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Petronas Declares Force Majeure at Malaysia LNG, Further Squeezing Global LNG Market
Petroliam Nasional Berhad, aka Petronas, has declared force majeure on supplies from its Malaysia LNG (MLNG) facility due to a pipeline leak, which could add more pressure on Asian and European liquefied natural gas buyers looking to cover before the winter season.
“It’s expected that the leak at the Sabah-Sarawak gas pipeline that supplies the Bintulu complex will lead to the loss of around three cargoes each month,” Kpler senior analyst Laura Page told NGI. “Depending on the duration of the supply disruption, which is currently unknown, this could potentially strain an already tightly supplied market this winter.
Page said most of the plant’s offtakers are based in Japan, but China National Offshore Oil Corp. and Korea Gas Corp. also have long-term contracts with the facility. Mitsubishi Corp., a stakeholder in the facility, said it has asked Petronas to take all possible actions to limit the leak’s impacts. With a capacity to produce 25.7 million metric tons/year of LNG, the Malaysian facility is one of the world’s largest export terminals.
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A landslide last month damaged the Sabah-Sarawak pipeline, which feeds MLNG. Petronas reportedly had asked several Japanese customers to use the downward quantity tolerance clause in their contracts, or essentially take the minimum amount of gas allowed under those agreements.
Since Russia’s invasion of Ukraine in February, and the subsequent cut-off in Russian supplies to Europe, both Europe and Asia are competing for spot cargoes to meet supply shortfalls.
Any disruption in LNG deliveries could potentially impact prices if Asian buyers need to cover for the upcoming winter season. Higher spot prices and adequate storage inventories have limited Asian LNG buying this year. It is unclear whether buyers will come out to replace the missing contracted cargoes – or if they have already secured enough supply to meet demand through the end of the year.
“The pipeline was unlikely to have been operating anywhere near full capacity, so while the force majeure declaration is not to be taken lightly, we believe the impact on the market is limited at this point,” said Rystad Energy’s Kaushal Ramesh, senior LNG analyst.
“But returning from a force majeure,” Ramesh said, “is never easy, so there are always risks of a delay later on in December and – possibly into early 2023, which is where the price risk lies.”
Not all contract holders have received a force majeure declaration, according to news media reports, but Japanese buyers that received declarations could see deliveries between October and December impacted.
The MLNG facility was operating with an average utilization of about 83% between July and September, according to Rystad, but the leak could reduce that to 75% until production is ramped back up. Ramesh pointed out there may “also be some flexibility to ramp up other fields supplying into MLNG but these volumes are likely to be marginal.”
Malaysia was the second largest LNG supplier to Japan delivering around 10 million tons (Mt) in 2021 and 7.9 Mt during the first eight months of this year, head of the gas group for Japan’s Institute of Energy Economics Hiroshi Hashimoto told NGI.
Petronas’ 30 mmty Bintulu LNG complex was also hit by production outages last year, with notices of cargo cancellations and deferrals in April, September and December.
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