Petronas CEO calls for end to gas subsidies
Shamsul Azhar speaks during the opening of the World Gas Conference 2012 in Kuala Lumpur June 4, 2012. — Reuters picKUALA LUMPUR, Jun 4 — Petronas is urging Putrajaya to stop gas subsidies, saying today the mechanism hampered transparency and dampened demand for investment.
Tan Sri Shamsul Azhar Abbas, the chief executive of the state oil company, said in his opening address at the World Gas Conference here today that countries with large gas reserves kept rates low to promote economic growth but heavy subsidies ultimately led to energy inefficiency.
“I believe gas prices should be left to be determined by market forces,” he said at the forum that drew 4,500 gas industry professionals from around the world.
“Industry players will have the flexibility to manage their own risks, work to deliver security of supply and meet demand at market prices.”
He added that over the long term, gas subsidies would be unsustainable and detrimental to the industry.
Malaysia faced an embarrassing gas shortage last year despite being the world’s second-largest exporter of liquefied natural gas (LNG), which impaired electricity generation and forced the country to buy energy from the neighbouring city state of Singapore.
Most of Malaysia’s gas is exported under long-term contracts to North East Asia and Prime Minister Datuk Seri Najib Razak said at the same conference today that Malaysia accounts for about 20 per cent of combined LNG imports of Japan, South Korea, Taiwan and China.
The shortage of gas cost hundreds of millions in losses to national utility Tenaga Nasional Berhad (TNB) after it was forced to turn to costlier alternative fuels. It also could not pass on the increased cost to consumers as electricity tariffs must be approved by the government.
Petronas agreed to a one-off cost sharing arrangement with TNB but said that it was unwilling to “subsidise inefficiencies”.
It also said that all LNG that would be imported via peninsular Malaysia’s first LNG regassification plant in Malacca would be sold at market prices.
The regassification plant was officially launched by the prime minister today and is located off Sungai Udang and will receive its first shipment in mid-July.
Manufacturers in Malaysia also gain a competitive boost from cheap gas and could be hit when prices are normalised.
As part of reforms, the Najib administration initiated steps last year to periodically review gas prices with the aim of achieving market parity by December 2015.
