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Harun Bin Ab. Rahman 12979 GFE Assignment

1. Explain in your own words, the natural gas price (up to 2013), and its scope in the oil and gas

industry of Malaysia and compare the result with other companies around the world with references.

According to Wikipedia, natural gas prices are mainly a function of market supply and demand.

Factors on the supply side that affect prices include natural gas production, net imports, and

underground storage levels. Increases in supply tend to pull prices down, while decreases in

supply tend to push prices up. Increases in prices tend to encourage production and imports and

sales from storage inventories, and declining prices tend to have the opposite effects. Factors on

the demand side include economic conditions, winter and summer weather, and petroleum prices.

Higher demand tends to lead to higher prices, while lower demand can lead to lower prices.

Increases and decreases in prices tend to reduce or increase demand.

Figure 1: Malaysia's subsidized natural gas price (Ching, 2011)

In Malaysia, the government placed a legal differentiation on the price of natural gas for

international export and domestic sales. Natural gas produced in Malaysia is sold at standard

price to international countries while local industries (power producers and industrial users) buythe fossil fuel at subsidized price. As expected, the price will increase in the coming years in line

with US market recovery and natural gas price.

Figure 2: Natural gas prices set by national oil companies of respective countries in USD (Roston, 2012)


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After converting to USD, Malaysias natural gas price stands at $8.40/mmbtu. According to

Wikipedia, this value is lowest as compared to other regions except for North America. The low

price in US is contributed by the new technologies of hydraulic fracturing and horizontal drilling

which has increased the estimates of recoverable reserves to many hundreds of trillion cubic feet.

Hydraulic fracturing has reduced the Henry Hub spot price of natural gas considerably since 2008.

In the end, the fundamental issue thats kept natural gas prices so low for the last few years is too

much supply but inadequate demand which appears here to stay for the foreseeable future.

2. Explain the difference between Natural Gas and Liquefied Natural Gas (LNG). Explain the scope of

LNG in Malaysia.

According to CEE: Center of Energy Ergonomics website, Natural gas is a fossil fuel produced

directly from petroleum reservoirs, consisting mainly around 82% of methane but it also contains

quantities of butane, propane, ethane, and pentane. It also includes carbon dioxide, helium,

hydrogen sulfide, and nitrogen. The process from natural gas to liquefied natural gas causes the

LNG to be anywhere from 90 to 99 percent methane. The process begins when natural gas is fed

through the LNG plant facility. As the natural gas moves through the process, elements are

removed from it. These elements include water, carbon dioxide, hydrogen sulfide, and other

components (such as benzene) which would freeze when incurring the low temperatures needed to

maintain storage of the LNG once the transformation process is complete. As opposed to natural

gas in its untouched conditions, the advantage of LNG is that it offers an energy density comparable

to petrol and diesel fuels, extending range and reducing refueling frequency.

According to (Irvin, n.d), Liquid gas, or liquefied natural gas (LNG), is natural gas that has been

transformed into a liquid for easier transportation, use, and storage. LNG takes up about 1/600 the

room that natural gas would. LNG is odorless, non-toxic, has no color, and it does not cause
http://en.wikipedia.org/wiki/Hydraulic_fracturinghttp://en.wikipedia.org/wiki/Horizontal_drillinghttp://www.businessweek.com/articles/2012-04-17/is-natural-gas-too-cheap-to-drillhttp://www.businessweek.com/articles/2012-04-17/is-natural-gas-too-cheap-to-drillhttp://en.wikipedia.org/wiki/Hydraulic_fracturinghttp://en.wikipedia.org/wiki/Horizontal_drillinghttp://www.businessweek.com/articles/2012-04-17/is-natural-gas-too-cheap-to-drillhttp://www.businessweek.com/articles/2012-04-17/is-natural-gas-too-cheap-to-drill


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corrosion. It is highly flammable, it can freeze, and it can cause asphyxia (suffocation, inability to

breathe). This transformed version of natural gas is much easier to transport using cryogenic vessels,

especially when pipelines are not available. The disadvantage, however, is the high cost of cryogenic

storage on vehicles and the major infrastructure requirement of LNG dispensing stations, production

plants and transportation facilities.

According to (Kuncinas, 2012) and (Koh, 2012), Malaysia has invested in a number of infrastructure

projects, including LNG terminals located offshore near the Sungai Udang port in Malacca,

Pengerang Independent Deepwater Petroleum Terminal (PIDPT) in Johor as well as an LNG plant

in Bintulu, Sarawak. Storage capacity at the terminal is expected to be around 5 million m3 each and

will enable international users to store and trade LNG. Major importers of Malaysias LNG are

Japan, Korea and Taiwan. As of late 2012, (Koh, 2012) claimed that Malaysias overall LNG

production capacity stands at 25.7 million TPa per year. Malaysia aims to be Asias leading hub in

LNG production and business. With the increasing price of LNG expected in 2013 as shown infigure, Malaysia is one step closer to become the worlds largest LNG producer.

Figure 3: Malaysia Export Price of LNG


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Reference

Q1

1. Ching, O. T. (2011). Costlier electricity & natural gas. MY PALM OIL. Retrieved from

http://mypalmoil.blogspot.com/2011_06_01_archive.html

2. Roston, E. (2012, September 26). Shale Fracking Makes U.S. Natural Gas Superpower. Now What?. Bloomberg. Retrieved

from http://www.bloomberg.com

3. Natural gas prices. (n.d.). In Wikipedia. Retrieved February 26, 2013, from

http://en.wikipedia.org/wiki/Natural_gas_prices#Trends_in_natural_gas_prices

Q2

1. Irvin, S. (n.d). What Is The Difference Between Natural Gas And Liquid Gas?. ENERLIX. Retrieved from

http://www.enerlix.com/environmental-technology/report_325.htm

2. CEE: Center for Energy Economics. (n.d.). Retrieved from

http://www.beg.utexas.edu/energyecon/lng/LNG_introduction_07.php

3. Kuncinas, P. (2012, October 14). Malaysia: Push for liquefied natural gas. Borneo Post online. Retrieved from

http://www.theborneopost.com

4. Koh, Q. (2012, September 14). Malaysia Aims to become LNG Trading Hub through new $1.3B Terminal. RIGZONE.

Retrieved from http://www.rigzone.com
http://mypalmoil.blogspot.com/2011_06_01_archive.htmlhttp://www.bloomberg.com/http://www.enerlix.com/environmental-technology/report_325.htmhttp://mypalmoil.blogspot.com/2011_06_01_archive.htmlhttp://www.bloomberg.com/http://www.enerlix.com/environmental-technology/report_325.htm

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Assgnment GFE (2)_reference Added