Rapid economic growth and structural changes in the Malaysian economy during the last two decades have led policy planners and analysts to reassess the efficiency in the use of energy resources and their availability for future requirements. Special concern is focused on the extent to which natural gas can be used for power generation and the suitable timeframe for the introduction of the 2,400 MW Bakun hydroelectric project in Sarawak. To reduce the economy's dependence on oil, the government has embarked on the four-fuel diversification strategy for the optimal mix of oil, natural gas, coal, and hydro in energy use.

With the revisions of the production-sharing contracts (PSCs) in December 1985, Malaysia is set to attract foreign capital to invest in the upstream and downstream activities of the energy sector. In 1988, Malaysia led an upturn in upstream investment in the Asian-Pacific region. Malaysia also overtook Australia as the second largest producer of oil in the AsianPacific region in 1989 (Petroleum News, 1989).

The strategy to diversify natural gas development from the limited liquefied natural gas (LNG) export markets (dominated hitherto by Japan) for domestic uses is actively pursued with the construction of the 726-km pipeline to supply natural gas to the power plants and the industrial sector in West Malaysia and eventually Singapore.

The development of a new oil refinery with a capacity of 100,000 b/d in Malacca and the proposed Methyl Tertiary Butyl Ether (MTBE) and polypropylene plants for petrochemical development reinforce energy investments in the 1990s to turn Malaysia into the powerhouse of the ASEAN region. Refinery integration in response to the changing demand for light and middle distillates (as environmental concern catches on in the ASEAN region with new legislations in Malaysia, Singapore, Thailand, and Indonesia to reduce lead pollution in gasoline) has provided new opportunities in the highly risky exploration and development of oil/gas.