Gas price review long overdue
Now there are rumuor spreads about Malaysia is going to import gas (LPG/LNG) starts next year. It is said that the gas reserve will only adequate until 2014, but now it shows oppositely.
What is going on? Do we run out of gas or what? Currently our country specific in Peninsular are using in ratio of 58% LNG, coal (37%) and hydro (5%) for electricity generation [ Bab 6 : Minyak Gas dan Tenaga, ETP reference book]. The subsidized gas is also used by independent power producer (IPP) to produce electricity for our country. From the data below it is showed that Malaysia is at rank 8 for natural gas export. Not bad at all!!
Why we have to import gas early than expected? Is it due to the growth of power demand and no new well found? Or due to gas already chartered by Japan to contra the loan that had been given (rumour source)??? I hope this is not true...
What ever it is, we will face great impacts later or sooner from the revise petrol price and electricity tariff. What should we do? Do by changing the ruler will solve this matter? Yes, I believe so, with a proper management of country wealth, people will get more benefits and slow the depletion of gas reserve.
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Thestar: Monday May 23, 2011
KUALA LUMPUR: There is a long overdue review of heavily subsidised natural gas price as demand for cheap gas in Malaysia is far outstripping supply, analysts said. If this market-distorting situation is not corrected by the Government soon, they said Malaysia would run out of gas reserves which could affect future generations.
As it is, the Government continues to subsidise gas by as much as 71% to 77%, which means lost opportunities for the country and the economy is not being cost efficient.
This is because the billions of ringgit used to heavily subsidise gas could have been used for socio- economic development projects such as public amenities, roads, schools and other services.
There is a need to gradually move gas prices to reflect international market prices as gas prices in Malaysia are among the cheapest in the region and cheaper compared with alternative fuels.
As a result, many consumers have shifted their consumption of energy from other fuels such as diesel, liquefied petroleum gas (LPG) and fuel oil to natural gas.
This has resulted in an imbalance with demand outstripping supply at a rapid pace.
There is also a misconception that Malaysia has lots of gas re-serves to be used for power when the actual situation is that there is real concern over gas reserves as they are finite.
Malaysia is now getting 36% of its natural gas supply outside Malaysia at a higher price but sold to the power and non-power sectors and industries at highly-reduced prices.
These price distortions to the economy, which are taking a toll on the country’s finances, need to be rectified soon by rationalising and reducing subsidies as the situation is increasingly untenable.
The local supply of natural gas is insufficient as demand has escalated 400% over the past 10 years from 2000 for customers using less than two million standard cubic feet per day (mmscfd) and about 160% for customers using more than two mmscfd while the country’s gas reserves are fast depleting at an annual rate of 12%.
The last gas price revision by the Government was in March 2009, at a discount of 50%. The prices ranged from RM15.35 per million British thermal units (mmBtu) to RM10.70 per mmBtu with the obligation to review every six months but that did not happen.
Since the last revision, the price of medium fuel oil (MFO), a reference index from which gas is priced on, had risen over 100%.
This has led the Government to bear the cost of heavier subsidies as the price of energy continues to increase in global markets.
On the local scene, the power sector, which has been subsidised since 1997, consumes about 55% of the gas needs and a large part of the balance by the industry which has been subsidised since 2002.
The Government has subsidised the price of gas to the power sector by as much as 77% or RM10.70 per mmBtu and to the industries at an average 73% or between RM15.35 to RM11.05.
Based on a simple calculation, for every RM10, the Government will have to subsidise between RM7.70 and RM7.30, which is already a burden, bearing in mind the fact that imported gas is bought at international market prices.
The Malaysian public and industries have been enjoying the benefits of subsidies for so long but the world scenario has changed and the days of cheap energy are gone.
Like it or not, the subsidies which have become a burden to the Government are very much due for a relook.
Industries have benefited immensely, enjoying double subsidies in the form of cheap gas and subsidised electricity while receiving other government incentives.
Having relied on cheap gas for their production, there is no incentive for companies to adopt and adapt to new technologies and find new ways to become efficient.
But a gradual removal of subsidies is expected to induce industries to seek more efficient technologies for their processes.
It is understood that some of the industry players do not mind the market rates but expect any move towards that end to be undertaken in a gradual manner.
Since 1997, the Government spent RM131bil in oil and gas subsidies and the amount is increasing since the gas usage gets bigger while higher MFO prices has caused the situation to be not sustainable in the long run.
As of now, Malaysia is getting natural gas from the Natuna field in Indonesia, the Malaysia-Thailand Joint Development Area and also from Vietnam.
Malaysia’s share of gas supply from Vietnam is almost exhausted, which means an additional burden on the government to look for new sources.
In reality, Malaysia is a small player and the country’s oil and gas reserves are small.
If gas continues to be subsidised, then Malaysia is not optimising its resources when the reserves should be kept for future generations.
Ideally, the price of gas should be at market rates, which would then attract other companies to import gas and liberalise the market.
By spurring the gas trade, players can import cheaper gas from abroad, unlike the current situation where players are not willing to come on board as they would not be making any money competing against subsidised gas.
It is understood that Petronas will have its regasification plant ready by next year whereby other companies can import LNG and regasify to sell to the industries.
Malaysia, eventually, will attract investors who can add higher value to the gas industry and generate greater income and spur the economy in the process. — Bernama
As it is, the Government continues to subsidise gas by as much as 71% to 77%, which means lost opportunities for the country and the economy is not being cost efficient.
This is because the billions of ringgit used to heavily subsidise gas could have been used for socio- economic development projects such as public amenities, roads, schools and other services.
There is a need to gradually move gas prices to reflect international market prices as gas prices in Malaysia are among the cheapest in the region and cheaper compared with alternative fuels.
As a result, many consumers have shifted their consumption of energy from other fuels such as diesel, liquefied petroleum gas (LPG) and fuel oil to natural gas.
This has resulted in an imbalance with demand outstripping supply at a rapid pace.
There is also a misconception that Malaysia has lots of gas re-serves to be used for power when the actual situation is that there is real concern over gas reserves as they are finite.
Malaysia is now getting 36% of its natural gas supply outside Malaysia at a higher price but sold to the power and non-power sectors and industries at highly-reduced prices.
These price distortions to the economy, which are taking a toll on the country’s finances, need to be rectified soon by rationalising and reducing subsidies as the situation is increasingly untenable.
The local supply of natural gas is insufficient as demand has escalated 400% over the past 10 years from 2000 for customers using less than two million standard cubic feet per day (mmscfd) and about 160% for customers using more than two mmscfd while the country’s gas reserves are fast depleting at an annual rate of 12%.
The last gas price revision by the Government was in March 2009, at a discount of 50%. The prices ranged from RM15.35 per million British thermal units (mmBtu) to RM10.70 per mmBtu with the obligation to review every six months but that did not happen.
Since the last revision, the price of medium fuel oil (MFO), a reference index from which gas is priced on, had risen over 100%.
This has led the Government to bear the cost of heavier subsidies as the price of energy continues to increase in global markets.
On the local scene, the power sector, which has been subsidised since 1997, consumes about 55% of the gas needs and a large part of the balance by the industry which has been subsidised since 2002.
The Government has subsidised the price of gas to the power sector by as much as 77% or RM10.70 per mmBtu and to the industries at an average 73% or between RM15.35 to RM11.05.
Based on a simple calculation, for every RM10, the Government will have to subsidise between RM7.70 and RM7.30, which is already a burden, bearing in mind the fact that imported gas is bought at international market prices.
The Malaysian public and industries have been enjoying the benefits of subsidies for so long but the world scenario has changed and the days of cheap energy are gone.
Like it or not, the subsidies which have become a burden to the Government are very much due for a relook.
Industries have benefited immensely, enjoying double subsidies in the form of cheap gas and subsidised electricity while receiving other government incentives.
Having relied on cheap gas for their production, there is no incentive for companies to adopt and adapt to new technologies and find new ways to become efficient.
But a gradual removal of subsidies is expected to induce industries to seek more efficient technologies for their processes.
It is understood that some of the industry players do not mind the market rates but expect any move towards that end to be undertaken in a gradual manner.
Since 1997, the Government spent RM131bil in oil and gas subsidies and the amount is increasing since the gas usage gets bigger while higher MFO prices has caused the situation to be not sustainable in the long run.
As of now, Malaysia is getting natural gas from the Natuna field in Indonesia, the Malaysia-Thailand Joint Development Area and also from Vietnam.
Malaysia’s share of gas supply from Vietnam is almost exhausted, which means an additional burden on the government to look for new sources.
It is understood that Petronas would be importing LPG by next year to cater to increasing demand, which is rather costly at about RM40 per mmBtu.
The people have to dispel the misconception that gas is always there and readily available.In reality, Malaysia is a small player and the country’s oil and gas reserves are small.
If gas continues to be subsidised, then Malaysia is not optimising its resources when the reserves should be kept for future generations.
Ideally, the price of gas should be at market rates, which would then attract other companies to import gas and liberalise the market.
By spurring the gas trade, players can import cheaper gas from abroad, unlike the current situation where players are not willing to come on board as they would not be making any money competing against subsidised gas.
It is understood that Petronas will have its regasification plant ready by next year whereby other companies can import LNG and regasify to sell to the industries.
Malaysia, eventually, will attract investors who can add higher value to the gas industry and generate greater income and spur the economy in the process. — Bernama
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