Juwai IQI global chief economist Shan Saeed
PETALING JAYA: The rising demand for liquefied natural gas (LNG), of which Malaysia is the world’s fifth-largest exporter, augurs well for the country as it will provide a boost to the economy and have positive spillover effects.
Economists and oil analysts expect LNG, a cleaner source of energy compared with coal and crude oil, to see a pick-up in demand this year as industrial coal-to-gas switching gathers pace.
Besides uplifting the economy, it would help improve Malaysia’s current weak trade balance and fiscal position, economists noted.
According to Reuters, price-sensitive LNG buyers from China, India and parts of South-East Asia were snapping up more spot shipments of the fuel to power industries and generate electricity after prices have fallen to the lowest level in nearly three years.
The price-led demand revival could push LNG imports by the world’s top buyer China beyond its record volume of 78.8 million tonnes in 2021 and also raise India’s imports by about 10% this year, analysts said, tightening global supplies and ultimately lifting prices, it said.
Spot LNG imports by Asian buyers increased by nearly a third in the first quarter of the year to 161 cargoes, according to data from S&P Global Commodity Insights, when spot Asian prices averaged US$9.82 per million British thermal units (mmBtu).
This is up from 125 in the same period of 2023, when prices averaged US$18.75 per mmBtu, the wire agency said.
Shell Plc in its latest LNG outlook report said the global demand for LNG is estimated to rise by more than 50% by 2040, as industrial coal-to-gas switching gathers pace in China and South Asian and South-East Asian countries use more LNG to support their economic growth. Global trade in LNG reached 404 million tonnes in 2023, up from 397 million tonnes in 2022.
Malaysia’s fourth quarter 2023 (4Q23) gross domestic product (GDP) saw a slower growth of 3% against 3.3% expansion in the preceding quarter.
The quarter’s lower-than-expected growth also weighed on the whole year’s GDP growth figure, coming in at 3.7% compared with 8.7% in 2022. Bank Negara is estimating the economy to grow between 4% and 5% this year.
Trade balance for February was down significantly by 44.4% to RM10.9bil. The Statistics Department noted that the country’s trade balance, which is the net sum of its export and import of goods, declined as exports dipped by 0.8% or RM939.5mil, while imports went up a more significant 8.4% to RM100.5bil. This comes as total trade increased 3.3% year-on-year (y-o-y) to RM211.8bil in February, from RM205bil recorded in the same corresponding period of 2023.
Juwai IQI global chief economist Shan Saeed told StarBiz that he expects the global demand for LNG to pick up this year and over the next couple of years as prices are low and its beneficial for many economies in the short run.
“The price of LNG has fallen by a third in the last eight to nine months, which has bolstered the global LNG demand. With the surge in manufacturing, warehousing, information and communications technology activities etc, tight supplies, the LNG market can expect prices to stay above historical averages in the near term. Gas currently plays a strategic role in meeting the heating demand for various industries.
“The demand for gas for industries, and from emerging Asia is expected to drive LNG demand growth in the next five to 10 years. We expect LNG prices to meander around US$10 to $12 per mmbtu in 2024.
“At the current level, LNG prices for April delivery into northeast Asia is at US$8.60 per mmbtu which is its lowest since April 2021. There will be some increase in LNG supply from Qatar and North America, but it will be absorbed by the market in Asia and Africa sooner than market anticipation,” he said.
On the economic front, Shan said every economy needs three variables to grow faster - cheap energy, productive labour force and cheap credit.
The higher LNG demand and prices would benefit Malaysia with revenue buttressing the balance sheet of the government, he said. He said this is going to help Malaysia’s terms of trade to become more favourable, supporting trade and commerce growth while exporting LNG to countries like China, India, Indonesia and Vietnam.
“Furthermore, higher demand for LNG will help the government in pursuing expansionary fiscal policy to spur growth in terms of infrastructure investment and aggregate demand.
“Higher revenues will result in reducing the budget deficit which is going to bring in structural stability in the revenue-expense equation thus bringing in fiscal debt discipline in the balance sheet of the government. We at Juwai IQI expect the budget deficit to come down to 4% of GDP by 2025. Overall, we stand buoyant on the Malaysian economic outlook from 2024 to 2026,” Shan said.
UCSI University Malaysia associate professor of finance Liew Chee Yoong
UCSI University Malaysia associate professor of finance Liew Chee Yoong said as the fifth largest exporter of LNG, Malaysia should stand to benefit significantly from stronger global demand if there is no global economic downturn occurring this year.
He said this could lead to increased revenues from LNG exports, contributing to an improvement in the government’s fiscal position, he said, noting that a higher demand for LNG could enhance Malaysia’s trade surplus and strengthen its economy by providing more resources for development and public services.
“With the anticipated increase in global demand for LNG assuming no global recession, Malaysia’s terms of trade are expected to become more favorable. This should support export growth and contribute to a trade surplus, enhancing the country’s economic stability and growth prospects. The key to maximising these benefits will be maintaining competitive pricing, ensuring reliable supply, and continuing to invest in LNG infrastructure and technology,” Liew, who is also a research fellow at the Centre for Market Education, said.
He said the main drivers for the increase in global demand for LNG include industrial coal-to-gas switching, particularly in China, and the rising use of LNG in South Asian and South-East Asian countries to support their economic growth.
However, Liew said this increase in demand may be negatively affected if a global recession occurs this year as the UK and Japan have officially entered into a recession and there could be spillover effects to other developed economies and to the rest of the world.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the rising demand for LNG is deemed as one of the country’s competitive edge. Apart from that, he said LNG is still relevant in the context of clean energy. “Certainly it will help the country’s economy through the upstream and downstream activities which along the way will give more revenue to the government by way of taxes and dividend from Petroliam Nasional Bhd (PETRONAS),” he said.
The demand for LNG is likely to be better this year on account of improving global demand, he said. Citing some data, he said the International Energy Agency (IEA) expects the global trade for LNG would likely increase by 3.5% in 2024 after recording 2% growth in 2023 which was the lowest growth since 2014.
Demand growth is set to be propelled by Asian economies. China, the world’s largest LNG importer, is expected to increase its demand by 10% in 2024 albeit slightly lower than 14% growth in 2023, IEA said. This followed by India with their LNG imports likely to increase to 7% in 2024 fueled by demand from the power and fertilizer sectors as the country plans to halt importing urea by 2025, it said.
Nonetheless, Afzanizam said there is always a downside risk to the growth forecast. The potential disruption from the transit issue in the Panama and Suez Canal as well as the adverse weather conditions such as colder-than-average winter could result in tighter market conditions.
Meanwhile, OCBC Bank senior Asean economist Lavanya Venkateswaran said Malaysia is a net LNG exporter and the commodity exports accounted for about 5% of 2023 total exports.
Assuming higher LNG demand leads to increased prices, the terms of trade would become more favourable for Malaysia, supporting export growth and the trade surplus, she said. She said the impact in terms of fiscal revenues may be limited, especially if the price increases are limited to LNG and not other commodities such as petroleum or palm oil.
HSBC Asean economist Yun Liu.
After a challenging 2023, HSBC Asean economist Yun Liu said Malaysia’s trade has started to see some green shoots. An improvement in commodity exports, for example, in oil and LNG, has largely supported the recovery, she said.
“Looking at LNG exports on a three-month moving average basis, LNG exports have finally returned to positive growth territory after contracting for over six months. That said, the recovery is still at a nascent stage. Given the dominant share of electronics products which make up 40% of Malaysia’s exports, a meaningful boost in its electronics exports are needed to see a more forceful recovery in Malaysia’s trade sector,” she said.
RAM Rating Services Bhd head of corporate ratings Thong Mun Wai said the government indirectly benefits from higher LNG demand through higher taxes paid and dividends distributed by PETRONAS.
Given that the LNG liquefaction complex is situated in Bintulu, he said the Sarawak government has also been able to levy sales tax on the value of LNG exports. Additionally, both the Sarawak and Sabah governments are entitled to dividend distributions in relation to their respective stakes in the LNG Trains operating in Bintulu, he noted.
