Malaysia to open up LNG import market in January

Malaysian LNG importer Petrolife Aero is poised to begin importing LNG cargoes into Malaysia from 1 January 2021 under a two-year term capacity contract at state-owned Petronas' 3.8mn t/yr Sungai Udang regasification terminal in Malacca.

The impending start of Petrolife's LNG imports will mark the opening of Malaysia's gas market four years after the government approved third-party access to the country's LNG import and gas transmission networks under the Gas Supply Act that was amended in 2016.

Petrolife's imports will mean that Petronas is no longer the sole importer of LNG cargoes into Malaysia, although domestic utility Tenaga Nasional's (TNB) subsidiary TNB Fuel Services was the first licensed importer to import the country's first LNG cargo in October 2019 as part of a trial to test the TPA framework.

Petronas awarded to Petrolife earlier this month six LNG import slots a year, during 1 January 2021-1 January 2023 at its Malacca terminal. The slots are based on a maximum subscribed capacity of 58 billion Btu/d (21.2 trillion Btu/yr) over the period, or slightly over half of the total capacity Petronas offered. An average size LNG cargo is around 3.3 trillion-3.5 trillion Btu.

Petronas had offered total regasification capacity of up to 105.2mn Btu/d to firms with licences to import LNG into and ship natural gas within Malaysia as part of a commitment to support third-party use of its LNG and gas infrastructure.

Petrolife will supply LNG that is regasified and sent through Petronas' high-pressure pipeline network system and in turn through pipeline operator Gas Malaysia's industrial pipeline network to its customers in the industrial sector that include a rubber manufacturer, a glove maker, a petrochemical firm and a glass manufacturer. Petronas also owns and operates the 2,623km Peninsular Gas Utilisation gas pipeline network that sends gas to power plants and industrial users across Peninsular Malaysia.

The new LNG importer is in the process of signing up additional customers for the two-year supply of LNG and expects to finalise supply agreements by the end of October. It is hoping to entice gas customers that are looking to optimise their gas portfolios with cheaper gas supply by offering a discount of up to 10pc off the regulated gas price. But the number of additional customers it can take on is constrained by the allocated maximum daily send out capacity from the Sungai Udang terminal.

Within its sights are existing gas customers in the industrial and power sector whose existing gas contracts expire in December and are looking to sign a new gas contract with a new gas shipper, as well as those seeking new gas volumes because of incremental demand and those buyers willing to exercise the take-or-pay clause in their existing gas contracts to turn down 15pc of the annual contracted volume and replace that with supply from Petrolife.

Spot prices for deliveries to Asia fell to their lowest levels this year, making it competitive against coal and other liquid fuels and resulting in a huge discount to oil-linked term contract LNG prices.

The front half-month Argus ANEA-derived price for spot LNG deliveries to southeast Asia fell to its lowest on 30 April at $1.675/mn Btu but rebounded to $4.905/mn Btu on 29 September.

Petrolife has signed master sales and purchase agreements with several international trading firms and LNG producers with which it can execute contracts to buy on a spot or short-term basis. The firm's trading arm Petrolife LNG may issue a tender shortly to secure short-term volumes, possible for the duration of a year, with it expecting to finalise any supply contract by November.

There are plans to expand its reach further in the downstream gas market to more customers that are not connected to the gas grid. Some of these firms are existing users of distillates that are attracted by the prospect of using a cleaner fuel at a relatively lower price.

Petrolife has delivered several 20-foot iso-tank containers of LNG by tanker truck from the Singapore LNG terminal to a customer located off the gas pipeline grid since October last year, making it the first firm to explore this so-called virtual pipeline business in Malaysia.

By Camille Klass