Malaysia: Confronting the energy dilemma

Committed to reducing its carbon intensity by 40% by 2020, Malaysia is currently facing some tough decisions on whether natural gas or coal will be the best energy source to meet its rapidly growing consumption needs and looming environmental targets.

While some officials say coal will dominate the future energy mix due to its cost benefits, others believe gas will lead the way, largely based on international trends and the overall environmental benefits. At present, some 60% of the country’s power is generated by gas, 30% by coal and 10% by hydropower plants. As of January 2011, the country is estimated to have 85trn cu feet of gas reserves and proven oil reserves of 4bn barrels.

In May of this year, Peter Chin Fah Kui, the minister of energy, green technology and water (KeTTHA), said the government was moving towards more coal-driven power plants in order to ensure the cost of electricity will not burden the public.

“We are planning to make the shift to 44% coal and 46% gas. We do not want to be too dependent on coal either. The price of gas has gone up and we do not want to burden the public,” Chin said, while speaking with The Malay Mail in June, adding that coal prices are less prone to market variations.

In the same month, the government confirmed it plans to invest $3bn through state-owned energy provider Tenaga Nasional Berhad (TNB) for the construction of four new power plants over the next five years, including two hydropower plants and two coal-fired facilities.

Construction of the Hulu Terengganu (250 MW) and Ulu Jelai (378 MW) hydropower plants, and a 1000-MW coal-fired plant in Manjung, is expected to be complete by 2015. Meanwhile, the fourth, a 1000-MW coal-fired plant in Tanjung Bin, is scheduled to be operational by July 2016.

Discussing the plans, Che Khalib Mohamad Noh, the outgoing president and CEO of TNB, said that when the four plants are operational, national capacity will increase to 2630 MW from the current 2050 MW.

However, Khalid told local media that gas-fired plants will be the focus of future projects, as they have a more minimal impact on the environment. “Gas accounts for 40% of the world’s power generation and this is expected to grow to 60% by 2030,” he said.

On the other side of the debate, KeTTHA’s desire to shift to coal is likely explained in part by a gas supply shock in 2011 that saw daily supply fall from the normal 1050m standard cu feet per day (cfd) to as low as 850m cfd.

To prevent this from happening again, a new liquefied natural gas (LNG) regasification terminal in Melaka, which will be operated by Petronas is due for completion in August. In June, plans were also approved for the firm to build an offshore, floating LNG plant by 2015.

While the Melaka terminal has the capacity to produce 530m cfd of gas, the offshore plant − set to be the world’s first − will allow Petronas to drill and ship gas from fields that were either too small or too remote to be profitable previously.

As both LNG and coal will require almost 100% imports in the future due to the depletion of national reserves, another option being considered is nuclear power. Chin confirmed in March that Malaysia was looking to build two 1000-MW nuclear power plants by 2022 to counter an “imbalance” in its energy supplies, despite ongoing environmental concern regarding the safety of nuclear power.

Renewable energy is seen as a greener and safer alternative to the nuclear, gas and coal options, and Kuala Lumpur is committed to a 5.5% contribution from renewables by 2015. However, renewable energy has yet to take off in the country, with investors often seeing it as a risk, due to unproven technologies and potentially high tariffs.

While in late 2011 the country adopted a sophisticated quota system on feed-in tariffs − a policy mechanism designed to accelerate investment in renewable energy − critics say its solar segment has been oversubscribed and that the country should focus more on biomass, given the huge amount of municipal waste and biomass generated by palm oil plantations.

Malaysia is also planning to adopt a number of energy efficiency measures. In June Chin said a draft law to mandate energy efficiency would be tabled in 2013, with provisions to include the banning of incandescent light bulbs and the mandatory import of energy-efficient refrigerators. In June, Tan Sri Shamsul Azhar Abbas, the CEO of Petronas, the state-owned oil and gas company, said at the World Gas Conference that heavy subsidies on natural gas may promote economic growth but also lead to energy inefficiency. Indeed, Malaysia began reviewing gas prices last year and aims to achieve market parity by December 2015.

The government insists coal-fired energy will reduce electricity costs and help meet rising demand, however, even with the introduction of new technologies, the burning of fossil fuels will impact environmental goals. Global signs that the coal market is more susceptible to “resource nationalism” than gas suggest the latter will dominate future world energy trends.

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