Steering LNG growth in Asia, the liberalisation of the Malaysian Gas sector

After years of state protectionist policies toward the Malaysian oil and gas sector, the fuel-rich state has begun the process of opening up the gas sector to allow for greater access and competition by third-party players. At the annual IEF-IGU Ministerial Forum held in Kuala Lumpur, the Malaysian Prime Minister, H.E Muhyiddin Yassin, utilised the platform to announce the progressive liberalisation of the sector with the expectation that Malaysia can lead the regional uptake of natural gas as a transitionary fuel.

Natural Gas is seen as the bridge between the carbon-intensive oil exploration of today and the carbon-friendly renewable power generation of the (near) future, and no region is set to embrace this transition as much as Asia between now and 2050.

So much so that since July 2020 record-low price for LNG in Asia hit $1.82 mmBtu (per million British thermal units) the price swiftly swung to a record-high of $21.45 mmBtu just eight months later, despite the restrictions of trade from Covid. Such a reaction is indicative of the commitment shown to liquid natural gas by Japan, China, Malaysia and South Korea (among others) as their alternative-of-choice to engage with the energy transition – the only energy source that can sufficiently provide the industrial and manufacturing capacity the Far East demands.

Malaysia’s strong experience in the global oil markets through their NOC Petronas, has provided impetus for the state to push ahead and lead the regional push toward the utilisation of LNG as a primary fuel. The intention is to create the proper regulatory environment via a liberalisation of energy policies that could reinvigorate their position as one of the leading global energy companies. An ambition that is well considered and developed in-line with national energy strategies.

Current CEO Tengku Muhammad Taufik was present at the company, an executive assistant to the first chief executive officer of Petronas, as it underwent a nationalisation of resources and consolidation of these resources under the Petronas name. His experience will be important in guiding the company and state in diversifying their carbon-heavy business model. Despite climate change policy in Asia having not gained the similar ground as it has in Europe, the impact of investment and financial activism has impacted the access to capital globally.

Energy-intensive industries have few options in the search for alternate power sources at present with the potential for industrial and manufacturing uses of hydrogen at least a decade away, natural gas is seen as the most effective alternate to crude oil. While LNG has come under pressure of financial activism in the West, there remains a steadfast belief in the East that LNG developments remain as strong investments over the medium term.

The state seeks to expand consumer access to third-party vendors in order to boost market competition in a sector outlined as key to the Asian energy sector. Additional measures will see the development of LNG processing plants, shipping terminals and shipyards to service offshore production. Malaysia’s has benefited from a geographical position that acts as a gateway from the West to East and convenient access to some of the more productive oil and gas fields in the Asia Pacific.

China has exhibited the growing appetite for LNG more so than any other nation, increasing their demand by 50% from 2019 levels. While Japan is expected to grow LNG as a portion of their energy demand to 27%. The wider region already accounts for between 60-70% of global LNG demand, a figure expected to maintain while the demand grows to 200 million tonnes per year (mnt/y) by 2030. 

And while the region is seriously considering the potential of carbon-friendly alternatives such as green hydrogen, the infrastructure and production capabilities are many years behind LNG, a well-established sector. Beyond those immediate barriers, LNG infrastructure is most preferable for the re-purposing for hydrogen transmission once that sector is commercially viable. By taking the initiative to re-position the state and national oil company to develop a more diverse portfolio that acknowledges the energy transition's many challenges, Malaysia will continue to be a central player in the East Asian energy economy for many years to come.