Industry Gala Dinner 2015 SPEECH BY IR PRAMOD KUMAR KARUNAKARAN PRESIDENT, MALAYSIAN GAS ASSOCIATION 6 November 2015

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1 Industry Gala Dinner 2015 SPEECH BY IR PRAMOD KUMAR KARUNAKARAN PRESIDENT, MALAYSIAN GAS ASSOCIATION 6 November 2015 Yang Bahagia Datuk Wan Zulkiflee Wan Ariffin President and Group Chief Executive Officer, PETRONAS and Patron of Malaysian Gas Association En. Ramlan Abdul Malek President of MOGSC Datuk Iain Lo Chairman of Shell Companies in Malaysia Mr See Kok Yew President of ExxonMobil Malaysia Datuk Loo Took Gee Secretary General, Ministry of Energy, Green Technology and Water, Malaysia Distinguished Guests Fellow Colleagues from the Oil and Gas Industry Ladies and Gentlemen Salam sejahtera and a very good evening. On behalf of the Malaysian Gas Association and the Malaysian Oil & Gas Services Council, it is my great honour to welcome all of you to the Industry Gala Dinner This annual gathering which has been jointly and successfully organized by MOGSC and MGA since 2009 is indeed the largest gathering of the oil and gas fraternity and provides an excellent opportunity for us to renew friendships and develop new ones, as we enjoy good food and

2 great entertainment together. I m pleased to note that the number of attendees today has surpassed our target of 700. Your presence this evening is highly appreciated and indeed, encouraging, as it reflects the strength of our collective resolve to forge deeper ties of collaboration in ensuring our industry continues to advance in spite of the prevailing challenges. I would also like to take this opportunity to convey sincere thanks to MOGSC under the leadership of En Ramlan for providing much support as always towards making this event a success. We are all well aware of the difficult times faced by the industry. The prevailing low oil price has severely affected all of us. No one is spared. The confluence of world events and the structural shifts in the industry all points to a prolonged period of low oil and gas prices. This calls for a fundamental shift in the way we do our business. It is gratifying to note that the industry has not remained still but has come together to address the situation collectively. For example, through initiatives such as CORAL 2.0, I understand that PETRONAS and service contractors are making good progress in identifying areas where processes can be simplified and costs can be streamlined and reduced. But, however we may choose to characterise today s situation, the one thing that cannot be denied a silver-lining, if you like is that lower oil, and therefore gas, prices have provided us with the opportunity to create the framework and undertake the necessary reforms that will enable natural gas to sustainably contribute to the country s economic progress.

3 Since the introduction of natural gas in the early 1980s, the demand for gas in the country has grown exponentially, driven by its efficiency as well as the low regulated price relative to other competing fuels. We cannot ignore the fact that gas is the cleanest fossil fuel with the lowest CO2 emission per BTU and gas turbine based power is achieved with generation efficiencies in excess of 60%. Unfortunately, regulated prices in Malaysia has resulted in significant market distortions with accumulated subsidies in excess of RM227 billion to date. Clearly, this is not a sustainable situation and cannot be left unchecked. Fortunately, the Government have taken steps to eliminate subsidies, and with the requirement to import LNG the government have approved that:- 1. For any new contracted volumes of gas, gas will be sold at a market based price with a small discount. 2. And for the original contracted volumes, gas price will increase by RM1.50 every six months until market parity is reached. Since June 2011 gas prices have been gradually increased, albeit slowly and the latest 1.50 increase for power, non-power and reticulation was implemented in July Based on our projections, if we continue firmly on our approved course, we should be able to achieve market parity within the next 5 years. In addition to this, the Government also approved an increase in the pump price of Natural Gas for Vehicles (NGV) from 68 sen per litre-equivalent to one Ringgit and five sen per litre-equivalent effective 20 th of September this year. This move was a momentous one, considering that the last increase was approved 10 years ago, in Moreover, I am delighted that we were able to achieve this 54 percent price increase without any notable backlash from NGV users. For this, I

4 must acknowledge the close co-operation we had had with EPU, PEMANDU, KPDNKK and especially the Land Public Transport Commission or SPAD which allowed us to carefully interline the pump price increase with their review of taxi fares and thereby better mitigate its impact on the majority of the users of NGV. The new pump price is still not at market albeit with a smaller gap due to the reduced market price of gas. We hope to get the required support be able to close the gap in the not too distant future so as to create a more market friendly environment for the propagation of the use of natural gas as a cheaper and cleaner alternative fuel for the transportation sector. (.this will enable other retailers besides Petronas such as SHELL, BHP and PETRON to distribute NGV and thereby help reduce the traffic congestions we are familiar with at Petronas s NGV stations..) I must state here that it remains the Government s policy today that energy subsidy needs to be phased out gradually until prices reflect the market value. These price increases that we have seen in recent months represent clear progress towards this goal, and the government and the industry must be applauded for this achievement. The price adjustments are just one of the reform initiatives that are already underway to create an open and competitive liberalized gas market in Malaysia to strengthen the country s energy supply security. Other initiatives such as amendments to the Gas Supply Act and implementation of a third party access regime are already underway. MGA has initiated workshops with stakeholders to facilitate implementation and address operational issues. I am very thankful for the strong support of the Energy Ministry or KeTTHA, the Energy Commission, EPU and PEMANDU

5 under the Prime Minister s Department which have been working closely with MGA in this respect. In line with MGA s objective to promote a vibrant and sustainable Malaysia gas industry, the Association, through its members have engaged with the Energy Ministry, the Energy Commission and EPU in dialogues to discuss a wide range of issues which confront the industry and how we can all work together to move the industry forward. There is no doubt that natural gas has a key role in achieving a low carbon economy. The credentials of natural gas as a clean, efficient and cost effective fuel are indisputable. Efforts are underway to promote the use of compressed natural gas as a fuel for bulk transportation. The economics and the benefits for this are compelling and a proposal paper has been submitted to EPU recently. In the power sector, MGA is pushing for a wider implementation of cogeneration to maximize efficiency and a workshop on this will take place on 16 November this year. We need to have policies that encourage cogeneration in view of the significant efficiencies achievable to the tune of 90% and move away from the perception that the electricity produced from co-gen is waste power. For your information, in countries like the UK and Thailand, policies to encourage cogeneration which even includes Feed-In-Tariffs have been implemented. This is the 7 th year that MGA and MOGSC are working together to organise this annual dinner. Such joint activities involving industry organisations have not

6 only served to cut costs for everyone but more importantly, we have created a community for our industry, a family of oil and gas participants and stakeholders working together for the benefit of the industry and the country. This year, MGA has also worked with other similar organization like MOGEC, MOCA and IMM in organizing other social activities like the Industry golf challenge and the Hari Raya gathering. I know that the organizing committee had spared no effort in making this event an enjoyable and memorable one for everyone and on behalf of MOGSC and MGA, I would like to take this opportunity to express my sincere appreciation and a big thank you to the organizing committee led by Mr Ho Sook Wah, for their hard work and dedication. I would also like thank all the sponsors, in particular our two main sponsors, APBA Talent Sdn. Bhd. and GOM Resources Sdn. Bhd. for their generous contributions in making this dinner a success. Finally, we would like to express our deep appreciation to our guest of honour, YBhg Datuk Wan Zulkiflee and Datin Azura for kindly gracing this occasion with their presence. On that note, I wish you a very pleasant and enjoyable evening. Thank you very much.