PetGas to gain from power sector transformation

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THE ambitious “green goal” under the 12th Malaysian Plan 2021-2025 (12MP) could be a boon Petronas Gas Bhd (PetGas), which has a strong presence in the country’s gas processing, pipeline and regasification facilities.

The 12MP targets to see a reduction in greenhouse gas emissions, with the government to stop building coal-fired power plants, replacing them with cleaner electricity generation that includes gas-fired power plants.

With the outlook of higher demand for gas, PetGas managing director and CEO Abdul Aziz Othman says the group is eyeing to increase its gas processing and regasification plants, which are currently being fully utilised by national oil company Petroliam Nasional Bhd (Petronas).

He says the group is also looking into other clean energy such as hydrogen and increasing its power generation capacity through co-generation power plants (cogen).

PetGas runs two cogen power plants for the Petronas group’s petrochemical complexes in Kerteh and Gebeng.

“Moving forward, we are looking to build more cogen power plants and are in talks with several industrial parks in the northern region to offer our expertise,” Abdul Aziz tells StarBizWeek.

PetGas terminal Malacca - File picPetGas terminal Malacca – File pic

“It is still at a preliminary stage and normally a cogen construction would take about two to three years,” he says.

In comparison to conventional power plants, which only produce electricity, cogen power plants are said to be more efficient as “waste” energy from the electricity generation is used to produce steam.

The move to grow its power generation business is timely, considering that the government is looking for more environmentally friendly electricity-generation options.

In a report by the Energy Commission (EC) titled “2020 Report on Peninsular Malaysia Generation Development Plans”, the regulator says more than 7,000MW of coal-fired power plants will be retired by 2033.

About 5,300MW of new capacity of gas power plants will be added between 2026 and 2030, which would be another gain for PetGas.

Nonetheless, Abdul Aziz reckons that the surge in gas demand is likely to come in only beyond 2030.

As such, he said PetGas will be maintaining its annual capital expenditure at RM1bil for the next three years.

“Gas will be complementary to the country’s electricity generation but it is more of a long-term opportunity because coal would only be replaced from 2030 onwards,” he says.

According to the US Energy Information Administration (EIA), the statistical agency of the Department of Energy, natural gas is a “relatively clean burning fossil fuel” and produces fewer emissions in comparison to burning coal or petroleum products.

The EIA also said that in the United States, a total of 121 coal-fired power plants were repurposed to burn other types of fuels between 2011 and 2019, 103 of which were converted to or replaced by natural gas-fired plants.

Hiccups in gas liberalisation

Abdul Aziz points out that the spike in global gas prices would not have any impact on the group, as PetGas is mainly in the infrastructure gas business and its contracts with Petronas are mainly long term.

“Our earnings are pretty stable regardless of the gas prices because the tariffs are regulated by the EC,” he says.

It is positive that PetGas could maintain its topline and bottom line as it is not affected by the Covid-19 pandemic and gas price movement.

However, according to Abdul Aziz, most of its facilities including gas processing and regasification are fully utilised by Petronas.

This could translate to limited growth prospects on PetGas’ earnings in the short to medium term.

The sale price of gas to the power sector in Malaysia is regulated by the government and is priced lower than the global market, which makes the gas industry unattractive to external providers.

On the other hand, over the past few years, Malaysia has been progressively liberalising its gas supply market by implementing a gradual subsidy elimination strategy for the industrial sector. This was done by gradually raising prices.

However, Abdul Aziz believes that the spike in spot natural gas price globally could slow down the country’s gas market liberalisation under the third-party access (TPA) arrangement.

Presently, he says there is only one client under the TPA arrangement that is utilising PetGas’ facilities.

“We have one shipper that has already fully utilised our regasification plant.

“We have been actively marketing our facilities to attract other gas players to participate under the TPA arrangement.

“But the take up is not there and I believe it is because of the pricing. It needs government intervention to make the industry more vibrant,” he says.

Abdul Aziz points out that the gas market was liberalised with the aspiration of creating an active, vibrant and competitive market, and that Petronas and PetGas have been advocating and supporting the government’s effort on market liberalisation.

“We are seeing that gas prices to the industrial, commercial and residential sectors are being transacted at market rates. However the same cannot be said for gas being sold to the power generation sector, which is still being done at discounted prices.

“What this could potentially do is limit the future exploration and production of gas as these activities will not become commercially attractive,” he says.

A full liberalisation of gas prices for the power sector would need to take place to encourage gas producers to invest. This, in turn, would create more opportunities for shippers to provide enough supply to fully meet the demand for gas in the market, he adds.

A liberalised market for the power sector enables power producers to source gas competitively and leads to discovery of the “true” market price for gas, he points out.

“For PetGas, this will also enable us as a gas infrastructure owner and operator to capitalise on the gas demand, expand our existing infrastructure and explore more innovative and cleaner energy solutions.

“As the demand grows, higher margins are expected across the gas value chain,” Abdul Aziz says.

For the first half ended June 30, PetGas posted a 4.4% rise in net profits to RM955.48mil from RM915.22mil a year earlier. This was due to higher contribution and stronger margins from its cogen power plants.

Revenue for the period was slightly lower at RM2.72bil from RM2.80bil previously.

On the back of the envelope calculation, PetGas generates more than 35% net profit margins.



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