In the recently-published National Energy Transition Roadmap (NETR), Malaysia has affirmed the role of natural gas in its main transition fuel towards net-zero.
With this green light, the Malaysian energy sector appears to have hit the accelerator, with national electricity company Tenaga Nasional Bhd (TNB) announcing 5,700 MW of combined-cycle gas turbine upgrading until 2039 and signing a memorandum of understanding (MoU) with national petroleum company Petronas to explore carbon capture and storage (CCS).
The choice of natural gas can be seen as a "safe" approach because it involves mature technologies in which Malaysia has extensive experience.
However, a pathway that increases investment in natural gas may be very costly in the long run and could lead to Malaysia missing out on the benefits that new renewable energy generation and storage technologies might bring.
When calculated over their project lifetime, the investment and operating costs associated with natural gas power generation are higher than renewable energy alternatives.
Based on Malaysian projects, natural gas costs 35 sen per kWh, which is higher than solar (20-27 sen), biomass (28 sen), and biogas (25 sen).
Natural gas is also more expensive than coal and requires a carbon tax of at least RM200 per tonne of CO2-equivalent emissions to be economically competitive. However, additional carbon
taxes would make natural gas even less cost-competitive in comparison to low-carbon renewable energy.
If CCS is to be adopted at scale, the government's own NETR Phase Two document suggests that carbon pricing of at least RM400 (US$85) per tonne is necessary for it to become commercially viable for natural gas-fired electricity generation.
Aside from high natural gas prices and carbon taxes, Malaysia has depleting natural gas reserves, with only around 15 to 40 years of production capacity left.
The NETR recognises the erosion of energy security but does not propose a concrete strategy to mitigate this problem.
The large number of countries choosing natural gas as a transition fuel suggests that Malaysia will face increasing competition to secure its energy supply. In fact, experts from Japan's Mitsui & Co, a leading global energy trader, see demand for LNG outstripping supply.
As Malaysia's own oil and gas reserves dwindle, the fiscal capacity required to subsidise fossil fuels also diminishes.
Revenue from oil and gas exports is currently used to hedge the domestic economy against international energy price fluctuations, costing RM28 billion in 2022, or 12 per cent of gross domestic product.
Without income from oil and gas exports, Malaysia cannot afford such expensive subsidies.
Although the choice of natural gas may seem safe, it carries serious risks for the Malaysian economy and energy security. If natural gas and carbon emission prices rise significantly,
Malaysia could end up with notably higher energy costs than its neighbors, eroding its economic competitiveness.
Underinvestment in low-carbon renewable energy could also harm the manufacturing sector, which is closely intertwined with global supply chains that demand affordable and low-carbon energy.
While low-carbon energy technologies such as renewable energy, biofuels, large-scale energy storage, hydrogen, and nuclear energy also pose challenges. Malaysia's substantial bet on natural gas seems unlikely to pay off in the medium to long term and may turn out to be an expensive detour on its path towards net-zero.
*Ganesha Pillai is a senior research associate and Dr Pieter E. Stek is a postdoctoral researcher at the Asia School of Business' Centre of Technology, Strategy and Sustainability in Kuala Lumpur.