CONNECTING PENINSULAR GAS UTILIZATION PIPELINE TO YUNNAN, CHINA

On July 5, 2002, ASEAN Council On Petroleum (ASCOPE) initiated Trans ASEAN Gas Pipeline (TAGP) Project to ensure secure and sustainable energy supply by undertaking multi border gas pipeline projects. However, to date, compared to Europe which has already established seamless gas networks, ASEAN cross border pipelines are bilateral in nature. 

Similar to China’s One Belt One Road (OBOR) initiative on railway projects from Kunming, Yunnan to Singapore for connectivity of transporting goods and people, it would be for mutual benefits of ASEAN and China to connect Malaysia’s Peninsular Gas Utilization (PGU) pipeline to Yunnan in transporting gas. Possibly, parallel to the railway tracks. For China, it would be good to have another source of gas supply other than from Central Asia, Russia and their LNG terminals. 

This initiative would be similar in concept to the 3,500 km Southern Gas Corridor project which connect Azerbaijan’s Shah Deniz II gas into Europe via existing Azerbaijan/Georgia South Caucus Pipeline (SCP) to the Turkish Trans Anatolia Natural Gas Pipeline Project (TANAP) and continue flowing to Italy via Trans Adriatic Pipeline (TAP).

The PGU/Yunnan gas pipeline initiative would also have minimal challenges from security perspective compared to the USD 10 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) 1,800 km gas pipeline project (operational in 2019) where the pipeline is exposed to attacks from Taliban.

Leveraging on strategic location and good relationship with China, Malaysia could be transformed into a LNG Hub where different market players will compete for a piece of the market. By utilizing the Re-Gasification Terminals (RGT) in Sungai Udang, Melaka and Pengerang, Johor (2017), LNG suppliers from Middle East, Australia and ASEAN would have the options to deliver LNG into the RGTs. These suppliers would be able to save their freight costs by reducing sailing times instead of delivering the LNG to East China. In other words, they are also bypassing the territorial disputes in South China Sea. 

Economic activities could be generated along the entire value chain starting from the construction of the pipelines, gas distribution and local industries. Malaysian companies such as Gas Malaysia Berhad would have the opportunities to participate in the initiative. Malaysia, Thailand and Laos would also earn pipeline transit fees from the distribution of gas. Secured energy supplies could also attract FDIs in various industries leading to jobs creation.

Creating new outlets would change the landscape of LNG play in Asia Pacific. LNG suppliers such as PETRONAS and Brunei LNG could diversify from their traditional markets (Japan, Korea, Taiwan and East China). Possibly, achieving better margins. It would generate flurry of activities as the Hub will attract various LNG producers, traders, brokers, shippers and storage players. US LNG could even end up in Malaysia when arbitrage is open. In some regions, air quality could be improved as better access to gas supplies may reduce consumption of coal in some industries and power generation.

Malaysia LNG Hub would present an opportunity to establish LNG/Gas exchange where the traded price could be the price reference or benchmark for Asia Pacific LNG/Gas. Similar concept could be adopted from Henry Hub (US) and UK’s National Balance Point (NBP). The exchange would also spur the development of financial services and promote international brand awareness for Malaysia.

The PGU pipeline connection to Yunnan will not only be a game changer for LNG in Asia Pacific but also elevate Malaysia's strategic importance in the region by becoming a gateway for gas supply to continental ASEAN and Yunnan. However, a joint effort between relevant countries is vital to realize this initiative similar to Southern Gas Corridor as mentioned above.

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