KOTA KINABALU: The global petrochemical cycle is turning down again. After a decade of heavy investment, especially in China and the United States, the world is now grappling with weak demand growth and significant overcapacity in key products like olefins, aromatics and polymers.
For Malaysia – and Sabah in particular – this “new normal” is a stress test for downstream ambitions. Sabah is only now scaling up its oil, gas and petrochemical play, with the Sipitang Oil & Gas Industrial Park (SOGIP) as its flagship. Yet Sabah’s late start may also be an advantage: its portfolio is anchored less on bulk plastics and more on gas monetisation, LNG, fertiliser and storage, which provides some insulation from the harshest effects of the downturn.
Why Sabah is relatively shielded
Sabah’s strategy is not built around massive stand-alone polymer complexes. Instead, it revolves around SOGIP and a set of assets that sit close to energy security and logistics. The park’s location along the Asia Pacific LNG shipping route and near the Pan Borneo Highway strengthens its role as a storage, transhipment and regional distribution node that remains useful through different phases of the cycle.
Existing anchor assets reinforce this resilience. Petronas Chemicals Fertiliser Sabah (Samur) produces ammonia and granular urea, serving agriculture rather than consumer plastics. Fertiliser demand is driven by food security and crop production, which historically has been less cyclical than demand for packaging and construction plastics. Samur has generated steady payouts – estimated around RM650 million annually at company level – giving Sabah Maju Jaya Energy (SMJ) and the state a relatively predictable cash flow base.
New projects at SOGIP are also aligned with energy logistics and transition themes. The RM8.88 billion energy hub and petroleum storage/refinery complex is framed as a regional energy storage and distribution centre designed to transform Sabah’s oil and gas sector and strengthen energy security and trade connectivity. The planned near-shore LNG facility with PETRONAS and SOGDC is explicitly presented as an “optimal gas monetisation” solution, integrated with existing jetty and utilities to maximise long-term spin-offs for Sabah. State leaders, meanwhile, position SOGIP as a bridge to a lower-carbon future, tying it into Sabah’s energy roadmap to 2040 and highlighting LNG and other cleaner fuels as part of the transition.
Taken together, these choices make Sabah’s portfolio more defensive than a purely petrochemical-heavy strategy, but they do not remove risk.
The risks Sabah cannot ignore
Resilience is not immunity. Three main vulnerabilities stand out.
First, demand and price volatility will still hit margins and investor appetite. Revenues from LNG, fertiliser and refined products are highly sensitive to global price cycles, shipping demand and emerging carbon policies. A prolonged period of low LNG prices or weak fertiliser margins would strain project economics. With global petrochemical returns under pressure, potential partners – especially international investors – will be more selective, forcing SOGIP to prove it is genuinely competitive on cost, reliability and regulatory stability.
Competing on cost means lowering the total cost to build and operate at SOGIP relative to rival hubs. That includes leveraging shared jetty, storage, utilities, pipelines and port facilities so each investor avoids duplicating infrastructure, reducing capex and opex per tonne. It also means maintaining competitive and transparent land, utility and port tariffs that stack up well against other regional industrial parks.
Competing on reliability is about giving investors confidence in long-term, uninterrupted operations. This depends on secure gas supply from pipelines and terminals, reliable power and water, and redundancy in critical systems, as well as robust logistics and highway connectivity and a local ecosystem of maintenance, engineering and marine services.
Regulatory stability, meanwhile, is crucial in a low-margin world. Investors need clear, consistent rules on land use, environmental standards, safety and taxation, plus evidence that state and federal agencies are coordinated and that agreements on incentives, tariffs and infrastructure access will be honoured across political cycles.
Second, transition risk is accelerating. Global climate policy is moving towards carbon pricing, stricter methane controls and standards for “green” fertilisers and fuels. These shifts can force operators to retrofit cleaner technologies, efficiency measures and emissions controls, raising costs for projects that do not plan ahead. As Malaysia and ASEAN ramp up renewables, gas will have to defend its status as a transition fuel rather than a permanent mainstay, making a narrative based solely on fossil growth increasingly tenuous over a 20-year horizon.
Third, competition among regional hubs is intensifying. Other ports and industrial parks in Southeast Asia are positioning themselves as integrated energy and petrochemical centres, often with deepwater ports, strong incentive regimes and long-established ecosystems. SOGIP must show not just a strategic geographic position, but also a smooth investor journey and high-quality infrastructure and services to stand out.
What SOGIP must do to thrive
In this environment, SOGIP cannot act as a passive landlord collecting leases. It has to evolve into an active development platform that curates the right mix of projects and orchestrates integration, efficiency and sustainability.
First, integration and cost competitiveness must be non-negotiable. Tight linkages between gas supply (SSGP and Sabah Gas Terminal), the near-shore LNG facility, the energy hub refinery, fertiliser and any future petrochemical or power plants will allow shared utilities, storage and logistics, lowering unit costs and emissions. SOGIP should prioritise investors whose business models plug into existing jetty, storage and pipelines rather than those building isolated, stand-alone facilities.
Second, the project pipeline should tilt towards “transition-friendly” and higher-value activities. That includes low-carbon fertilisers (ammonia linked to CCS), specialty chemicals, industrial gases and value-added derivatives that support regional industry, instead of relying heavily on bulk commodity polymers in oversupplied markets. There is also a clear opportunity for SOGIP to position itself in emerging fuel chains – blue or green ammonia, methanol, and marine bunker fuels – that leverage Sabah’s gas and port assets while aligning with global decarbonisation trends.
Third, resilience must be deliberately built into governance, incentives and local capabilities. Predictable land policies, transparent tariffs and stable environmental regulations will help establish SOGIP as a de-risked destination compared with rival hubs. Incentives should reward projects that bring technology transfer, high-skilled jobs and low-carbon solutions, not just throughput. At the same time, investing in Sabah’s workforce and local suppliers – in maintenance, marine services, fabrication and digitalisation – will help create an ecosystem robust enough to weather industry cycles.
Finally, sustainability and ESG must be embedded in design rather than added later. The energy hub, LNG facilities and future plants should incorporate emissions monitoring, energy efficiency and potential carbon capture from the outset, anticipating the expectations of financiers and buyers. Equally, SOGIP needs to maintain credible environmental safeguards and tangible community benefits so that its social licence holds as scrutiny of fossil-linked projects intensifies.
Viewed this way, the petrochemical downturn is more than a threat; it is a filter. It will expose weak, speculative projects but reward hubs that are integrated, disciplined and aligned with the energy transition. Sabah’s bets at SOGIP lean towards the latter. The state’s real test now is execution: turning a strategically placed, well-designed hub into durable and diversified value over multiple industry cycles.
The Sipitang Oil & Gas Industrial Park (SOGIP).
