively close to the Gulf States. That is beside the point.

However, this would place Malaysia between two main trading arteries for energy supply chains. This would be bad for Singapore, as it is the only bottleneck in the Western Pacific. For Malaysia, things look a little better from an energy policy perspective. It would turn Peninsula Malaysia into an incredibly important real estate market and let the industry flourish thanks to cheap energy. Malaysia is already benefiting from trading networks in the Indian Ocean as well as the West Pacific. 

Malaysia’s importance as a trading center goes back centuries, even millennia. For centuries, Malaysia has been the core for much of SIlk Road’s trade, as it is located between the trading centers of the Middle East, India and China. Even Marco Polo passed through this region on his way back to Venice.

3. Offshore wind energy, the South China Sea and future hydrocarbon energy sources

Malaysia borders on the South China Sea and in some places is well suited for offshore wind energy. This is especially true for areas closer to Vietnam. It is difficult to put this idea into practice. The shipping traffic is considerable. Navigating through waters with offshore wind farms is extremely difficult. Joint projects with other countries could form the basis for a hub of offshore wind turbines.

In addition, the South China Sea could have considerable hydrocarbon energy resources. Under these circumstances, comprehensive energy projects with neighboring countries could be useful. Joint projects such as offshore wind energy storage systems would further promote regional trade. It should also be remembered that onshore wind energy is normally not productive in equatorial locations such as Malaysia, except in coastal areas, at sea or in mountainous regions.

4. Geothermal energy potential of Malaysia

Due to Malaysia’s relative proximity to the Ring of Fire, which stretches along the western Pacific, there is a considerable geothermal energy potential. Malaysia’s energy sector can exploit this energy potential in larger quantities. The geothermal potential is not equivalent, but close to that of Indonesia and the Philippines. The Indonesian archipelago is particularly strongly influenced by plate tectonics, more so than is the case in the Peninsula of Malaysia. And the energy demand is higher on the Malaysian peninsula than on Borneo. For this reason, power generation from geothermal energy would probably not be equivalent to that of similarly large projects in Indonesia. It is equally unlikely that Malaysia could achieve the same level of geothermal energy output as the Philippines

5. Conclusion

Malaysia has excellent opportunities to maximize trade relations and can easily purchase hydrocarbon fuels. In addition, Malaysia has significant indigenous oil and gas reserves. At this point we have not even discussed conventional and unconventional hydrocarbon reserves in the South China Sea. In addition, Malaysia has a huge potential of renewable energy in the areas of geothermal and solar energy. There is no shortage of energy in the medium term. 

China will play a central role in Malaysia’s future energy oulook. The energy policy aspect and/or the energy policy perspective consists of two key components. One is the new Silk Road, which is crucial to the Strait of Malacca. This has implications for energy trading itself. The other is civil engineering projects throughout Southeast Asia, which will affect the quantity and quality of movements in energy trading within the India-Pacific region. 

Many thanks for the shared interest in the energy world!

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