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Natural gas: flipping the switch of a new era

A regional view and the big picture: An industry in a fast-changing environment

Given the fact that the global energy market is going through an unprecedented transformation, the role of natural gas has become increasingly important both in terms of energy production and industrial, commercial and residential consumptionin addition to being driven by global and national environmental initiatives.

A brand new report by Investvine, a business news organisation focused on Southeast Asia, is taking this development as a guideline for a comprehensive assessment and background check of the state of the natural gas market in Malaysia, Southeast and east Asia, as well as globally.

In Malaysia, natural gas production is on an upward trend, while consumption and utilisation of natural gas for energy generation still has ample room to develop. This is the main issue that the industry has to tackle, in addition to rising exploration costs and the necessity to balance its strategy for natural gas in terms of sustainable demand, discovery of new sources, a clear and consistent energy mix policy, as well as market-based pricing which includes a phase-out of the government's subsidy policy.

For Malaysia, it seems indeed an appropriate time to reflect on why natural gas should remain the core source of the country's energy security strategy and fuel mix. Starting in 2009, the Malaysian government began a programme to "rationalise" natural gas prices by gradually slashing away at a long-implemented subsidy. The programme has by and large been a success, slowly weaning the economy off of the subsidies, seen by many economists as an inefficient use of the natural resource, a waste of tax money as well as a deleterious measure that incentivises excess and waste.

Plenty of energy resources

This insight was crucial since the energy sector in Malaysia plays a critical role in the economic growth of the country, making up about 20% of total gross domestic product. With regards to natural gas, Malaysia's total resources are estimated to stand at 100.7 trillion standard cubic feet, which ranks Malaysia among the top 15 countries worldwide by proven natural gas reserves and the third-largest in the Asia-Pacific region behind China and Indonesia. Based on the current production rate, and if no large new discoveries are made in the period, resources should last up to 40 years. This brings with it the challenge of finding a long-term strategy for utilising natural gas to the benefit of Malaysia's economy, as well as finding a way to feature it prominently in the nation's energy supply in the coming decades.

New applications sought

The report points out that there are certain significant trends in Malaysia's natural gas industry. The industry is expected to come under pressure in terms of utilisation of natural gas due to the government's strategy of increasing the share of coal in the fuel mix for electricity generation, from 47% to 65% by 2020, reducing domestic demand from the power sector for natural gas significantly. Thus, new applications for natural gas have to be developed, such as complementing renewable energy projects and as alternative fuel for vehicles. One good example is the commercial production of palm oil-based biogas compressed natural gas (CNG) by a Gas Malaysia-Sime Darby joint venture, which began production in 2016.

Regional trends

Malaysia could also prove to be a leading example in countering the regional trend in Southeast Asia in which some countries are shifting back towards coal. Some power companies across the region have started tapping into their abundant and cheap domestic resources of coal to generate electricity, a move that has turned out to be detrimental to demand growth for natural gas.

While it is true that coal is more widely available at lower cost than natural gas in the regiona budgetary relief for energy producersthere remain both societal side effects and macro-economic considerations. Firstly, natural gas-fired power plants are generally cheaper and quicker to build than coal-fired ones. They also tend to have higher cycle efficiencies and greater operational flexibility, making gas plants a sounder investment than coal plants.

From an environmental standpoint, current coal plants can be equipped with environmental control systems that reduce their significant environmental footprint. These controls attempt to diminish the hazardous emissions of nitrous oxide, sulfur oxide, particulates and carbons. However, such filtering systems come with a hefty price tag and would not be needed to such an extent for a natural gas plant.

Country trends in Southeast Asia

The reports further looks at regional developments in IndonesiaSoutheast Asia's largest natural gas produceras well as in Thailand, Vietnam and Myanmar. Overall, natural gas production in Southeast Asia is forecast to grow slowly from 7.56 trillion cf in 2013 to around 7.63 trillion cf in 2040, led almost entirely by Indonesia and through higher output in underexplored Myanmar.

The report also looks at international trends. The basic question for energy policy in Southeast Asia is whether the region can really decouple itself from the policies of a number of trendsetting developed nations to turn to natural gas as a dominant power production and consumption resource, for example the US and China. Since 2000, the US has experienced a boom in natural gas production and use, particularly since shale gas has become a key source of natural gas in the US. In 2015, natural gas became the largest source of power generation in the country. China is another large energy-consuming nation that has strong preferences to promote natural gas use over coal, and the European Union has set clear goals to dramatically reduce dependency on oil and cut carbon emissions by using natural gas and renewables.

This article appeared in the AOGC daily newsletter, produced by Petroleum Economist for attendees of the 19th Asia Oil and Gas Conference held in Kuala Lumpar.

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