Report: MGA-HLIB Industry Tea Talk on “Gas Market Reforms in Malaysia: Global Trends and Third Party Access”

22 May 2017

MGA held its second tea talk for the year on May 9th to a full house audience of 90 participants. Themed “Global Trends and Outlook for the Gas Market”, the event was jointly organized by MGA and Hong Leong Bank Investment Bank (HLIB). As a reflection of this, a large proportion of the audience were from outside the oil and gas industry, including fund managers, investment bankers, securities regulators and central bankers.

The first speaker was Ieda Gomes, an independent consultant and director of the UK based consultancy Energix Strategy Ltd. She is also the Senior Visiting Research Fellow at The Oxford Institute for Energy Studies and Senior Adviser to the Brazilian think tank FGV Energia. She is an active contributor to the International Gas Union (IGU) programme committees and task forces. (MGA is an active member of IGU and held the IGU Presidency for the triennium 2010-2012).

Ieda began her talk by listing the following key global trends for the gas market;
• Increased shale productivity is impacting oil and gas prices, making price recovery difficult as every time price begins to strengthen, the shale producers will begin to increase output, feeding a vicious cycle that leads back to lower prices
• LNG is facing a supply glut over next 5-6 years even if the market seems balanced. Most of the new supply is being taken up by countries such as Colombia, Jamaica, Ghana, Panama that are taking advantage of the low LNG prices to import for the first time. The countries do not enjoy the same premier credit ratings of the usual buyers, thus new payment mechanisms will have to be developed to accommodate them.
• Floating Storage and Regasification Units (FSRUs) — which are LNG carriers configured to store and regasify LNG is rapidly emerging as the technology of choice for new terminals due to its rapid turnaround time, especially for regions which do not have existing infrastructure.
• Lower cost renewable energy is here to stay. Some renewable energy technologies such as solar and wind have begun to become economic without subsidies in certain parts of the world. However, gas-fired generation capacity is essential as backup for these intermittent renewables, as gas which is the greenest and cleanest fuel is the best complement for them. As a result, more and more countries are adopting gas-fired generation capacity payment mechanism to ensure a sustainable future.
• Gas market liberalization moving at different speeds with subsidies gradually removed. When it comes to pricing reforms, different countries will move at different speeds and in different paths. Ieda gave the examples of Argentina and Brazil with the key takeaway that there is no single right way to carry out pricing reforms, and each of the different methodologies will have their advantages and disadvantages that have to be weighed carefully.
Ieda ended her talk by stating that third party access to infrastructure is key to any market liberalization and pricing reforms.

Picking up on the third part access to infrastructure in Malaysia was the second speaker, Rumaizi A Halim from Suruhanjaya Tenaga (Energy Commission of Malaysia). Rumaizi is the Head of Gas Market Development and Operation there, responsible for enabling the Gas Supply Act (Amendment) 2016 and Third Party Access (TPA), and working closely with all market players to ensure compliant with the requirements of the Act. He is also responsible in promoting competition in gas market and monitoring market operation.

Rumaizi began by giving an overview of the key amendments to the existing Act. Three of this were especially important, namely:
• The scope of competition provisions cover two types of infringements:
o Anti-competitive agreements; and
o Abuse of dominant position
• Additional licensees’ obligations e.g. separate account for (asset owners) regulated activities, standard of performance, obligations
• Expanded cope of act, which now also covers gas transmission in addition to distribution and retail

The main implication of the above amendments is that existing infrastructure operators from transmissions right down to retail will have to ringfence their operations and will not be allowed to compete with the gas suppliers. This will bring about a change in the structure of the gas market. It will make it possible for gas suppliers to mix and match service offerings so that they meet the exact requirements of the buyers.
Rumaizi then touched on incentive-based regulation that will be used to establish the revenue requirement of the operator.

The TPA drew a lot of interest and questions from the audience. Through the feedback forms, the participants indicated interest for more talks on the TPA.
Watch this space for a sequel to this talk.

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