PETRONAS is growing a large flexible portfolio. But can it overcome a period of market softness before reaping the rewards?
With access to a growing supply volume, including additional LNG capacity in eastern Malaysia and international offtake agreements, it's clear that PETRONAS is thinking long-term with its LNG strategy.
We estimate that the company's flexible LNG volume could grow from 2.5 mmtpa in 2015 to over 26 mmtpa in 2022 – surpassing even the flexible portfolio of Qatargas.
But this long-term approach does come with a degree of risk. PETRONAS is facing expiry of existing supply contracts to customers and lower than anticipated demand in Peninsular Malaysia.
Our research shows that the company will likely have around 7-10 mmtpa of uncontracted LNG during the period 2018-21 when we forecast soft market conditions.
Consequently, we expect PETRONAS will be keen to secure more mid-term LNG supply deals and will try to find additional markets where it can find a home for spot volumes – including LNG swaps and wider partner agreements.
It's likely that the company will secure rollover for a proportion of the volume under contract which expires in the next few years and will utilise its unique potential to direct LNG supply into its home market of Peninsular Malaysia.
This would involve the displacement of domestic pipe gas as offshore suppliers are held to take-or-pay levels and new pipe supply is deferred, temporarily removing up to 6.2 mmtpa from the traded LNG market.
Yet despite the imminent challenge of identifying additional markets for its growing flexible LNG volume, it's clear that PETRONAS will solidify its position as a formidable supply competitor to any company launching greenfield LNG projects in the long-term.
Should the LNG market re-tighten from 2022, the company will then be well-positioned to take advantage at a time when the wave of new US LNG is expected to plateau.
PETRONAS' long-term strategy for flexible LNG [Subscription required]