Malaysia: Gas imports to strengthen growth

Rising domestic demand for energy, fuelled by industrialisation and a growing population, has prompted Malaysia to take on a new role of major gas importer as it looks to augment its own extensive reserves.

The government’s decision to boost gas imports forms part of a shift in energy-related economic policy that will see Malaysia’s long-standing power subsidies phased out by 2016.

While the new pricing structure for energy has been in the pipeline for some time, it is almost sure to prove unpopular, as consumers may well bear the brunt of sharp increases passed on by producers.

Malaysia has long been finalising its plans to begin using imported gas as a driver of economic growth. In 2009, Petroliam Nasional, the state-owned oil and gas company more commonly known as Petronas, signed an agreement with Gladstone LNG of Australia to buy 2m metric tonnes of liquid natural gas (LNG) annually for a 20-year term, from 2014 onwards.

The agreement, which included an option to purchase an additional 1m tonnes, was part of Petronas’s plans to secure adequate supplies for the domestic market. Since then, Malaysia has struck similar deals with other producers, including Statoil of Norway, France’s GDF Suez and Qatargas.

Petronas is currently developing a receiving and regasification plant at the Sungai Udang Port, Melaka, which will process imported LNG. In a statement issued to Bursa Malaysia in late November, the company said that although the project is behind schedule, the facility was expected to be commissioned by the second quarter of 2013. Once fully operational, the plant will have the capacity to process 3.8m tonnes of gas annually.

On November 26, Malaysia LNG, a production subsidiary of Petronas, announced that the German engineering firm Linde Group had won a tender to design, build and deliver a new boil-off gas re-liquefaction facility that will be constructed at the Bintulu LNG complex in Sarawak, East Malaysia. The plant will have a daily capacity of processing 670,000 tonnes of gas annually and should be up and running by the end of 2014.

The shift to imported gas will signal the end of an era for Malaysian consumers who have long benefitted from the subsidies policy, which the government was able to maintain thanks to ample quantities of cheap, locally-produced stock.

The government is believed to have subsidised gas prices by approximately $6.6bn in 2011, half of which was channelled into the electricity segment. The subsidies, which formed part of a government drive to keep down electricity costs and promote industrial growth, are expected to be phased out by 2016, when gas prices should be fully deregulated.

While Malaysia is laying the foundations for gas imports, it continues to work on maximising output from its existing fields, exploring how it can use extraction enhancement technology to extend production life.

Malaysia’s gas reserves remain extensive, with its proven deposits of around 2.4tr cubic metres earning it a 13th -place global ranking for untapped holdings. Existing reserves should allow Malaysia to maintain production at its present rate of around 63bn cubic metres for years to come, although projected increases in domestic usage are likely to speed up a reduction in the life expectancy of its fields. Much of the increased demand will come from industries dependent on gas for feedstock, such as manufacturers of plastics, chemical fertilisers and other petrochemical products.

Efforts are also being channelled into identifying and developing new reserves. In November, Petronas and its partners announced a number of new finds in offshore fields, although the full extent of reserves and their quality have yet to be determined.

While new fields will help prolong the lifespan of gas production, Malaysia’s rising demand for gas is set to grow at a rate easily outstripping domestic output. Despite concerns that higher energy bills will irk consumers and could push up inflation, foreign gas looks set to play a growing role in powering Malaysia’s economy.

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Malaysia: Gas imports to strengthen growth

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Malaysia: Power plays

Change is in the air for Malaysia’s power sector, with recent developments including bids on new facilities and change of ownership for old ones. Government oversight has also been evolving, throwing up questions about what the sector’s make up will be in the near term.

The recent changes were set in motion in December 2011, when the government announced plans to build power plants with a total generating capacity of 4500 MW by 2016. The new power generators will replace the capacity lost from retiring plants and add supply to meet increasing demand.

In fact, the second half of 2012 could signal the beginning of a period of strong growth for the power engineering business, Chris Eng, the head of research at OSK Investment Bank, told The Star on December 31.

This will go hand–in-hand with the replacement of first-generation power purchase agreements (PPAs) with new contracts. Eng expected this to be positive in the longer term for both the independent power producers (IPPs) and Tenaga Nasional (TNB), the national electricity utility company.

“As the first-generation PPAs expire from 2015 to 2017,” Eng said, “it is crucial to start the competitive bidding process now to ensure that the new plants are ready by 2016. Without these new plants, Malaysia’s reserve margin is likely to drop to 10% by August 2017.” The country’s reserve margin officially stands at above 35%, but many believe the actual number is significantly lower.

Adding to the mix, the government is allowing bidders for the tenders to include foreign power players partnering with local companies. Many of these bidders will be looking forward to mid-March, when the Energy Commission (EC) is scheduled to release a shortlist of bidders for a combined–cycle, gas turbine (CCGT) power project worth approximately $10bn.

The project, a 1400-MW plant next to Malakoff Corporation’s existing 350-MW CCGT Prai Power Plant, will comprise part of the post-2016 plans to add 4500 MW of capacity. According to the EC’s chairman, Ahmad Tajuddin Ali, the successful bidder should be announced by the third quarter of this year. The plant itself is targeted to come on-stream by mid-2016.

In an interview with The Edge, Tajuddin also said the EC plans to invite tenders for the remaining 3100 MW capacity in two parts. The first would be to replace the 2000 MW that will go offline when the first-generation PPAs expire, and each new plant’s capacity will be between 750 MW and 1000 MW. Both will likely be gas powered, he added.

Meanwhile, French firm Alstom announced on February 23 that it had secured a $1.1bn contract to build a “supercritical” coal-fired power plant in Tanjung Bin. The contract was awarded to Alstom as part of a consortium that includes Malaysian building materials firm Mudajaya and construction company Shin Eversendai. The total value of the consortium’s contract is more than $1.34bn, according to Alstom’s website.

Alstom made its announcement the day after Malaysian business magnate, T. Ananda Krishnan, announced he was selling his entire power portfolio in Malaysia, South Asia and the Middle East, with local media reporting that unnamed sources have claimed a Malaysian company is in talks to buy the entire portfolio in a deal that could be worth between $3.2bn and $3.6bn.

Through his Tanjong Energy Group, Ananda owns stakes in approximately 12 power plants with a net generating capacity of nearly 4000 MW. In Malaysia, Tanjong’s power plants include the 720-MW gas-fired, combined-cycle Telok Gong Power Station Two; the 440-MW, gas-fired, open-cycle Telok Gong Power Station One; and the 330-MW gas-fired, combined-cycle Tanjung Kling Power Station.

Another change – this one of governmental organisation rather than of ownership – is that the new power plants will come under the EC’s purview. This is particularly relevant because the government recently swapped jurisdiction over the regulation of piped gas from the Economic Planning Unit to the EC. If the new plants do end up being gas-powered, the EC’s authority will be increased, as it will have the power to set gas tariffs for the new plants.

With so many changes taking place in such a short time, 2012 is thus looking to be an interesting year for the country’s power producers and energy players, with many watching closely to see how the sector will look in the long term.

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Malaysia: Power plays

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