This article first appeared in The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021

IN March, the Malaysian Gas Association said the local gas market is expected to be fully liberalised in 2022, with the remaining regulated gas tariffs ending five months from now on Dec 31.

This marks the next step forward in facilitating the liberalisation of Malaysia’s gas market and attracting third-party shippers to enter the market, ideally by importing liquefied natural gas (LNG) that will be supplied to local industries.

The further liberalisation, which will enable end-users to have alternative sources of gas, is taking place because the cheaper locally regulated gas prices have been adjusted upwards over the years and is nearly on a par with international prices.

Since 2018, gas infrastructure owners have allowed third parties to use their facilities at regulated rates, namely Petronas Gas Bhd’s (PetGas) two regasification terminals and gas transport pipeline, as well as the gas distribution pipeline of Gas Malaysia Bhd.

When contacted, alternative shipper Petrolife Aero Sdn Bhd expresses excitement at the prospects once the regulated pricing regime is lifted for the distribution segment to industry customers.

“Our government policy on gas market liberalisation has come in time to help SMEs (small and medium enterprises) towards economic recovery due to the Covd-19 pandemic. Petrolife is ready to take part as the cheaper alternative gas supplier in 2022 post-gas market liberalisation,” says Petrolife managing director Datuk Mohd Aqliff Shane.

“We will provide supply and services to SMEs, with flexibility and competitive pricing that benefits from our system integration and cost optimisation. Petrolife is also providing more efficient, greener and cheaper energy solutions by supplying LNG to customers who are not connected to the gas pipeline system.”

The local gas market has been growing with the introduction of the virtual pipeline systems (VPS) of Petrolife and Petronas, which uses tankers to deliver gas, essentially allowing factories to be built in cheaper locations without an existing pipeline facility.

But as the Energy Commission (EC) issued more than a dozen shipping licences, there are only two shippers that have signed contracts with PetGas. Further, the two shippers have taken up almost all of the capacity of the regasification facilities in the near term.

According to PetGas CEO Abdul Aziz Othman, the shippers indicated that the capacity they booked is only sufficient for delivering the gas they are selling to their customers. However, he does not see significant demand in the near term to support the development of another LNG regasification terminal.

So, how could the infrastructure players cater for new shippers? “From the market liberalisation perspective, I think the government should discuss with the shippers on how best to release some of the spare capacity so that other players can come into the market. PetGas’ role is to find other shippers to take over those capacities,” Aziz tells The Edge in a virtual interview.

He points out that in 2020, only minimal capacity was taken up by other shippers despite a similar arrangement made for capacity release. This includes Petrolife, which says it has experienced the capacity release by shipper Petronas Energy & Gas Trading Sdn Bhd with no issues.

Looking at past reports, many industry customers were still on long-term contracts with incumbent shipper Gas Malaysia for supply security. Thus, third-party shippers should be able to enter the market when the contracts expire at end-2021.

PetGas has called for expression of interest from licensed shippers to gauge the potential demand for its regasification capacity in Sungai Udang, Melaka, with the deadline to submit access request on Aug 6.

The termination of regulated gas tariffs, which average at RM30.03/mmbtu, does not apply to the power sector, which buys gas from Petronas at a discounted rate. The EC no longer publishes the discounted gas prices sold by Petronas to the power sector.

The power sector represents 50% to 60% of the total demand. While the market is being opened up in stages — the current market liberalisation is in the distribution segment, according to the EC — power sector pricing is crucial to encourage LNG imports, which will ensure reliability of supply in the long term.

On the flip side, low gas feed prices translate into low electricity tariffs, which are helpful during an economic recovery.

“The long-term view of the LNG demand very much depends on the progress of the market liberalisation. LNG can easily be absorbed into Malaysia if the power sector price is based on market price,” says PetGas’ Aziz.

“The need for the power sector gas price to be at market price is getting more urgent, considering that domestic [piped] gas will be depleted in the future or developed at a higher cost. Therefore, LNG [that is transported via shipping] could be a major source if the LNG market price is cheaper than the cost to develop domestic gas. However, in either case, it is important for the gas to the power sector to be liberalised.

“To me, that’s what the industry needs to be looking at when talking about the long-term sustainability of the country’s LNG needs.”

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