Interview: Petronas urges vigilance to avoid energy security risks [Global Gas Perspectives]

NGW: Expectations are that the LNG market should loosen up significantly in the late 2020s with the arrival of extra supply, primarily from the US and Qatar. To what extent should investors and policymakers remain vigilant to the risk of another energy crisis further down the line and seek to mitigate that risk?

Abang Yusuf Abang Puteh, Senior Vice President of Petronas LNG Assets: While there is an anticipated influx of supply in the late 2020s, we believe the demand for gas as a transition fuel will continue to grow. Therefore, it remains crucial to maintain a proactive approach to ensure a sustainable and reliable supply of LNG.

Whilst LNG is growing, it is essential for everyone to play their role in ensuring that LNG is affordable to the masses with the aim to replace high emission energy sources i.e. coal. Policy makers play a key role in enabling this.

While supply is expected to increase in the near term, market dynamics can change rapidly due to various factors such as geopolitical tensions, regulatory changes, and unexpected shifts in demand.

In fact, some nations are already grappling with this reality, where geopolitical instability and economic uncertainties have led them to resort to cheaper energy sources like coal and oil to ensure energy security amidst rising costs and the need for continuous supply.

Given these challenges, it's imperative for investors and policymakers to remain vigilant to ensure continued energy security and supply. Mitigating these risks requires a proactive approach, including:

• Aligning policies with sustainable aspirations to ensure that it supports the transition towards cleaner energy sources and align with sustainability goals to mitigate environmental impacts while maintaining energy security. Policy makers, including government bodies, play a crucial role in implementing the right regulatory frameworks to ensure a just energy transition where all nations can transition away from high-carbon intensity fuels without compromising energy security. The emergence of ESG financing embraced by major banks in the region marks a significant milestone in the journey towards cleaner energy, signifying a collective recognition and endorsement of the importance of supporting sustainable energy projects, including LNG.

• Investment in infrastructure to enhance and expand infrastructure, such as LNG terminals and pipelines, to bolster the resilience and flexibility of the supply chain. This involves equipping new LNG liquefaction facilities with advanced technology and expanding pipeline networks to optimise the transportation and storage of LNG, thereby improving efficiency and reducing costs.

• Exploring flexible and adaptable commercial terms to mitigate price volatility and maintaining stability by exploring flexible terms allows for adjustments in delivery schedules, quantities, and pricing, enabling buyers to better manage their energy portfolios and respond to market fluctuations. For example, Petronas provides flexible hybrid contracts that combine features of traditional long-term agreements and short-term spot market arrangements which offer buyers with a mix of fixed and variable pricing.

By implementing these mitigation strategies, we can build a more resilient and inclusive energy ecosystem that is better equipped to sustainably meet the volatile nature of the energy industry.

Has Petronas seen a shift in buyers’ interests in supply terms over the past two years? Has the company seen buyers become more interested in longer-term contracts versus short term/spot?

The preferences for contracts within the industry often shift in response to changes in market dynamics.

While Petronas continues to be a long-term partner for many customers in key markets like Japan, China, and Korea, the current precarious state of the global gas market has led to a shift in contractual trends – from long-term contracts to medium and short-term or spot contracts. This is because it allows buyers greater flexibility to respond to market dynamics and adjust their portfolios based on evolving energy needs and price conditions.

Although there has been a noticeable shift in supply term over the years, we believe in a balanced market approach, utilising long-term contracts for their stability supplemented by short-term agreements to accommodate demand fluctuations.

As an LNG producer, Petronas is fully supportive of all efforts to enhance market stability. We trust that industry stakeholders will come to realise the significance of security and stability in LNG supply after operating in a volatile environment for some time.

We believe that regardless of market conditions, close collaboration between sellers and buyers is essential to ensure business sustainability and reliability, benefiting all parties involved. With our diverse global portfolio and tailored offerings, Petronas is well-positioned to meet the varied needs of the market across short, medium, and long-term demand.

What is the current status of Petronas’ third floating LNG facility off Malaysia, and what is the timeframe for development moving forward?

In April of this year, we initiated the construction of our nearshore floating LNG facility and we have just reached the keel-laying milestone in early October. The construction and fabrication of the facility is currently on track with the first cargo delivery expected by the second half of 2027. The facility is expected to contribute an additional 2mn tonnes/year of LNG to our production portfolio.

The nearshore LNG facility is situated at the Sipitang Oil and Gas Industrial Park (SOGIP) in Sabah. It incorporates innovative technologies such as energy-efficient power generation systems and aero-derivative gas turbines, which are instrumental in reducing our carbon footprint while ensuring operational efficiency.

In what areas – both in gas/LNG and green technologies – is Petronas considering acquisitions?

As a responsible energy player, we actively seek opportunities that align with our objectives of expanding our presence in the LNG market and advancing sustainable initiatives.

To this end, Petronas has established GENTARI, an independent entity dedicated to renewable energy, hydrogen, and green mobility.

In the renewables space, our focus spans various fronts: expanding commercial & industrial projects across the Asia Pacific, scaling up utility-scale solar and wind projects in Malaysia and the Asia Pacific region, and venturing into offshore wind projects within the Asia Pacific and the EU.

In the hydrogen space, our goals include the development of clean hydrogen projects in Malaysia, Canada, and other competitive regions, providing hydrogen solutions for customers in the Asia Pacific and other key markets, while also expanding our global footprint through strategic partnerships. For example, Petronas has signed a joint feasibility study with ENEOS Corporation for a commercial hydrogen production and conversion project in Kerteh, Terengganu.

In green mobility, we are committed to expanding our charging point network, aiming for a 10% market share (approximately 25,000 charge points) across key Asia Pacific markets, establishing ourselves as a Vehicle-as-a-Service (VaaS) fleet provider in Malaysia, India, and the Asia Pacific, and enhancing value-added services for our customers.

In addition to our efforts in growing our capacity and supply capabilities, we are making investments to upgrade our LNG vessel fleet. These new generation LNG vessels are designed to be amongst the most energy efficient LNG carriers ever built, with shaft generators powered by LNG. These vessels are also installed with air lubrication systems that reduce hull resistance and are designed with an optimised hull design that reduces aerodynamic drag at sea.

Petronas has said earlier this year it is looking at new investments in Atlantic Basin LNG projects. What is the company looking for in a potential candidate for investment?

At Petronas, we are dedicated to exploring new investment opportunities that not only strengthen our global presence but also contribute to making energy accessible to communities worldwide. We believe in the importance of extending our reach to new markets, particularly in the Atlantic Basin, to address the evolving energy needs of diverse populations.

In our pursuit of new investments, we remain vigilant in ensuring that each opportunity aligns with our core values of sustainability and long-term growth in the LNG market, which is also reflected on our criteria in finding potential investors and partners.

We believe that by embracing innovative and responsible investment opportunities, we can continue to drive positive change and contribute to global energy accessibility.

To this end, our efforts in this space include:

• Long-term relationship with Cheniere Partners that will add another approximately 1.1mn t/yr of LNG from Sabine Pass Liquefaction to Petronas’ supply portfolio.

• Expanding supply nodes to North America with a 20 year-long relationship with Venture Global for 1mn t/yr of LNG supply from the Plaquemines LNG facility.

• Exploring new supply nodes in South America, such as Suriname, to deliver cleaner energy solutions within the region.

What are the main obstacles to a second phase at LNG Canada? Has there been any progress in discussions among the project partners?

Petronas, along with our joint venture partners, remains committed to exploring pathways toward a potential LNG Canada Phase 2 expansion.

This expansion will lead to unlocking additional revenues for the Canadian government whilst benefiting British Columbia communities and businesses. Additionally, it enables the delivery of lower-carbon LNG to countries trying to achieve their energy transition goals, all while maintaining alignment with key stakeholders e.g. federal and provincial governments, as well as first nations, to an economically and environmentally viable project.

As we navigate discussions and explore potential avenues, our focus remains on upholding our commitment to operational excellence and sustainability.

How is Petronas working to expand and enhance its energy trading business?

At Petronas, we embrace agility in the way we continually refine our energy trading business. To this extent, we’ve developed a digital tool which transforms our trading practice to become real- time and asset backed. This allows us to monetise opportunities from market imperfections and portfolio optionalities in a systematic and agile manner.

Additionally, our commitment extends beyond merely attracting investors; we actively explore and implement diverse contracting approaches to bolster the reliability of LNG supplies and cater to the distinct needs of our customers. These innovative contract structures are designed to offer enhanced flexibility, risk management, and adaptability to evolving market dynamics.

Our range of contracting approaches includes:

• Flexible contract terms: We collaborate with customers to provide contracts with flexible terms that allow for adjustments in delivery schedules, quantities, and pricing based on changing market conditions. This flexibility can help our buyers better manage their energy portfolios and respond to variations in demand.

• Hybrid contracts: We offer our customers hybrid contracts which combine features of traditional long-term contracts and short-term spot market arrangements. This approach provides buyers with a mix of fixed and variable pricing, offering more options for managing price volatility while maintaining some level of price stability.

• Indexation and price formulas: We can offer tailored contracts that use innovative pricing mechanisms, such as indexation to different natural gas indices (JKM, Henry Hub, AECO), or formulas that reflect market conditions. These mechanisms can ensure that the contract's pricing remains aligned with market realities.

• Portfolio contracts: We offer our buyers access to a portfolio of LNG supply sources, where supply can be sourced from our global portfolio of LNG assets located in Malaysia, Egypt, Australia and soon, Canada. This approach diversifies supply sources and enhances security of supply.