CCS and CCUS technologies are no longer optional for Malaysia’s oil and gas sector; they are essential for achieving sustainability and maintaining competitiveness in a rapidly evolving energy landscape. With strong policy support, strategic partnerships, and a clear vision for the future, Malaysia is well-positioned to become a leader in carbon management technologies. We view CCUS initiatives positively and would serve as a catalyst for the oil and gas industry. Key beneficiaries include MISC, PANTECH and Wasco (Not Rated). Maintain an Overweight stance on Malaysia’s Oil & Gas sector due to these positive indicators.

What is CCUS and CCS?

As the global energy transition accelerates, carbon management has emerged as a cornerstone in achieving net-zero goals. For nations like Malaysia, endowed with a thriving oil and gas sector, the adoption of innovative technologies such as Carbon Capture and Storage (CCS) and Carbon Capture, Utilization, and Storage (CCUS) represents a critical step forward. These technologies are designed to mitigate carbon emissions while enabling continued economic reliance on fossil fuels. CCS involves the capture of carbon dioxide (CO₂) at the point of emission and its subsequent storage deep underground in geological formations. CCUS expands upon this framework by incorporating the utilization of captured CO₂ for industrial applications, such as enhanced oil recovery (EOR) or as feedstock for manufacturing processes.

Globally, CCS and CCUS have been successfully implemented in various projects. For instance, the Sleipner CCS Project in Norway has been capturing approximately one million tonnes of CO₂ annually since its inception in 1996. Similarly, Australia’s Gorgon Project injects an estimated 4mn tonnes annually, backed by a capital expenditure of USD 1.5bn. These projects not only exemplify the feasibility of these technologies but also underscore their potential to transform industries and economies.

Malaysia's Strategic Position

1. Rich CO₂ Storage Potential. According to McKinsey & Company, Malaysia's geological landscape provides a strong foundation for positioning the country as a regional hub for CCS. Many of its major gas-producing fields, nearing the end of their productive lifespan, are ideally suited for CO₂ storage due to their structural integrity and the ability to repurpose existing infrastructure, such as injection wells and platforms. Malaysia Petroleum Management has identified over 46 trillion cubic feet (equivalent to 2.4 gigatons) of potential CO₂ storage capacity across 16 depleted fields. This geological advantage underscores Malaysia's potential to lead regional decarbonization efforts by leveraging its abundant natural storage sites effectively.

2. Policy Framework. The policy support provided by the NETR and NIMP 2030 underscores the government’s commitment to making CCS and CCUS central to its decarbonization strategy. By integrating these technologies into national planning, Malaysia creates a conducive environment for investment, innovation, and collaboration.

3. Strategic Partnerships. Strategic collaborations with global energy giants further enhance Malaysia’s capabilities in CCS and CCUS. We believe these partnerships, such as those forged by PETRONAS with TotalEnergies, Mitsui, and other industry leaders, will enhance Malaysia’s position as a leader in CCS technology in Southeast Asia. These collaborations aim to develop state-of-theart infrastructure, exemplified by projects like the Kasawari CCS initiative, which underscores PETRONAS’s commitment to innovative carbon management solutions. The Kasawari CCS project exemplifies this commitment, targeting a reduction of approximately 3.3 million tonnes of CO₂ annually. Such projects not only mitigate emissions but also establish Malaysia as a hub for carbon management expertise.

National Energy Transition Roadmap (NETR)

Malaysia’s National Energy Transition Roadmap (NETR) positions CCUS as one of its ten flagship catalyst projects, underscoring its strategic importance in the nation’s journey towards a sustainable energy future. By 2030, the roadmap envisions the establishment of three CCUS hubs—two in Peninsular Malaysia and one in Sarawak—as foundational infrastructure for large-scale implementation. Looking further ahead, by 2050, Malaysia aims to achieve a storage capacity of between 40 to 80mn tonnes per annum (MTPA) through these hubs. The roadmap indicates that the energy sector is projected to reduce GHG emissions by 32%, from 259 MtCO2eq in 2019 to 175 MtCO2eq by 2050. The implementation of CCUS technologies is expected to further reduce emissions, with projected GHG emissions in 2050 estimated at 164 MtCO2eq with CCUS, compared to 175 MtCO2eq without, implying a contribution of 12 MtCO2eq through the adoption of CCS.

The NETR builds on the comprehensive framework provided by the National Energy Policy (NEP) 2022-2040. This alignment ensures that CCUS development is integrated with broader energy transition objectives, including renewable energy adoption, energy efficiency improvements, and decarbonization of key industrial sectors. By embedding CCUS within the NETR, Malaysia signals its commitment to balancing economic growth with environmental sustainability.

New Industrial Master Plan 2030

The New Industrial Master Plan (NIMP) 2030 outlines a strategic approach to deploying large-scale CCUS solutions as a means of decarbonizing hard-to-abate sectors such as petrochemicals, manufacturing, and power generation. The plan emphasizes a comprehensive value chain approach, focusing on four critical components:

Firstly, the capture of CO₂ from industrial processes is prioritized, leveraging advancements in capture technologies to enhance efficiency and reduce costs. Secondly, the transportation of captured CO₂ via ships, pipelines, and land-based networks ensures flexibility and scalability in deployment. Thirdly, CO₂ storage options are explored in depleted oil and gas fields, utilizing Malaysia’s rich geological formations to secure longterm containment. Finally, the utilization of captured CO₂ aligns with circular economy principles, transforming waste into valuable inputs for industrial applications.

To execute these objectives effectively, the NIMP highlights the importance of a robust regulatory framework. This framework will provide the clarity and stability required to attract investment and drive innovation. Additionally, the plan integrates CCUS as a key enabler for Mission-Based Project (MBP) 3.3, which focuses on achieving net-zero emissions through technology-driven solutions.

The Role of CCS and CCUS in the Energy Transition

CCS and CCUS technologies play a pivotal role in the global energy transition by addressing one of the most pressing challenges: reducing greenhouse gas emissions from fossil fuel use. While renewable energy sources like solar and wind are essential components of a sustainable energy mix, the decarbonization of industries reliant on fossil fuels remains a formidable task. CCS and CCUS provide a viable pathway for these sectors to transition towards sustainability without compromising on productivity or economic output.

In practical terms, CCS captures CO₂ emissions directly from industrial sources such as power plants, refineries, and chemical facilities, preventing their release into the atmosphere. CCUS extends this capability by enabling the captured CO₂ to be repurposed. For example, in enhanced oil recovery (EOR), CO₂ is injected into mature oil fields to increase extraction efficiency, turning a greenhouse gas into a valuable resource. Similarly, in industrial applications, CO₂ can be transformed into feedstocks for materials such as plastics, concrete, and synthetic fuels, contributing to a circular economy

Economic and Environmental Impacts

Economic Growth: The implementation of CCS and CCUS technologies offers a substantial economic opportunity for Malaysia. Drawing from past projects such as the Kasawari Project, which required an investment of USD 1 bn, we estimate that these initiatives could attract over USD 10 bn in capital expenditures by 2030, in line with the NETR target of 40-80 MTPA. This growth will span various sectors, particularly with the backing of blended financing and public-private partnerships. The successful realization of these investments will accelerate Malaysia’s transition to a low-carbon economy and bolster climate resilience. However, the projects are currently considered marginally bankable, as the returns are below market rates.

In addition to these direct economic contributions, the development of a carbon trading market presents a lucrative revenue stream. By monetizing captured carbon, Malaysia can position itself as a key player in the emerging global carbon economy.

Emission Reduction. On the environmental front, CCS and CCUS technologies offer a scalable solution to curb Malaysia's greenhouse gas emissions. The Kasawari CCS project is projected to reduce emissions by approximately 1% annually, capturing 3.3mn tonnes of CO₂ compared to the 330.4mn tonnes emitted in 2019. Our analysis suggests that scaling similar initiatives could lead to a 10% reduction in national emissions by 2030, advancing Malaysia’s climate commitments.

Beneficiaries and Industry Leaders

MISC (HOLD, TP: RM8.54), in collaboration with Mitsui O.S.K. Lines (MOL), is at the forefront of developing advanced liquefied CO₂ (LCO₂) shipping carriers. These carriers play a critical role in the CCUS value chain, ensuring efficient and reliable transport of captured carbon. PETRONAS has also achieved notable milestones, securing four Approvals in Principle (AiPs) for LCO₂ carriers and advancing the Front-End Engineering Design (FEED) phase for a 62,000 m³ long-haul LCO₂ project. These developments highlight the growing ecosystem of CCUS stakeholders in Malaysia.

Wasco (Not Rated) is positioned to benefit significantly from CCS projects due to its expertise in pipe coating, which is essential for ensuring the durability and efficiency of pipelines used in CO₂ transportation. The specialized coating materials they provide are designed to handle the high pressure and unique properties of transported CO₂, making them a key player in CCS infrastructure development.

Similarly, PANTECH (BUY, TP: RM1.17) could emerge as a notable beneficiary, leveraging its capabilities in supplying high-quality piping systems and components. CCS and CCUS projects require a robust supply chain for steel pipes, fittings, and related materials—an area where Pantech excels. Their involvement will largely depend on how these projects materialize and the specific requirements for pipeline construction and maintenance.

Conclusion and Strategic Recommendations

CCS and CCUS technologies are no longer optional for Malaysia’s oil and gas sector; they are essential for achieving sustainability and maintaining competitiveness in a rapidly evolving energy landscape. With strong policy support, strategic partnerships, and a clear vision for the future, Malaysia is well-positioned to become a leader in carbon management technologies. By embracing these opportunities, the nation can align economic growth with environmental stewardship, paving the way for a sustainable and prosperous future.

With these positive indicators, we maintain an Overweight stance on Malaysia’s Oil & Gas sector. We view CCUS initiatives positively and would serve as a catalyst for the oil and gas industry. Key beneficiaries include MISC, PANTECH and WASCO (Not Rated).

Source: TA Research - 31 Dec 2024