Switch to natural gas slows LPG demand growth

PETALING JAYA: Malaysia’s liquefied petroleum gas (LPG) market is facing structural headwinds as the rapid expansion of natural gas infrastructure reshapes the nation’s energy mix, according to BMI Research, a Fitch Solutions company.

The research company argued that LPG consumption is set to grow at a much slower pace over the next decade as households, commercial users and industries increasingly switch to piped natural gas and electricity.

“Malaysia’s LPG consumption faces headwinds from the growing use of natural gas in the commercial and industrial sectors,” it noted in a September commentary.

The firm projects Malaysia’s average LPG demand growth rate will decelerate to just 0.8% annually between this year and 2034, compared with higher growth in previous years.

The most immediate pressure is being felt in the commercial sector, where the expansion of city-gas networks has directly displaced LPG.

“In the commercial sector, LPG use has declined as city-gas network expansion substitutes LPG for natural gas,” BMI said.

Residential demand remains more resilient, but even households are gradually shifting away from LPG as government policy encourages cooking with piped gas.

Gas Malaysia Bhd’s sales figures for last year illustrate this trend. While its LPG sales to households fell 0.2% year-on-year, natural gas sales to the same segment rose 6.1%.

Still, Malaysia’s LPG demand is far from disappearing. Around 58% of the nation’s LPG is used for non-energy purposes, particularly as feedstock in the petrochemical sector, according to the Malaysia Energy Commission.

This share is expected to remain relatively stable, as no major petrochemical capacity additions are planned.

However, household consumption, which accounts for 28% of demand, looks set for only modest growth despite continued subsidies.

On the supply side, BMI expects domestic LPG production to expand in the coming years, driven by refining and liquefied natural gas (LNG) projects.

Gas processing plants remain the largest source, contributing 66% of output last year, though declining upstream production from Terengganu fields has capped growth.

Incremental supplies are expected instead from LNG projects in Sarawak and Sabah.

“The start-up of the Kasawari and Jerun gas fields has raised feed-gas supplies, allowing PETRONAS to ramp up LNG and LPG output at Bintulu,” BMI highlighted.

Future output will also depend on new upstream developments such as the Lang Lebah project and the planned Floating Liquefied Natural Gas 3 facility in Sabah, slated for 2027.

Refineries are another important contributor, BMI also pointed out. The 300,000 barrels-per-day (bpd) Refinery And Petrochemical Integrated Development refinery in Johor and Vitol Asia Pte Ltd’s 32,000bpd refinery in Tanjung Bin, Johor, which came online in 2022, have already boosted refinery-sourced LPG.

However, BMI cautioned that growth here is limited without further investment, anticipating that absent investment in new refining capacity, refinery-sourced LPG is unlikely to increase over the long term.

Malaysia is also set to remain both an importer and exporter of LPG, as imports continue arrive by sea and via pipeline from Thailand, while exports are expected to rise modestly.

“Long-term export growth prospects are supported by a structural slowdown in domestic consumption and the resulting surplus available for export,” BMI said.

Overall, while domestic production capacity is improving, the broader trend points to a gradual decline in LPG’s role in Malaysia’s energy mix as natural gas gains.