Rising Middle East risks boost Malaysia's LNG appeal

New Straits Times

4 days ago

KUALA LUMPUR: Malaysia can position its liquefied natural gas (LNG) sector as a reliable and stable energy hub following rising geopolitical risks in the Middle East, industry experts said.
The country could also capitalise on the regional shift of vessel traffic toward Asia by enhancing its role as a bunkering hub, riding on the strengths of local ports such as Port Klang and Bintulu Port.
They said Malaysia can leverage the escalating conflict in the Middle East to attract more global interest particularly to Petroliam Nasional Bhd's Pengerang Integrated Complex (PIC) in Johor.
The ongoing instability in the Strait of Hormuz and the Red Sea - sparked by tensions involving Iran, Israel, and Yemeni Houthi factions - has prompted a reevaluation of global LNG supply chains, they added.
Stability and Proximity
The increased risk to maritime routes through the Middle East is pushing energy buyers to seek alternative, more secure sources, said Dr Azmi Hassan, a senior fellow at Nusantara Academy for Strategic Research.
Malaysia, through Petronas, stands to benefit from this shift, he said, adding that the Pengerang facility offers stability and proximity to key markets, which the Middle East currently cannot guarantee.
The PIC is a joint venture between Petronas and Saudi Aramco.
It has already become a significant downstream asset, and Malaysia can ramp up efforts to promote the facility as a global LNG hub amid volatile market dynamics.
The Israel-Iran conflict, in which both countries have been firing missiles at each other, has reportedly raised fears Tehran may close the Strait of Hormuz in further retaliation.
As a result, shipowners are holding off chartering vessels, which is reducing tanker availability and pushing up prices, Reuters quoted a trade source.
Around 20 per cent of global oil and gas demand flows through the Strait of Hormuz, situated between Iran and Oman.
Qatar, one of the world's top LNG exporters, sends almost all of its supplies via the strait, Reuters said.
While higher global LNG prices resulting from supply concerns could benefit Malaysia as a major LNG exporter, experts cautioned that volatility also carries risks.
Nonetheless, Malaysia can turn uncertainty into opportunity by branding PIC as a "safe bet" for global investors and customers seeking long-term energy security, Azmi said.
Riding on Traffic Diversion
Maritime scholar and commentator Nazery Khalid said Malaysia can leverage the regional shift of vessel traffic toward Asia by expanding bunkering capacity and strengthening support services for ship refuelling activities at Port Klang.
"Port Klang is the key entry port for crude oil coming in along the Straits of Melaka. They can look into beefing up their bunkering handling capacity," he told Business Times.
Nazery said Malaysia can take advantage of its strategic location if similar disruptions occur in the future, which could help reduce the country's reliance on crude oil imports from Saudi Arabia.
Currently, the three main sources of Malaysia's crude oil imports are Saudi Arabia, the United Arab Emirates (UAE) and Brazil.
Malaysia, he said, is already well-equipped to handle LNG transhipment, thanks to its strong existing facilities.
"However, at the same time, the order of movement of LNG is already well established. So it is not going to be challenged or it is not going to be recalibrated quickly anytime soon. Every time there is a crisis like this, when it's over, everything will go back to normal.
"The Middle East will continue to be the key hub and key source of LNG. But in Malaysia, we also have the facilities.
"We have Bintulu Port, one of the world's largest export terminals for LNG. We also have the regasification refinery in Melaka and the facilities in Pengerang," he said.
Nazery said this demonstrates that Malaysia has both the infrastructure and capability to capture a share of the global LNG transhipment market.
Impact of Rising Freight Rates
On the surge in LNG freight rates, Nazery said it could potentially impact Malaysia's energy trade, although it is still early to gauge the full extent.
He said the country remains heavily dependent on crude oil imports from the Middle East, especially from Saudi Arabia and the UAE.
He said rising regional tensions, along with the Iranian parliament's move to close the Strait of Hormuz, will inevitably push up oil tanker freight rates.
"Some of the shipments of crude from Saudi and the UAE will have an impact on us. This can already be seen in the increase in the spread rate of tanker ships.
"During times like this, the spread of ocean rates for the transport of crude oil will widen because of the risk and uncertainty," he said.
Nazery added that importers will be compelled to bring in crude oil as they are bound by contractual obligations to import a specific volume.
As a result, they will have no choice but to bear the higher costs set by major oil tanker operators.
"There will also be a surcharge and also an increased premium of insurance imposed by marine insurance underwriters because the Straits of Hormuz is already considered as a war risk zone.
"I think what will happen is that Malaysian importers of crude from Saudi and the UAE will find themselves having to pay a more expensive freight rates."
Nazery added that the timeline for shipping flows to return to normal will largely hinge on diplomatic developments.
The announcement of a ceasefire by the Trump administration is a positive and encouraging sign, he said.
"Hopefully things will go back to normal as early as possible because the world cannot afford this situation to prolong because the implications will be very horrifying. Especially when other major powers like Russia and China were to be involved and then the conflict spread to other countries.
"We really cannot afford this because the world is still tentatively recovering from Covid-19.
"Here in Malaysia, with the rising cost of living, when oil prices go up, traders will take the opportunity to increase the cost of goods and services. This will add to inflationary pressure," he added.