Cheaper gas in the offing

Shared facility: Under the TPA, new gas suppliers can bring LNG into the country through the LNG Regasification Terminals to supply their gas to buyers using the existing distribution pipeline owned by Gas Malaysia and Petronas Gas, including Petronas Gas’s terminal in Sungai Udang, Melaka.

AS the sale of gas to local industry enters a mature phase of liberalisation, third parties intending to break into the scene are confident of making an impact.

This, in turn, is good news to industry players who welcome the development as it will ultimately lead to more competitive pricing for their raw materials.

To recap, historically, only Petroliam Nasional Bhd (Petronas) has been allowed to supply gas to industries in Malaysia, using the distribution channels or pipelines of Petronas Gas Bhd and Gas Malaysia Bhd.

Gas prices have also been fixed by the government, requiring a subsidy to be provided in order to boost local industries with the ultimate supplier, Petronas, having to absorb the subsidy cost.

However, Petronas has been allowed to reduce subsidy over the years with the government allowing for price increases every six months.

What is also taking place is something called the Third Party Access (TPA) mechanism which was initiated by the government since 2017 following amendments to the Gas Supply Act. Under the TPA, the gas supply market is now open to third parties, including foreign companies, to bring in gas into Malaysia and sell gas directly to consumers.

Petrolife Aero Sdn Bhd managing director Datuk Mohd Aqliff Shane for one says that his company is able to sell gas at lower than current prices. Petrolife Aero is one of the newly licensed TPA players.

“Because the spot price of global liquefied natural gas (LNG) is low, we as a TPA player can offer lower gas prices to the Malaysian market,” he tells StarBizWeek.

The latest fixed gas price in Malaysia is at RM34.66 per million British thermal units (MMBtu) which applies from July 15 until Dec 30 this year.

Aqliff says the TPA players have been waiting for the right pricing of gas to enter the local market.

“Now we can go into the local gas market because of the recent increase in prices,” he says.

Aqliff says the TPA players are a solution provider to bridge the gap in the supply of gas in Malaysia. “We can offer flexible gas supply contracts without worry of breaching the existing contracts of gas supply.”

He points out that new players could bring in new innovative ways of bringing gas to industry, beyond what the current infrastructure caters to.

“For example, there are LNG ISO tanks which can be deployed for small scale distribution,” Aqliff says.

The new players will also be paying Petronas and Gas Malaysia a fee for the services that they provide, he points out.

It is understood that under the TPA, six new licences have been dished out by the Energy Commission (EC).

Malaysia has been progressively liberalising its gas supply market over the past years, including a gradual subsidy elimination strategy by RM1.50 per MMBtu for every six months.

Interestingly, by the next tariff revision in December, the local natural gas price is expected to match the global market price.

“Liberalisation means there is no longer fixed price for natural gas and that other players can come into the market,” Aqliff says.

Malaysian Gas Association (MGA) says the government’s liberalisation agenda will ensure that the local natural gas market continues to remain robust to serve the industries and contribute to Malaysia’s socio-economic progress.

“The ongoing liberalisation of the natural gas market will ultimately result in a stronger and more sustainable oil and gas industry, where prices would be determined on a willing buyer-willing seller basis.

“Moreover, with the ongoing implementation of the TPA system, it would encourage new parties to enter Malaysia’s gas market, thereby driving competition for the benefit of Malaysian gas users,” the association tells StarBizWeek.According to the MGA, Malaysia’s two LNG Regasification Terminals are the Regasification Terminal Sungai Udang in Melaka and the Regasification Terminal Pengerang in Johor. Both are owned by Petronas.

The TPA will also allow large gas users to purchase their own LNG from any source and subsequently use the same gas infrastructure to bring the gas to their facilities.

The implementation of the TPA came into force on Jan 16, 2017, following the amendment of the Gas Supply Act 2016.

Additionally, the amendment saw the creation of new licences including for the importation of LNG into Malaysia, shipping of gas via regasification terminals, transmission and distribution pipelines, as well as distribution of gas through distribution pipelines.

In other words, the TPA system has created business opportunities in the supply of gas and gas shipping business, which was previously operated solely by Petronas.

These businesses are now open for new investors, where they can source gas supply from overseas and compete with Petronas.

These players can sell gas through the existing pipeline, which is currently operated by Gas Malaysia, and sell it to consumers.

“The objective of the TPA system is to create a situation where the gas price to end-consumers will be based on a willing buyer-willing seller basis, taking into account healthy competition among rival suppliers,” according to the EC’s website.

Top Glove Corp Bhd managing director Datuk Lee Kim Meow hopes the liberalisation of the gas industry will result in a better gas price for consumers.

“We hope that ultimately the liberalisation of gas supply will see more options for us to consider and better prices for the industry,” he tells StarBizWeek.

He says the company has been in talks with several TPA players but is still waiting for more information from Gas Malaysia on the matter.

“Gas Malaysia has to brief us on the actual mechanism on their role to facilitate this TPA arrangement, so we can study it as an option for the glove industry,” he says.

The transformation of the gas supply industry will not only encourage new players and investors but will help Petronas as it weathers the uncertainties in the oil and gas gector.

Petronas has earlier said that it had forgone about RM200bil in revenue from selling natural gas in Malaysia at rates lower than global prices since the country regulated prices of the fuel after the 1997/1998 Asian financial crisis.

This is because Petronas has been selling natural gas at below market value despite the upward revision of natural gas price in every six months.

The low regulated gas price has, in turn, affected the government’s revenue collection from Petronas.