impact of lng as energy fuel mix for end user:a malaysian perspective

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IMPACT OF LNG AS ENERGY FUEL MIX

FOR END USER: A MALAYSIAN PERSPECTIVE

Charanjit Singh Gill

Senior General Manager

Planning Division

TENAGA NASIONAL BERHAD


INTRODUCTION OF GAS TO MALAYSIAN POWER SECTOR - BACKGROUND

CURRENT ISSUES IN RELATION TO GAS SUPPLY TO POWER SECTOR

FUTURE ENERGY MIX

ECONOMIC IMPACT OF LNG TO END USER CUSTOMERS

CONCLUSIONS

CONTENT

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3

1970 2000 1990 1980

National Energy Policy, 1979

Four-Fuel Policy, 1981

Five-Fuel Policy, late 90’s

Oil Price Crunch

70’s Oil

Crisis

National Depletion Policy,

1980

Five-Fuel Policy (late 90’s)

• Renewable Energy and Energy Efficiency as the

fifth fuel and to further diversify energy base

and to create a sustainable energy future

National Green Technology Policy

• To attain energy independence and promote

efficient utilisation whilst conserving and

minimising the impact to the environment

The National Energy Policy (1979) was formulated to create an efficient,

secure and environmentally sustainable supply of energy. Comprises

three principle objectives.

National Depletion Policy (1980) was intended to conserve the

country’s energy resources, particularly oil and natural gas

Four-Fuel Policy (1981)

• Reduced dependence on oil as fuel for electricity generation

• Gas becoming primary fuel

1

2

4

5

National Green Technology Policy

2009

3

NATURAL GAS WAS OFFICIALLY BROUGHT TO THE MALAYSIAN POWER SECTOR WITH THE INTRODUCTION OF FOUR FUEL POLICY, 1981

THE POLICY DRIVES THE FUEL MIX EVOLUTION FROM OIL DOMINANT TO GAS DOMINANT OVER A FEW DECADES

Malaysia has been highly dependent on fossil fuels: Oil (1970s) Natural Gas (1990s to 2000s) Coal ??

4

Oil

Distillate

Natural Gas

Coal

Hydro

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

Oil Distillate Natural Gas Coal Hydro


INTRODUCTION OF GAS TO POWER SECTOR - BACKGROUND


FUTURE ENERGY MIX


CONCLUSIONS

CONTENT

5

• Several breakdowns of gas infrastructure led to severe gas shortages to the power sector • This is made worse by the fast depleting domestic gas fields • The supply shortages of up to 26% adversely impact the power sector operationally and financially

OVERDEPENDENCE ON GAS IS DEEMED RISKY AS THE POWER SECTOR WAS BADLY HIT BY GAS SHORTAGES IN RECENT YEARS

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Annual Average: 1250 mmscfd





- 10%

- 26% - 12%

• MFO and distillate contributed to about 5% of fuel mix in 2011 and 2012

• This translates into approximately RM 5.5 billion of additional system cost due to expensive price of MFO and distillate ( 5 to 6 times higher compared to local gas price)

…WHICH LED TO A SMALL BUT SIGNIFICANT “CAMEO” OF EXPENSIVE DISTILLATE AND FUEL OIL IN PENINSULA MALAYSIA’S FUEL MIX

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• In the long run, the depletion of domestic fields can be made up by the importation of LNG

• However, the competitiveness of other fuels may affect the LNG’s attractiveness

THE FUTURE FUEL MIX MAY FURTHER CHANGE WITH THE DEPLETION OF INDIGENEOUS GAS AND MOVEMENT OF FUEL PRICES

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Source: EIA_US Energy Prices Source: PETRONAS presentation




FUTURE ENERGY MIX


CONCLUSIONS

CONTENT

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• Based on current market price, coal is too competitive for LNG

• Economic signals will guide the future fuel mix to swing from gas dominant to coal dominant

• LNG/ local gas is expected to play a different role in the future fuel mix

ON PURE ECONOMIC BASIS, THE FUEL MIX MIGHT HAVE A NEW BACKDROP IN FAVOR OF COAL

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• Coal is 100% import with more than 60% comes from Indonesia (current)

• Overdependence on coal may pose fuel supply risks as it is sensitive to weather condition, policy changes in supplier countries, competition from other economies, etc.

• In addition, it may also expose the country to environmental risks due to carbon emission

HOWEVER, OVERDEPENDENCE ON ONE FUEL SOURCE IS NO LONGER SUSTAINABLE FOR THE COUNTRY

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3. South Africa

2010 2.0 mil tonnes

2011 1.47 mil tonnes

2012 3.0 mil tonnes

1. Indonesia




2. Australia

2010 2.5 mil tonnes

2011 3.8 mil tonnes

2012 3.5 mil tonnes

Proposal for the utilization of 7 Security Metrics to address fuel mix and energy security issues as follows:

POLICY INTERVENTION MAY PROVIDE TWIST AND TURN IN THE LIGHT OF SECURITY AND SUSTAINABILITY

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ES3 with HHI (Herfindahl-Hirschman Index) for fuel mix is aimed to diversify the future fuel mix with the target HHI value of not more than 0.5 by year 2020 and not more than 0.4 by 2025.

HHI value reflects the diversity level of a system (the lower the value the better more diversified)

• Gas/LNG may help to diversify the fuel mix which indirectly helps to maintain and improve the security level of energy industry

• LNG may also provide a cheaper alternative to distillate and MFO in the event of domestic gas supply shortages

TAKING HHI GUIDELINE INTO CONSIDERATION, GAS/LNG MAY HAVE AN IMPORTANT ROLE TO PLAY IN THE FUTURE FUEL MIX

13



CURRENT ISSUES IN RELATION GAS SUPPLY TO POWER SECTOR

FUTURE ENERGY MIX


CONCLUSIONS

CONTENT

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• RM 1/mmbtu of gas price increase will result into more than RM 400 million additional gas cost a year

…AT THE SAME TIME, MALAYSIAN ECONOMY MUST BE READY TO PAY THE PRICE OF ENERGY SECURITY

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6,000.00

6,200.00

6,400.00

6,600.00

6,800.00

7,000.00

RM13.70 RM14.70

RM Millions

Gas Price

RM400 million additional gas cost

20.00

25.00

30.00

35.00

40.00

45.00

50.00

RM 13.70 RM 20.00 RM 40.00

Average Tariff (sen/kWh)

Gas Price

• RM 1/mmbtu of gas price increase will also translate into 0.534 sen/kWh increase in electricity tariff



CURRENT ISSUES IN RELATION GAS SUPPLY TO POWER SECTOR

FUTURE ENERGY MIX


CONCLUSIONS

CONTENT

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LNG will play an important role to complement the depleting indigenous gas fields and aging gas infrastructure

LNG can also be a cheaper alternative to distillate and MFO

The demand for LNG in power sector is very much dependent on fuel prices and government directive

LNG may help to diversify the future fuel mix which is important to maintain and improve the energy security level

The economy must be ready to pay the price of improved energy security that LNG may bring

CONCLUSIONS

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THANK YOU

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impact of lng as energy fuel mix for end user:a malaysian perspective

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