Malaysia’s gas market is undergoing reforms. In the past, Malaysia’s gas market was characterised by its subsidised, relatively inexpensive gas with a single player on the supply side, i.e. PETRONAS, the vertically integrated national oil and gas company. This has led to an unbalanced market in which demand has rapidly outstripped supply. The low cost of gas has also encouraged the inefficient use of this precious resource. The imbalance was unsustainable and the government has embarked on gas market reforms to ensure the long term sustainable development of the Malaysian gas industry.

Prior to the Asian Financial Crisis of 1997-98, the gas price to downstream consumers in Malaysia was based on market value. Contractually, gas prices were linked to a substitute petroleum product.  As part of the overall stimulus and recovery package implemented by the Government in response to the crisis, domestic gas prices were subsequently regulated.

In May 1997, the Government began regulating gas price for the power sector, essentially creating a fixed price of gas. In October 2002, the regulated gas pricing was extended to the non-power sector, including reticulation. The gas prices to the power and non-power sectors were lower than the formula-based contracted prices that had been signed between the end-users and the supplier of the gas, PETRONAS.  The regulated gas prices, implemented in 1997 and 2002, were essentially subsidies given to these two sectors.

Aware that these subsidies are unsustainable, the government has drawn up plans since 2008 to remove them gradually over the years by increasing the prices of gas to the various sectors of the economy periodically until they reach market parity. Under the 10th Malaysian Plan & New Energy Policy, it is envisioned that under the strategy of elimination or rationalisation of subsidies, the gas prices for the power and non-power sectors will reflect market parity by 2016. A gradual subsidy elimination strategy was proposed and it was envisioned that the gas prices will be increased by RM3.00 per MMBtu every 6 months to the power and non-power sectors. However this happened only once. This was later revised to RM 1.50/MMBtu every 6 months in 2014.

As such, there are currently two categories of gas prices in Malaysia that are collectively referred to as the two-tiered pricing mechanism: regulated gas price and market-based LNG-indexed price.

Under the regulated gas price regime which only applies to customers with pre-existing contracts, the Government regulates the price of the gas supplied by PETRONAS and Gas Malaysia Berhad.  

LNG-indexed pricing is applicable for all new volumes, including additional volumes from customers with pre-existing contracts. For the purposes of the policy, the reference market price is taken to be Malaysia’s LNG unit export price (i.e., ex-Bintulu LNG Free On Board Weighted Average Price or LNG FOB WAP) as declared by the Department of Statistics Malaysia (DOSM) that is discounted to ensure appropriate price level which supports economic activity and is priced on a “as delivered” basis, which incorporates all associated delivery costs. This reference market price is fixed every three months.

To provide a legal basis for the market reforms, the Gas Supply (Amendment) Bill 2016 was passed by the Dewan Rakyat on 14 June 2016 and by the Dewan Negara on 14 Jun 2016. Subsequently, the Act was gazetted on 9 September 2016 and came into force on 16 January 2017. The main objectives of the amendments are:

  • To allow third parties to access gas infrastructure for the supply of gas to consumers,
  • To promote healthy competition in the gas supply industry, and
  • To enable gas consumers to benefit from competitive prices, better services and enhance sustainability and security of supply

The Act provides for the expansion of the Energy Commission’s (ST’s) regulatory scope from gas distribution and reticulation previously to also include LNG storage and regasification as well as transportation of natural gas through onshore gas transmission pipelines. Activities related to gas shipper, importer, transporter, regasification facilities, distributor and retailer will also fall under the purview of ST.

The amended Act promotes market liberalisation by enhancing competition in the gas market by enabling the participation of third parties in the gas supply industry, via the third party access (TPA) – which is one of the key gas market reforms.

In addition, the government has also prescribed the Incentive Based Regulation (IBR) framework which sets the base tariff for a regulatory period of three years from January 2017 and allows changes in the gas costs to be passed through via the Gas Cost Pass Through (GCPT) mechanism every six months. Under the IBR framework, the base tariff will be set for a regulatory period of three years since January 2017 which will allow changes in the gas costs to be passed through using the CGPT mechanism every six months.

It is envisioned that with the reforms in place, the highly regulated and subsidized gas market would evolve towards a multiple supplier and multiple buyer model, ultimately leading to more sustainable gas supply at competitive prices for end-users.

ST is the regulator of the gas market in Peninsular Malaysia and Sabah. Its dedicated webpage on gas pricing can be viewed by clicking here.


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