IEEJ：September 2015ｃ
○ IEEJ 2015

Special Bulletin
A Japanese Perspective on the International Energy Landscape (235)

September 4, 2015

Malaysia Exposed to Changes and Its Energy Challenges
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn September 3 and 4, I had an opportunity to discuss global and Malaysian energy situations
and policy challenges with Malaysian government officials, university and other researchers, andenergy industry people in Malaysia. The discussions were a precious opportunity for me tounderstand energy challenges and problems in Malaysia that is rich with energy resources and amajor exporter of oil and gas, including liquefied natural gas, and matters of interest to Malaysia
among domestic and external problems involving the Southeast Asian country.
Regarding the discussions in Malaysia, I would like to first point out that Malaysia as a majorenergy exporter is greatly interested in dramatic changes taking place in the present internationalenergy market. As for rapid crude oil price changes including the West Texas Intermediate price's fall
below $40 per barrel in the last week of August before the Brent price's rally above $50/bbl in thefirst week of September, my Malaysian discussion partners indicated their great interest in oil pricedevelopment in the future, supply and demand factors, geopolitical factors, financial factors and thestrategy taken by Organization of the Petroleum Exporting Countries.
At a time when the present conditions indicate that oil prices are expected to remain weak orfall further in the immediate future, the future course of oil prices is a matter that Malaysian energy
experts cannot ignore. While electronics represent the largest export category for Malaysia, theweight of oil and LNG exports is not necessarily small. As economic conditions in Malaysia havegrown uncertain in the wake of Prime Minister Najib Razak's alleged illegal receipt of financial
contributions, the oil price weakness may be a great burden on Malaysia.
As for LNG which is a very important export item for Malaysia, the situation has grown
unfavorable for the country due to the loosening supply-demand balance indicated by falling spot
LNG prices and a decline in long-term contract LNG prices linked to crude oil prices. I really feltthat Malaysia is highly and seriously interested in how the Asian LNG supply-demand balanceshould be assessed and what the LNG pricing method should be in the future.

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I also felt that Malaysian authorities and experts seemed to have concerns over their insufficientknowledge and analyses about the shale revolution, which is exerting great influences on the crude
oil price plunge and LNG supply/demand problems, and is strongly interested in how it should
respond to the revolution and enhance such response. How to predict the direction and impact of theshale revolution might have become an urgent issue for Malaysia.
To me, it was very interesting that the Malaysian counterparts this time frequently discussed
energy security and energy-related geopolitical problems. Unexpectedly, Malaysia that is a net
energy exporter rather than a net energy importer like Japan has great interest in energy security
problems as well as energy-related geopolitical issues in the Middle East, Russia and Ukraine. I
really felt that the Malaysian counterparts believe they should enhance analyses and research onthese fields.
Various elements are linked closely to each other and complicatedly intertwined in theinternational energy situation. In such state, it is undoubtedly significant for net energy exporters toaccurately know how energy security and energy-related geopolitical issues are assessed by theworld and by net energy importers as their trading partners. In addition, I felt that Malaysia has
begun to see gradual changes in its own energy supply and demand environment as indicating its
energy import expansion and some change in its net energy exporter position. For example, Malaysia,
even though it is a major Asian LNG exporter, has recently built an LNG import terminal and started
LNG imports. As its LNG imports are expected to expand, Malaysia, though remaining a net LNG
exporter, may gradually grow as an importer. An energy supply-demand balance change for acountry can lead to a change in its policy approach. For example, China has rapidly enhanced energy
security measures since it became a net oil importer in 1993.
Another interesting matter found in my discussions with Malaysian energy experts waschallenges facing the Malaysian power generation sector. The sector had heavily depended on oiland expanded gas power generation rapidly under a “four-fuel policy” to diversify electricity sources.
Over recent years, however, coal has replaced gas as the largest electricity source. A major futurechallenge is what electricity mix Malaysia should choose to meet growing electricity demand whileconsidering environmental load, energy security, economic efficiency and other factors. Malaysia
may be looking for how far it could expand renewable energy power generation with costs and grid
modification measures taken into account, while considering the introduction of nuclear power
generation as a long-term goal.
Given these points, I felt that Malaysia is deeply interested in energy policy discussions inJapan, including the best energy mix choice, policies for realizing the best mix and the government'scommunications with the people on the matter. The Malaysian counterparts are ambitious to learn

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lessons from Japanese experiences including its failures. Malaysia, though shaken by domestic
political problems now, is put into a key position regarding politics, economics and energy in Asiaand among the members of the Association of Southeast Asian Nations and has great growthpotential. I felt that Japan should strategically consider how to deepen or enhance cooperation withMalaysia.

Contact: report@tky.ieej.or.jp
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