CONNECTING PENINSULAR GAS UTILIZATION PIPELINE TO YUNNAN, CHINA : PART 2

In March 2017, PETRONAS claimed that it has forgone more than RM 200 billion in revenue from selling natural gas in Peninsular Malaysia at lower than international market price since the 1997/1998 Asian financial crisis. The 2016 amendment to the 1993 Gas Supply Act is an effort towards removing the domestic gas subsidies by liberalizing the domestic gas market. One of the major aspects of the bill is introduction of the Third Party Access (TPA) system where new players could participate in importing liquefied natural gas (LNG) and distribute through existing gas infrastructures at agreed tariff.

In anticipation to the new situation and taking advantage of cheaper coal price, TNB has increased the number of coal furnace at their power plants which are more efficient and consume lesser coal. As a result, the consumption of coal has increased to 51% (2016) and gas consumption has reduced to 45% (2016). This trend is expected to continue as coal percentage in the approved fuel generation mix exceeds 60% until 2025.

Meanwhile, in April 2017, it was reported that Melaka Re-Gasification Terminal (RGT) and Peninsular Gas Utilization (PGU) pipeline were underutilized by 50% and 20 - 25% respectively. However, as long as the domestic gas price is not in line with the international market price, it would be difficult to attract third party players to participate in the domestic market. Would Malaysia be able to attract more industries which would prefer to consume more gas? Should the gas market be limited to domestic consumers? 

How could the RGT and PGU utilization be maximized?

As mentioned in the previous article, transforming Malaysia to be a LNG Hub by connecting PGU pipeline to Yunnan would generate better value to many stakeholders.

Aside from burgeoning demand from China, significant demand could be tapped from Thailand as PTT, the national oil company of Thailand, has to increase import of gas due to growing domestic demand, decline of gas production from Gulf of Thailand and lesser supply of gas from Myanmar. (Thailand total fuel mix for gas is 70%) In March, 2017, PTT announced to spend USD 11 billion on projects and exploration acreage to arrest the situation. PTT will also increase their RGT capacity to 11.5 million tons per annum (mtpa) by 2019 from 10 mtpa. Thereafter, it will increase the RGT capacity to 19.0 mtpa by 2022/23. As such, it is crucial to work with PTT to materialize this initiative. (Malaysia RGT capacity will be 7.3 mtpa once Pengerang RGT is commissioned by end of 2017)

To cater to demand from China and Thailand, the PGU pipeline capacity would need to be expanded. The pipeline expansion could be opened to consortium of companies similar to the 1,768 km Baku-Tbilisi-Ceyhan (BTC) pipeline (transporting Caspian Sea crude oil and condensates to Mediterranean Sea). Likewise, various international and domestic companies such as Chinese Oil & Gas companies, PTT, Middle East gas producers, Oil majors, regional gas players as well as domestic funds like EPF could participate in the project. This could bring tremendous stream of revenue as well as unlock the market capitalization of PETRONAS Gas Bhd to more than RM 42 billion. 

Malaysian companies should look for opportunities beyond the domestic market to maximize value for the stakeholders. Why can't the logistical assets be leveraged and optimized? Are we satisfied to be a big fish in a little pond? Why other country which doesn't have resources like Malaysia strive hard to be a LNG Hub? Do we want to be Johnny-come-lately in LNG similar to oil hub situation? We certainly could do better given this opportunity. 

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