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Understanding the Role of Natural Gas, the Transition Fuel for the Energy Future

The global energy transition aimed at reducing carbon emissions represents one of the most fundamental societal challenges of the 21st century. Alongside this transition, the world must also contend with a growing population and greater demands for electrification across key sectors of the economy.

As the world’s biggest contributor to growing energy demand, Asia, in particular, needs to urgently wean itself off its main fuel of choice to date: coal. In recent years, liquified natural gas (LNG) has emerged as a critical “transition fuel” for the region, offering a lower-carbon alternative to coal for power and industry.

Where natural gas replaces more polluting fossil fuels, it can improve air quality and significantly limit carbon dioxide emissions and other pollutants. As such, natural gas can complement the use of renewables, serving as an essential bridge in Asia’s energy transition towards securing a more sustainable and reliable energy future.

Balancing the energy mix: a question of resources

Asia as a whole is a patchwork of countries with very different starting points for the energy transition. While some countries have the right mix of natural assets to substitute coal with renewable energy, others have limited energy resources they can harness to leapfrog to more environmentally friendly technologies.

Natural gas together with CO2 capture technologies thus play a vital role in helping Asian countries to move away from coal and pave the way towards decarbonisation.

Even in Malaysia, where solar energy is abundant, high humidity in the atmosphere tends to create cloud cover on most days, thereby restricting the use of solar. In the absence of a strong single source of green energy, there is a need to deploy and manage a portfolio of energy sources to ensure affordable and reliable access to energy.

Although it is a fossil fuel, natural gas emits considerably fewer greenhouse gases. The CO2 produced per unit of energy is only about half compared to coal technology. Moreover, technologies like carbon capture, utilisation, and storage (CCUS) can be deployed to take CO2 out – reducing emissions from LNG plants by more than 95%.

Natural gas together with CO2 capture technologies thus play a vital role in helping Asian countries to move away from coal and pave the way towards decarbonisation. What’s more, they will be the key to enabling a fairer, more just transition to net zero within the limits of countries’ differing natural resources and economic capacities.

Taking the long-term view with natural gas

The clearest case for switching from coal to gas comes from the possibility of using existing infrastructure to provide the same energy services, but with much lower emissions. It is estimated that switching from coal to existing gas-fired plants could potentially reduce up to 1.2 gigatons of CO2 emissions in the global power sector.

However, most of these potential savings lie in mature energy markets with relatively flat electricity demand growth and significant spare gas capacity, like the US and Europe. It is a much more difficult proposition in Asia, where electricity market dynamics, demand trends, and relative prices are vastly different, without much spare gas capacity.

Gas would have to play a more prolonged role in Asian economies that are carbon-intensive today, gradually helping to push more polluting fuels out of their energy systems. Another important variable is the extent to which CCUS technologies are deployed to reduce emissions from the combustion of gas in power generation.

At least seven large-scale CCUS projects are being planned across the Asia-Pacific, including several linked to enhanced natural gas processing with offshore storage. In the longer term, natural gas can also be blended with carbon-free and low-carbon fuels such as hydrogen and ammonia in power generation, and ultimately be replaced by them.

Natural gas to fuel Malaysia’s equitable energy transition

With the launch of the National Energy Transition Roadmap (NETR) last year, natural gas is set to play an important role in Malaysia’s own transition towards a lower carbon economy for decades to come. Under the NETR’s pathway, natural gas will account for 56% of the total primary energy supply (TPES) by 2050, rising from 42.4% in 2023.

Proactive initiatives are being undertaken by the government to secure natural gas, such as necessary infrastructure and commercial arrangements for importation, including long-term agreements to stabilise fuel imports. In April 2024, the assurance of gas supply in context of energy transition and ensuring electricity security in Peninsular Malaysia were among the key topics discussed at the first National Energy Council (MTN) meant to set the direction and strategic policies for the nation moving forward.

The Kasawari Project in East Malaysia for instance, included in Phase 1 of the NETR, will be the largest offshore CCS project in the world when it starts up, with 4 million tonnes of CO2 to be captured annually. A total of 76 million tonnes of CO2 from Kasawari will ultimately be injected into a depleted reservoir.

This project will be developed alongside another major CCS project located in East Malaysia, the Lang Lebah Field Development. With an expected five million cubic feet of gas in place, the project will involve the extraction of CO2 for injection at a depleted reservoir in Golok and is expected to commercially run in 2027.

Moving forward, the Ministry of Economy is in the midst of developing the Natural Gas Roadmap (NGR) to optimise the value of indigenous natural gas resources, increase the domestic natural gas use, and further enhance the security of supply and access to cost-competitive natural gas.

Building a sustainable future that works for all

Globally, more than $720 billion has already been earmarked for gas pipelines under construction or planned, with an additional $190 billion to be invested in facilities to handle LNG imports. These pipelines and import terminals will be necessary to extend natural gas use in the global energy system for years to come.

With the right policies and infrastructural changes, natural gas can be scaled up to decarbonise the power supply and support an accelerated rollout of renewables.

The regulatory and market mechanisms to support such investments will require collaboration across the entire energy value chain. Gas producers, pipeline operators, policymakers, power producers and consumers alike must work together to balance the imperatives of decarbonisation, affordability, and reliability.

Beyond infrastructure, it is equally critical to ensure that natural gas prices for domestic consumers reflect market parity. Policies like the imbalance cost pass through (ICPT) mechanism provide a flexible pricing mechanism that is adjusted every six months, allowing power producers to adapt to the fluctuating costs of generation.

With the right policies and infrastructural changes, natural gas can be scaled up to decarbonise the power supply and support an accelerated rollout of renewables. Malaysia and broader Asia can make the most of the natural gas opportunity to enable a fair and just transition to net zero, ensuring a sustainable future that works for everyone.

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