KUALA LUMPUR : The recent decision by Petroliam Nasional Bhd (Petronas) to reduce its workforce by over 5,000 employees is a reflection of broader structural shifts within the global oil and gas industry, according to economists. Mounting cost pressures, the accelerating shift towards renewable energy, and rapid advancements in automation and artificial intelligence (AI) are compelling major energy companies to recalibrate their operational models.
Over the past year, industry giants such as Chevron, BP and Shell have all undertaken significant workforce reductions as part of cost rationalisation and restructuring initiatives. These actions underscore a move towards more streamlined, technologically adaptive and future-oriented operations across the sector.
Economists highlight that Petronas’ downsizing represents a strategic response to preserve long-term commercial viability in the face of a rapidly evolving energy environment. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid emphasised that the company is confronting multiple concurrent challenges, including rising labour, equipment and logistics costs, tighter environmental, social and governance (ESG) compliance, and the disruptive influence of automation and AI.
“The industry landscape has shifted substantially. The growing emphasis on renewable energy necessitates higher capital expenditure to position Petronas effectively for the energy transition,” he told Business Times.
Echoing this perspective, economist and Global Asia Consulting senior consultant Samirul Ariff Othman noted that the national oil company is also grappling with declining yields from ageing oil and gas fields, exerting further pressure on profitability.
Petronas reported a 32 per cent decline in net income in 2024, following a 21 per cent drop in 2023. Profit margins are anticipated to continue contracting, with projections pointing to low double-digit figures in the near term.
“The global pivot towards clean energy is fundamentally challenging the conventional oil and gas business model. Petronas is now required to channel increased investment into clean energy alternatives, significantly raising its capital expenditure,” Samirul said.
Both economists warned of potential ripple effects stemming from the job cuts, particularly among subcontractors and service providers within the oil and gas supply chain. These include offshore support vessel (OSV) operators, engineering consultancies and maintenance firms, which may face reduced demand for services and subsequent financial strain.
Regions such as Sarawak and Sabah, where local economies are heavily intertwined with Petronas operations, may see increased unemployment and economic headwinds as a result.
Investor sentiment may also be affected, with the restructuring viewed as indicative of wider industry consolidation and strategic repositioning. Afzanizam suggested that affected parties, including subcontractors and support industries, will need to explore alternative opportunities and enhance workforce reskilling efforts.
“With 90 per cent of Malaysia’s mining sector linked to oil and gas, we foresee a transition in the industry. Rising demand for Rare Earth Elements (REE), especially in support of the electric vehicle (EV) market, may drive a shift in mining sector dynamics. The existing talent pool could be redirected into the REE sector, potentially creating a new equilibrium within the broader extractive industry,” he explained.
According to Samirul, the developments at Petronas may signal the beginning of a broader restructuring trend in Malaysia’s oil and gas sector. Other companies may be compelled to review their operations to maintain competitiveness and ensure financial sustainability in light of the global momentum towards decarbonisation.
He further cautioned that Petronas’ declining profitability could have wider implications for national revenue, given the company’s substantial contribution to the federal budget through dividends and taxation. This could in turn influence government spending priorities and broader fiscal policy frameworks.
-Business Times
