Gas pricing model key for sustainable power generation in Malaysia's energy transition, says MGA chief

Saturday 27 Jul 2024

KUALA LUMPUR (Aug 28): The pricing model for gas is key for it to be integrated into Malaysia's energy transition strategy, as it will continue to play a significant role in the country's electricity generation system, said Malaysia Gas Association (MGA) president Abdul Aziz Othman.

Given the high costs associated with addressing renewable energy intermittency, natural gas, which is abundant in Malaysia, is considered a practical choice to ensure uninterrupted power generation throughout the day, said Abdul Aziz.

“But for Malaysia, there are issues. Gas for the power sector is still heavily subsidised. If you want gas to be part of the energy transition equation, we need to change the fundamental issue that Malaysia is facing,” said Abdul Aziz, who is also Petroliam Nasional Bhd’s (Petronas) vice president of gas and power, in a panel session at The Energy Transition Conference 2023 here.

Abdul Aziz was referring to the price cap imposed on domestic piped gas to the power sector, the bulk of which is sourced from Petronas.

While the government has taken steps to gradually reduce the subsidy to end-consumers of electricity since last year, generation costs remain low, with domestic gas prices being cheaper than international prices.

To be sure, Malaysia’s domestic piped gas price ties to the Malaysia Reference Price (MRP), which is floated based on export prices to Japan. Consumers, both industrial players and power sector, can also import LNG with the implementation of third-party access for gas infrastructure assets namely regasification plants, as well as transmission and distribution pipelines.

However, domestic piped gas price for the power sector is imposed at a fixed discount, on top of a price cap of RM30/mmbtu for the first 1,000 mmscfd. This compares with Tier 2 prices for additional volume, which averaged at RM62.1/mmbtu in 1Q2023 amid international gas price shocks that occurred last year. MRP averaged at RM48.14/mmbtu in 2Q2023, official data showed.

Abdul Aziz acknowledged the price disparity and said LNG imports have not taken off. “No one wants to buy high and sell low,” he added.

Earlier in July, Minister of Economy Rafizi Ramli said in an interview that the government is seeking to revamp the country’s energy model, which has seen it absorbing the fluctuations in energy prices through subsidies.

He, however, stressed that subsidy rationalisation is a question of sequencing and that there is a need to ensure consumers, especially domestic households and SMEs, are given the option to buffer the impact first.

Following recent years of gas and coal price shocks and increasingly stringent stakeholder requirements around carbon emissions, Malaysia is raising its RE capacity target to 18GW by 2030, from its initial target of 13GW. While new coal plants are off the cards, gas remains in the picture, with new builds forecasted going into the next decade.

Edited ByIsabelle Francis

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