(EnergyAsia, August 31 2011, Wednesday) — Malaysian state oil and gas company Petronas said it and its partners will jointly invest RM15 billion to boost the country’s natural gas supply by developing a cluster of nine fields located some 300km off the coast of north-eastern Terengganu state. (US$1=RM3).

Petronas said it and its partners which include upstream subsidiary Petronas Carigali and ExxonMobil will fast-track the project, with the aim of producing 100 million standard cubic feet of gas per day (mmscfd) by early 2013, ramping up to 250 mmscfd by 2015.

As part of the North Malay Basin project, Petronas said the partners will extract and evacuate gas with high carbon dioxide content as well as reserves from the fields located within Blocks PM301 and PM302, and in the Bergading contract area. They will also develop a 200km pipeline to deliver the gas to Kerteh town in Terengganu.

Petronas said it identified the project in response to recently introduced incentives by the government to encourage the development of fields with stranded reserves and high carbon dioxide content or are located in the high-pressure, high-temperature (HPHT) conditions.

The company also cited the government’s decision to gradually raise domestic gas prices from last June as making the project economically feasible. In six-month intervals to December 2015, the government has proposed to raise natural gas prices to power and industrial companies by RM3 per million BTU until they reach international rates.

Despite the latest increase to RM16.07 million BTU, Malaysia’s gas prices are among the cheapest and most subsidised in Asia, contributing to the country’s soaring natural gas demand. This has led to both inefficient use of a dwindling commodity as well as discouraged oil and gas companies to find and develop new reserves.

Petronas said it expects the additional volume of gas from the North Malay Basin project to help sustain supply to its customers in Peninsular Malaysia.

It said: “In recent years, the demand for gas has increased by more than 30%, buoyed by the introduction of regulated prices in 1997 that has lagged concomitant increases in market prices. These subsidised gas prices have resulted in minimal investments in the exploration and development of gas projects by oil and gas players, constraining growth in supply capacity.

“Compounding this tight situation, Malaysia’s offshore production facilities have been running at full capacity, exerting tremendous pressure on gas production systems and resulting in the unavailability of margin to absorb fluctuations in gas demand as well as to cater to unanticipated situations.”