Friday, 11 November 2011

Gas Supply: Petronas Welcomes Third-party LNG Imports

Petroliam Nasional Bhd (Petronas), which is currently developing Malaysia's first liquefied natural gas (LNG) receiving terminal in Melaka, is encouraged to learn that national utility company, Tenaga Nasional Bhd (TNB), is considering to import LNG to part-fuel its power plants.

Petronas' Executive Vice-President of Gas and Power Business Datuk Anuar Ahmad said the terminal, once operational, would have a provision for third-party access for the purpose of importing LNG into the country.

"This is in line with our philosophy of allowing third-party importers to use the terminal to land LNG, which could be sourced from various global suppliers, for their own use," he said.

He was responding to a query from Bernama on reports that TNB, through its fuel procurement subsidiary, TNB Fuel Services Sdn Bhd, is engaging consultants for short-and long-term LNG supply management.

"We hope third parties such as power and utilities providers and other gas consumers would be encouraged to source for their own gas. This would in turn help ease Malaysia's tight supply situation and the dependence on the country's declining gas resources.

"We are therefore encouraged to read reports that TNB, the country's utility giant, is drawing a long-term strategy for LNG supply management, a move that Petronas welcomes," Anuar said.

If adopted, the strategy would be akin to the approach long taken by power and utility players in other parts of the world, particularly those in countries with little or insufficient indigenous gas resources, he said.

In some of these countries, he said, power and utility players would also build their own LNG receiving terminals.

The Melaka terminal, being developed by Petronas Gas Bhd, will have the capacity to process 530 million standard cubic feet of gas per day.

It is scheduled to be commercially operational in August 2012. A second LNG receiving terminal is being planned in Johor, which would allow for similar third-party access arrangements.

Anuar noted that total gas consumption in Malaysia increased by more than 33 per cent from 2000 to 2010, pushed up mainly by the introduction of regulated prices by the Government in 1997 to help Malaysian power and industrial players cushion the impact of the Asian financial crisis.

The new demand was mostly from customers who converted from other fuels to gas, he said, adding that even in the power sector, due to the subsidised prices, power producers would usually dispatch their gas plants first before plants that use other fuels to generate electricity.

"The 1997 crisis came and went, yet the gas prices remain regulated, creating more demand on an already tight gas situation compounded by declining resources. There is no shortage of other fuels in the market. But when you have a subsidised option, people would not go for the more costly alternatives.

"In Malaysia, we have a situation where gas - because it is "cheap" -- is used as a base load for power generation. This is in contrast to other economies where gas, being a clean energy and fetches a premium, the power companies use coal as their base load," he added.

Anuar said the "cheaper" gas prices, however, come with a heavy cost to PETRONAS, which buys the gas from producers at market prices but sells to the power sector and other industries at a heavily discounted prices.

"Up to August 2011, Petronas has foregone revenue amounting to RM103.2 billion for gas supplied to the power sector alone, out of a total of RM143.4 billion arising from price differentials between the market price and the regulated price," he said.

While the demand for natural gas has increased, its production has been declining. From 2006 to 2011, the production rate from Malaysia's existing gas fields declined between six and 29 per cent.

Anuar reiterated that Petronas had as early as 2005 warned the power and non-power industries as well as the regulators of the potential crunch in gas supply, making known its view that over-dependence on gas was not sustainable.

Regular discussions and engagement sessions were also held with the intention that customers could plan ahead necessary measures and actions to mitigate potential impact on their operations and business.

However, the convenience of cheap gas continued to drive demand, he said.

"Because of the high gas utilisation, we have to operate our upstream and downstream facilities at full capacity on a continuous basis for many years without any operating margin. This is simply not sustainable and cannot continue.

"Despite that, we continue to undertake our regular maintenance. Therefore it is incorrect for some parties to say that Petronas and its upstream partners are not doing maintenance and that the tight supply of gas is due only to maintenance issue," he added.

Anuar said as indigenous production was not able to meet demand, Petronas had been purchasing piped gas at market prices from external sources.

From January to August this year, about 37 per cent of Peninsular Malaysia's gas needs were met by imports from Indonesia and from gas developed in the overlapping Malaysia-Thai and Malaysia-Vietnam areas.

However, he warned that securing such supply might soon become a challenge as production at these sources were also decreasing, which would mean less molecules for Petronas to purchase.

"We are positive that our receiving terminal in Melaka, and the one planned for Johor, would help ease the supply situation. However, there is still a need to address the fuel-mix issue for power generation to ensure the security of power supply in the country. We cannot be over-dependent on gas.

"Malaysia's hydrocarbon resources are finite. Petronas believes that everyone has a role to play in making the nation more energy efficient.

Assigning blame on any party will not help. At Petronas, we are doing our utmost to meet our gas supply obligations. If all of us do our bit, we would be able to prolong the life of our resources for the benefit of our children and future generations," he added.