Energy Policy 128 (2019) 197–211

Contents lists available at ScienceDirect

Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Natural gas industry transformation in Peninsular Malaysia: The journey T

towards a liberalised market
Zhen-Wen Lima, Kim-Leng Gohb,
⁎

a
Department of Economics, Faculty of Economics & Administration, University of Malaya, Malaysia
b
Department of Applied Statistics, Faculty of Economics & Administration, University of Malaya, Malaysia

ARTICLE INFO ABSTRACT

JEL Codes: Malaysia's gas industry has been undergoing a profound transformation that is imperative in ensuring energy
Q40 security. The rising demand especially in Peninsular Malaysia and regulating prices of natural gas saw PETR-
Q43 ONAS selling natural gas at a relatively low price that affects the Government's revenue collection negatively.
Q48 This article contextualised the changes in the law and policy that concerns the management of gas resources in
O13
Malaysia. The journey from a price regulated gas market towards a liberalised market is explained. This energy
K32
transition process requires more than changes in the law. It involves the synergy of dynamics from various
Keywords: aspects to ensure that the ecosystem is conducive for the development of a healthy natural gas sector to ensure
Gas price liberalisation
secured energy supply, while catalysing the growth of new industries and generating new revenues for the
Natural gas
nation. The challenges and pushbacks throughout this journey are highlighted. Discussions show how the pro-
Energy justice
Energy governance blems were tackled strategically within the political, social and economic domains, as well as the interaction
Energy sustainability between them. These interactions demonstrate the importance of energy justice in policy making. Policy deci-
sions are made to balance the competing goals of various key stakeholders.

1. Introduction PEMANDU, the Performance Management and Delivery Unit of the

Malaysia has always been known as a resource rich country among
her peers in the region. Since 1910, oil was first drilled by Royal Dutch
Shell in Miri, Sarawak, a state in East Malaysia. Meanwhile, offshore
Terengganu in Peninsular Malaysia has also made its own discoveries
with other international oil companies. The rapid development of
technology for exploration and local geographical advantage had lifted
the oil and gas industry in Malaysia. The exploration of natural re-
sources in the Malaysian shores is the nexus and catalyst for the growth
of the economy.
Following the developments on the global front, total demand of
natural gas is expected to increase by an average of 1.9% per annum
from 120 trillion cubic feet (Tcf) in 2012–203 Tcf in 2040 (U.S. Energy
Information Administration (EIA), 2016). In 2014, liquefied natural gas
(LNG) traded in the spot market accounted for almost 30% of its global
trade. GIIGNL (2017) reported that 73% of the global demand for LNG
is in Asia. In line with the global trends, Malaysia's gas industry has
been undergoing a profound transformation that is imperative in en-
suring Malaysia's energy security. There are two main reasons for the
Government of Malaysia (hereafter referred to as the Government) to
embark on the liberalisation of the natural gas market. First, a report by
Government, stressed the need for the country to start sourcing for al-
ternative supply of gas to cope with rising demand in the country,
especially in Peninsular Malaysia (PEMANDU, 2011). Currently, nat-
ural gas demand in the country is met largely by the sole natural gas
supplier in Malaysia - Petroliam Nasional Berhad (PETRONAS). Second,
regulating prices of natural gas which saw PETRONAS selling natural
gas at a relatively low regulated price also affects the Government's
revenue collection negatively through lower annual contribution from
PETRONAS. This issue is particularly profound during the downfall of
oil and gas prices globally in 2016 and 2017.
Malaysia is a federation of 13 states, of which 11 states are in
Peninsular Malaysia. Another two states, Sabah and Sarawak, collec-
tively known as East Malaysia, are on the island of Borneo which is
separated from Peninsular Malaysia by the South China Sea. The nat-
ural gas industry transformation is initiated at Peninsular Malaysia as
the Gas Supply (Amendment) Act (2016) only applies to Peninsular
Malaysia and Sabah but does not cover the state of Sarawak:
“… The operation of the principal Act is deemed to be suspended for
the State of Sarawak from 17 July 1997, and for that purpose it shall
be treated as if an order has been made under subsection 1(2) of the

⁎
Corresponding author.
E-mail address: klgoh@um.edu.my (K.-L. Goh).

https://doi.org/10.1016/j.enpol.2018.12.049
Received 25 April 2018; Received in revised form 3 December 2018; Accepted 27 December 2018
Available online 10 January 2019
0301-4215/ © 2018 Elsevier Ltd. All rights reserved.
Z.-W. Lim, K.-L. Goh Energy Policy 128 (2019) 197–211

principal Act…” (Clause 4A. (2)) and restorative justice is examined. Subsequently, the outcome of bal-
ancing the competing policy objectives and way forward for the in-
For the state of Sabah, the price at which gas is sold to industrial
dustry are highlighted. Section 7 concludes the paper and provides
customers is not regulated by the Government under the current ar-
policy implications.
rangement and there are no commercial or residential customers cur-
rently. Given the above reasons, the key focus for this study will be on
2. Methodological flow of analysis
the transformation of the natural gas sector in Peninsular Malaysia,
although some statistics provided are for the country as a whole be-
The crux of this article is to analyse the transition of natural gas
cause disaggregated data are not readily available. This also ensures an
price in Malaysia, with a special focus on Peninsular Malaysia, from a
end-to-end examination and analysis of the whole natural gas supply
highly regulated regime towards a liberalised market. An overview of
chain to provide a holistic picture on the transformation that the in-
the energy sector provides the context for this article. Through the
dustry has undergone thus far.
context setting, energy policies are then analysed from the early 1970s
The discussion of the transformation is premised on the growing
to date. The case for change is then developed by analysing the existing
importance of energy justice in the literature in the formulation of
policies and direction of the development plans as well as the devel-
energy law and policy. This requires a holistic and integrated view to
opment of global trends. This provides an interesting insight to examine
the development of energy law and policy, ensuring a sustainable en-
the application and resemblance of energy justice in the energy policy
ergy sector with resources managed in an equitable manner and not
decision making.
neglecting the other factors such as environmental concerns, afford-
The key policies are then analysed in detail based on a set of as-
ability, access to energy services, promoting healthy competition and
sessment criteria. The findings and outcome of the analysis on the ap-
spur technology development (Heffron and Talus, 2016a).
proaches taken by the Government are synthesised and discussed in
The contribution of this article is threefold. First, it provides an
terms of the legal framework, governance structure, infrastructure
insight on Malaysia's journey in transitioning from a highly regulated
readiness and pricing reform strategy. The policy decision making and
natural gas market towards a liberalised market. The liberalisation of
impact analysis on the natural gas pricing reform is analysed using the
the natural gas sector is a unique case that is rarely documented in the
energy justice framework (Heffron and McCauley, 2014; Jenkins et al.,
literature for an emerging economy. Second, the transition towards a
2014; McCauley et al., 2013; Sovacool et al., 2016). Lastly, areas of
liberalised market provides the opportunity to evaluate the application
improvement for the current pricing reform are identified and re-
of energy justice concept in this transformation process for a developing
commendations are provided for future pricing reforms.
country where energy resource management poses a challenge. The
process of policy changes is examined and mapped accordingly to the
3. The energy policy journey
eight principles of energy justice decision-making framework (see, for
example, Ramazan et al., 2017). Third, this paper provides insights to
Over the years, the balance in the energy sector of Malaysia has
the resemblances and adoption of the core themes of energy justice that
evolved in key factors affecting the sector especially costs and benefits,
can be more readily achieved by a developed natural gas sector com-
feasibility, environmental concerns and energy security. The
pared to one that is developing. These include the recently developed
Government had implemented several key energy policies and strate-
concepts of distributional justice, procedural justice and recognition
gies with the objective to ensure energy sustainability and security for
justice (McCauley et al., 2013) as well as the restorative justice which is
the nation. The development of the policies and implementation of
deemed as a key enabler and uniting aim of the concept (Heffron and
strategies saw an emphasis on the supply side of resources. The
Mccauley, 2017).
Petroleum Development Act (1974), National Petroleum Policy (1975),
This article will serve as a case study to further strengthen the
National Energy Policy (1979) and National Depletion Policy (1980)
fundamentals, development and articulation of the application of the
share a common objective which is to ensure sustainability of energy
energy justice concept. The emergence of scholarships on energy justice
supply to the nation. With policies in place to sustain production and
mainly focuses on the theoretical aspects. However, there is a need to
prolong the lifetime of the oil and gas reserves, the Government re-
expand the scope of energy justice towards a more refined compre-
cognises the importance of energy diversification and not to become
hension of energy beyond the theoretical viewpoints (Hall, 2013). As
overly reliant on oil and gas. The Four-Fuel Diversification Policy in-
energy justice is still at a rudimentary stage, this article is imperative to
troduced in 1981 had stipulated a balanced utilisation of oil, gas, hydro
provide an end-to-end value chain analysis, tracing the interconnec-
and coal. In 2001, renewable energy was introduced into the national
tions from production to distribution, the key infrastructure develop-
fuel mix under the Fifth-Fuel Diversification Policy. This was further
ment, political and legal debates as well as the process of how these
reinforced during the Eighth Malaysia Plan (8MP), the five-year na-
energy justice scholarships can be put to practice. Many researchers in
tional development plan for the period from 2001 to 2005, where the
their recent works, including Jenkins et al. (2016), Heffron and Talus
fuel diversification policy included renewable energy, specifically solar
(2016a), Fuller and McCauley (2016), Heffron and Mccauley (2017),
energy, mini hydro, solid waste, biogas and biomass, as the fifth fuel
and Labelle (2017), have acknowledged the importance of relating
(Economic Planning Unit (EPU), 2000). The New Energy Policy was
energy justice to real world applications.
then introduced in 2010 under the Tenth Malaysia Plan (10MP) where
This paper first details the methodological flow of analysis in as-
key focus areas mainly on energy pricing, strategic supply side devel-
sessing the case for change, key building blocks and the pricing reform
opment, end use energy efficiency, energy governance and regulation
mechanism that is put in place. The next section then provides an
were identified (EPU, 2009). The various stages of energy policy de-
overview of the energy policy making, the shift in focus of fuel sources
velopment are summarised in Table 1.
to natural gas and the current set-up of the gas sector in Peninsular
In 2010, Malaysia embarked on the National Transformation
Malaysia. In Section 4, the key motivations behind the changes in the
Programme with the aim of transforming Malaysia into realising the
development of the natural gas industry are explained and discussed.
nation's vision of achieving the high-income status by 2020. The
Section 5 presents the energy justice concept in policy making with the
National Transformation Programme (NTP) comprises of two key pil-
four key building blocks in the transformation namely the legal fra-
lars, Government Transformation Programme (GTP) and Economic
mework, the role of the regulator, key infrastructure development and
Transformation Programme (ETP), monitored by the Performance
gas pricing reforms to unlock the premium gas demand. In Section 6,
Management and Delivery Unit (PEMANDU) formed in 2009.
the advocacy of energy justice in the natural gas pricing policy reform
Momentum from the NTP propelled the nation to record a growth rate
through recognition justice, procedural justice, distributional justice
of 5.9% despite the challenging period, outpacing her regional peers

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Z.-W. Lim, K.-L. Goh Energy Policy 128 (2019) 197–211

Table 1
Development of Energy Policy in Malaysia.
Source: Author's Analysis.
Year Policy/Strategy Descriptions

1974 Petroleum Development Act Establishment of PETRONAS as a state-owned enterprise, given the executive rights of ownership, exploration and
production
1975 National Petroleum Policy Aims to regulate the oil and gas industry to achieve the country's development needs
1979 National Energy Policy Anchors on supply, utilisation and environment objectives for the nation
1980 National Depletion Policy Extend the lifespan of domestic depletable energy resources
1981 Four-fuel Diversification Strategy Pursue balanced utilisation of the four fuels, i.e. oil, gas, hydro and coal
2001 Five-fuel Diversification Strategy Recognise renewable energy as the “fifth fuel” in the energy supply mix
2009 National Renewable Energy Policy and Action Enhance the utilisation of indigenous renewable energy to ensure national electricity supply security and sustainable
Plan socioeconomic development
2010 New Energy Policy Encapsulate all efforts to ensure economic efficiency, security of supply and meet the social as well as environmental
objectives

additional 55,300 jobs (Department of Statistics Malaysia (DOSM),

Fig. 1. Number of Persons Employed under the Oil, Gas and Energy Sector in
Malaysia. Source: DOSM (2017a).
(Bank Negara Malaysia (BNM), 2018). Malaysia is gradually moving
away from the middle-income trap through the narrowing of the gap
between its Gross National Income (GNI) per capita with World Bank's
threshold for high income status from 33% to 20%, recording a GNI of
USD9660 per capita in 2017 (Civil Service Delivery Unit (CSDU),
2018).
The oil, gas and energy had played an imperative role in driving the
economy of Malaysia despite the unprecedented volatility experienced
by the global energy market during the period of 2014–2015 as a supply
glut placed downward pressure on the energy prices. Figs. 1 and 2 show
that the oil, gas and energy sector has been consistently contributing
15–18% of the overall GDP from 2011 to 2016 and created an
2017a, 2017c).
As Malaysia's economy continues to expand, the energy demand per
capita in Malaysia had increased from 1.20 t of oil equivalent in
1997–1.67 t of oil equivalent in 2015 (Malaysia Energy Information
Hub (MEIH) (MEIH), 2018a). As indicated in Fig. 3, the oil, gas and
energy sector had observed an additional RM 453.2 billion in gross
fixed capital formation from 2011 to 2016 (DOSM, 2017c). Over two
decades ago, Malaysia's energy policy makers emphasised on natural
gas with the intention to maximise the utilisation of excess supply of gas
and ensuring energy security for a sustainable growth in Malaysia. As
shown in Fig. 4, natural gas share in Malaysia's primary energy supply
is sustained at around 44%. However, the quantum of natural gas
supply had increased by 107% from 19,041 kilotonnes of oil equivalent
(ktoe) in 1997 to 39,364 ktoe in 2015. With energy policy makers
putting emphasis on the utilisation of natural gas in Malaysia, its con-
sumption had grown from 2465 ktoe in 1997–9556 ktoe in 2015
(MEIH, 2018b).
From Fig. 5, it is observed that the Malaysia natural gas reserves had
increased 25.8% from 79.8 Tcf in 1997–100.4 Tcf in 2015. Currently,
Sarawak has the largest natural gas reserves accounting for 53%; Pe-
ninsular Malaysia accounting for 32%; and Sabah accounting for 15%
of the nation's natural gas reserves respectively (MEIH, 2018c). As ex-
plained previously, the scope of this study is on the transformation of
the natural gas sector in Peninsular Malaysia as the Gas Supply
(Amendment) Act (2016) does not cover the state of Sarawak and the

Fig. 2. Share of Malaysia's Gross Domestic Product (GDP) by Sector. Source: DOSM (2017c).

199
Z.-W. Lim, K.-L. Goh Energy Policy 128 (2019) 197–211

Fig. 3. Oil, Gas and Energy Gross Fixed Capital Formation, 2011 – 2017 Source: DOSM (2017b).

Fig. 4. Primary Energy Supply in Malaysia. Source: Energy Commission (2017a).

Fig. 5. Natural Gas Reserves by Regions in Malaysia. Source: MEIH (2018c).

gas sold to industrial customers in Sabah by Sabah Energy Corporation
(SEC) is not regulated by the Government under the current arrange-
ments.
Under the current arrangements, PETRONAS supplies most of the
wholesale gas to Peninsular Malaysia through supplies from domestic
production and international reserves. PETRONAS and its subsidiaries
own and operate the gas transmission pipeline network and the re-
gasification terminals. Wholesale gas are supplied to large customers
connected to the transmission network as well as the distribution
companies for provision to retail gas customers under their distribution
network. Gas Malaysia Berhad (GMB) is responsible for gas distribution
in Peninsular Malaysia. GMB owns and operates the distribution net-
work in Peninsular Malaysia and supplies gas to industrial, commercial
and residential customers connected to the distribution network. The
Energy Commission of Malaysia (EC) is responsible for licensing busi-
nesses operating in the gas market, making recommendations about
regulated wholesale and retail prices every six months and advising the
Government on broader policy issues relevant to the energy sector. The
Economic Planning Unit (EPU) is ultimately responsible for making
decisions regarding regulated gas prices, drawing on the advice and
analysis of EC. Fig. 6 represents the current natural gas industry supply
chain and arrangement in Peninsular Malaysia.

200
Z.-W. Lim, K.-L. Goh
Fig. 6. Current gas sector supply chain set-up in Peninsular Malaysia. Source: Authors’ analysis and illustration.
4. The natural gas industry in Peninsular Malaysia - Building the
case for change
The oil and gas industry has played a significant role in growing the
nation's economy. Under the Economic Transformation Programme, oil,
gas and energy are identified as one of the National Key Economic
Areas (NKEA). This NKEA focuses on three key thrusts with specific
Entry Point Projects (EPPs) assigned to it. EPPs are initiatives defined to
deliver big results fast where potential investors are identified, detailed
implementation plans are developed, and funding requirements are
clearly articulated (PEMANDU, 2011). The first thrust under the NKEA
recognises the importance to sustain the upstream oil and gas produc-
tion with initiatives such as enhanced oil recovery, innovating fresh
solutions to develop small fields and increasing exploration activities
(see Fig. 7). The second thrust focuses on growing the downstream
sector and making Malaysia the hub for oil and gas services and
equipment. The third thrust focuses on building alternative energy
capabilities in Malaysia through new sources to ensure energy security
and sustainability. The case for change driving Malaysia to develop its
natural gas industry is deliberated in this section.
4.1. Risks facing security of natural gas supply
Natural gas has been the engine of growth for the nation, especially
in the Peninsular Malaysia where natural gas is utilised as one of the
main feedstock for the electricity sector as well as the industries.
However, the indigenous gas production, which are mainly located
offshore east coast of the Peninsular Malaysia, has been declining gra-
dually and outstripped by demand due to maturing oil and gas fields.
The consumption of natural gas in Peninsular Malaysia have been in-
creasing, surpassing supply in the market. In 2015, there was a gap of
306 billion standard cubic feet per day (scfd) between the piped gas
supply and demand in Peninsular Malaysia. The demand for natural gas
stood at 2222 billion scfd whilst supply recorded was only 1916 billion
scfd (Energy Commission, 2016). This supply and demand mismatch is
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Energy Policy 128 (2019) 197–211
aggravated when there has been a steady decline in the supply of nat-
ural gas since 2008 as oil and gas fields supporting demand in the Pe-
ninsular Malaysia encounter various challenges such as the rising costs
of exploration, aging facilities, maturing gas fields as well as gas field
with high carbon dioxide and other contaminants. The shortfall of
supply is currently mitigated with supplies from the Malaysia-Thailand
Joint Development Area (MTJDA) and the Commercial Arrangement
Area (CAA) between Vietnam and Malaysia (Malaysia Gas Association
(MGA), 2017). Numerous studies have been done to examine the
causality between energy policy and economic growth with most of the
results showing that causal relationship exists in a way or another
(Chandran et al., 2009; Glasure and Lee, 1997; Mozumder and Marathe,
2007; Narayan and Singh, 2007; Odhiambo, 2009; Ozturk, 2010; Soytas
and Sari, 2003; Wolde-Rufael, 2006; Yoo, 2006). Hence, it is imperative
for policy makers to put the right ecosystem and policy frameworks in
place to ensure sustainable supply of natural gas to cope with the rising
demand of natural gas in Peninsular Malaysia.
4.2. Substantial Government subsidies for natural gas via PETRONAS
The natural gas prices in Peninsular Malaysia are regulated by the
Government. The assessment of the cost of supplying wholesale gas
must take into consideration of the obligation of PETRONAS to sell the
gas at lower-than-market regulated price and the opportunity cost of
selling that gas. Despite a challenging period with persistent lower
crude oil price hitting the upstream oil and gas sector, the natural gas
price in Peninsular Malaysia are transacted at an even lower regulated
price, affecting the revenue of PETRONAS. According to PETRONAS
(2017), a total of RM241.4 billion foregone revenue had been recorded
cumulatively since 1997. The financial position of PETRONAS, the sole
natural gas supplier in Malaysia, was further pressured during the
global crash of oil and gas prices, ultimately affecting its ability to remit
dividends and taxes to the Malaysian government. For the foreseeable
future, the maturing gas fields located in Peninsular Malaysia will peak
and domestic reserves will decline. Without the right pricing for gas,
Z.-W. Lim, K.-L. Goh
Fig. 7. Key Thrusts of the NKEA of Oil, Gas and Energy. Source: PEMANDU (2011).
the ability of PETRONAS to reinvest into new gas fields, infrastructure
and technology will be impeded. Additionally, the ability to fund broad
subsidies via gas sales will also decline and may become untenable.
4.3. Capturing the value of gas
Policy makers need to clearly define the nation's true north of
capturing the value of natural gas. On one end of the spectrum, if do-
mestic activity is prioritised, natural gas is made available to domestic
consumers at or close to cost of production. This will provide local
industry access to ‘cheap gas’, potentially a comparative advantage as
compared to other countries which would translate into increased in-
vestments and domestic activities. However, this choice would be at the
expense of foregoing potentially higher returns from selling the natural
gas at the prevailing market price in international market. Besides, this
also involves the risk of industries being developed on the premise of
‘cheap’ energy resources and becoming uncompetitive and not sus-
tainable in the long run. On the other hand, if direct revenue max-
imisation is prioritised by policy makers, natural gas is then sold to
those who are willing to pay the highest price. Through this approach,
the value of natural gas is captured by the gas supplier and revenue to
the Government would be derived from dividends, taxes and royalties
paid by the natural gas suppliers. However, this would potentially
curtail domestic demand as domestic consumers would need to pay
prices consistent with the international market. Hence, this choice
comes at the cost of potentially slowing down domestic activity via
higher input costs.
In Malaysia, policy makers and PETRONAS lie in between these two
extremes as both options have their benefits and risks. It is rarely the
case for a preferred option over the long term given uncertainties in the
global market. PETRONAS has been selling sold large volumes of gas to
domestic consumers such as power plants in the electricity sector and
the industries at a regulated price, below the prevailing price in inter-
national market. At the same time, PETRONAS has also been exporting
significant volumes of natural gas at market prices especially to coun-
tries like Japan and South Korea. Consequently, PETRONAS will then
contribute a substantial amount of dividend to the Government, off-
setting the need for revenue collection through taxation which even-
tually benefits all Malaysians.
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Energy Policy 128 (2019) 197–211
5. Unlocking premium gas demand – Bringing energy justice into
action
With the development of energy policy making in Malaysia, policy
makers made a conscious decision to balance between economics, en-
ergy security and environmental concerns. This is also known as the
energy trilemma where energy law and policy would be the core bal-
ancing act for these three objectives. Energy justice is the key in pro-
viding guidance and direction in ensuring balance between these three
factors (see Fig. 8). Ideally, efficient and effective energy law and policy
making would seek to balance these three aims (Heffron et al., 2015;
Heffron and Mccauley, 2017). The energy justice conceptual framework
adopted in this article is based on Heffron et al. (2015). In this section,
the thought process of Malaysia's energy policy making is analysed and
discussed.
Energy policy making process and initiatives taken by regulators in
Malaysia resemble the energy trilemma, taking into account the fol-
lowing key guiding principles (Energy Commission, 2018a):
i. There should be certainty and transparency in the overall timeline
as the country progresses towards a market-based price for gas to
ensure the viability of reinvestments into new gas fields, infra-
structure and technology
ii. There should be a gradual transition for market-based price for gas
iii. Any desired subsidies need to be explicit to the end users of gas and
not at the input
From the above, energy policy makers understand the importance of
transition from the regulated price for gas towards a market-based price
to ensure sustainability of production in Malaysia. However, an abrupt
move towards a market-based price would be damaging to the
economy, hence a gradual transition approach is taken. Recognising the
importance of energy justice to ensure accessibility to affordable and
reliable energy sources, assistance from the Government in the form of
subsidies will be given in an explicit manner to the end users.
The transition of the policy governing the natural gas sector in the
move towards a market-based pricing is explained using the eight
principles of the decision-making framework that upholds energy jus-
tice. The eight principles have been discussed by Ramazan et al. (2017),
among others. Our analysis is summarised in Table 2.
Z.-W. Lim, K.-L. Goh Energy Policy 128 (2019) 197–211

Fig. 8. A balanced Energy Trilemma Diagram. Source: Adopted from Heffron et al. (2015).

Table 2
Eight principles of energy justice in the natural gas industry transformation.
Source: Author's analysis.
Principles Description

1. Availability The amendments to the Gas Supply Act enables Third-Party Access (TPA), thus allowing third party suppliers to supply gas to Peninsular
Malaysia, ensuring energy security and availability of natural gas for the people. See Section 5.1 for further discussion.
2. Affordability EC will be regulating the consumer tariff while facilitating a gradual transition towards a market-based pricing to reduce the impact of
price increase to the users. EPU as the policy maker for natural gas will ensure the impact of natural gas price changes on the ‘Bottom 40%
(B40)’ households is minimized. See Section 5.4 for the pricing reform mechanism.
3. Due Process EC facilitates a level playing field for third parties intended to participate in the natural gas market with the intent to promote healthy
competition among the players.
4. Transparency and accountability The amendment in the Gas Supply Act (see Section 5.1) enables EC as the regulator to obtain information on the natural gas and publish
these information on the website, ensuring information transparency and accountability to the public. The governance framework that
involves inter government agency collaboration also provides the monitoring mechanism that acts to protect the interest of the public (see
Section 5.2).
5. Sustainability TPA provides an alternative source of natural gas, reducing the need to explore new gas fields in Peninsular Malaysia and tapped on the
global market for the time being. Besides, the right pricing and policy is also supported by ensuring the development of key infrastructure
and supply chain for the natural gas industry to increase efficiency and reduce wastage. See Section 5.1 on changes in the supply chain
and Section 5.3 on infrastructure development.
6. Intragenerational equity EC ensures that there is a level playing field for all by providing equal access to the regasification terminal, transmission and distribution
pipelines. The Steering Committee of NKEA Oil, Gas and Energy (see Section 6.1) also provides the platform for the Ministry of Energy,
Green Technology and Water to ensure everyone has the right to access energy services.
7. Intergenerational equity By sustaining the current oil and gas fields and reserves in Malaysia, this will ensure that the future generations will not be deprived of the
natural resources. One of the key stakeholders in the natural gas supply chain, the ministry in charge of environment (see Section 5.2),
plays the role to oversee that environmental issues are not compromised.
8. Responsibility This energy policy also strengthens the energy governance where the Steering Committee of NKEA Oil, Gas and Energy will provide the
oversights for all ministries, agencies and NGOs to contribute feedback i.e. environmental concerns, investor relations, industry
development and other areas of concern to the industry. See Section 5.2 for further discussion on governance.

In line with the Economic Transformation Programme, the natural
gas industry has been identified as one of the key focus areas under the
NKEA of Oil, Gas and Energy. With the end goal of unlocking premium
natural gas demand in the country, the Government has prioritised the
agenda of having an efficient and sustainable natural gas market as a
development strategy, starting from Peninsular Malaysia. The
Government's initiatives are categorised into four key building blocks to
unlock premium gas demand:
i. Amendments to Gas Supply Act (1993) (Act 501)
ii. Strengthening Energy Commission (EC) as the regulator for the
natural gas sector
iii. Development of key infrastructure such as LNG import terminals,
i.e. regasification terminals
iv. Gas market liberalisation
5.1. Amendments to the Gas Supply Act (1993) (Act 501)
The Gas Supply Act (1993) (Act 501) and the Gas Supply Regula-
tions 1997 were enacted to mandate the Energy Commission to oversee

203
Z.-W. Lim, K.-L. Goh
and regulate the activities, utilisation and supply of piped gas, ensure
the viability of gas supply businesses, and protecting the interests of the
public. The Act covers a broad spectrum of administrative legislation
including licensing and technical aspects such as efficiency, safety and
reliability of the gas infrastructure as well as quality of the services and
gas products offered. However, the Act does not apply throughout the
whole gas supply network. It is only applicable to downstream supply of
natural gas through the pipelines of the last flange of the city gate
stations. Natural gas transmission and lateral pipelines connecting to
and including the city gate stations are not in the jurisdiction of Energy
Commission.
The transition to a market-based system can only be possible
through changes in the legal framework governing the gas sector. The
Gas Supply (Amendment) Bill 2016 was tabled at the parliament for the
first reading in December 2015 and passed by the Senate on 14 June
2016. On 16 January 2017, the Gas Supply Act (Amendment) (2016)
was enforced, paving the way for natural gas market liberalisation
particularly in Peninsular Malaysia (Energy Commission, 2017c). The
amendment empowers Energy Commission to regulate the end-to-end
supply chain from import, regasification, transportation, shipping,
distribution, and retail. Besides that, one notable highlight for the
amendment is on the introduction of Third Party Access. Through the
amendment of the Act, new licenses are created for the following ac-
tivities:
a. Importation of LNG into Malaysia
b. Shipping of gas via regasification terminals, transmission and dis-
tribution pipelines
c. Operation of regasification terminal
d. Transportation of gas through the transmission pipeline
e. Distribution of gas through distribution pipelines
f. Retail sales of gas
g. Private gas usage through piping system but excludes retail activ-
ities
In a nutshell, with the new Gas Supply Act enforced, the Energy
Commission's role is strengthened to include regulating the tariff at
regasification terminals, transmission pipelines and distribution
Fig. 9. Changes in supply chain through the Gas Supply Act (Amendment) (2016). Source: Authors’ analysis and illustration.
204
Energy Policy 128 (2019) 197–211
pipelines. All these mandates and the Commission's regulatory over-
sight on the gas infrastructure are put in place to facilitate a level
playing field for third parties intended to participate in the natural gas
market. The purpose is to promote healthy competition among the
players which is in line with the implementation of Third Party Access.
From Fig. 9, it is observed that Third Party Access seeks to introduce
competition across the supply chain by providing access to essential gas
infrastructure required to ship gas to customers, covering access to the
utilisation of LNG regasification terminals, transmission and distribu-
tion pipelines.
Besides, business opportunities are also created through Third Party
Access for domestic players. The supply of gas and gas shipping busi-
ness operated solely by PETRONAS before the amendment of the Act
will now be opened to new investors where investors can source gas
supply from LNG importers or other gas producers and compete with
PETRONAS. Investors venturing into gas importation and shipping can
then sell gas based on negotiated terms with transmission pipelines
operators to transport gas to end users. Another business opportunity
would be on gas marketing, sales and retail, which are sectors formerly
operated only by Gas Malaysia Berhad (GMB). Investors can start
identifying key industries and promote advocacy of natural gas to en-
courage switching over to the utilisation of natural gas via third party
access. Retail gas market is a greenfield segment where investors can
provide piped gas services to new residential and commercial areas. Gas
transport distribution is still regulated by the Energy Commission.
However, areas without accessibility to the piped gas network identi-
fied by investors with a clear business case to justify investment of the
infrastructure development, will be considered by Energy Commission
for approval. These efforts require synergy between investors, industry
players and the Malaysian Investment Development Authority (MIDA)
to identify, promote and develop new industrial areas.
5.2. Strengthening the governance of natural gas industry in Malaysia
The gas supply chain is vertically integrated with PETRONAS, the
major player in the market. Fig. 10 shows that there are many key
stakeholders involved along the supply chain.
The Economic Planning Unit (EPU) is the overall policy maker for
Z.-W. Lim, K.-L. Goh
Fig. 10. Stakeholder mapping across the natural gas value chain. Source: Authors’ analysis and illustration.
the natural gas industry in Malaysia. Malaysia Petroleum Management
(MPM) in PETRONAS acts as the regulator in the upstream sector for oil
and gas. The Gas Supply Act (Amendment) 2016 empowers the Energy
Commission as the regulator of the natural gas industry. The regulatory
scope for Energy Commission is expanded to include importation, re-
gasification, transmission and distribution of gas. Besides that, ac-
cording to the Act, the Commission will also oversee the economic as-
pect of the industry which includes competition as well as consumer
rights under the jurisdiction of the tribunal council. All these are im-
perative to set the stage for an efficient and sustainable natural gas
market in the future. The Ministry of Energy, Green Technology and
Water (KeTTHA), is the policy maker for the electricity sector (better
known as power sector) which consumes a large volume of natural gas
in Peninsular Malaysia. KeTTHA's key objective is to ensure the input
cost for the power sector remains low. Meanwhile, policies for the in-
dustry and commercial sectors (better known as non-power sector) are
determined by the Ministry of International Trade and Industry (MITI).
The role of the Ministry of Domestic Trade, Co-operatives and
Consumerism (KPDNKK) is to ensure that the rights of natural gas
consumers on the retail side is upheld.
With the growing complexity of the policy, EPU as the policy maker
for the industry would need to manage the dynamics of other ministries
with varying policy goals as negotiations will take place. Striking a
balance between the policy goals and understanding the trade-offs for
every policy decision is key. For KeTTHA, the policy goals have always
been to ensure affordable and sustainable electricity supply to the in-
dustry, commercial and residential users. On the other hand, MITI's
policy goals are to develop and grow the domestic industries as well as
attracting more foreign investments into the country. With growing
environmental concerns, the Ministry of Natural Resources and
Environment's (NRE) policy goals would be to improve emission stan-
dards and introduce cleaner alternative fuel for the nation.
The above clearly demonstrate that there are various ministries and
government agencies with competing aims across the natural gas value
chain. From the perspective of energy economics, MITI will be able to
attract more investments for new infrastructure development and new
industries in Malaysia with the right business environment and energy
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Energy Policy 128 (2019) 197–211
pricing. KeTTHA's concern of the social welfare of the people is taken
care of by maintaining low electricity prices. From the perspective of
energy politics, MPM as the regulator of upstream sector for oil and gas
needs to oversee the sustainability of the natural gas fields development
in Malaysia. Right economic pricing of gas is essential for continuous
development of the natural gas fields and attracting new investors to
supply natural gas to the market to ensure security of supply into
Peninsular Malaysia. From the environment perspective, NRE will up-
hold the national environment agenda. Hence, EPU and Energy
Commission ought to constantly review and consider all the competing
goals in the development of the natural gas energy policy and regula-
tions.
5.3. Development of key infrastructure for the natural gas industry
The governance and policy framework are established with the
amendment of the Gas Supply Act. Third Party Access allowed under
the Act requires the development of key infrastructure, a vital impetus
to the sustainability of the natural gas industry. Over three decades ago,
PETRONAS had commissioned a ‘Gas Masterplan Study’. The foresights
and long-term strategy developed in the masterplan had catalysed and
led to a developed, well-integrated and efficient natural gas industry in
Peninsular Malaysia. The current infrastructure in Peninsular Malaysia
supporting the industry is shown in Fig. 11. One of the key projects
from the masterplan is the Peninsular Gas Utilisation (PGU) project.
5.3.1. Gas processing plants
Through the PGU project, the transmission grid had made it possible
for gas from offshore Terengganu, a state in the East Coast of Peninsular
Malaysia, to be processed and introduced into the gas network system.
Natural gas extracted from gas fields located at the east coast of
Peninsular Malaysia will be processed in the gas processing plant
complexes located in Terengganu. These gas processing plants are
owned by PETRONAS Gas Berhad (PGB) with a total capacity of 2060
mmscfd (million standard cubic feet per day). Further details on the gas
processing plants in Peninsular Malaysia are reported in Table 3. The
processing process segregates natural gas mainly into methane, ethane,
Z.-W. Lim, K.-L. Goh Energy Policy 128 (2019) 197–211

Fig. 11. Overview of the gas infrastructures in Peninsular Malaysia. Source: Energy Commission (2016).

propane, butane and condensates (MGA, 2017). Ethane, propane and
butane are usually utilised as feedstock in the petrochemical plants
while methane is sold to power plants, industry and commercial sectors
as sales gas.
5.3.2. Gas transmission network
After the gas is processed, the sales gas is then transported through
the PGU gas transmission network across Peninsular Malaysia. This
transmission network had led to the development of gas-fired power
plants along the network such as TNB Tuanku Jaafar, Segari Energy
Ventures, TNB Paka, Panglima Power and Genting Sanyen Power. The
PGU provides a vital network that links Peninsular Malaysia to the gas
pipeline grid in Thailand through Padang Besar in Perlis, north of
Peninsular Malaysia. This enables access to the Malaysia-Thailand Joint
Development Area (MTJDA) landed at Songkhla, up north of Peninsular
Malaysia. It also links Peninsular Malaysia to Singapore's gas pipeline
network, enabling the export of gas down south. Details on the main
pipelines in Peninsular Malaysia are given in Table 4.
5.3.3. LNG Regasification Terminal (RGT)
With the shortfall in gas supply in Peninsular Malaysia, it is im-
portant to source for alternative natural gas supplies on top of the
current supplies from offshore of east coast, MTJDA and CAA. LNG
regasification terminal facilitates the regasification of liquefied natural
gas and supply it into the PGU transmission network. The first re-
gasification terminal in Sungai Udang, Melaka is commissioned in May
2013. The infrastructure sets the stage for Malaysia to be at the fore-
front of LNG trading in the region. The RGT is equipped with receiving
facilities to cater for LNG unloading and reloading, LNG storage facility,
handling services as well as regasification. This RGT is linked to the
PGU transmission network via a 3 km sub-sea pipeline and a 30 km
onshore pipeline. The second RGT, located in Pengerang, Johor started
its operations in October 2017. The primary objective of this RGT is to
supply gas to PETRONAS’ refinery and petrochemical integrated de-
velopment project (RAPID), the Pengerang Co-generation Plant (PCP)
as well as the PGU transmission network. Table 5 furnishes further
details on the two RGTs in Peninsular Malaysia. These developments
are spearheaded by PGB in line with the third-party access which

Table 3
Summary of Gas Processing Plants in Peninsular Malaysia.
Source: PGB (2017).
Project Complex Owner Commissioned Year Capacity (mmscfd)

Gas Processing Plant (GPP 1) Kertih PGB 1984 310

Gas Processing Plant (GPP 2) Kertih PGB 1992 250
Gas Processing Plant (GPP 3) Kertih PGB 1992 250
Gas Processing Plant (GPP 4) Kertih PGB 1994 250
Gas Processing Plant (GPP 5) Santong PGB 1999 500
Gas Processing Plant (GPP 6) Santong PGB 1999 500

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Z.-W. Lim, K.-L. Goh Energy Policy 128 (2019) 197–211

Table 4
Summary of the main pipelines in Peninsular Malaysia.
Source: PGB (2017).
Project Length (km) Gas-In (Year) Details

PGU I 32 1983 Connects the gas processing plant to the export terminal, gas reticulation system and end-users (power and non-
Kertih – Teluk Kalong power) in the east coast
PGU II 714 1991 Connects the western and southern parts of Peninsular Malaysia which includes Singapore
Sector I: Teluk Kalong – Segamat 265
Sector II: Teluk Kalong – Kapar 241
Sector III: Segamat - Plentong 208
PGU III 450 1996 Connects the northern part of Peninsular Malaysia up to the Malaysia-Thailand border along the West Coast
Sector I: Meru - Lumut 184
Sector II: Lumut - Gurun 130
Sector III: Gurun - Pauh 136
Loop 1 266 1999 Enhancement of transmission capacity for security of supply
Kertih - Segamat
Loop 2 228 2000 Enhancement of transmission capacity for security of supply
Segamat - Meru

Table 5 power sector is capped at 1000 mmscfd (PETRONAS, 2013). As for

Summary of the regasification terminals in Peninsular Malaysia.
Source: PGB (2017).
Project Location Commissioned
Regasification Terminal (RGT Sungai Udang, May 2013
1) LEKAS LNG Melaka
Regasification Terminal (RGT Pengerang, October 2017
2) PENGERANG LNG Johor
served as an entry point for investors to penetrate the gas market in
Peninsular Malaysia.
5.4. Natural gas price liberalisation
Changes in energy price changes affect the economy mainly through
three different channels. The first channel is input costs on the supply
side. Holding others constant, when energy prices decrease, cost of
production also decreases, translating into lower consumer prices
which eventually leads to lower inflation in an economy. The second
channel is the income channel. Consumers will have higher purchasing
power when energy prices are low as they now need to pay a lower
price for the same quantity to energy consumed, leading towards a
higher consumption ceteris paribus (Finn, 2000). The final channel is
through the monetary and fiscal policies channel. From an economic
standpoint, undoubtedly volatility of the energy price will lead to in-
flation, or even recession if the problem is aggravated. Policy strategies
are imperative to mitigate risks and impacts arising from the volatility
of energy price. An effective policy will play the balancing role in either
stimulating the economy during a downturn or managing volatility
when inflation is too high (LeBlanc and Chinn, 2004).
In Peninsular Malaysia, there are two key categories of gas con-
sumers. The first category is the power sector where gas is consumed by
the Independent Power Plants (IPP). The second category is the non-
power sector, which is segregated into GMB and the remaining players
in the non-power sector. The non-GMB sector includes the large in-
dustry players who negotiate gas contracts directly with PGB such as
PETRONAS Penapisan Melaka, PETRONAS Chemical Fertiliser Kedah,
LOTTE Chemical Titan and White Horse Ceramic Industries. As for
GMB, gas is supplied from PGB to GMB to be distributed to the smaller
industries. The natural gas price varies for these three groups.
5.4.1. Existing natural gas pricing regime
Natural gas price in Peninsular Malaysia is highly regulated. The
existing gas price in is determined by a two-tier pricing model. The first-
tier is the ‘Regulated Piped Gas Price’. In the first-tier pricing for
wholesale gas at the city gates, the applicable gas supply volume for the
GMB, the cap is set at 382 mmscfd and subsequently revised down-
wards gradually to 300 mmscfd in 2018 (Energy Commission, 2017b).
Capacity As for the non-GMB non-power sector, the applicable volume is based
on their existing negotiated terms. Determination of the regulated pri-
530 mmscfd cing for the first-tier is at the sole discretion of the Government.
(3.8 Mtpa)
Once the volume consumed exceeds the applicable volume for the
490 mmscfd
(3.5 Mtpa)
regulated price, second-tier pricing, also known as "Discounted LNG
Market Price", is applied. The second-tier pricing formulation includes
product cost, shipping, regasification, transmission cost and end user
price. These components are shown in Fig. 9.
Product cost in the second-tier pricing is derived from the LNG Free
on Board (FOB) Weighted Average Price (WAP) ex-Bintulu with a dis-
count factor to it. LNG FOB WAP ex-Bintulu price is formulated based
on a portfolio of natural gas buyers that PETRONAS is exporting the gas
to. The gas price is then differentiated by categories where there will be
a discount of 15% for the power sector and 10% for the non-power
sector (GMB).
Delivery cost includes shipping cost, regasification cost and trans-
mission tariff which are determined by the operators. The regasification
terminal and the transmission pipeline are owned by PGB. The trans-
mission tariff is determined by construction cost, operation cost, profit
margin and taxes. City gate prices are wholesale prices that the power
sector and the non-power sector are paying to the gas supplier to pro-
cure the gas. As shown in Fig. 12, the city gate prices are the summation
of the product cost and delivery cost.
However, there are a few major concerns on the existing two-tier
pricing model. Firstly, there is a huge gap between the regulated pricing
and the prevailing market price for gas. Without the right pricing, other
investors will not be interested to participate in the Malaysian gas
market. Secondly, the natural gas volume locked in for the power sector
is substantial and the remaining volume for competition is compara-
tively smaller. Thirdly, the pricing formula for the second-tier is com-
plicated without any room for negotiations.
5.4.2. The pricing reform mechanism for natural gas
Under the Economic Transformation Programme, the Government
had implemented the three out of the four key building blocks in un-
locking the premium gas demand. Notwithstanding all these efforts
from the Government, the final piece of the puzzle needs to be in place
for a complete transformation – the natural gas pricing reform. Despite
the noble true north for an efficient and effective natural gas market,
the agenda of pricing reform in Malaysia is a politically unpopular
move and sensitive. This is because transitioning towards a market-
based pricing mechanism would see an increase in price given that
natural gas prices have been regulated by the government for over two
decades. Recognising the importance of the right pricing for the natural

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Fig. 12. s-tier pricing formulation for natural gas in Peninsular Malaysia. Source: Authors’ analysis and illustration.

gas market, the government had strategized accordingly and decided on
a two-pronged strategy in rationalising gas prices in Malaysia.
The Government started the natural gas price rationalisation in June
2011 after the Cabinet's approval (PETRONAS, 2013). For the first-tier
pricing, a directive had been issued for the wholesale gas price supplied
to the non-power sector and power sector to increase by RM1.50 per
MMBtu every 6 months until it reaches the prevailing market price
(Energy Commission, 2018b). However, the second price adjustment
only resumed in 2014, where the natural gas price for the power sector
was increased in January 2014 and subsequently the non-power sector
in April 2014. The increase in the power sector was implemented ear-
lier to align itself with the introduction of the Incentive Based Reg-
ulation for the power sector (Energy Commission, 2014). In Table 6, the
historical natural gas prices from January 2014 to January 2018 are
tabulated. It is observed that there had been two delays in the price
adjustment for the power sector. This is due to the Incentive Based
Regulation for the power sector where the electricity tariff had also
been raised. Hence, there is no incentive of the government to introduce
any further price increase that will burden the consumers.
For the existing second-tier pricing, the government had decided for
the pricing structure to continue until the first-tier pricing converge
with the market price. When the first-tier regulated price is within
RM1.50 from the 6-months average of the prevailing market price, the
single-tier pricing structure takes over automatically. The reference
market price will be a single-tier pricing, determined based on the
negotiation between the buyer and the seller upfront.
Natural gas price for the power sector will be negotiated between
the Ministry of Energy, Green Technology and Water (KeTTHA), Tenaga
Nasional Berhad (TNB) and the Energy Commission. This is because gas
supply to the power sector is under the Gas Framework Agreement and
electricity tariff is regulated by the Government. As for the non-power
sector, the adjustment will depend on the negotiation between the
buyer and the seller. Following a series of biannual price increases and
supported by relatively low oil prices in international markets, the gap
between the first-tier regulated gas prices and the forecasted reference
market price has narrowed. As a result, wholesale gas prices for most
customer types are currently close to the cost reflective pricing in
Peninsular Malaysia. Besides, the first-tier regulated volume for the
power sector and non-power sector (GMB) will be reviewed downwards
annually to release the gas volumes that were previously locked in by
PETRONAS. The key lessons learnt throughout the journey of the
Malaysian natural gas pricing reform are:
i. The approach of increasing RM1.50 per MMBTu every six months is
a gradual transition towards a market-based pricing to cushion any
drastic impact to the consumers.
ii. The gas price increases gradually every six months had provided
certainty and transparency to the consumers in the timeline tran-
sitioning the gas price towards a market price. This allows busi-
nesses to plan in anticipation of the natural gas price movement.
iii. More direct information on current and expected future gas prices
are provided through several gas price monitoring activities by the
Energy Commission. A comprehensive communication plan on
natural gas sector reform is imperative to soften the grounds and
ease the transition of gas prices.
iv. Implicit subsidies in the form of foregone revenue from PETRONAS
are rationalised gradually. Any further subsidies should be explicit
and targeted to key industries prioritised by the Government.

Table 6 6. Energy justice in the natural gas pricing policy reform

First-tier: Historical natural gas prices from the gas supplier to the large con-
sumers. Gas producers and suppliers would benefit the most from the pricing
Source: Energy Commission (2017b).
reforms that will contribute to an increase in prices. However, the en-
Timeline Non-Power Sector Non-Power Sector Power Sector ergy trilemma adopted from Heffron et al. (2015) (see Fig. 8) suggests
(Others) (GMB) that economic factors including project viability, financing, dividend to
RM/MMBTu RM/MMBTu RM/MMBTu
the government, tax revenues as well as subsidies must be taken into
Jun 2011 18.35 14.05 13.70 consideration by policy makers. The right pricing is imperative for
Jan 2014 – – 15.20 PETRONAS to continue to develop existing and new gas fields to ensure
Apr 2014 19.85 15.55 – security of natural gas supply in the market. However, if the regulated
Jul 2014 – – Delayed
price is below the cost of supply, this would deter new investments and
Nov 2014 21.35 17.05 –
Jan 2015 – – Delayed exploration of new fields. From the gas importers’ perspective, without
Jul 2015 22.85 18.55 16.70 the right price, there would be no incentive to import gas into the
Jan 2016 24.35 20.05 18.20 Malaysian market.
Jul 2016 25.85 21.55 19.70 Stability and sustainability in the energy market is crucial from the
Jan 2017 27.35 23.05 21.20
perspective of energy politics. The welfare of the end users is also
Jul 2017 28.85 24.55 22.70
Jan 2018 30.35 26.05 24.20 considered in the formulation of the gas price rationalisation policy.
The government, cognizant of the importance of managing the welfare

208
Z.-W. Lim, K.-L. Goh
of consumers, has introduced the approach of gradually increasing
natural gas prices every six months to minimise the impact of price
shocks to the consumers. Furthermore, clear communication by the
Energy Commission to the consumers also provides certainty and
transparency in the gas market, thereby allowing businesses to plan
better.
The Malaysian journey demonstrated the dynamism of various key
stakeholders and the possibility of achieving a well-struck balance be-
tween competing policy goals in the country's natural gas pricing re-
form strategy. The breaking of silos among key stakeholders, under-
standing the cost of the respective policy goals and structuring
recommendations and strategies via cost-benefit analysis have shown
the criticality and practicality of balancing the elements of the energy
trilemma. Although there are various concepts and understanding of
energy justice (Heffron and McCauley, 2014; Jenkins et al., 2014;
McCauley et al., 2013; Sovacool et al., 2016), the key takeaway is how
the policy makers can balance the dynamics of the competing policy
goals in the final policy framework.
6.1. Recognition justice - A collective and coordinated effort for the reform
Policy reforms for market-based pricing are politically sensitive. The
policy objectives for each key stakeholder are clearly defined and na-
vigated through the dynamics of the pertaining issue for natural gas
pricing reform to ensure the formulation of holistic recommendations.
As it is near impossible to have a silver bullet to solve the natural gas
pricing policy reform, coordinated efforts through engagements,
workshops and alignment meetings were conducted to ensure trans-
parency of information and alignment of the key outcomes for the de-
cisions made. This is aligned with recognition justice where all key
stakeholders representing the NGOs, industries as well as the consumer
groups are represented and engaged in the policy making and problem-
solving process via the Steering Committee of the NKEA of Oil, Gas and
Energy.
Fig. 13. Governance structure for the natural gas pricing reforms in Peninsular Malaysia. Source: Authors’ analysis.
209
Energy Policy 128 (2019) 197–211
The governance and problem-solving mechanism established by the
PEMANDU team in charge of the NKEA of Oil, Gas and Energy (OGE)
provides a platform for policies requiring tough decision making from
various key ministries. The Prime Minister of Malaysia intervenes di-
rectly on the natural gas pricing policy reformation to strike a balance
between the competing policy goals of various stakeholders. The me-
chanism, summarised in Fig. 13, shows that the process requires
breaking the silos and piecing all the information together for making
informed policy decisions given the complexity of the natural gas pri-
cing reform. The mechanism entails participation of not only the policy
makers, government agencies, key industrial players from both the
public and private sector, but also involvement of the civil society and
consumers representatives to safeguard the interests of every segment
of the society in the policy making process.
6.2. Procedural and distributional justice - Ensuring fairness and
information transparency
From the procedural justice perspective, the amendment of the Gas
Supply Act has ensured full disclosure of natural gas relevant in-
formation, tariff included, which provides certainty to consumers on
the future movements of natural gas prices. Besides that, all key sta-
keholders are engaged throughout the energy policy making process
through the NKEA Oil, Gas and Energy Steering Committee. The
meetings conducted are equitable engagements in a non-discriminatory
manner. For a good institutional representation, the key ministries,
KeTTHA, MITI and KPDNKK represent consumers and industry players
to protect the welfare of these groups. With the involvement of non-
governmental organisations and consumer associations in the policy
making process, the gradual increase of natural gas price approach is
adopted with a clearly defined exit criterion. This also ensures that the
process adheres to the principle of distributional justice with all the key
ministries involved, and that all decisions are communicated trans-
parently and made known to all stakeholders. The presence of Energy
Z.-W. Lim, K.-L. Goh
Commission to monitor competition among the suppliers takes into
consideration that natural gas cannot be totally treated a private good
to prevent unhealthy competition that may affect distributional justice.
6.3. Restorative justice – Sustainability matters in energy policy making
From the perspective of restorative justice, sustainability is im-
perative in Malaysia's energy policy making to ensure any injustice
caused by development are rectified. In Malaysia, natural gas is em-
phasised as a cleaner alternative energy where KeTTHA has considered
the carbon emission reduction commitment and adopted a balanced
electricity generation mix using coal and natural gas. The energy
planners are also putting emphasis on natural gas and has identified
natural gas as a bridging fuel for the future. Under the Economic
Transformation Programme, recommendations to grow natural gas
demand in Peninsular Malaysia are introduced to encourage industry to
switch from coal and diesel to natural gas as the cleaner alternative.
Apart from that, there are also advocacy programmes on smaller dis-
tribution units such as co-generation power plants, Combined Heat and
Power generation as well as Central Utilities Facility with green in-
centives programme by the Malaysian Investment Development
Authority (MIDA). As for NRE, their policy aim is to ensure that
Malaysia adhere to commitment made at the United Nations
Conference on Climate Change (COP21), which is to reduce greenhouse
gas emissions intensity of GDP by 45% by 2030 relative to the emissions
intensity of GDP in 2005 (Ministry of Natural Resources and
Environment (NRE), 2015).
6.4. The way forward for the natural gas pricing
Moving forward, it is imperative for the Energy Commission to
ensure that the domestic natural gas market is vibrant by encouraging
healthy competition within the natural gas supply chain. The supplies
that are locked-in under long term contracts should be reviewed and
renegotiations should be allowed. This would then introduce more
flexibility in the system to attract more third-party players to partici-
pate in the market. For a liberalised market to function effectively, it is
also important for existing and potential producers, suppliers and cus-
tomers to have access to timely and accurate information about supply-
demand conditions. This will inform relevant parties on the projected
profitability of potential investments in various gas supply and con-
sumption activities. It is crucial that at the outset of a liberalised gas
market, the Energy Commission monitors and publishes end-use gas
prices. This will assist the Energy Commission to assess whether the
liberalisation is helping to improve efficiency of end-user tariffs or
whether it is resulting in the exercise of market power by suppliers. The
key lessons learned through this can then be replicated to East Malaysia
by the regulator.
7. Conclusion and policy implications
With the advocacy of energy justice, energy resources will be
managed in a fair, transparent and equitable manner, while sustain-
ability of the resources for the future generations is not compromised.
Although there is no single best approach in energy policy making, this
article aims to explain a structured decision-making process flow and
perspectives on the application of energy justice in the policy for-
mulation of an emerging economy in the transition from a price-regu-
lated to a market price-based natural gas sector. Energy justice concept
is prevalent as policy makers in Malaysia embarks on the journey to
reduce its fiscal deficits and advocate for an efficient energy market
(PEMANDU, 2011). Transformation in the natural gas industry is vital
to weather uncertainty in the global oil and gas markets. The key ob-
jective for the amendment of the Gas Supply Act which governs parti-
cularly the natural gas industry in Peninsular Malaysia is to enable
third-party access in the market. This is crucial to ensure security of gas
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Energy Policy 128 (2019) 197–211
supply in the market in the face of declining natural gas production.
The role of the Energy Commission had also evolved from regulating
the technical aspects of the industry to also include the economics as-
pect such as market and competition monitoring. Key infrastructure had
been developed in an integrated manner by the national oil company,
PETRONAS, to promote an efficient gas supply chain. Energy law of
such should be emulated where it embraces the true north in devel-
oping a sustainable energy policy.
All the above are put in place for the key market enablers to set the
right pricing for natural gas according to market forces. Throughout the
journey, energy pricing reform is politically sensitive and hence, bal-
ancing the competing policy objectives of different stakeholders is a
vital impetus for the right decision to be made. The natural gas pricing
mechanism provides transparency to reduce uncertainties in the market
to encourage greater participation of new investors and players in the
Malaysian natural gas market. Malaysia had made a tough decision in
moving towards a liberalised market for natural gas. Despite the chal-
lenge faced to remove the energy subsidies, the Government has taken
measures by adopting a gradual transition in pricing reforms, ensuring
information transparency and fairness to all parties.
Undeniably, energy law is a discipline that is gaining traction in
recent years as governments have emphasised on the importance of
energy with the concerns on climate change and energy security. The
emergence of energy justice concept aims to provide a holistic and in-
tegrated view of the whole energy value chain. This article shares the
same belief that the energy justice will be the guiding light for a holistic
development of energy law in the future (McCauley et al., 2013;
Heffron and McCauley, 2014; Jenkins et al., 2014, 2016; Heffron et al.,
2015, 2018; Heffron and Talus, 2016a, 2016b; Sovacool et al., 2016;
Heffron and Mccauley, 2017; Sovacool and Dworkin, 2015). The col-
lective effort is crucial to institutionalise energy policy decision making
with energy justice at its core. This is crucial as the world is experi-
encing a rapid development in the energy sector, spurring the demo-
cratisation of energy is the way to move forward.
Acknowledgement
We would like to thank the reviewers and a Senior Editor for all the
insightful comments that improved the paper substantially. Any re-
maining errors are our sole responsibility.
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