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Liquefied natural gas has once again become trendy. After several years under attack from environmentalists, even the EU has accepted that natural gas, in whatever form it can get it, is going to stay in the energy mix for quite a while yet. The U.S. is building new export capacity like there is no tomorrow; Qatar is ramping up output; and Malaysia is boosting coal imports so it has more LNG to export.

Over the first half of the year, Malaysia imported a record amount of thermal coal—the sort used for power generation. The total for the six-month period stood at 20.9 million tons, and coal accounted for as much as 60% of electricity output over the period. It did not stop there, however. Coal imports continued at elevated levels after June, too. Reuters’ Gavin Maguire reported the news, noting that the surge in coal imports is linked to Malaysia’s appetite for higher LNG exports, lamenting the consequent increase in carbon dioxide emissions from the power generation sector.

Malaysia is already one of the largest exporters of liquefied natural gas globally. However, unlike other top exporters, it has found it difficult to boost natural gas—and LNG—production. Gas reserve decline has coincided with energy demand growth that is only going to accelerate in the coming years, suggesting demand for coal will remain robust. Not only that, but the LNG exporter will have to start importing LNG.

Indeed, Australia’s Woodside Energy last month inked a deal with Malaysia’s Petronas for the delivery of 1 million tons of liquefied natural gas annually to the latter. Deliveries will begin in 2028 and continue for a term of 15 years. Meanwhile, Petronas continues to explore for new supply to secure future demand, Wood Mackenzie analysts noted in a report on Malaysia’s future energy demand and supply trends. The consultancy noted the expected strong growth in demand for energy both from the power generation and the industrial sectors, and the decline in local production, notably in peninsular Malaysia, where Wood Mac sees a sharp drop from this year onwards.

This will not affect Malaysia’s exports immediately, however. The country is going to remain a net exporter of liquefied natural gas until the 2040s, according to Wood Mac. It will probably continue using quite a lot of coal for local power generation in the meantime. The reason for this is as simple as they come. Imports of coal are a lot cheaper than what Petronas makes from exporting liquefied gas. 

Because of its ambition to keep boosting gas exports—and revenues from these—Malaysia has countered a global trend in shifting from coal to natural gas in power generation. Unlike other countries that have made the switch to the best of their financial abilities, Malaysia has seen the share of natural gas in its power generation mix drop from as much as 80% in the 2000s to just 30% this year, according to Reuters’ Maguire, who cited data from climate change advocacy outlet Ember.

From an energy transition perspective, this is the wrong path to follow. However, Malaysia’s coal choice means there is more LNG for other countries that, without that option, would resort to coal-burning themselves. There is an obvious conclusion to be drawn from this situation and it comes down to the fact that despite the growing popularity of natural gas, coal will continue to be used until such time as it becomes too expensive.

Malaysia, somewhat counterintuitively perhaps, is going to try this next year, when it plans to introduce a carbon tax on power utilities and heavy industries as part of its own transition efforts. Chances are, however, that it will continue importing coal to keep more natural gas for exports—until LNG supply overtakes demand.

By Irina Slav for Oilprice.com