Petronas poised to drive aggressive CCS development in Malaysia

Malaysia is embarking on aggressive plans to promote carbon capture and storage (CCS) in Southeast Asia in the hope of developing natural gas fields with high contaminant levels and decarbonizing its economy simultaneously.

With many undeveloped fields containing high CO2 and hydrogen sulfide, the country is facing a stiff challenge in meeting its carbon neutrality goal by 2050 or later while retaining its status as the world's No. 5 LNG exporter.

But opportunities also exist as CCS projects have better economics in those fields. CO2 would have to be extracted to make the gas commercially usable in any case, so actual costs for those projects are limited to transportation and storage infrastructure.

Noriani Yati Mohamad, a senior manager of state-run Petronas, the energy firm tasked with managing Malaysia's petroleum resources by law, said CCS development is at a relatively advanced stage compared with other means of emissions reduction in the country.

"CCS is a tool to monetize high-CO2 resources," said Noriani, who serves as general manager for resource development and management for the Bornean state of Sarawak. Petronas has plans for two CCS facilities with a combined sequestration capacity of more than 6 million metric tons (mt)/year in Sarawak waters.

Big projects

Last August, Petronas awarded a conceptual engineering design contract to energy consulting firm Xodus for a CCS project tied to the Kasawari field due to come onstream by 2023.

Two consortiums—Malaysia Marine and Heavy Engineering and Ranhill Worley, and National Petroleum Construction and Technip Energies—are carrying out front-end engineering design work, and Petronas plans to make a final investment decision (FID) by the end of this year.

Speaking at a forum held by the Global CCS Institute last week, Noriani said the project would be capable of capturing 4.5 million mt/year from the fourth quarter of 2025 onwards if the green light is given. The sequestered CO2 will be routed to the depleted M1 field via a new 138-km, 16-inch subsea pipeline.

Separately, Thailand's PTT Exploration and Production (PTTEP) is mulling over a CCS project for its Lang Lebah field, in which Petronas holds a 15% stake.

Lang Lebah is hailed as PTTEP's biggest exploration success in Southeast Asia with its potential to pump up 1 Bcf/d of gas. An FID for the field's production is due in 2023, and PTTEP could make a decision on the carbon capture project then.

According to Noriani, the CCS facility could have a sequestration capacity of 2 million mt/year and begin operations in 2027.

Make both ends meet

With gas prices expected to stay high, Noriani suggested the two projects could theoretically go ahead without extra funding—though she did not go into more detail.

Still, cost management would remain the top priority. "What we are focusing on right now is actually a way to reduce costs. Cost reduction is very important to us," Noriani said.

To cut CCS costs, Petronas has been advancing technology developments while signing memorandums of understanding (MOUs) with ExxonMobil, Shell, POSCO, JAPEX, and Mitsui OSK Lines for cooperation in related fields.

The goal is to create a "full ecosystem" in Malaysia for CCS development by accumulating technological and commercial expertise from various stakeholders, according to Noriani. "For CCS to be successful, we can't do it alone … We are looking to sign more [MOUs] in the coming months."

In a recent high-level study, Petronas found 46 Tcf of potential carbon storage in Malaysia's depleted reservoirs. Having identified six clusters of storage sites off Sarawak and Peninsular Malaysia, the company is hoping to establish Malaysia as a regional carbon hub in order to obtain extra revenues.

"We want to offer carbon storage for new revenue," Noriani said.

An unusual model

Despite these ambitions, the Malaysian government has yet to formulate a legal framework for CCS, and domestic carbon pricing mechanisms—such as an emissions trading system and a carbon tax—remain under study.

Paola Perez Pena, an ENR principal research analyst at S&P Global Commodity Insights, said CCS developers would need to fully assume project costs due to the lack of regulations and policy incentives.

Based on S&P Global estimates, the carbon capture, transportation, and storage cost for Kasawari stands at around $60/mt of CO2. But Petronas would need to bear part of the cost even if the CCS project does not go ahead, as gas production at the field—which has a high CO2 content—requires carbon extraction.

"Petronas will have to pay for this process regardless of the CO2 being injected [into the M1 field] or not," said Perez Pena, adding that the main expenses associated with the CCS project lie in transportation and storage infrastructure.

"The model Petronas is developing is unique because of their need to produce from fields with high CO2 content … They are taking a risk that could pay out in the long term if they can position themselves as CO2 storage providers for the region," Perez Pena said.

However, many analysts have questioned the financial feasibility of CCS projects in Southeast Asia, with none of the region's countries—bar Singapore—imposing a carbon levy on emitters.

"In a region where a carbon price is practically non-existent … widespread CCUS use would likely be constrained," Putra Adhiguna, an energy analyst at the Institute for Energy Economics and Financial Analysis, said in a recent note. Gas producers could be among the limited number of CCS developers in Southeast Asia, as many of them need to extract carbon from their production, Adhiguna added.

Perez Pena said Petronas' model is not yet sustainable as Southeast Asian nations have limited demand for carbon storage based on current policy designs. "Only very specific CCS projects with the right conditions will make sense … The region definitely needs policy incentives to accelerate the deployment of CCS projects," she added.

Posted 06 May 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.