SEPTEMBER 21 — Some members of the Malaysian petroleum lobby have recently warned that the process of decarbonising the Malaysian energy system is economically damaging. They argue that instead, Malaysia should increase its dependence on natural gas to ensure access to inexpensive energy.
The view that natural gas is a ‘necessary’ transition fuel is also articulated in the newly launched National Energy Transition Roadmap (NETR). However, this is also a policy choice: large-scale energy storage solutions and expanded generation from biofuels and biogas could eliminate the ‘necessity’ of natural gas generation capacity.
While there are many supporters of natural gas inside and outside of the government, basic economic facts suggest that natural gas is not the economically optimal solution for Malaysia.
Malaysia can obtain less expensive and more secure energy from renewable sources, and this development will benefit the Malaysian economy more than further investment in and subsidies for the petroleum industry.
Natural gas is not cheap. Based on the lifetime cost of generation, natural gas costs approximately 35 sen per kWh, which is more expensive than biomass, biogas, small hydropower, and solar photovoltaics, which cost between 8 and 14 sen less per kWh. Recent bidding for feed-in tariffs for renewable energy projects in Malaysia has also been below the cost of natural gas.
The only way to lower natural gas prices would be through subsidies. However, in 2022 the Malaysian government already spent RM28 billion on fossil fuel subsidies, or 12 per cent of gross domestic product, imposing a great burden on the Malaysian taxpayer and economy.
Natural gas also poses an energy security risk, as Malaysia’s hydrocarbon reserves are estimated to only last for another 15-40 years. The government has expressed concern that an increase in natural gas use will make Malaysia highly dependent on natural gas imports. The current Russia-Ukraine conflict warns us of the potentially high cost of energy dependence.
While it is true that Malaysia has developed a domestic petroleum industry that benefits from extending carbon fuel use, this industry is in structural decline. This does not mean that hydrocarbon production will stop immediately, or that hydrocarbons are no longer needed for industrial processes or transportation, but the golden age of the petroleum industry is drawing to a close.
At the same time, the renewable energy sector is growing rapidly. Since 2017, Malaysia has been the world’s third largest producer of photovoltaic panels.
The local market also values the potential of solar photovoltaics more positively: the eight solar developers (EPCC contractors) listed on Bursa Malaysia have a median Price-to-Earnings ratio of 27.9. This compares to a median PE of 11.4 for the oil and gas sector.
While the petroleum industry employs approximately 59,000 people (2022), the renewable energy workforce in Malaysia is estimated at 187,000 (2019), of whom 54,900 work in jobs related to solar photovoltaics.
Therefore, rather than trying to extend the life of a sunset industry at a significant economic cost, policymakers should work to ensure that Malaysia strengthens its capabilities in renewable energy.
This includes strengthening backward linkages to local suppliers for the solar photovoltaic sector, as well as encouraging local capacity development and R&D in other renewable energy technologies. Malaysia has undertaken similar programmes in the petroleum and semiconductor industries during the past decades.
Malaysian government-linked companies such as Gentari (Petronas) and Vantage RE (TNB) are already taking the lead by investing in renewable energy projects in Australia and the United Kingdom. This helps them gain valuable experience in anticipation of further developments in Malaysia.
Therefore, the choice for renewable energy is a simple one. It is cheaper. It is more secure and Malaysia’s future prosperity depends on its ability to serve new high-growth industries, and not the industries that are facing structural decline.
* Dr Pieter E. Stek is a Postdoctoral Researcher at the Asia School of Business’ Asean Research Centre and Centre of Technology, Strategy & Sustainability. The opinions expressed in this piece are those of the author. https://asb.edu.my/faculty-research/the-asean-research-center-arc
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
