Malaysia's Gas Supply - demand gap

The gap between supply and demand for gas in Malaysia is set to grow in 2013 when contracted production declines, according to Datuk Dr Abdul Rahim Hashim, president of the International Gas Union (IGU).

He said that Malaysia is facing supply challenges due to the decreasing levels of localized gas production in Peninsular Malaysia as well as increasing rates of extraction. Commercially challenging reserves which are smaller in size yet also scattered in terms of locations, are also contributing factor towards the supply challenges, along with the general increase in costs related to exploration and production activities.

Abdul Rahim noted that, like every other part of the world, local energy demand in Malaysia is increasing along with growing population, economic expansion, individual prosperity, and urbanization. He further added that the nation's dynamic economic and social - political interest needs balancing to ensure of gas supply.

Commenting on the heavy subsidies in Malaysia which has kept end-user gas prices in Malaysia is the lowest in the Southeast Asia region, he said that the prolonged regulated pricing causes market imbalances and inefficiencies. The subsides have been placed since the year 1997.

Nothing that Malaysia is currently ranked 15^thand 21^strespectively in terms of gas reserves and oil reserves, Abdul Rahim said that the Economic Planning Unit is aiming to align natural gas prices for the power sector with market price by the year 2016. This will be done via gradual price increments of RM3 per MMBtu every six months.

Source: Adapted from The Star, 9 May 2012.

Questions

1.What are the impacts of subsidies on the gas market in Malaysia.

2.Explain the factors that have driven the increasing domestic demand for gas.