Malaysian court orders Shell MDS to pay overdue gas payments to Petronas

Shell MDS must pay Petronas close to RM1 billion in unpaid gas payments after Malaysian Court of Appeal overturns injunction amid billing dispute with Petros over Product Development Agreement 174.

Malaysian court orders Shell MDS to pay overdue gas payments to Petronas
Photo by Marc Rentschler / Unsplash

Shell MDS (Malaysia) Sdn Bhd, a subsidiary of Royal Dutch Shell, has been embroiled in a significant legal dispute with national oil company Petronas regarding overdue gas payments. This conflict dates back to August 2024, when Shell MDS abruptly stopped its monthly payments to Petronas due to conflicting invoices issued by both Petronas and Petroleum Sarawak Berhad (Petros), the latter acting as Sarawak state’s gas aggregator.

The dispute arose because Shell MDS was caught between two competing claims for payment under two separate gas sales agreements: one signed with Petronas in July 2020 and another with Petros, leading to confusion over which entity had the legitimate right to bill for gas supplied to Shell’s Bintulu facility. To protect itself from making double payments, Shell MDS obtained an injunction from the High Court to suspend payments to Petronas while continuing to receive gas supplies. The injunction also barred Petronas from using the bank guarantees pertaining to the gas payments during the ongoing dispute.

However, on September 22, 2025, the Malaysian Court of Appeal delivered a unanimous ruling overturning the High Court injunction. The appellate bench led by Justice Datuk Azimah Omar ruled that Petronas had fulfilled its contract by continually supplying gas to Shell MDS, and thus, there was no grounds for Shell to withhold payments. The court ordered Shell MDS to pay the outstanding amounts owed to Petronas from August 2024 to October 5, 2025, estimated at between RM70 million and RM80 million monthly, making total arrears with interest near RM1 billion. Furthermore, Shell MDS and Petros were ordered to pay legal costs to Petronas.

Shell MDS and Petronas

A key legal instrument in this dispute is the Product Development Agreement (PDA) 174, signed in July 2020 between Shell MDS and Petronas. This agreement governs the sale of natural gas produced from certain fields in Sarawak to Shell’s LNG plant in Bintulu. The existence of this agreement is critical because Shell contends that the state’s Petros company is also invoicing for the same gas, thereby challenging Petronas' exclusive right to supply and invoice gas under PDA 174. This conflicting invoicing has been central to the prolonged payment dispute.

The ruling marks a significant victory for Petronas and strengthens its position amid an ongoing jurisdictional tussle with the Sarawak state government and Petros over control and rights to natural gas resources in the region. Shell Malaysia has stated it respects the Court of Appeal’s decision and intends to comply fully.

In essence, this high-profile dispute highlights the complex overlapping interests between federal and state energy authorities in Malaysia, the challenges of contractual interpretations in resource-rich regions, and the crucial role of the judiciary in resolving commercial conflicts in the energy sector.

WF News

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