Malaysia’s quest to be Asia’s gas trading hub-

Malaysia is a prominent net exporter of natural gas. With the government injecting more funds into the sector to enhance output from existing gas fields and exploration in deepwater areas, the country’s share of the international natural gas trade is expected to increase in the coming years. The government’s goal is to increase aggregate production capacity by 5 per cent per year up to 2020 in order to meet the growth in domestic demand and sustain liquefied natural gas (LNG) exports.

Moreover, Malaysia also intends to become a regional gas trading hub by taking advantage of its strategic location at the centre of the Asia-Pacific region. Malaysia’s western coast runs alongside the Strait of Malacca  – an important route for the seaborne energy trade – that connects the Indian and Pacific Oceans. However, the country’s geographical location in the South China Sea also makes it a party to various disputes among neighbouring countries over competing claims to the sea’s resources, which could undermine its ambitious endeavour.

Southeast Asia Infrastructure reviews the present status and the performance of various segments of the Malaysian gas sector’s value chain…

Gas industry structure

As of January 2012, Malaysia possesses 2.47 trillion cubic metres of proven natural gas reserves, making it the fourth largest holder of gas reserves in the Asia-Pacific region. The country’s gas reserves are largely found in Sarawak, peninsular Malaysia, and Sabah. Most of the gas reserves are located in the eastern parts (predominantly offshore Sarawak; therefore, exploration and production (E&P) activities have been mainly focused on offshore Sarawak and Sabah.

The Malaysian gas industry is largely publicly held under the jurisdiction of the Ministry of Energy, Green Technology and Water. The national gas company, Petroliam Nasional Berhad (Petronas), dominates the country’s natural gas sector and holds exclusive ownership rights in all natural gas E&P projects in Malaysia. It is also responsible for all licensing procedures pertaining to exploratory works in oil and gas fields. Under a legislation enacted in 1985, all production sharing contracts with foreign and private companies are required to reserve a minimum equity of 15 per cent for Petronas. Thus, most of the natural gas production occurs in indigenous blocks operated by foreign companies in conjunction with Petronas. ExxonMobil, Shell, Murphy Oil, and Mitsubishi are the largest foreign companies involved in Malaysia’s gas sector.

Besides exercising a monopolistic hold on all upstream natural gas developments, Petronas also plays a leading role in domestic downstream activities and the overseas gas trade.

Gas transport infrastructure

Malaysia has one of the most extensive inland natural gas pipeline networks in Asia. The country’s gas pipeline network grew from 2,338 km in 2005 to 3,500 km in 2011. An important element of this growth is the completion of the Peninsular Gas Utilisation (PGU) project in 1988, which now functions as a catalyst for the development of Malaysia’s natural gas fields that are all located offshore. The Petronas-operated PGU network that has expanded the gas transmission infrastructure in peninsular Malaysia spans more than 2,550 km. It can transport 57 billion cubic metres (bcm) of natural gas annually.

Besides the PGU project, several pipelines linking Sarawak’s offshore gas fields to the Bintulu LNG facility also constitute major components of the Malaysian gas grid. In addition, Petronas is building the 512 km Sabah–Sarawak gas pipeline between Kimanis (Sabah) and Bintulu (Sarawak); it is scheduled to be commissioned in 2013.

Gas trade

Malaysia’s indigenous gas production far exceeds domestic demand; thus, gas exports constitute a key component of its international trade. Malaysia exports almost half of its total production: it accounted for nearly 12 per cent of the total gas exports in the world in 2011. The majority of Malaysian gas is exported in the form of LNG and piped exports constitute less than 6 per cent. Singapore is the only country to which Malaysia exports gas through pipelines. In 2011, with exports of over 33 bcm of LNG, Malaysia was the second largest exporter of LNG in the world after Qatar. The largest purchasers of Malaysia’s gas are Japan, South Korea, Taiwan, and, more recently, China.

It is interesting to note that, although domestic production is enough to meet consumption needs, Malaysia also imports natural gas from Indonesia via the pipeline. Around 20 per cent of the gas used in peninsular Malaysia is imported from Indonesia (the West Natuna field) and the Malaysia– Thailand Joint Development Area primarily because of geographical convenience.

Going forward, Malaysia is likely to maintain an approximately 10 per cent share of the global market in LNG over the next three to four years, with the vast majority of exports going to Asian markets, especially Japan and South Korea. However, from the middle of this decade onwards, Australia is expected to surpass Malaysia in terms of LNG export capacity.

LNG terminals

The Bintulu LNG complex, the main hub of Malaysia’s natural gas industry, houses all three LNG export terminals in the country, which are supplied by the offshore gas fields in Sarawak. With nine production trains and a total liquefaction capacity of 31 bcm per year, the Bintulu facility is the largest LNG complex in the world.

The three LNG export terminals include:

  • The Bintulu MLNG 1 (Satu) terminal, commissioned in 1983, has three trains and an annual gas processing capacity of 8.1 bcm. It is owned by Malaysia LNG Sdn Bhd (a joint venture [JV] between Petronas, Shell, and Mitsubishi).
  • Bintulu MLNG 2 (Dua), commissioned in 1995, also has three trains. Its export capacity is 9.3 bcm. It is owned by Malaysia LNG Dua Bhd (a JV between Petronas, Shell, Mitsubishi, and the Sarawak government).
  • Bintulu MLNG 3 (Tiga), operational since 2003, has two trains and an annual export capacity of 6.8 bcm. It is owned by a JV between Petronas, Shell, Nippon Oil, Mitsubishi, and the Sarawak government).

 

Malaysia also commissioned its first LNG import terminal in 2012. The Petronas-operated Melaka LNG import terminal is located at Sungei Udang port in Malacca. Gas from the 4.8 bcm terminal is fed directly into the peninsula’s gas network. Norway’s Statoil has signed up to supply 1 bcm of gas under the flexible supply agreement that runs till 2016. In addition, France’s GDF Suez is contracted to supply 2.5 million tonnes of LNG from August 2012 till end 2016. Further, Malaysia is also scheduled to receive its first LNG cargo shipment from the Gladstone project in Queensland, Australia, in early 2014–15.

Apart from its existing terminals, Petronas is building a number of LNG terminals to be commissioned within the next three to four years. These include the Lahad Datu Sabah LNG import terminal, the Pengerang Johur LNG import terminal (5.5 bcm), and Malaysia’s floating LNG export terminal (2 bcm).

Cross-country pipelines

The first transnational gas export pipeline, commissioned in 1991, connects Malaysia to Singapore. The pipeline has a capacity to transport 2 bcm per annum. It remains the only pipeline through which Malaysia’s gas is exported. The next cross-country pipeline is a gas import pipeline that runs between West Natuna (Indonesia) and Duyong (Malaysia), which was commissioned in 2002; it will serve as a link in the proposed trans-ASEAN gas pipeline system. The other key cross-border pipeline is the Trans-Thailand–Malaysia gas pipeline that allows Malaysia to pipe gas from the Malaysia– Thailand Joint Development Area to its domestic pipeline system.

Further, ASEAN is promoting the development of a trans-ASEAN gas pipeline (TAGP) system  aimed at linking ASEAN’s major gas production and consumption centres by 2020. Because of Malaysia’s extensive natural gas infrastructure and its location, the country is a natural candidate to serve as a hub for the ongoing 7,000 km TAGP project that is scheduled to be launched by 2020. According to the plans, the pipeline system will connect Mersing in Malaysia’s Southern Johor state to an offshore utility platform in the Northern Natuna Islands, Indonesia. It will also be extended to Vietnam’s Ho Chi Minh City and Hanoi, and eventually to Hong Kong and Guangzhou in China.

Pumping up for the future

Endowed with significant gas reserves, Malaysia is one of the leading gas producers in Asia and among the largest gas exporting nations of the world. Once upstream projects that are under construction or in advanced stages of planning are completed, Malaysia’s gas production will likely surge in the near future. Furthermore, as new pipelines and LNG infrastructure projects are commissioned, Malaysia looks set to become one of the most well-developed gas markets in Asia over the medium term.