TNB in deal with Shell to buy cheaper gas

The maiden delivery for this liquefied natural gas (LNG) trial cargo supplied by Shell Malaysia Trading Sdn Bhd (SMTSB) is expected this month.

PETALING JAYA: Tenaga Nasional Bhd’s (TNB) has entered into a deal to source its own supply of gas for its power plants, at lower market price compared with the regulated price.

This marked the opening up of the domestic gas market.

The maiden delivery for this liquefied natural gas (LNG) trial cargo supplied by Shell Malaysia Trading Sdn Bhd (SMTSB) is expected this month.

“The partnership between TNB Fuel Services Sdn Bhd and SMTSB has resulted in a real cost saving in terms of delivered gas price which is below the regulated gas price, ” TNB said in a statement yesterday.

Under the deal, TNB Fuel will deliver 3.5 trillion British thermal units (TBtus) of gas to TNB’s Tuanku Jaafar Power Station in Port Dickson and TNB Connaught Bridge Power Station in Klang.

The gas from this LNG trial cargo is expected to be consumed fully by the two power plants within 14 days.

“The main objective of TNB bringing in its maiden LNG trial cargo is to test the third party access (TPA) arrangement via the regasification terminal in Sg Udang, Melaka and Peninsular Gas Utilisation (PGU) gas pipeline network owned by Petronas Gas Bhd, ” the utility said in the statement.

No other company has brought in LNG cargo or delivered gas to the power generation sector except for Petroliam Nasional Bhd, who was the sole supplier.

The Gas Supply Act 1993 was amended in 2016 and came into effect on Jan 16,2017 provided legal framework for the TPA system – where third parties can access gas facilities that they do not own or operate.

TNB president and chief executive officer Amir Hamzah Azizan said the agreement with SMTSB indicated that the company supports the liberalisation of natural gas market in Malaysia.

“This pioneering transaction also serves as a knowledge-sharing platform for all parties to gain experience for capacity building, and to provide feedback to all parties involved, especially the Energy, Science, Technology, Environment and Climate Change Ministry and the Energy Commission, on the robustness and governance of the TPA system, ” he added.

Amir noted that the deal with SMTSB also signalled TNB’s serious intention to venture into the area of gas procurement.

Meanwhile, SMTSB managing director Shairan Huzani Husain said the company is proud to be partnering with TNB Fuel and Petronas Gas Bhd for the first private LNG import into Malaysia under the TPA.

TNB Fuel is the principal coal and fuel supplier to TNB and independent power producers.The company is to procure and deliver fuel at optimal cost, taking into account the quality and reliability of supply.

As a non-profit oriented company, savings generated by TNB Fuel from the efficient and economic purchase of fuel are passed through to TNB and subsequently reflected in the tariff charged to consumers.

According to Bloomberg data, 15 houses have a “buy” call on TNB, while nine are “hold” with no sell calls. The consensus target price for TNB is at RM14.93 per share, indicating it 9.8% upside.

TNB share price closed down 10 sen to RM13.60 yesterday.

In the first half of the year, TNB’s share price trailed the consumer index over potential reforms post- Malaysia Energy Supply Industry (MESI) 2.0 before recovering in May 2019.

Given the changes from MESI 2.0, BIMB Securities Research said it would not likely be too disruptive to TNB’s existing business model.

However, pending details on MESI 2.0, Public Investment Bank and CGS-CIMB Equities Research maintained a “neutral” outlook on the power sector, while MIDF Research downgraded its stance to “neutral” from positive previously.

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