LNG at a Crossroads: Can Malaysia Keep the Lights On and the Money Flowing?

alecasolutions
Jun 3
5 min read

Updated: Jun 11

Malaysia produces approximately 7 billion cubic feet (BCF) of natural gas per day, making it one of Southeast Asia’s most significant gas producers (IEA, 2024). Of this volume, around 4 BCF/day is exported as Liquefied Natural Gas (LNG), equivalent to roughly 29 million tonnes per annum (MTPA), primarily under long-term contracts with Japan, South Korea, and China (New Straits Times, 2025). The remaining 3 BCF/day supports domestic use which, most critically, is power generation, and accounts for 36% of Malaysia’s electricity mix (Ember, 2023).

However, cracks are beginning to appear in this once self-sustaining system. As domestic demand steadily increases driven by industrial growth, population expansion, and rising urbanization, Malaysia is falling short on natural gas production to meet internal needs. To bridge the gap, it now imports about 1 MTPA (roughly 0.133 BCF/day) of LNG, mainly from Australia and Qatar (Reuters, 2025).

As Malaysia accelerates its shift toward a low-carbon economy, Liquefied Natural Gas (LNG) remains a critical element of the country’s energy mix. Traditionally perceived as a cleaner transitional fuel compared to coal, LNG provides reliability, economic value, and flexibility for Malaysia’s energy demands. However, increasing domestic consumption, plateauing production, and mounting environmental concerns are placing pressure on LNG’s long-standing export role for Malaysia. At a pivotal juncture, Malaysia must reassess the sustainability, security, and strategic viability of LNG exports in its energy future.

The Strategic Role of LNG in Malaysia’s Energy Ecosystem

Malaysia has long been a heavyweight in the global LNG market. As of 2022, it ranked as the fifth-largest LNG exporter globally, trailing only behind countries like Qatar and Australia, Russia, and now the USA (IEA, 2024). LNG currently plays a crucial role for Malaysia as the export revenue supports the nations economic growth.

Natural gas also accounts for around 36% of Malaysia’s electricity generation (ANGE, 2023), second only to coal. The prominence of LNG is further underscored by the Bintulu LNG complex in Sarawak; among the world’s largest managed by Petronas, which processes up to 29.3 million metric tons per annum (Reuters, 2025) of export capacity. This infrastructure forms the backbone of Malaysia’s LNG export operations and its revenue underpins the local and federal governments budgets.

Domestic Demand vs. Supply: A Widening Gap

Despite its historic strength in LNG exports, Malaysia now faces the risk of becoming a net importer. The New Straits Times (2025) reported that increased domestic consumption, driven by industrial, power, and residential sectors, has begun to outpace production growth. According to the IEA (2024), Malaysia’s total natural gas production stood at 69.4 billion cubic meters (bcm) in 2022, while domestic consumption climbed to 40.1 bcm, a figure expected to rise steadily due to economic recovery and industrial expansion.

Furthermore, non-energy uses, such as feedstock in petrochemical manufacturing, represent over half of the nation’s gas consumption (IEA, 2024). This places additional strain on national reserves, especially with ageing fields in Peninsular Malaysia and Sarawak showing signs of decline.

Export Commitments and Strategic Risks

Malaysia's long-term LNG export contracts especially with Japan, South Korea, and China remain vital sources of foreign exchange and government revenue. However, these agreements lock in significant volumes, reducing the flexibility to divert supply for domestic needs. This was evident during recent disruptions at the Bintulu plant, where boiler failures impacted output (Reuters, 2025). These incidents underline the risk of over-reliance on ageing infrastructure and highlight the fragility of balancing domestic supply and export obligations.

Adding to this challenge is the volatility of global LNG prices. Spot market prices, which spiked dramatically in 2022 during the Russia-Ukraine war, have introduced financial unpredictability for both importers and exporters. Malaysia’s exposure to these dynamics makes LNG a potentially volatile pillar in an energy security strategy that aspires to long-term resilience.

Environmental Impacts and Sustainability Challenges

Though LNG burns cleaner than coal, its life-cycle emissions are far from negligible. The extraction, liquefaction, shipping, and regasification processes are energy-intensive. Methane, a potent greenhouse gas, is prone to leakage during these stages, undermining LNG’s reputation as a climate-friendly fuel. According to Energy Tracker Asia (2024), a single LNG carrier may contribute up to 370 million tonnes of CO₂ equivalent emissions over a 30-year lifespan, factoring in fugitive methane emissions.

In 2022, Malaysia’s energy sector emitted over 37 million tonnes of carbon dioxide (CO₂), with natural gas responsible for a significant portion of those emissions (IEA, 2024). While LNG contributes fewer particulates and sulfur oxides than coal, its environmental impact cannot be overlooked in the pursuit of Malaysia’s net-zero 2050 goal.

Infrastructure and Transition Readiness

PETRONAS and the Malaysian government are investing in new LNG infrastructure to support domestic needs. For instance, plans are underway to build a 2-million-ton-per-annum LNG facility at the Sipitang Oil and Gas Industrial Park (Reuters, 2024). This project, designed to boost Sabah’s industrial ecosystem, signals an intention to localize supply and reduce logistical bottlenecks.

However, as Malaysia transitions toward renewables, LNG infrastructure may become stranded assets unless integrated with decarbonization efforts like carbon capture, utilization, and storage (CCUS). The National Energy Transition Roadmap (NETR) outlines plans to raise renewable energy's share in the electricity mix to 70% by 2050 (Ember, 2023), suggesting a declining long-term role for LNG unless adapted to fit a low-carbon framework.

Policy and Market Dynamics

Malaysia’s energy policy reflects a balancing act: ensuring energy affordability and reliability while aligning with global climate commitments. LNG offers strategic leverage, but policymakers must navigate an increasingly narrow corridor between environmental compliance, energy security, and economic growth.

To that end, discussions are ongoing between PETROANS and U.S.-based Commonwealth LNG to secure long-term supply deals (Reuters, 2025). These arrangements underscore the need for diversified sourcing but also raise concerns about increased import dependency in the long term.

Conclusion: LNG at a Crossroads

Compounding these challenges is the potential for domestic inflation as Malaysia becomes more exposed to globally priced energy imports without the buffer of subsidies. A heavier reliance on imports could make electricity prices more volatile, impacting households and businesses alike.

The question, then, is whether Malaysia’s energy transition, anchored in plans to grow its renewable energy share, can offer a timely and scalable solution. Yet, examples of other rapidly industrializing nations successfully navigating this same path remain limited. While decarbonization is a global imperative, Malaysia must reconcile its energy security with climate goals, ensuring that the shift to cleaner sources does not come at the cost of economic stability or supply reliability.

LNG remains a central, though increasingly strained, pillar of Malaysia’s energy security and economic model. With domestic reserves under pressure and external commitments tightening, Malaysia must diversify its supply base, modernize infrastructure, and enhance environmental governance. A thoughtful, phased approach will be critical. LNG may no longer be the fuel of the future, but it will undeniably shape Malaysia’s energy transition in the decades to come.