This article first appeared in Forum, The Edge Malaysia Weekly on October 24, 2022 - October 30, 2022

Malaysia’s oil and gas reserves have been a source of resilience in recent months, amid heightened concerns over energy security due to Russia’s invasion of Ukraine. In the decades ahead, though, the country needs to wean itself off fossil fuels and prepare for a low-carbon future.

The transition away from oil and gas poses an enormous transition risk for Malaysia, which relies heavily on the sector for its revenues. State-owned Petroliam Nasional Bhd (Petronas) this year is expected to pay a total dividend of RM50 billion (US$11.16 billion) to the government.

But the high commodity prices that are swelling government coffers today also present an opportunity to invest in renewable energy capacity as the world pushes towards net-zero emissions by mid-century.

Across most of the world, operating new renewable energy capacity is cheaper than running existing coal or gas-fired plants. The only remaining hold-up is the difficulty of storing and transporting the energy produced by renewable sources.

That’s where hydrogen — the most plentiful element in the universe — comes in. Renewable energy can be converted into hydrogen, which can be stored in compressed or liquefied form and eventually re-electrified or used to drive combustion engines. No planet-warming carbon dioxide is produced either way.

Right now, hydrogen is the best hope for decarbonising some of the most intensive industrial users of fossil fuels, such as steel makers, chemical plants, heavy-duty vehicles, shipping lines and cement producers. And this creates an opportunity for Malaysia.

Hydrogen can be produced in several ways, with the current generation of technologies categorised primarily as grey, blue or green. Grey hydrogen is produced from natural gas or methane through a process called “steam reforming”, with the carbon dioxide and carbon monoxide generated allowed to escape into the atmosphere.

Hydrogen produced using steam reforming is labelled blue when the carbon produced in the process is captured and stored. Blue hydrogen is therefore sometimes referred to as carbon neutral, though classifying it as low carbon would be more accurate because 10% to 20% of the carbon generated cannot be captured.

Green hydrogen is produced using exclusively renewable energy sources such as hydro, solar and wind. Water is split into hydrogen and oxygen through a process called electrolysis. From a climate standpoint, this is clearly the most desirable form of hydrogen, though it accounts for only a tiny fraction of current production. Over 95% of hydrogen today is produced using fossil fuels.

In future, green hydrogen is expected to feature much more prominently in the mix. In line with that belief, the global oil majors have started making large-scale investments in developing this fuel.

Petronas, for its part, plans to invest billions in developments from India to Canada, with the goal of exporting hydrogen across Asia — one potential destination being Singapore’s first hydrogen-ready power plant, which is expected to be ready by the first half of 2026 and generate the equivalent of 9% of the country’s peak electricity demand in 2020.

Tenaga Nasional Bhd has also joined Petronas in conducting feasibility studies into hydrogen and carbon capture with a view to unlocking at least RM10 billion worth of commercial value by 2035.

Within Malaysia, Sarawak in particular is striving to attract companies that are keen to embark on large-scale hydrogen projects, thanks to its abundant hydropower and natural gas resources.

Sarawak introduced Southeast Asia’s first hydrogen-powered buses in Kuching in 2019, as part of a proof-of-concept that also included a modest-sized hydrogen production plant.

Since then, the state’s hydrogen ambitions have scaled up rapidly. The biggest plan to date is the Sarawak H2biscus Green Hydrogen/Ammonia Project, which will be developed by South Korea’s Samsung Engineering, Lotte Chemical and Posco, as well as SEDC Energy, a wholly-owned subsidiary of Sarawak Economic Development Corp. Agreed in January 2022, the plant will convert hydropower into green hydrogen and methanol and natural gas into blue hydrogen, and also convert hydrogen to ammonia, all of which will be exported to South Korea.

A confluence of factors has significantly improved the prospects for such investments: on the demand side, the use cases for hydrogen are expanding across multiple sectors; on the supply side, falling renewable energy prices and cheaper electrolysers have made green hydrogen production more commercially viable.

Sarawak’s planned hydrogen development has the potential to boost the fortunes of one of the country’s poorest states — allowing it to harness its hydropower resources to drive its economy and improve livelihoods. By contributing to the reduction of greenhouse gases, these projects could also help safeguard those hydropower resources — after all, the greater incidence of droughts and floods created by climate change have been wreaking havoc on hydropower generation the world over.

Importantly, Sarawak is also providing a useful example for other income-poor but resource-rich states and provinces in Malaysia and Indonesia, showing them how they too can tap those resources to become an integral part of the future of energy.

The transition to net-zero will involve radical change for Malaysia’s fossil fuel-driven economy. Change is never easy, but the rise of hydrogen shows that there are also enormous opportunities for companies to benefit from the growth of a new energy system.

Kareem Jalal is associate director at Ashbury Communications. This column is part of a series coordinated by Climate Governance Malaysia, the national chapter of the World Economic Forum’s Climate Governance Initiative (CGI). The CGI is an effort to support boards of directors in discharging their duty of care as long-term stewards of the companies they oversee, specifically to ensure that climate risks and opportunities are adequately addressed.

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