Economic Impact of Oil Trade in a Developing Country: An

million and $11.3 million whereas in 1981, they were at 56921.4 million, $225.0 million and $0.4 million respectively. The decline in the export value...

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furnal EkonomiMalaysia28 ( 1994) 39 - 55

EconomicImpact of Oil Trade in a Developing Country:An Empirical Investigationof Consequences of RecentGulf Crisisin Malaysia ZakariahAbdul Rashid Mohd.ShahwahidHaji Othman ABSTMCT Petroleum-basedindustry has become significant to the Malaysian economysince the early seventies..Il ls now one of the key industries in the economy. The economy's export ratio of oil quadrupled to 16 percentin 1988from 4 percent in 1974. The country is now a net exporterof oil and gas but a net importer of petroleum products. This paperattempts to present the results of our empirical inquiry into the impact of qn increase in oil price to the economy. Using the interindustryinput-output model, the paper found that the net effect of an increasein oil surplus and a deficit in petroleum products trade providesstrong potential for expanding output and employment. ABSTRAK. Industri berasaskan petroleum sangat penting kepada ekonomi Malaysia semenjak awal tujuhpuluhan lagi. Ia kini merupakan salah satu daripada industri utqmq dqlam ekonomi. Nisbah eksport minyak ekonomi ini meningkat empat kali ganda kepada 16 peratus dalam tahun 1988 daripada 4 peratus dqlam tahun 1974. Negara ini kini merupakanpengeksport bersih minyak dan gas tetapi pengimport bersih barangan petroleum. Kertas kajian ini cuba membentangkan hasilkajian empirik tentang kesanpeningkatan harga minyak ke qtqs ekonominegara ini. Dengan menggunakanmodel input-output, kertas kajian ini mendapati bqhawq kesan bersih peningkatan dalam lebihan dagangan minyak dan deficit dagangan barangan petroleum menawarkanpotensi yang kukuh kepada pengembangan output dan gunarcnqga.

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Jurnal Ekonomi Malaysia 28

INTRODUCTION: OIL AND GAS SCENE Malaysia is fortunate to be blessedwith generousenergyresources such as oil, gas, coal and hydro power; of which oil is the most important. The total proven reservesof oil as of December 1988 was about 3.05 billion barrels, one-half of which is found in Peninsular Malaysia and the remaining, is mostly found in Sarawak.With a production rate of 500,000barrels per day (b/ d), the reservecan last, if no new reserveis discovered,up to the year 2005. In 1988, exports of crude petroleum, refined petroleum and other petroleum products were valued at $6128.7million, $680.6 million and $11.3million whereasin 1981,they were at 56921.4 million, $225.0million and $0.4million respectively.The declinein the export value of crude petroleum is followed by an increasein the volume of its export, reflectinga fall in the world price of crude in this period (Table l). On the other hand, the rapid growth of export in terms of both value and volume in those of refined petroleum and other petroleum products is due to a strong domesticdemand. TABLE l. Export ofcrude petroleum and petroleumproducts in l98l and 1988* 1988 RM mil

l98l tonne

Crude Petroleum

6,128.7

Refrned Petroleum Product

680.6

Residual Petroleum Products

11.3

22,260

6,820.6

23,635,037

Total

19,927,221 (b)

RM mil 6,921.4

225.0

0.4 7,146.8

10,143,173 (b)

474 23,168,883

Source: External Trade Statistic, l98l & 1988,Department of Statistics, Malaysia. Note: *Producer Price Index for SITC 33 (Petroleum, petroleum products & relatedmaterials)droppedfrom 170.4in 1981to 118in 1988.

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41

The economy'sproduction of crude oil is mainly for export, accountingfor more than 70 percent of total production. The attractionfor export is due to the fact that the country's crude whichis superiorin quality with low sulphur content (i.e. sweetand light variety)fetchespremium price comparedto the world crude. Furthermore,the local refrneries,having a total capacityof about 214,800b/d and with a utilisation rate of more than 80 percent,are insufflrcient.Local ref,rneriesare increasing their activities of rehning local crudes.For example,in 1986, only 68 percent of refiningactivitiesusedlocal crude whereasin 1990the proportion of local crude refined has increasedto more than 88 percent (Figure1). While the national petroleum company, Petronas, imports heavier crudes to run its refineries, Shell is completing the upgradingof its Port Dickson refinery to enableit to run entirely on domesticcrudes.Petronashas refinery capacity of 300,000b/d (Terengganu) and Esso and Shell have capacitiesof 47,300 and 90,000b/d @ort Dickson) respectively(Table 2). Shell has also another 45,000 b/d refinery capacity at Lutong in Sarawak. Petronasis planning to have another refinery plant (located in Melaka)whichis expectedto beginoperationsin l994.Initially, the Melakaplant will havea processingcapacityof 100,000b/d, which will beexpandedto 230,000b/d at the end of the country. The plant will frocessboth local sweetand Gulf sour crudes.By the turn of the century, the country would be having a total processing capacityof nearly one-half billion b/d. Natural gasis the main alternativesourceof energyto oil and has a proven reservethree times than that of oil. Natural gas reserve is estimatedat about 1,500billion cubic metersor 9.5 billion of oil equivalent(boe).rOil hasbecomethe major sourceof foreign exchange and it exports contributed ll percentto cDp during the frrst-halfof 1980sbut fell to 7 percentduring the 1986-88period. Fluctuationin oil priceshas causedsignificantchangesin earnings from export of oil which contributed one-quarterto total export earningsin 1982.The eirnings, however,fell to one-tenthin 1988 because of the 60 percentfall in oil prices. Malaysiais the Far East'sfifth largestcrude oil producer,after China,Indonesia,India and Australia. While new discoveriesare likelyto be made,the current proven oil reservesin the country are still worrying for a nation so dependenton export revenuesof oil

LeallX r4liaad loal

67 1986

1987

cradc ralio

1988

1989

YEAR FIGURE I. Export ratio of crude petroleum and locally refined local crude ratio

1990

43

Gulf Crisisin Malaysia TABLE 2. Refinery Plantsin Malaysia Location

Capacity

Start operatlon

Crude type

Shell

Lutong

45,000

t9t7

local

ESSO

Port Dickson

49,000

1960

local and Mid. East

Shell

Port Dickson

90,000

t963

local and Mid. East

Kertih

30,000

1983

Operator

Petronas

local

Petroleum Industry,1991. Source: Petronas, Malaysia's about 170,000b/d to meetthe bulk of its domestic andconsuming requirements. The first estimateof currentprovenoil reserve energy whichwasreportedby Petronaswas put at 3.1 billion barrelswas revisedto 2.9 billion barrels(Hough 1988).The declinein oil and commoditypriceswhich domesticallyreducedthe nationalrevenue hasmadethe naturalgasas a cheapand competitivefuel and also broughtthe launchingof the PeninsularGas Utilization (rcu) projectin late 1984.The policy behindthe projectwasto maximize gaswhich has reserves of 9.5 billion boe and theuseof.indigenous sufficientto last over 100yearsat currentproductionrate. Productionof natural gas comesfrom 34 oil and gas frelds offshoreTerengganu, Sarawakand Sabah;some88 percentbeing gas.The secondstageof the PeninsularGas Utilization associated project(rcu II) requiresthe constructionof 726km. of pipelineto bringnaturalgasfrom Terengganuin the eastcoastof peninsular Malaysiato powerstations,industriesand homeson the westcoast, thencontinuingto Johor and Singapore. OIL AND PETROLEUM PRODUCTS TRADES The petroleum-based industrieshave becomesignificantto the It is now one of the key Malaysianeconomysinceearly Seventies. industriesin the economy. The export ratio of crude petroleum quadrupled to 16percentin 1988from a mere4 percentin 1914.In 1988,RM 6128million and RM 408 million of crude petroleum

Jurnal Ekonomi Malavsia 28

and other crude oils obtained from bituminous minerals were exported and imported respectively.The correspondingvalue of export and import of refined petroleum products were RM 680 million and RM 1651 million. In addition, RM 1836 million of natural gas (whetheror not liquefied) were exportedand RM 158 million of liquefied propane and butane and petroleum gasesand other hydrocarbon gaseswere imported. Thesefigures show that the country is the net exporter of crude petroleumand natural gas and the net importer of petroleumproducts. Economic forecastsof growth in industrialized countries are influencedby changesin the world prices of oil. According to the World EconomicOutlook (1990),the real growth rates of those countrieshave to be adjusteddownwardly by 0.3 percentfor every US$7 increasein the oil price. As an open small economywhich exportsits commoditiesto the industrializedcountries,Malaysia's growth performancewill certainly be influenced by that of the industrialized countries. Furthermore, oil and gas exports contribute significantly to the cnp and foreign exchange and petroleum products imports provide all the necessaryindustrial inputs of the economy. This paper attempts to present the results of our empirical inquiry into the economicimpact of production, export and import of petrole.umproducts (crude petroleum and petroleum products industries)to the Malaysian economy. Basedon the 1983 interindustry table of Malaysia, it is found that crude petroleum is mainly exported(more than one-half) and another one-third of its production is consumedlocally by petroleum product and basic metal industries. Products of petroleum, on the other hand, is mainly consumedlocally by electricity, transportation and household sectorswhich as a group absorbsnearly one-half of the total production. Similarly, while the production of crude petroleumdependson the output of petroleumproducts and transportation industriesas its main intermediate rnputs (respectivelyrepresent 16 percent and 3l percent of the total intermediate inputs), the production of petroleumproducts appear to be too dependenton the output of crude petroleum which comprisesnearly 90 percent of the total intermediateinput. The above inter-industry relationship setsout that both the crude petroleum and the petroleumproducts sectors

Gulf Crisisin Malaysia

45

arelinkedtechnologically(directly and indirectly) to the rest of the economy. MODELSAND RESULTS LinkageEffectsThe expansionof an industry not only generates demandfor its inputs, but also inducesthe expansionof industries whichuse the commoditiesproducedas inputs. The connection with supplierindustriesis called backward linkage and that with user industriesis called forward linkage. The column sum of elementsof the Leontief inverse matrix for any industry, say industryj, is givenby: 40 !r'- -

(1)

Lbrt

j : 1,2,3......,40

whichmeasures the total input requirementsfor a unit increasein the final demandfor the jth industry. The elementsof the ith columnof the Leontiefinversematrix (I-A)-1, measurethe toial. directandindirect,productionfrom all industriesgenerateduy one unit of final demand for the output of the jth industry. For comparativepurposes,it is the relative magnitude of the above measure whichis important, and the measurecan be normalisedas:

jt f4ao , n n-

(2)

t40

aDu,, LJ

This measure,which is independentof the unit of measurementis calledan index of backward linkage and would indicate high backwardlinkage, in the sense of generating above-averale response in other sectorsif its value is greaterthan one. Similarly,the row sum of the elementsof the matrix for. sav industryi, is given by: 40

(3)

\-, Lotj ;-1

JurnalEkonomiMalaysia28

46

which measuresthe increase in the output of the ith industry required to satisfy a unit increasein the final demand of all the industries. The elementsof the ith row of the Leontief inverse matrix measurethe total output of the ith industry generatedby one unit of final demand in each of the industry, including the ith industry. Again, this measurecan be normalisedas: 1Q

(4)

1\n4 .n

b,, '"

#Du,' LJ

and this is called an index of forward linkage. This index with a value of greater than one indicates high forward linkage, in the sensethat thesesectorsdisplay above-averagedependenceon the output of other sectors. By using the 1983inter-industry table of Malaysia, (Table 3) although the petroleum mining industry does not have a strong backward linkage, it has a strong forward linkage with the rest of the economy. From a forty-sector economy of Malaysia, the petroleum mining and manufacture of petroleum products respectivelyranked at 37 and 15 in the descendingscale of backward-linkage. Meat and dairy products, other food production, bakery and confectionery,food canning and leather product industriesranked first five wherebackwardlinkagesare concerned, with food and beveragemanufacturingindustry scoringthe highest index, indicating its close connection with its supplier industries. Even though Malaysia has had a long history of petroleum developmentand exploration which commencedat the turn of the century, it was only in the mid-1970sthat the large scaleoffshore crude oil production starts to frnd its effect. Petroleum mining and ref,rning activities involve highly specializedand capital intensive machinery (riNIoo 1992) which are imported from industrialized countries. The industries rely heavilyand employa relativelylargenumber of expatriateswho are trained specially to operate the machines(Nada Petronas 1989). Sucha phenomenoncontributesto the lack of technologicallinkage from domesticsupply industries. The petroleum-based industries,however,appearto havestrong forward linkage which may induce expansionaryactivities in the

TABLE3. Sectorallinkage indicesof the Malaysian economy,1983 Backward Linkage

Sector Agr. & livestock Plant.crops Forestry &Log'g Fishing Mining,inc. oil Meat& Diary prd. Foodcanning Bakery& conf. Otherfood prd. Beverages TobaccoPrd. Textiles Wearingapparel Leatherprd. Woodprd. Paper& publish. Chemicals Petroleumprd. Rubberprd. Glass& clay prd. Othernon-metals Metalprd. Non-electric mech. Electricmech. Transportequip. Othermanuf.prd. Water,gas& elec. Construction & retail Wholesale Hotel& restaurant Landtransport. Watertransport. Air transport. Communication Buss.services Pte.services Culturalservices Motor repair Personalservices Govern.services

Index 1.032 0.750 0.821 0.724 0.763 1.474 1.282 1.29s 1.423 r.077 0.891 1.154 0.949 1.218 1.147 0.9t7 0.981 1.038 1.064 1.019 1.006

r.083 0.949 0.859 0_827 0.929 r.058 1.109 0.89r 1.199 r.058 0.904 0.904 0.744 0.795 0.904 0.955 0.98r 0.846 0.846

Sorrrce.'Comouted from the models

Rank

r6 38 35 40 JI

I 4 J

2 ll 29 7 5 8 25 19 l5 l2 t7 l8 t0 22 3l 34 24 l4 9 30 6 l3 26 27 39 36 28 2l 20 33 32

Forward Linkage Index

r.583 1.205 0.955 1.083 1.699 0.840 0.647 0.654 2.058 0.679 0.654 0.994 0.667 0.654 0.846 0.968 t.179 r.538 0.769 0.731 0.897 1.122 0.833 0.763 0.904 0.705 1.359 0.872 z.)5J

0.904 1.032 0.910 0.788 0.827 1.827 0.641 0.712 0.731 0.654 0.679

Rank 5 8 l5 ll 4 22 39 35 2 33 38 l3 34 36 2l t4 9 6 26 28 19 l0 23 27 t7 3l 7 20 I 18 t2 t6 25 24 J

40 30 29 37 32

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refining of crudes, energy generation,transportation and manufacture of petrochemical products. The table shows that, respectively,petroleum mining and petroleum products industries ranked at fourth after wholesale and retail trade, other food products and businessservicesand sixth after agriculture and livestock in the descendingscale of forward linkage. The direct backward and forward linkages of petroleum mining and petroleum product industries - suppliers of their inputs and purchasersof their outputs - are discussedin Section II. The direct backward linkage is obtained by looking at the amount of output from supplier industries required for one unit of its total intermediate input; whereasthe direct forward linkage is obtained by looking at the amount of its output purchased by other industriesfor one unit of its total intermediateoutput. The PeninsularGas Utilization II project, launchedin the late 1984 to pipe natural gas from Terengganuin the east coast of PeninsulaMalaysia to power stations,industriesand homeson the westcoastand continuingto Johor and Singapore,providesa good potential of forward linkagesbetweenpetroleum-basedindustries with the rest of the economy.Petronas' plans of establishingthe lpc-based petrochemicalcomplex producing propylene, polypropylene, methyl tertiary butyl ether (urnn) and ethane-based petrochemicalcomplexproducing ethyleneand polyethyleneis an few exampleof potential forward linkages. OUTPUT AND EMPLOYMENT GENERATION

The potential contribution of the expansionin net export of crude oil and gasand in net import of petroleumproductsto the sectoral gross output and employment can be delineated by the following expression:If we let be the changein the net export of crude oil and gas and be the changein the net import of petroleum products, the potential contribution of those changesto the sectoraloutput can be shown as:

(5)

(&) : (1- A)-r(ax)

where(x) is the column vector of sectoraloutput. (1 - ,4)-1 is the Leontief inverse matrix and (Ar) is the column vector whose elementsare 6, ) and z.eroelsewhere.

Gulf Crisisin Malaysia

The potentialcontribution of changesin net export of oil and gas and in net import of petroleum products to employment creationfor sectori can be calculatedby the following expression: (6)

4{6b*l * \be),

' i : I , 2 , 3 ,. . . . , 4 0

where4 is the employmentcoefficient, 6 is the element in the Leontiefinversematrix which can interpretedas the employment partial multiplier and the subscripts m and p represent the petroleummining and petroleum products sectors respectively. Sucha comparative-static analysisof input-output model seemsto bequiteusefulasa tool of indicating the direct and indirect output andlabourrequirementsas a result of a changein the world price of oil. It is worth reemphasising that the abovemodel is basedon the staticinput-output framework, in the sensethat the sectoral output and employment required to support the exogenuous changein trades are exclusive flow requirements.Apart from theserequirements eachsectorhas to carry stockswhich consistof buildings,machineryand other fixed assets,aswell as stocksof raw goodsin processand finishedgoods,in order to carry on materials, production.Furthermore,the changein tradeshasto be permenant beforeanynewinvestmentin stockscan bejustified and the impact on sectoraloutput and employmentrequiressometime lapse. Wehavecompiled1990monthly figuresfor exportsand imports of Malaysia'scrude oil and gas and petroleum products; and calculated averagenet exportsofcrude oil and gasand averagenet importsof petroleumproducts due to the Gulf crisis (The crisis startedin the 2nd day of August, 199q.2 Table 4 shows that average monthly net export of crude oil and gas in the first seven monthsof the yearwas RM 634 thousandwhile that of the last hve monthswasRM 1.129million, giving an increasein the net export of crudeoils and gasdue to the crisis of RM 495 thousand,(d) or equivalentto 78 percent.Similarly, an averagemonthly net import of petroleumproducts in the hrst seven months was RM 123 thousandwhile that of the last five months was RM 166thousand, givingan increasein the net import of petroleumproducts due to thecrisisof RM 43 thousand,(.\) or equivalentto 35 percent. The impact of changein oil price on the economy is working through the economy's export and import of crude oils and petroleumproducts.The abovetrade figuresshowhow the increase in world price of oils following the Gulf Crisis has resultedin an

50

Jurnal EkonomiMalavsia 28 TABLE 4. Averagemonthly net exportsand imports of crude oils and petroleumproducts, 1990

($'ooo) Before Gulf Crisis

After Gulf Crisis

Net exports of crude oils

633.89

1129.44

Net imports of petroleumproducts

t23.16

t66.r9

Difference Values %

49s.55 78.18 43.03

34.94

Sources:ExternalTrade Statistics(Monthly), 1990.

increasein not only export of crude oils and gas (becausethe country is the net exporter of the commodity) but also import of petroleumproducts (becausethe country is the net importer of the commodity).As a small openeconomy,aspart of the final demand, export and import would certainlyhavesignificantinfluenceon the economy's sectoral output and employment. Our model for estimatingthe potential effects of changein oil trade on output (equation (5)) and employment (equation (6)) is based on the Leontief inversematrix's coefficientwhich can be interpretedas the partial multiplier with respectto output and employment. That the economyexperiencedan increasein both net export of crude oil and gas and in net import of petroleum products has certainly brought, directly and indirectly, mixed effects to the economy.While the increasein net export of oil and gas yields a favourableincreasein sectoraloutput, as a leakage,the increasein net import in petroleum products, on the other hand, gives a negativeimpact to the changesin sectoraloutput. As indicated by the above figures, sincethe surplus of oil and gas trade is larger than the deficit in the petroleum products trade, except for the petroleumproduct industry itself, the overall impact to the rest of the sectorsshowsgood potential for output expansion.Certainly, acrossthe sectorsof the economy the biggest share of potential output expansioncomesfrom oil and gas output itself which may contributemore than 90 percent,while slightly more than 3 percent comes from 'output' of water transportation services,possibly through the servicesof tankers and bargesbringing oil and gas in shore(Table 5).

a

TABLE 5. Effect of crude oil and petroleum products trades on sectoral output and employment due to 1990Gulf crisis Total Effect on Sector Agr. & livestock Plant. crops Forestry&Log'g Fishing Mining, inc. oil Meat & Diary prd. Food canning Bakery& conf. Other food prd. Beverages TobaccoPrd. Textiles Wearing apparel kather prd. Wood prd. Paper& publish. Chemicals pstrglsrrm prd. Rubber prd. Glass& clay prd. Other non-metals Metal prd. Non-electricmech. Electricmech. Transport equip. Other manuf. prd. Water, gas & elec. Construction Wholesale& retail Hotel & restaurant Land transport. Water transport. Air transport. Communication Buss.services Fte. services Cultural services Motor repair Personalservices Govern. services

Source: Computed from the models

Output ($)

Employment

4448 4499 3904 3361 5825893 2224 0 0 4939 0543 0 543 543 0 7369 8145 17275 -368231 9102 l68l 5870 32248 36588 5094 8947 543 83650 36639 88364 19083 29892 2t4793 47189 9438 t2246r 0 543 12360 543 l68l

711.6 1407.3 &.6 155.6 4t946.4 15.8 0 0 152.1 0.9 0 7.5 8.5 0 2t5.9 17.9 32.9 -220.9 135.6 2.0 58.7 354.7 80.5 130.4 38.5 9.2 1020.5 2707.7 9189.8 719.4 t392.9 257.8 51.9 27.4 24.5 0 0.4 325.1 13.7 301.0

6282200

6r334

52

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Our results also show that changesin the trade patterns of petroleum-basedindustries do not affect, directly and indirectly, food canning,bakery and confectionery,tobaccoproducts,leather products and private servicesindustries. Separatingthe indirect from direct effectsof the changesin tradeson the petroleummining and petroleum products industries,the indirect effect contributes more than 90 percentof the total output expansion.3On the labour market, as shownin the table, the increasein both net export of oil and gasand net import of petroleumproductshavethe potential of creatingnew employmentnot only in the petroleummining sector (about 42 000jobs), but alsoin the industriessuchas wholesaleand retailtrades(about9000jobs),construction(about2700jobs),land transportation(about 1400jobs), gas and .pn19electricity(about 1000jobs) and plantation crops (about 1400jobs). Thesefigures representthe potentialjob createddue to the Gulf crisisof 1990,or additional requirementsof output and employmentto support the increasein trade. Whether the labour market will respond to the requirementsdependon whetherthe surplusin oil trade is going to be permanent or otherwise. As we know, the Gulf crisis was temporaryand thus the abovefigurescan best serveas output and employmentmultipliers of any autonomous in change the Final Demand of Mining (petroleum)and petroleumproductsindustries (The 1983Ilput-Output Tableis usedto derivedthe multipliersand doesnot explain anything about current labour market). CONCLUSIONS Eventhough Malaysiaenjoysa favourablebalanceof trade in oil, it a deficit in petroleumproductstrade; reflectingthe alsoexperiences peculiarstructureof the country's petroleum-basedindustries.This phenomenongives an important bearing on the whole economy whenevera small changein the world price of oil occurs.Through the linkage effects,as the surplus outweighsthe deficit, potential gainsalso outweighthe potential lossesboth in termsof output and employmentexpansion. lingeraroundthe world oil In the 1990s,however,uncertainties market. Industrialized countries are formulating energy-security measuresto ensurean adequateand reliable supply of energy at reasonableprices.Thesemeasuresimply a securitymargin that can absorb'shocks'on price of oil and amongother things will take the

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53

forms of conserving consumption and establishing emergency stock. Consideringthe prevailing low price of oil and perception of surplus,the questionof conservationnow becomeuncertain.But the technologicalchangeand innovation as well as pressurefrom environmental concerns are expected to continue to play an important role in pursuing conservation. According to the developingcountries' economicprojections of the late 1970sand 1980s,oil demandwas expectedto increasesubstantially.This did not happen, in large part, because of the poor economic performancein many of these countries - the result of weak industrial-world markets for commodities, balance-of-payment problemsand debt-relatedausterity. The potential for growth in oil consumption in these countries remains enonnous (Yergin le89). Consideringtheseuncertainties,will Malaysiabe able to achieve the potential expansionin output and employment?And the next questionis to what extentthe resources shouldbe mobilisedin the petroleum mining and petroleum products industries?These questions should be addressedtogether with the problems of uncertaintiesthat linger upon the world market of oil in the 1990s. ACKNOWLEDGEMENT

The researchhas been supportedby University Grant No: 502069l-04. NOTES l. Malaysia has proven gas reservesthree times that of oil and now is shifting to greaterutilization of natural gas not only as an alternative sourceof energyand fuel, but also as a feedstockin fertilizersand other petrochemicalsmanufacturing.Two large gas projects in Bintulu are producingLNc and ammonia-ureafertilizers.In Sabah,thereis another hugegas offshoreproject producing associatedgas from two oil helds. The gasis piped to Labuan whereplants producingmethanol,iron and steeland a power station use LNG. 2. Crudeoils includedin srrc 333Petroleumoils and oils from bituminous minerals,crude;and Petroleumproductsincludein SITC334petroleum products,refined and srtc 335 Residualpetroleumproducts,n.e.s.and relatedmaterials. 3. Irt the balanceequationsof the two-sectoreconomybe,

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54 (1)

Xt : a11Xt * arzXz I Fr X2-a21XyI*zzXzlFz

Change in trade in either petroleum mining industries can be shown as:

or petroleum

products

II

(2)

Total (direct and indirect) import on changein output can be shown as: (3) Xi - Xr: oo(Xi - X2)+ )' (4)

-

(l - a"')

Where Xi is the new output level of the secondsector.The direct impact on the changein output is: (5)

\(anI

azz)

From equation (4) and (5), the indirect impact on the changein output can be expressedas: (6)

\{hz-

@p*ezz)}

The generalcasecan easilybe shown in matrix notation. Equation (A) can be rervritten as Lx":(r-A)-rLF Where AX" representsthe vector of direct and indirect impact on changein sectoral output and AF representsthe changein tradeREFERENCES Abdul Rahman A.2., Ahmad S., Zakariah A.R. & ShahwahidH.O. 1990. The EconomicImpact of Tourism in Malaysia.A report submittedto the Ecoic and Social Commission for Asia and the Pasific (esclr), October. Brittan, S. 1990. "Economic Veiwpoint Fiddling before Armageddon". FinancialTimes,Sept.27. Hough, V.G. 1988. Dependencechanging from oil to gas. Petrolewn Economists,June: 197-98. Kamal S. & Chua C.P. 1990.Energy for SustainableDevelopment:The Case of Malaysia. Malaysia Institute of EconomicResearch(arcn) paper, No. 35. discussion

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Malaysia. 1990. Extemal Trade Statistics (monthly). Department of Statistics. Malaysia. 1987. Input-output table of Malaysia, 1983. Department of Statistics. McGilvary,J.W. 1977.Linkages,Key Sectorsand DevelopmentStrategy. In Structure, System and Economic Policy, Leontief, W. (ed.) Cambridge University Press. Petronas.1989.PetroleumDevelopmentin Malaysia.Nada Petronas,Jtne 1989,p. 9. LiNDP/uMDo.1991. Final report on dynamic Wut-output analysis and sectoral projection of the manufacturing sector. Government of Malaysia. InternationalMonetary Fund. 1990. l4/orld EconomicOutlook, 1990.A surveyby the staff of International Monetary Fund, Washington,D.C. April. Yergin,D. 1989.EnergyIssuesfor the 1990s.Dialogue:17-23. Zakaiah A.R. & ShahwahidH.O. 1991.Implications of increasein oil price to the Malaysian Economy (in Malay). Option 6(l).

i Fakulti Ekonomi & Pengurusan UniversitiPertanianMalaysia 43400upu Serdang D.E. Selangor