e-PaperDesktop Reader

Home About Us Join Us Contact Us Advertise with us Subscription Sitemap Term of use PDPA

© All rights reserved. 2020. The Edge Communications Sdn. Bhd.

Edition: Malaysia Singapore

TRENDING NOW Najib's 1MDB-Tanore trial Economic Recovery Plan The Edge Covid-19 funds 15 March 2021. Monday

Home Corporate Sections ! The Edge TV ! Others ! 新闻 Frankly Speaking

EdgeProp.my

CORPORATE FROM THE EDGE

Edge Weekly

9 February 2015

Are businessesprofiteering fromlow oil prices?

10 February 2015

Are businessesprofiteering fromlow oil prices?

12 September 2013

Low rubber pricesgood news forglovemakers

12 September 2013

Low rubber pricesgood news forglovemakers

Select Language ▼

Local manufacturers enjoy low gas prices, butnot for long

This article first appeared in The Edge Malaysia Weekly, on January 25, 2021 - January 31, 2021.

THE current high gas price in the spot market means that Malaysian manufacturers that pay a

regulated price set by the Energy Commission (EC) are now enjoying a much lower gas price than

their international counterparts.

However, the current high gas price level is not expected to be sustained for long, as the extremely

cold weather in the northern hemisphere has started to subside, which means less gas will be

needed for heating. Lower demand for heating will translate into higher stockpile among northern

countries.

According to S&P Global Platts, the futures price for LNG Japan/Korea Marker (JKM) for March

2021 delivery has been increasing since Nov 19, 2020, when it was trading at US$5.815 per million

British thermal unit, to US$19.695 per mmBtu on Jan 11.

The marker has since fallen, however, to US$18.31 per mmBtu since Jan 15. In contrast, Malaysian

industries are paying a fixed price of RM22.14 per mmBtu for the first quarter of the year, or just

US$5.535 per mmBtu.

The futures price is declining, according to S&P Global Platts’ JKM. The contract for delivery in

April 2021 was trading at US$6.85 per mmBtu on Jan 21.

EC will set a base price for the quarter, with Gas Malaysia Bhd proposing the transport tariff, the

legacy gas cost pass-through (GCPT) and the distribution tariff before being approved by EC.

For example, the approved price for the first quarter includes transport tariff of RM1.19 per mmBtu,

the legacy GCPT of 62 sen per mmBtu and distribution tariff of RM1.88 per mmBtu, according to

Gas Malaysia’s announcement on Jan 12.

The regulated gas price has in the past been a point of contention for EC and gas supply players

with manufacturers, when gas prices plunged to a low of US$3 per mmBtu around April last year.

At that time, some industries had made calls for the fixed price to be reduced in line with the spot

price.

The Malaysian Gas Association (MGA), an industry lobby group for the liquefied natural gas (LNG)

industry, says, however, that any call to revisit the regulated tariff should consider the whole gas

supply and pricing ecosystem and not be limited to opportunistic reaction towards LNG spot

pricing.

MGA further states that the government’s decision in December 2019 to regulate gas prices, for two

more years, with a predetermined base tariff for consumers supplied by Gas Malaysia affords the

industrial players long-term surety of supply and pricing.

“This move addressed concerns raised earlier by the industry that, in the past, late notice on

changes to the regulated prices was ‘too abrupt and destructive’,” the association had said then.

“Coincidentally, relying on supply from the spot LNG market will expose consumers to price

volatility, which is contrary to the needs of the industry.

“To honour the commitment to long-term contracts with their customers, the suppliers themselves

will need to secure similar long-term contracts from their own suppliers.

“Any tariff set should consider the cost to the suppliers in procuring the supply and the risk

undertaken by them to secure long-term supply to ensure uninterrupted supply to consumers.”

The current gas price framework appears to be adjusted on quarterly, compared with the 12-month

basis last year. Prior to that, gas price was fixed at a six-month interval.

At the time, the Federation of Malaysian Manufacturers (FMM) had been eager to take on the

supply risk to take advantage of the low prices then, stating in a response to The Edge’s queries

that manufacturers were ready for market liberalisation.

Full market liberalisation with third-party access to the Peninsular Gas Pipeline and the

regasification terminals in Sungai Udang, Melaka, and Pengerang, Johor, was supposed to be

implemented this year. The government deferred this move, however, to 2022 to allow more time

for the transition.

“During this two-year transition period, industrial customers are allowed to acquire the volume of

gas above their contract terms with Gas Malaysia from any supplier on a willing-buyer, willing-

seller basis,” FMM had said then.

This shows that local manufacturers have already started buying gas from the international

markets through third-party suppliers.

Questions to FMM on whether Malaysian manufacturers and industries were ready for the

liberalised market were not answered at press time.

What led to the spike in gas prices?

According to S&P Global Platts, Asian spot LNG prices have risen to unprecedented levels, owing to

a shortage of cargo in February, coupled with transport bottlenecks, supply outages and record

winter temperatures that boosted end-user demand.

Low spot availability, Panama Canal restrictions and icy conditions in North Asian ports have

contributed to LNG shipping rates’ hitting a multi-year high, with prices reaching US$300,000 per

day in January, says S&P Global Platts.

In terms of demand, the multiple cold waves in the northern provinces of China since December

had caused energy shortages, as the condition forced utilities to deploy all energy sources

available. In the first week of January, average temperatures in Beijing fell to the lowest level since

1966.

Meanwhile, Japanese utilities that are facing gas shortages have cut back on surplus electricity

sales on their power exchange and resorted to burning more coal and fuel oil, in addition to

procuring more spot LNG at high prices, according to S&P Global Platts.

The month-long state of emergency in Tokyo and three adjacent prefectures has also boosted

residential energy demand. As Japan is expected to expand the state of emergency to more

prefectures, the situation is expected to worsen.

Japan’s power demand rose 13% year on year for the first week of 2021, averaging 108GW, with the

3.5% increase in December also supported by cold weather, according to S&P Global Platts

Analytics. Some regions saw a 20% increase and the cold has been amplified by the need to keep

windows open for circulation amid the Covid-19 pandemic.

In South Korea, electricity demand jumped to a wintertime high, with the state-run Korea Power

Exchange on high alert. Temperatures in Seoul dropped to -18.6°C in early January, the lowest in 35

years, according to the Korea Meteorological Administration.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

Kamarul Azhar / The Edge MalaysiaFebruary 03, 2021 14:00 pm +08

SPECIAL REPORT

Unveiled on Feb 19, the MalaysiaDigital Economy Blueprint is thecatalyst that will fast-track Malaysia’sdigital transformation. Industryplayers are currently awaiting itsexecution and the opportunities it willpresent.READ MORE

Review the PDPA

sooner

Ahmad Taufek

Omar, Executive

Vice-President…

and CEO of TM

ONEMORE

Features

From Our Partners

We deliver news to your inbox daily Email Address SUBSCRIBE

RELATED NEWS

FEATURED VIDEOS

1 These listed companieswin the bid for LSS4project

2 AstraZeneca's EU vaccinewoes deepens on clots,nationalism

3 AirAsia Group rises tohighest in a year

4Renewable energyplayers rise after winningbids for LSS4

5 Supermax, Wegmans,Straits Inter Logistics,Supercomnet, FGV,Cheetah, XOX, Lambo,Seacera, Vsolar

Branded Content

"" MOST READ MOST WATCHED

K l a n gK l a n g

Sale

K l a n gK l a n g

Sale

S u n g a iS u n g a iB u l o hB u l o h

Sale

RM RM 1 ,290,0001 ,290,000KlangKlang

Sale

K l a n gK l a n g

Sale

U l uU l uK e l a n gK e l a n g

Sale

P o r tP o r tK l a n gK l a n g

Sale

K l a n gK l a n g

Sale

M u t i a r aM u t i a r aD a m a n s a r aD a m a n s a r a

Rent

K l a n gK l a n g

SaleB a n d a rB a n d a r

B o t a n i c / B a n d a rB o t a n i c / B a n d a rB u k i t T i n g g iB u k i t T i n g g i

Sale

D e s aD e s aP a r k C i t yP a r k C i t y

Sale

K l a n gK l a n g

Sale

K L C CK L C C

Sale

D e s aD e s aP a r k C i t yP a r k C i t y

Rent

K l a n gK l a n g

Sale

K l a n gK l a n g

Sale

K l a n gK l a n g

Sale

K l a n gK l a n g

Sale

Selangor

Bedrooms Budget

Buy Rent Search

NEWSSime Darby Propertypartners with Microsoft incloud platform

NEWS301,699 people receivedfirst dose of Pfizer-BioNTech vacci… March 14

NEWS

IN COLLABORATION WITH

MORNING CALL: 15/03/21

15 Mar | 07:30am Morning Call, F…##

$

EVENING 5: Prasarana chief hasyet to received termination letter

12 Mar | 09:10pm Evening 5, Feat…##

$

EVENING 5: Sime Darby Planttakes legal action against NGO

11 Mar | 08:45pm Featured, Eveni…##

$

NEWS: MFM banks on Tysonpartnership

11 Mar | 03:54pm News, Featured##

$

MORNING CALL: 11/03/21

11 Mar | 06:30am Featured, Morn…##

$

Powering GE forward globally fromKuala Lumpur

TRX: A smarter city A fulfilling lifestyle at Ara Sendayan Smart Cities in ASEAN: PoweringGood amid Tough Times

Three easy steps to drive home thenew Lexus UX

!open

News Search %