Petgas- no benefit from higher domestic natural gas price

Yesterday, the Government has announced that Petroliam Nasional Berhad (“PETRONAS”) will increase the price of natural gas from RM10.70 per million British thermal units (MMBtu) to RM13.70 per MMBtu from June 1, and thereafter by RM3 per MMBtu every six months until December 2015. This announcement has very little impact on Petgas.

The relation between Petgas & PETRONAS is governed by the Gas Processing and Transmission Agreement (“GPTA”), whereby Petgas provides to PETRONAS the service of processing and transmission of gas to PETRONAS’ customers via the Peninsular Gas Utilisation (“PGU”) pipeline system. In consideration for the above services, PETRONAS agrees to pay Petgas a throughput fee which consists of the combination of processing and transportation of gas that covers reasonable capital costs and operating expenses.

Processing Remuneration Structure are as follows:

• A guaranteed income from Reservation Charge,
• Flowrate Charge income on incremental volume above an agreed threshold,
• Ethane remuneration is based on cost recovery of Ethane produced to meet PETRONAS’ customers requirements and
• 30% share of PETRONAS margin from the export sale of Propane and Butane.

In addition, PETRONAS shall provide the Natural Gas to Petgas for its Internal Gas Consumption (IGC) at no cost to Petgas provided that Petgas shall operate within the agreed operating parameter. If Petgas operates below the agreed operating parameter, Petgas will receive incentive payment from PETRONAS for the volume of IGC saved and if Petgas operates above the operating parameter, Petgas will pay to PETRONAS the excess volume of IGC. In both instances, the payment of Natural Gas will be based on PETRONAS Industrial Gas Tariff.

Transportation Remuneration Structure will be based on a zonal tariff determined by location of PETRONAS’ customers.

Details of the remuneration structure are as follows:

a. Processing Remuneration Structure

• A fixed Reservation Charge of RM 103.5 million per month.
• Flowrate Charge of RM 0.22 / GJ on incremental volume of gas processed or delivered above 2.1 BSCFD.
• RM 43.47 per metric tonne of Ethane
• 30% share of PETRONAS’ margin from the export sale of Propane and Butane.

b. Transportation Remuneration Structure

i. Peninsular Malaysia Operations

A Capacity Reservation Charge based on Transportation Tariff and Shipper’s Maximum Daily Quantity (MDQ). Transportation tariff are as follows:

• Zone 1 (East) : RM0.543/GJ
• Zone 2 (Southern) : RM1.434/GJ
• Zone 3 (Central) : RM1.793/GJ
• Zone 4 (North) : RM0.931/GJ

ii. Miri Operations

• Flowrate Charge of RM 1.89 / MMBtu for gas delivered to PETRONAS’ customers.

iii. Bintulu Operations

• A fixed Reservation Charge of RM 655,200 per annum
• Flowrate Charge of RM 1.17 / MMBtu for gas delivered to PETRONAS’ customers.

From the above, we can see that Petgas can benefit from higher prices from only one item, ie. the 30% share of PETRONAS’ margin from the export sale of Propane and Butane. However, since this is an export sales, the price is currently governed by market price.So, Petgas would not benefit from the increase in natural gas prices as announced yesterday.