Malaysia faces LNG oversupply problem

Malaysia faces LNG oversupply problem

Malaysia's LNG export capacity is set to rise by 4.8 mtpa in 2017 following
the startup of a ninth train at the Malaysia LNG (MLNG) plant and Petronas's
new floating liquefaction facility (PFLNG), but analysts say the country
could struggle to find markets for all this new gas.

The country's uncontracted LNG supply is forecast to increase to 17 mtpa
over the next decade, according to Edi Saputra, a specialist in Southeast
Asian gas and power at energy research company Wood Mackenzie.

"This [oversupply] is driven by additional supply, such as from MLNG [Train
9] and PFLNG 1, and major LNG export contract expiries, particularly with
Japanese buyers," he told Interfax Natural Gas Daily.

"Consequently, [Malaysian state-owned oil and gas company] Petronas will
need to manage its long position through securing contract rollovers,
signing new LNG sales agreements and by delivering some volumes to the
Peninsular Malaysia market whenever possible," he added.

However, Peninsular Malaysia faces an oversupply of gas, leaving few
opportunities for Petronas to deliver LNG cargoes within the domestic
market.

"Peninsular Malaysia is facing an oversupply situation through to 2020,
considering both piped gas and LNG import contracts," Peter Lee, an oil and
gas analyst at BMI Research, told Interfax Natural Gas Daily.

This oversupply situation is expected to worsen as 5 GW of new coal-fired
power capacity comes online between 2015 and 2019. And to make matters worse
for Petronas, major buyers such as Japan's Jera are planning to reduce the
amount of LNG they purchase under long-term contracts because of declining
domestic demand and a strategy to secure more cargoes on the spot market.

Given the large volumes of new supply coming online in Australia and the
United States, Petronas is trying to sell into a saturated market and has
delayed projects to help the market recover, said Ahmad Adly Alias, vice
president of LNG trading and marketing at Petronas, speaking at the CWC
World LNG Summit in Barcelona last month.

"We have a second FLNG project to be used in deepwater, but because the
market is soft we do not want to contribute to the overhang so we have
delayed the project rather than let it come online in 2018," he told
delegates.

Petronas is seeking new customers and is open to flexible contracts, noted
Alias. "We can be flexible; if the buyer wants a 15-year contract we can
deliver that, or if they want a short-term contract we can do that too. If
they want the price [to be Henry Hub, Japanese Crude Cocktail] or oil-linked
we are open to it," he told delegates.

This flexibility is helping the company close LNG purchase agreements, with
two announced in December: one with Thailand's PTT for 1.2 mtpa and the
second with Hokuriku Electric Power for six cargoes per year.

Petronas is building a refinery and petrochemical complex at Pengerang that
is expected to start up later this year. The complex includes an LNG
terminal through which gas will be delivered to the industrial sector. This
will be an additional outlet for Malaysia's excess LNG and is expected to
act as an LNG trading hub to rival Singapore.

Coal competition

Malaysia's gas reserves have grown following years of intense exploration,
but imported coal will be prioritised over gas for power generation because
of its low cost and the control Tenaga Nasional Berhad has over the fuel
mix, according to Saputra.

At COP21 the government committed to reducing Malaysia's greenhouse gas
emission intensity per unit of GDP by 45% by 2030 compared with a 2005
baseline. However, this target will not be met if the power sector increases
its reliance on coal.

"To achieve the emissions reduction target, the country must increase the
gas proportion of the fuel mix," a spokesperson for the Malaysian Gas
Association told Interfax Natural Gas Daily.

Gas supply is not an issue as the country has sufficient domestic resources
and infrastructure to import LNG, but it must press forward with gas price
deregulation and a review of its fuel-mix policy, the spokesman said.

The government has been making progress on deregulation, but it needs to
balance this against keeping the price of power affordable and meeting its
climate change targets.

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Link to Original Article:
http://interfaxenergy.com/gasdaily/article/23495/malaysia-faces-lng-oversupp
ly-problem

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com