KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) will shoulder part of Tenaga Nasional Bhd’s (TNB) higher operational costs caused by the shortage of gas.
TNB announced yesterday that it had received a letter from the government about a fuel cost sharing mechanism where Petronas, TNB and the government will equally share the RM3.07 billion the utility company incurred in cost overruns from Jan 1, 2010 to Oct 31, 2011.
The lifeline was thrown to TNB, which is swimming in a sea of red ink due to high costs, as it had to seek alternative fuel to make up for the shortage of subsidised gas supplied by Petronas to generate energy. TNB posted a net loss of RM453.9 million for 4QFY11 ended Aug 31.
Under the cost sharing mechanism, TNB will recoup RM2 billion, or 36.6 sen per share, of the cost overruns it incurred in the 22-month period.
“As a national entity, we are willing to share the cost. We are talking to the government and TNB, and we will take up one-third of it as it is good for the people,” Datuk Shamsul Azhar Abbas, Petronas president and CEO told a media briefing yesterday.
However, he noted that Petronas will not bear any further costs caused by inefficiency at TNB’s plants. “We need to state to TNB that we will only share part of the RM3 billion costs. Beyond that, we are not prepared,” he said.
TNB had to import costlier oil and distillates as Petronas had reduced the supply of subsidised gas due to the maintenance of its plants. The national oil company spends up to RM20 billion a year to provide subsidised gas to TNB.
“The subsidy has created a massive distortion of gas prices in the country. And because of that, TNB has been encouraged to be inefficient and we have to fund that inefficiency,” said Shamsul.
Shamsul said the country needs to shift to a market driven mechanism and “the era of cheap and subsidised gas is over”. He noted that the government had introduced a gradual reduction of gas subsidies from June this year in order for it to reach market prices by 2015.
The first cut in the gas subsidy was in June and another reduction is slated for this month.
However, observers have noted the government may not reduce the gas subsidy due to the upcoming general election.
“We hope that the government will have the political will [to cut subsidies] and move towards market parity,” Shamsul said.
To address the shortage of natural gas, Shamsul said its liquefied natural gas (LNG) import terminal in Malacca will be commissioned in July with a capacity of 3.6 million tonnes of LNG.
He stressed that the output from the terminal will be sold at market prices.
“Our understanding with TNB and industry is that any molecules from the terminal will be sold at the full market price as we are importing it at full market price. In addition, the terminal will have open access for all to import their own gas, or to buy from supplying companies. As such, Petronas will no longer have a monopoly on gas supply to domestic users,” he said.
Apart from Malacca, Shamsul noted that Petronas is planning to build another two LNG regassification terminals in Pengerang and Lahad Datu, and is mulling over a fourth one in Lumut.
He noted that the Pengerang and Lahad Datu terminals will have a capacity of 3.6 million tonnes each and are expected to be completed by 2015.
“These terminals are vital to ensure that Petronas has a 15% safety buffer of natural gas in case of crisis,” he said, adding that Petronas has been supplying all its natural gas with no safety buffer for the past five to six years.
Datuk Anuar Ahmad, executive vice-president of gas and power business, noted that Petronas currently supplies 1,050 million standard cu ft per day (mmscfd) of gas to TNB, which is below its requirement of 1,250 mmscfd.
“This is the maximum supply by Petronas. Depending on maintenance, the supply could fall to as low as 900 mmscfd,” he said.
Shamsul said apart from buying gas on the open market, Petronas will extract gas via its first floating LNG plant in Kanawit, Sarawak, with a capacity of 1.3 million tonnes. Petronas is targeting for the plant to be commissioned in 2015.
“We are also planning to have a second floating LNG plant in Sabah with a similar capacity, and we hope to commission this in 2016. However, we have not made any final investment decision on this,” he said.
This article appeared in The Edge Financial Daily, December 2, 2011.
TNB announced yesterday that it had received a letter from the government about a fuel cost sharing mechanism where Petronas, TNB and the government will equally share the RM3.07 billion the utility company incurred in cost overruns from Jan 1, 2010 to Oct 31, 2011.
The lifeline was thrown to TNB, which is swimming in a sea of red ink due to high costs, as it had to seek alternative fuel to make up for the shortage of subsidised gas supplied by Petronas to generate energy. TNB posted a net loss of RM453.9 million for 4QFY11 ended Aug 31.
Under the cost sharing mechanism, TNB will recoup RM2 billion, or 36.6 sen per share, of the cost overruns it incurred in the 22-month period.
“As a national entity, we are willing to share the cost. We are talking to the government and TNB, and we will take up one-third of it as it is good for the people,” Datuk Shamsul Azhar Abbas, Petronas president and CEO told a media briefing yesterday.
However, he noted that Petronas will not bear any further costs caused by inefficiency at TNB’s plants. “We need to state to TNB that we will only share part of the RM3 billion costs. Beyond that, we are not prepared,” he said.
TNB had to import costlier oil and distillates as Petronas had reduced the supply of subsidised gas due to the maintenance of its plants. The national oil company spends up to RM20 billion a year to provide subsidised gas to TNB.
“The subsidy has created a massive distortion of gas prices in the country. And because of that, TNB has been encouraged to be inefficient and we have to fund that inefficiency,” said Shamsul.
Shamsul said the country needs to shift to a market driven mechanism and “the era of cheap and subsidised gas is over”. He noted that the government had introduced a gradual reduction of gas subsidies from June this year in order for it to reach market prices by 2015.
The first cut in the gas subsidy was in June and another reduction is slated for this month.
However, observers have noted the government may not reduce the gas subsidy due to the upcoming general election.
“We hope that the government will have the political will [to cut subsidies] and move towards market parity,” Shamsul said.
To address the shortage of natural gas, Shamsul said its liquefied natural gas (LNG) import terminal in Malacca will be commissioned in July with a capacity of 3.6 million tonnes of LNG.
He stressed that the output from the terminal will be sold at market prices.
“Our understanding with TNB and industry is that any molecules from the terminal will be sold at the full market price as we are importing it at full market price. In addition, the terminal will have open access for all to import their own gas, or to buy from supplying companies. As such, Petronas will no longer have a monopoly on gas supply to domestic users,” he said.
Apart from Malacca, Shamsul noted that Petronas is planning to build another two LNG regassification terminals in Pengerang and Lahad Datu, and is mulling over a fourth one in Lumut.
He noted that the Pengerang and Lahad Datu terminals will have a capacity of 3.6 million tonnes each and are expected to be completed by 2015.
“These terminals are vital to ensure that Petronas has a 15% safety buffer of natural gas in case of crisis,” he said, adding that Petronas has been supplying all its natural gas with no safety buffer for the past five to six years.
Datuk Anuar Ahmad, executive vice-president of gas and power business, noted that Petronas currently supplies 1,050 million standard cu ft per day (mmscfd) of gas to TNB, which is below its requirement of 1,250 mmscfd.
“This is the maximum supply by Petronas. Depending on maintenance, the supply could fall to as low as 900 mmscfd,” he said.
Shamsul said apart from buying gas on the open market, Petronas will extract gas via its first floating LNG plant in Kanawit, Sarawak, with a capacity of 1.3 million tonnes. Petronas is targeting for the plant to be commissioned in 2015.
“We are also planning to have a second floating LNG plant in Sabah with a similar capacity, and we hope to commission this in 2016. However, we have not made any final investment decision on this,” he said.
This article appeared in The Edge Financial Daily, December 2, 2011.
