Malaysia has cancelled a cross-border deal with Brunei to develop oil and gas fields along their shared maritime boundary.

Malaysian sources said state-owned Petronas had halted discussions earlier this month on collaboration over several drilling projects straddling the maritime boundary or within the Malaysia-Brunei Commercial Arrangement Area.

Malaysia has purportedly complained about the proposed revenue split, which was agreed by the previous government before the May 2018 general election.

Prime Minister Mahathir Mohamad, 94, since returning to power as head of his Pakatan Harapan (PH) coalition has reportedly taken a tough approach with Brunei and demanded a better deal.

Brunei is supposedly keen to restart negotiations and develop a new source of natural gas.

The BP World Energy Outlook forecast that at its current pace of extraction, Brunei will have no hydrocarbon resources left in 15 years.

PetroleumBrunei is purportedly looking to work with Petronas to develop a group of gas-rich fields to supply the Brunei liquefied natural gas terminal at Lumut.

Declining hydrocarbon incomes are hurting Brunei, which is accustomed to extreme wealth. The tiny state has the world’s largest residential palace. Approximately US$1.4 billion was spent by Sultan Hassanal Bolkiah on his home, which has 1,788 rooms, 257 bathrooms and 7,000 luxury vehicles in more than 100 garages.

This year unemployment is projected to rise to approximately 9.1 per cent, the highest level in Southeast Asia, despite the attraction of 0 per cent income tax. But foreigners continue to arrive, mainly from India, Bangladesh and the Philippines, to take up jobs the indigenous population does not want.

The authorities in Brunei offer residents free health care, free education and housing development programmes.

This generous welfare state will be under threat if new oil and gas sources are not found.

In October last year, France’s oil and gas giant Total agreed to sell its near 87-per-cent stake in a maritime block to Royal Dutch Shell for US$300 million. The agreement has now been delayed amid the bilateral wrangling with Malaysia.

A solution after this week looks far more distant as Mahathir has created a political crisis by bringing down the ruling PH coalition, leaving Malaysia’s royal leaders to try to establish a new government.

The dispute has created uncertainty for fossil fuel firms operating within Malaysian territory, which is expected to affect extraction investment in the future.

The delays will limit oil and gas production growth, reducing income for the Malaysian and Bruneian authorities.

Shell’s Brunei-Malaysian operations are on hold. Picture credit: Wikimedia

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