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Ir

Pramod Kumar Karunakaran – President, Malaysian Gas Association

05.03.2015 / Energyboardroom

Ir Pramod Kumar Karunakaran, President, Malaysian Gas Association discusses MGA policy work, the move away from subsidized gas in Malaysia, LNG developments. MGA is creating a platform for oil and gas industry players.  

In 2013, the MGA changed leadership at a moment where Malaysia, a traditional gas exporting nation, also inaugurating its first Liquefied Natural Gas (LNG) regasification terminal in Sungai Udang. Taking over at this critical juncture, what mandate have you established for yourself?

To ensure Malaysia Gas Association (MGA) remains relevant in the changing landscape of the gas industry in Malaysia, MGA conducted a strategic study in 2013 with the objective of reassessing its role in Malaysia’s gas industry. Post the strategic study; MGA has revised its vision, mission and objectives.

Furthermore, MGA has come a long way since its formation in 1986 and has successfully chaired the International Gas Union from 2009-2012, which culminated with the World Gas Conference in 2012, under the leadership of Datuk Ir. (Dr) Abdul Rahim Hj Hashim. This conference helped put Malaysia on the world oil and gas map and facilitated networking opportunities between Malaysians and global industry leaders. It also allowed Malaysians to be exposed to some of the technological and scientific advancements in the oil and gas industry.

When I was appointed into my current position as MGA President in May 2013, there was a strong demand for natural gas in the country, principally due to its cheap price relative to other fuels. Gas price is heavily subsidized by PETRONAS which, I believe, is not a sustainable model, taking into account the diminishing indigenous gas production in Peninsular Malaysia. World Bank data indicates that Malaysia’s energy intensity index has increased in the last 20 years compared to many other countries which have experienced a significant decrease. This means that Malaysia is actually consuming more energy to generate the same amount of GDP, which reflects negatively on Malaysia’s competitiveness. With the commissioning of Malaysia’s first LNG Regassification Terminal (RGT) in May 2013, it becomes imperative for the country to move towards market based gas pricing. The Government is aware of the need towards moving away from subsidies and I am pleased that efforts are now in place to gradually increase gas price towards market parity in the near future. MGA’s role is to advocate for the gas industry and to assist the government in putting in the right policy framework to promote a robust and sustainable gas industry in the country.

Gas pricing subsidies and economic growth are often intertwined for emerging nations. Can Malaysia do without gas price subsidies, and does the MGA have any recommendations on this matter to the government?

Subsidies are clearly not sustainable in the long run because they create market distortion and an imbalance in the demand and supply of gas. In Malaysia’s case, this subsidy created a rapid increase in demand with users switching from other fuels such as diesel, fuel oil and LPG to gas. It also dis-incentivizes investment in upstream activities to make available additional supplies and discourages efficient use of gas by consumers. Last year alone, the gas subsidy borne by PETRONAS amounted to RM25 billion (approximately $7.1 billion). In fact, the cumulative gas subsidy since 1997 has reached a staggering RM207 billion (approximately $59.1 billion).

Experiences in other countries have shown that the most efficient way to allocate resources and to achieve balance in demand and supply is through market-based pricing. Malaysia is thus laying the necessary foundation to liberalize its gas market.

The completion of the RGT in Melaka in May 2013 paved the way for the liberalization of the gas industry as it allows any gas supplier to enter the market utilizing the RGT facilities to import LNG directly into the country and flow gas through the existing infrastructure to buyers.

Central to the liberalization of gas market in Malaysia is the implementation of the Third Party Access (TPA) regime. Under the TPA, gas suppliers are able to use gas infrastructures such as the RGT and gas pipelines by paying a tariff to the owners of the facilities. An implementation framework of the TPA known as Gas Network Code promotes access to the gas market by ensuring transparency, fair and equitable practices among users of the pipeline system in Peninsular Malaysia.

To ensure clear and transparent rules to facilitate supply competition and safe utilization of gas, the Energy Commission of Malaysia is in the process of amending the Gas Supply Act, which will expand its role as the regulator for the downstream gas industry. The amendment is expected to be addressed in parliament in early 2015.

Market liberalization will promote competition, efficiency and supply security, and central to market liberalization is price reform. I believe that the government is committed to the gradual phasing out of regulated gas prices until the gas price reaches market parity. This is evident from the upward revision of currently contracted gas volumes at regulated gas price to the power sector in Peninsular Malaysia effective since January 1, 2014. The regulated gas price to the non-power sector was revised twice this year on May 1, 2014 and November 1, 2014. Also gas price for any new volumes of gas to both power & non-power sectors will be sold at an LNG based price. However, for the currently contracted volumes, we have still a long way to go before reaching market parity in gas pricing.

Innovation has allowed the United States to transform itself from a large gas importer into a very dynamic gas producer as a result of the shale gas revolution. How present is technological innovation in Malaysia’s gas agenda, and what role this innovation can have to monetize gas reserves?

The offshore based LNG regasification terminal to enable importation of LNG into Peninsular Malaysia with the use of rejuvenated LNG ships as storage is a good example of application of technology to help expedite project delivery.

Malaysia’s oil and gas industry has also certainly not lagged behind in terms of innovation. In fact, Malaysia is ahead on a number of fronts. In the upstream sector, many of the existing key gas production fields are on the decline, while remaining reserves are challenging to develop due to small size, scattered locations, deep waters and high CO2 content.

The FLNG project is an innovative and bold solution to unlock and monetize Malaysia’s marginal and stranded gas fields. FLNG is expected to change the landscape of the LNG business where the liquefaction, production and offloading of LNG, previously only possible at onshore plants, will be carried out hundreds of kilometers away from land and closer to offshore gas resources. PETRONAS FLNG 1 (PFLNG1) is targeted for commissioning in 2015 and will be probably the first FLNG in the world.

Another example relates to research in the domain of CO2 removal technology which is working to monetize some of the CO2 rich gas fields in Malaysia. However, membrane technology for CO2 removal is already been applied for some years to monetize some fields in Malaysia.

PETRONAS is also involved in research in the E&P Sector and have successfully applied higher level of sophistication in E&P technology to aid in improving likelihood of success in exploration as well as yield in production.

On another note, even though it is about oil rather than gas, PETRONAS and its production-sharing contractors are embarking on the Enhanced Oil Recovery (EOR) projects in a big way, some of which will be the largest integrated offshore EOR projects in the world. Another innovation is the introduction of Risk Service Contracts (RSCs) to monetize marginal oil fields.

Innovation in the downstream especially by the gas users is also critical. As the gas subsidy is gradually phased out and regulated gas price increases, gas users need to make the necessary investment to use gas in the most efficient manner such as in the combined heat and power (CHP) system which MGA is advocating.

All industry players should make investment in innovation across the whole value chain, from upstream producers to end-users. It is not simply the oil and gas industry that must fund innovation projects, but universities, research institutions and industry players, amongst others, must also contribute to the development of new technologies. It is a role that many stakeholders must share because the oil and gas industry in itself does not have all the solutions.

How can MGA help it partners to understand and enjoy the latest available world gas technologies?

MGA is able to bring diverse players together by providing a forum for the sharing of ideas. MGA facilitates discussions, and encourages the development of technologies and systems that promote energy efficiencies, allowing our members to put forward ideas for positive change within the industry. We aim to promote a gas industry that sets a clear agenda for helping the industry players and individuals and allowing students and constituents to learn and better understand the oil and gas industry. This is done by engaging all stakeholders and helping constituents and industry players learn how to collaborate.

Through MGA’s membership with the International Gas Union, members are also encouraged to participate in IGU Technical Committees to address and share various issues confronting the industry.

The PIPC project, “a national project of strategic importance” seeks to transform Malaysia’s downstream capacities and the economic development Johor State. How does MGA assess the role of gas to fulfill the country’s expectations as a downstream regional hub?

Gas is a very efficient fuel because it is more affordable, accessible, and clean, as such MGA will continue to propagate greater use of gas in the country. Gas terminals are being built which will provide fuel in the form of gas to Pengerang Integrated Complex (PIPC), thus making gas the main energy source for the RAPID (Refinery and Petrochemical Integrated Development) Project.

How is Malaysia positioning itself in its efforts to become the number one LNG hub worldwide?

Malaysia is the second largest exporter of LNG in the world and is well placed in Southeast Asia to service the region. Furthermore, pipelines exist between Singapore and Thailand, which means we have the infrastructure to move volumes across the region. In order for Malaysia to become the number one LNG hub in the world, Malaysia needs to enhance the current infrastructure, implement the required policies and to develop and implement the necessary financial systems and infrastructure to enable flexibility in moving volumes between the nations in the region.

To read more articles and interviews from Malaysia, and to download the latest free report on the country, click here.

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