Malaysian Gas Association, the prominent voice of the natural gas industry in Malaysia. MGA is a non-profit organization representing members and companies involved in the entire value chain of the Malaysian gas industry.
1. Malaysian Gas Association, also known as MGA, has been around since 1986 with its vision to promote the gas industry and its utilization as a clean an efficient energy source. What are the biggest achievements in the recent years, for the natural gas industry?
Malaysian Gas Association (MGA) represents 150 members, with one common mission to promote the advancement of sustainable gas industry in Malaysia. Our membership comprises companies serving the entire value chain of the natural gas industry; from upstream, midstream and to downstream, including major gas consumers.
MGA is excited to play its part in the transformational changes undergone by the natural gas industry in recent years.
Natural gas supply to Peninsular Malaysia is no longer an issue with the introduction of Re-Gasification Terminal (RGT1) in Sungai Udang, Melaka, back in 2013. RGT1 enables import of Liquefied Natural Gas (LNG) to supplement the gas supply from indigenous resources. The second RGT for the country, RGT2 in Pengerang, Johor, is expected to start commercial operation in 2018.
The completion of LNG import facility in RGT1 paved way for the implementation of Third Party Access (TPA) in January 2017. TPA opens the gas supply market to third parties. Now, anyone can sell gas to any consumer in Malaysia.
To enable TPA and open competition, the natural gas industry is transiting from regulated to market-based pricing. To achieve this, the regulated gas price has been increased by RM1.50 per mmBtu every six months. Once the gas price has achieved market parity, gas transactions will be based on willing buyer-willing seller concept. Gas at market price will attract more players to supply gas to consumers.
At MGA, we are encouraged that the Malaysian government has been fully committed to ensure this market liberalisation and market reforms. This will pave way towards realising MGA’s vision of a vibrant and sustainable gas industry that benefits the nation and its citizens.
2. With the Malaysian government moving to reduce carbon emission by 45% by 2030, how does this impact gas production?
International Energy Agency (IEA) has on 14 November 2017 launched their World Energy Outlook 2017. The report singled out natural gas as the best fossil fuel to complement renewable energy going towards 2040. This is because natural gas can operate in continuous base load, emitting the least CO2 and most flexible to support renewable energy. During the press conference to launch the WEO 2017, IEA regarded natural gas as “a good husband” to renewables. In fact, IEA expected natural gas to be the only fuel to increase by 2040.
Similarly, as Malaysia aspires to increase share of renewable energy in the energy mix, natural gas plays an even more important role in power generation. With majority of renewable energy expected to be generated by solar photovoltaic (PV), the electricity grid will need flexible power plants that can react quickly to the intermittent nature of power from PV. Gas turbine power plants are perfect for this role. Gas turbines can react quickly and emits much less CO2 in comparison to power plants using other fossil fuel.
In the transport sector, greater utilisation of natural gas for heavy transport, such as city buses and long haul commercial vehicles, can further reduce CO2 emissions.
In the industrial sector, combined heat and power using gas turbines in cogeneration application increases efficiency of the system. This means less fuel is needed and less CO2 emitted.
In conclusion, in order to achieve target GHG emission reduction, the nation needs natural gas even more
3. Global demand for natural gas has been increasing steadily over the years. When do you foresee a peak in demand for gas?
DNV GL this year released a report on “Energy Transition Outlook 2017” foresee that natural gas is set to be the largest single source of energy towards 2050 with peak demand occurring in 2035.
In Malaysia, MGA is constantly promoting greater utilisation of gas in all sectors, including power generation, transport, industrial and commercial. The third party access is expected to further spur the growth of demand for natural gas.
4. How has technology helped in shaping the industry? Can you share an example of advancement in technology that has spurred the growth for gas production?
We are proud that MGA members are leaders in innovation and technological advancement.
PETRONAS for example continues to be a pioneer in global gas industry, being innovative in the fast track construction of the re-gasification terminal using floating storage units (FSU) in Melaka and the world’s first floating LNG (FLNG) plant that will unlock small and stranded gas fields that were once uneconomical to explore.
5. What are the biggest challenges in the foreseeable future for the industry?
Malaysia’s gas industry entered an exciting phase this year with The Implementation of the third party access, enabling any supplier to bring natural gas into Malaysia. TPA ensures sufficient supply and energy security for the nation. For TPA to be successful, there should be higher demand for natural gas in Malaysia, creating a market large enough to attract third parties.
In 2015, the power generation sector consumed more than 50% of the total natural gas supplied in Malaysia, making that sector the most attractive market for gas suppliers. However, natural gas share in the power generation mix is set to drop from 46% in 2015 to a mere 32% in 2026. In contrast, coal share increases from 48% to 56%. Coal is preferred over gas due to lower cost of generating power, even though the CO2 and pollutant emissions are higher.
6. In today’s world, what do you think are the necessary skills and traits that are important for a young professional to have when entering the job market?
MGA recently organised a three-day programme for final year university students called PRESTIGE that includes exposing them to careers in the oil & gas industry. We arranged for oil & gas professionals from varied backgrounds to share their career experiences and provide career tips. One of the tips given that resonates with the students was to keep gaining knowledge. Learning does not stop once a student graduates.
7. With the advancement of technology and the internet, how do you think young professionals should capitalize on this to further their career and self-improvement?
Learning does not stop once a student graduates. The advice from a seasoned oil & gas professional during MGA’s PRESTIGE programme was to keep gaining knowledge. The digitalised and borderless world enables easy access to beneficial knowledge.
8. How important has collaboration and professional networking been in reaching where you are today in life?
MGA is a charter member of the International Gas Union (IGU), the global voice for gas, with members from 90 countries. IGU provides global networking platform for its members to share knowledge and best practices in the industry.
In Malaysia, MGA continuously collaborate with several other organisations. This year, we collaborated with PEMANDU Associates to organise the inaugural Forum on Women in Energy (FoWiE). Other organisations that supported FoWiE were 30% Club, PETRONAS Leading Women Network, Shell Women Action Network and General Electric Women Network. Such collaborations increase networking opportunities for MGA and its members. FoWiE provided a rare and unique platform for women in the energy sector to congregate, network and discuss common issues.
9. What is next in the development and progress plans of gas industry in Malaysia?
To achieve a sustainable gas industry, it is imperative that the gas industry reform and market liberalization remain on track and demand growth for gas increase exponentially.
One of the priorities for MGA is to enhance gas advocacy. Gas has all the attributes to support the national aspirations to ensure energy security whilst achieving reduction in carbon emission as committed in the Paris Agreement.
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In 2020, renewable energy sources (including wind, hydroelectric, solar, biomass, and geothermal energy) generated a record 834 billion kilowatthours (kWh) of electricity, or about 21% of all the electricity generated in the United States. Only natural gas (1,617 billion kWh) produced more electricity than renewables in the United States in 2020. Renewables surpassed both nuclear (790 billion kWh) and coal (774 billion kWh) for the first time on record. This outcome in 2020 was due mostly to significantly less coal use in U.S. electricity generation and steadily increased use of wind and solar.
In 2020, U.S. electricity generation from coal in all sectors declined 20% from 2019, while renewables, including small-scale solar, increased 9%. Wind, currently the most prevalent source of renewable electricity in the United States, grew 14% in 2020 from 2019. Utility-scale solar generation (from projects greater than 1 megawatt) increased 26%, and small-scale solar, such as grid-connected rooftop solar panels, increased 19%.
Coal-fired electricity generation in the United States peaked at 2,016 billion kWh in 2007 and much of that capacity has been replaced by or converted to natural gas-fired generation since then. Coal was the largest source of electricity in the United States until 2016, and 2020 was the first year that more electricity was generated by renewables and by nuclear power than by coal (according to our data series that dates back to 1949). Nuclear electric power declined 2% from 2019 to 2020 because several nuclear power plants retired and other nuclear plants experienced slightly more maintenance-related outages.
We expect coal-fired electricity generation to increase in the United States during 2021 as natural gas prices continue to rise and as coal becomes more economically competitive. Based on forecasts in our Short-Term Energy Outlook (STEO), we expect coal-fired electricity generation in all sectors in 2021 to increase 18% from 2020 levels before falling 2% in 2022. We expect U.S. renewable generation across all sectors to increase 7% in 2021 and 10% in 2022. As a result, we forecast coal will be the second-most prevalent electricity source in 2021, and renewables will be the second-most prevalent source in 2022. We expect nuclear electric power to decline 2% in 2021 and 3% in 2022 as operators retire several generators.
Source: U.S. Energy Information Administration, Monthly Energy Review and Short-Term Energy Outlook (STEO)
Note: This graph shows electricity net generation in all sectors (electric power, industrial, commercial, and residential) and includes both utility-scale and small-scale (customer-sited, less than 1 megawatt) solar.
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The tizzy that OPEC+ threw the world into in early July has been settled, with a confirmed pathway forward to restore production for the rest of 2021 and an extension of the deal further into 2022. The lone holdout from the early July meetings – the UAE – appears to have been satisfied with the concessions offered, paving the way for the crude oil producer group to begin increasing its crude oil production in monthly increments from August onwards. However, this deal comes at another difficult time; where the market had been fretting about a shortage of oil a month ago due to resurgent demand, a new blast of Covid-19 infections driven by the delta variant threatens to upend the equation once again. And so Brent crude futures settled below US$70/b for the first time since late May even as the argument at OPEC+ appeared to be settled.
How the argument settled? Well, on the surface, Riyadh and Moscow capitulated to Abu Dhabi’s demands that its baseline quota be adjusted in order to extend the deal. But since that demand would result in all other members asking for a similar adjustment, Saudi Arabia and Russia worked in a rise for all, and in the process, awarded themselves the largest increases.
The net result of this won’t be that apparent in the short- and mid-term. The original proposal at the early July meetings, backed by OPEC+’s technical committee was to raise crude production collectively by 400,000 b/d per month from August through December. The resulting 2 mmb/d increase in crude oil, it was predicted, would still lag behind expected gains in consumption, but would be sufficient to keep prices steady around the US$70/b range, especially when factoring in production increases from non-OPEC+ countries. The longer term view was that the supply deal needed to be extended from its initial expiration in April 2022, since global recovery was still ‘fragile’ and the bloc needed to exercise some control over supply to prevent ‘wild market fluctuations’. All members agreed to this, but the UAE had a caveat – that the extension must be accompanied by a review of its ‘unfair’ baseline quota.
The fix to this issue that was engineered by OPEC+’s twin giants Saudi Arabia and Russia was to raise quotas for all members from May 2022 through to the new expiration date for the supply deal in September 2022. So the UAE will see its baseline quota, the number by which its output compliance is calculated, rise by 330,000 b/d to 3.5 mmb/d. That’s a 10% increase, which will assuage Abu Dhabi’s itchiness to put the expensive crude output infrastructure it has invested billions in since 2016 to good use. But while the UAE’s hike was greater than some others, Saudi Arabia and Russia took the opportunity to award themselves (at least in terms of absolute numbers) by raising their own quotas by 500,000 b/d to 11.5 mmb/d each.
On the surface, that seems academic. Saudi Arabia has only pumped that much oil on a handful of occasions, while Russia’s true capacity is pegged at some 10.4 mmb/d. But the additional generous headroom offered by these larger numbers means that Riyadh and Moscow will have more leeway to react to market fluctuations in 2022, which at this point remains murky. Because while there is consensus that more crude oil will be needed in 2022, there is no consensus on what that number should be. The US EIA is predicting that OPEC+ should be pumping an additional 4 million barrels collectively from June 2021 levels in order to meet demand in the first half of 2022. However, OPEC itself is looking at a figure of some 3 mmb/d, forecasting a period of relative weakness that could possibly require a brief tightening of quotas if the new delta-driven Covid surge erupts into another series of crippling lockdowns. The IEA forecast is aligned with OPEC’s, with an even more cautious bent.
But at some point with the supply pathway from August to December set in stone, although OPEC+ has been careful to say that it may continue to make adjustments to this as the market develops, the issues of headline quota numbers fades away, while compliance rises to prominence. Because the success of the OPEC+ deal was not just based on its huge scale, but also the willingness of its 23 members to comply to their quotas. And that compliance, which has been the source of major frustrations in the past, has been surprisingly high throughout the pandemic. Even in May 2021, the average OPEC+ compliance was 85%. Only a handful of countries – Malaysia, Bahrain, Mexico and Equatorial Guinea – were estimated to have exceeded their quotas, and even then not by much. But compliance is easier to achieve in an environment where demand is weak. You can’t pump what you can’t sell after all. But as crude balances rapidly shift from glut to gluttony, the imperative to maintain compliance dissipates.
For now, OPEC+ has managed to placate the market with its ability to corral its members together to set some certainty for the immediate future of crude. Brent crude prices have now been restored above US$70/b, with WTI also climbing. The spat between Saudi Arabia and the UAE may have surprised and shocked market observers, but there is still unity in the club. However, that unity is set to be tested. By the end of 2021, the focus of the OPEC+ supply deal will have shifted from theoretical quotas to actual compliance. Abu Dhabi has managed to lift the tide for all OPEC+ members, offering them more room to manoeuvre in a recovering market, but discipline will not be uniform. And that’s when the fireworks will really begin.
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