04 May 2012

International Gas Union President Datuk Abdul Rahim Hashim urges removal of natural gas subsidy to resolve gas shortage issue

Subsidised gas and the inflated demand it encouraged are some of the factors that led to the severe gas shortage faced by Tenaga Nasional Bhd (TNB), said International Gas Union (IGU) president Datuk Abdul Rahim Hashim.

“We started the subsidies after the Asian financial crisis, and we should not have continued doing that. We should have weaned ourselves off it and gone back to market prices after the economy picked up again.

“We have a system whereby one end is fixed (electricity tariffs), and generators are looking for the cheapest source of fuel. Gas is the cheapest of the lot, and since generators tend to use the cheapest resource available, that has pushed the system to the limit,” he told StarBiz in an interview.

“The system in Peninsular Malaysia is such that there is a specific capacity for it (energy production), and once you hit the limit, then any disruption, whether to the supply or to the value chain, will impact the users.
Abdul Rahim: ‘It is a question of the political will of the Federal Government to implement what has been planned.’

“In this case, the reason for the disruption was the upstream, and any hiccups will impact the users directly. That has unfortunately caused a lot of consternation and the use of diesel, which is much more expensive,” he added.

IGU is an international umbrella body for gas associations and functions as an advocate to promote the use of gas in the world's energy production.

A prolonged gas shortage to the domestic energy sector caused by maintenance activities at Petroliam Nasional Bhd's (Petronas) gas plants had forced TNB to burn oil and distillates as an alternative, resulting in a huge RM3.5bil cost that weakened its balance sheet.

Petronas has since restored supplies to TNB from 1,000 million standard cu ft per day (mmscfd) to 1,150 mmscfd, but this is still short of the 1,250 mmscfd it agreed to deliver.

The alternative fuels used in place of gas cost five times as much, leading TNB into three consecutive quarters in the red. The national power company posted its first quarter of profit in the three months to Feb 29, but only after the Government agreed to pay it a RM2.02bil compensation, half of which came from Petronas.

TNB is expected to see some relief come September when Petronas' first regassification plant is commissioned in Malacca, but it will likely have to import liquefied natural gas at market prices by then.

To Abdul Rahim, the only way forward is to pay for gas at market prices.

“People will use energy more efficiently if the price is not distorted. Subsidies are not sustainable, they cannot go on forever. At a certain time, we should go to market parity.

“We missed one in December, now everyone is waiting for the one in June,” he said, referring to the Economic Planning Unit's proposal to gradually increase the price of natural gas to the power sector by RM3 per mmbtu every six months.

The plan was to start the first rate hike in December.

“It is a question of the political will of the Federal Government to implement what has been planned, and of the policymakers wanting to do away with subsidies, which are hard to take away once they've been put there,” he added.

On the outlook for gas, Abdul Rahim said the world had enough gas reserves to last another 250 years at the current consumption levels.

The total for both conventional and unconventional reserves like shale gas stood at 800 trillion cubic metres, he said.

Source: www.thestar.com.my


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