This document discusses the impact of liquefied natural gas (LNG) as an energy fuel for end users in Malaysia. It provides background on Malaysia transitioning from oil-dominated to gas-dominated fuel mix for electricity generation. It notes current issues with gas supply shortages negatively impacting the power sector. The future fuel mix may depend on fuel prices and diversification needs, though LNG can complement declining domestic gas and provide stability. While LNG improves energy security, it may increase costs for consumers. The economy needs readiness to pay for improved security that LNG brings.

1. IMPACT OF LNG
AS ENERGY FUEL MIX
FOR END USER:
A MALAYSIAN PERSPECTIVE
Charanjit Singh Gill
Senior General Manager
Planning Division
TENAGA NASIONAL BERHAD
‘WE’VE GOT THE POWER - to serve, to deliver, to excel’
‘WE’VE GOT THE POWER - to serve, to deliver, to excel’

2. CONTENT
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
‘WE’VE GOT THE POWER - to serve, to deliver, to excel’
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3. NATURAL GAS WAS OFFICIALLY BROUGHT TO THE MALAYSIAN
POWER SECTOR WITH THE INTRODUCTION OF FOUR FUEL
POLICY, 1981
National
National Energy Four-Fuel Policy, Five-Fuel Policy, late National Green
Depletion Policy,
Policy, 1979 1981 90’s Technology Policy
1980
70’s
Oil Oil Price
Crisis Crunch
1970 1980 1990 2000 2009
The National Energy Policy (1979) was formulated to create an efficient, 4 Five-Fuel Policy (late 90’s)
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secure and environmentally sustainable supply of energy. Comprises • Renewable Energy and Energy Efficiency as the
three principle objectives. fifth fuel and to further diversify energy base
and to create a sustainable energy future
2 National Depletion Policy (1980) was intended to conserve the
country’s energy resources, particularly oil and natural gas National Green Technology Policy
5
• To attain energy independence and promote
Four-Fuel Policy (1981) efficient utilisation whilst conserving and
3 • Reduced dependence on oil as fuel for electricity generation minimising the impact to the environment
• Gas becoming primary fuel
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4. 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 ??
Oil Distillate Natural Gas Coal Hydro
100%
90% Hydro
80% Coal
70%
60%
50% Natural Gas
40%
30% Distillate
20%
Oil
10%
0%
1980
1976
1978
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
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5. CONTENT
INTRODUCTION OF GAS TO 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
‘WE’VE GOT THE POWER - to serve, to deliver, to excel’
5

6. OVERDEPENDENCE ON GAS IS DEEMED RISKY AS THE POWER SECTOR WAS
BADLY HIT BY GAS SHORTAGES IN RECENT YEARS
• 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
Annual Average: 1250 mmscfd
- 10% Annual Average: 1150 mmscfd
Annual Average: 1122 mmscfd
- 26%
- 12%
Annual Average: 1012 mmscfd
Annual Average: 924 mmscfd
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7. …WHICH LED TO A SMALL BUT SIGNIFICANT “CAMEO” OF EXPENSIVE
DISTILLATE AND FUEL OIL IN PENINSULA MALAYSIA’S FUEL MIX
• 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)
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8. THE FUTURE FUEL MIX MAY FURTHER CHANGE WITH THE DEPLETION OF
INDIGENEOUS GAS AND MOVEMENT OF FUEL PRICES
• 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
Source: PETRONAS presentation Source: EIA_US Energy Prices
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9. CONTENT
INTRODUCTION OF GAS TO 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
‘WE’VE GOT THE POWER - to serve, to deliver, to excel’
9

10. ON PURE ECONOMIC BASIS, THE FUEL MIX MIGHT HAVE
A NEW BACKDROP IN FAVOR OF COAL
• 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
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11. HOWEVER, OVERDEPENDENCE ON ONE FUEL SOURCE IS NO
LONGER SUSTAINABLE FOR THE COUNTRY
• 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
1. Indonesia
2010 12.4 mil tonnes
2011 13.9 mil tonnes
2012 12.8 mil tonnes
2. Australia
2010 2.5 mil tonnes
2011 3.8 mil tonnes
2012 3.5 mil tonnes
3. South Africa
2010 2.0 mil tonnes
2011 1.47 mil tonnes
2012 3.0 mil tonnes
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12. POLICY INTERVENTION MAY PROVIDE TWIST AND TURN IN
THE LIGHT OF SECURITY AND SUSTAINABILITY
 Proposal for the utilization of 7 Security Metrics to address fuel mix and energy
security issues as follows:
 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)
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13. TAKING HHI GUIDELINE INTO CONSIDERATION, GAS/LNG MAY
HAVE AN IMPORTANT ROLE TO PLAY IN THE FUTURE FUEL MIX
• 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
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14. CONTENT
INTRODUCTION OF GAS TO POWER SECTOR - BACKGROUND
CURRENT ISSUES IN RELATION GAS SUPPLY TO POWER SECTOR
FUTURE ENERGY MIX
ECONOMIC IMPACT OF LNG TO END USER CUSTOMERS
CONCLUSIONS
‘WE’VE GOT THE POWER - to serve, to deliver, to excel’
14

15. …AT THE SAME TIME, MALAYSIAN ECONOMY MUST BE READY
TO PAY THE PRICE OF ENERGY SECURITY
• RM 1/mmbtu of gas price increase will result • RM 1/mmbtu of gas price increase will also
into more than RM 400 million additional gas translate into 0.534 sen/kWh increase in
cost a year electricity tariff
Average Tariff
RM Millions (sen/kWh)
7,000.00 50.00
45.00
6,800.00
40.00
6,600.00 RM400 million
additional gas cost
35.00
6,400.00
30.00
6,200.00
25.00
6,000.00 20.00
RM13.70 RM14.70 RM 13.70 RM 20.00 RM 40.00
Gas Price
Gas Price
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16. CONTENT
INTRODUCTION OF GAS TO POWER SECTOR - BACKGROUND
CURRENT ISSUES IN RELATION GAS SUPPLY TO POWER SECTOR
FUTURE ENERGY MIX
ECONOMIC IMPACT OF LNG TO END USER CUSTOMERS
CONCLUSIONS
‘WE’VE GOT THE POWER - to serve, to deliver, to excel’
16

17. CONCLUSIONS
 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
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18. THANK YOU
www.tnb.com.my
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