Report: Industry Talk in Conjunction with 31st AGM

1 Jun 2017

MGA’s 31th Annual General Meeting was held on 24th May. It featured two invited distinguished speakers who gave insightful presentations on two very different topics.

The first guest speaker was Datuk Shahrol Halmi; the CEO of Malaysian Petroleum Resources Corporation (MPRC), who gave a talk on “The Malaysia Natural Gas Market – What’s Next?”. He began by providing a historical overview of the Malaysian gas market. In summary, gas prices has been controlled in Malaysia since 1997 while actual market prices elsewhere in the world have risen by leaps and bounds. The controlled prices has resulted in a substantial subsidy burden for PETRONAS as the sole aggregator for the entire Malaysian domestic gas market to the tune of hundreds of billions of ringgit.

This Datuk Shahrol then stated that unlocking premium has demand is one of the Entry Point Projects (EEPs) of the NKEA. Thus for Malaysia to transform itself into a developed nation, it is vitally important that the gas market is reformed. Unlocking premium gas demand requires an update to the current regulatory framework in order to enable third parties to participate. Towards this end, the Gas Supply (Amendment) Act 2016 was amended to:

• Allow third parties to access gas infrastructure for the supply of natural gas to consumers
• Promote healthy competition in the gas supply industry
• Enable gas consumers to benefit from competitive prices, better services and enhanced sustainability

The regulatory framework and infrastructure are now being institutionalized for third party players. Additionally, a transition towards a more market-driven pricing environment has begun. Datuk Shahrol said in the near term, there are several challenges that need to be addressed. They are:

• Will gas customers and suppliers respond as planned? Are there “missing pieces”?
• Managing our environmental impact.
• Balancing against coal, other fuels and renewable sources of energy.
• Having data-driven discussions about energy in our society. Creating a common language for informed debates.

To a question from the floor, on whether it is MPRC’s aspiration to create trading hubs to promote gas on gas competition, he said while he would like it to happen, it would likely not take place in the near term, based on Britain’s experience.

Next to take to the rostrum was Dave Sivaprasad, a Principal in Boston Consulting Group’s Energy practice, who spoke on “Perspectives on the Long Term View on Gas”. He said that natural gas has had a remarkable trajectory of growth over the last 30 years, and there is an increasing consensus that it will continue to grow at a respectable rate until 2035. As a matter of fact, natural gas is expected to be the fastest growing fossil fuel, with its demand surpassing that of coal by 2035. What was interesting about his presentation was that he predicted that LNG will make up an increasing share of supply in future as it will be the integrating force between disparate gas markets.

Dave cautioned; however that rosy projections have not always materialized in the past. In 2011, under its “Golden Age of Gas” scenario, the IEA projected that gas consumption will grow at a CAGR of 1.8 percent. In reality, between 2010 and 2015, the growth rate was closer to 1.5 percent, causing natural gas to lose ground to coal in the global energy mix. Looking ahead, there are many uncertainties and changes that can come faster than anticipated that could derail the rosy projections. One example he gave was that historically, technological progress has been underestimated. Going forward, improvements in solar photovoltaic and battery storage technologies could turn into game changers that would upset the analysts’ projections. He also added that while in the past, there has been few substitutions across energy sources where all energy sources have always continued to grow, even when losing ground against another source, the future is likely to be very different with substitutions of energy sources being the norm. The key takeaway here is that industry players cannot rest on their laurels and must up their game in gas advocacy to ensure a sustainable industry.