This article first appeared in The Edge Malaysia Weekly on November 18, 2024 - November 24, 2024

SARAWAK is expected to announce by the end of the month plans for the development of a deep-sea port with liquefied natural gas (LNG) facilities. The port is estimated to cost between RM25 billion and RM30 billion and will be located off the coast of Kuching. 

Currently, details about the state’s plans for the LNG facilities are limited. It is unclear whether the facilities will be used as a floating LNG unit for storing and regasifying imported gas or if they are intended for downstream oil and gas activities.

The project, spearheaded by Petroleum Sarawak Bhd (Petros), is a strategic move aimed at positioning Sarawak as a key player in the global energy market as well as a critical hub for maritime trade in Southeast Asia. 

“This is just one of the plans that will be announced during the SGR (Sarawak Gas Roadmap) summit [to be held on Nov 25],” says a source.

According to its website, Petros will have four hubs in Sarawak as part of the SGR: in Kuching, Bintulu, Samalaju and Miri.

Under the road map, Kuching will have an LNG regasification terminal, a new combined-cycle gas turbine plant, sustainability-linked initiatives as well as industrial clusters in the city and nearby Samarahan, Sri Aman and Betong.

It is understood that the SGR will require potential investments of RM100 billion over the next few years and involve partners, including Petroliam Nasional Bhd (Petronas).

Sarawak Premier Tan Sri Abang Johari Tun Openg had told The Edge in an interview in July that the state plans to build a deep-sea port, along with an international airport, by 2028. The location for the port is being carefully studied, as it should be linked to Bintulu and Miri, where the state has plans for new gas plants.

He added that the port’s facilities would be especially significant, aligning with global trends towards cleaner energy sources and positioning Sarawak as a leader in sustainable energy production.

As Sarawak is a producer of clean and renewable energy, its growing energy export sector is expected to attract foreign investment, leading to the creation of thousands of jobs and spurring local economic development.

Abang Johari had said then that both the deep-sea port and international airport were still in the planning stage, and that environmental considerations, assessments and consultations were being carried out.

At press time, the premier’s office and Petros had yet to respond to The Edge’s questions on the Kuching deep-sea port.

The latest development signals that Sarawak is going ahead with its plans, as it is holding the SGR summit at the end of the month, despite the unresolved issue with Petronas over natural gas distribution in the state.

Petros has been designated as the sole gas aggregator by the state government under the Distribution of Gas Ordinance, effective February. This role allows Petros to procure and distribute gas to industries in accordance with the state law.

Petros in July had signed gas sale agreements (GSAs) with Sarawak Petchem Sdn Bhd and Sarawak Energy Bhd in July, marking a significant step forward for the state-owned company in its efforts to take over the role of sole gas aggregator from Petronas. This move will enable Petros to buy and sell all natural gas within the state.

Despite talks of disagreements between Petros and Petronas over the matter, the Sarawak government remains firm in its legal rights over gas distribution and expects the national O&G firm to comply with the ordinance and acknowledge Petros’ role. This led to rumours in the industry that a legal fight may ensue between the two, a path that both have taken before over sales tax (over oil and gas extracted from the state) owed to the state.

The new Kuching deep-sea port has sparked discussions about its potential either to complement or compete with other established LNG facilities in Malaysia, including the Petronas’ LNG facilities.

“Understanding this new facility’s competitive edge requires a look at Malaysia’s LNG landscape and the capabilities each facility brings to the table,” says another source.

The question remains as to which market the new Kuching LNG facility will cater for, especially now that Petros is the sole gas distributor in the state. Will the facility be for imports or exports of gas?

Sources say gas will still be exported out of Sarawak for now but, eventually, the state wants most of the gas for developing its own industries and to advance its clean energy agenda.

Notably, Malaysia is a significant player in the global LNG market, shipping 26.75 million tonnes in 2023 and accounting for about 7% of total LNG traded globally, according to the International Gas Union’s latest annual report released in June.

Japan has been one of the biggest LNG markets for Malaysia and demand has only grown since 2011, when most of the country’s nuclear power plants were shut down, following the Fukushima Daiichi nuclear accident caused by the Tohoku earthquake and tsunami.

To meet global and domestic demand for LNG, Malaysia is also raising output to as much as 34 million tonnes by 2027 with new and existing projects. According to BMI, the research unit of Fitch Solutions, Malaysia produced 31.3 million tonnes of LNG in 2023.

How will the new LNG facility — with Petros being the sole gas distributor for Sarawak — fit in with Petronas’ and, more importantly, the country’s LNG export plans? This is especially when 90% of all of Petronas’ LNG cargo in the country is sourced either from or through Sarawak.

Petronas operates several key LNG facilities across the country,  including  floating PFLNG Satu and Dua, currently in Sabah, with a third facility underway for the Sabah market.

Petronas also operates the LNG Complex in Bintulu, which includes nine LNG trains: three for MLNG Satu, three for MLNG Dua, two for MLNG Tiga, and one for LNG 9 Sdn Bhd (PL9SB), all located on a single site. Petronas holds a majority stake in MLNG Satu, Dua, Tiga, and PL9SB, while the Sarawak government maintains minority stakes in MLNG Satu, Dua, and Tiga, alongside other oil and gas companies, including Japan’s Mitsubishi.

The ownership structure for these projects is as follows: MLNG Satu is 90% owned by Petronas, 5% by Mitsubishi, and 5% by the Sarawak government; MLNG Dua is 60% owned by Petronas, 15% by Mitsubishi, 15% by Shell, and 10% by the Sarawak state government; MLNG Tiga is 60% owned by Petronas, 15% by Shell, 10% by Nippon Oil, 10% by the Sarawak government, and 5% by Mitsubishi (Diamond Gas). Petronas LNG Train 9 is owned 90% by Petronas and 10% by Nippon Oil.

These facilities enable Petronas to extract and liquefy natural gas directly at sea, offering flexibility in tapping offshore gas fields that are otherwise too remote or uneconomical to develop using traditional methods.

Against this backdrop, the proposed LNG facility near Kuching must carve out a distinct niche to compete effectively, industry players say. 

Moreover, the new facility’s integration into a broader deep-sea port infrastructure could position it as a multi-functional hub, attracting not just LNG-related activities but also broader maritime commerce.

This diversification could appeal to international investors seeking to consolidate operations in a single, strategically located port, thereby driving down operational costs and increasing efficiency.

It is said that the Kuching facility could focus on green LNG initiatives, such as carbon capture and storage technologies, to appeal to a market increasingly concerned with sustainability.

This approach would not only help the facility stand out from others but also align itself with global trends towards cleaner energy solutions.

Furthermore, forming strategic partnerships with international LNG firms could enhance the new facility’s competitive position. By leveraging global expertise and technology, the Kuching facility could offer more competitive pricing or innovative service offerings than existing Malaysian facilities.

Nevertheless, industry observers say it is essential to acknowledge the formidable brand and infrastructure that Petronas has developed over decades. Competing directly with such a well-established entity requires strategic differentiation and leveraging niche markets, while employing innovative technologies. 

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