Grab for gas

Malaysia

TOGY talks to Julianna Kamaruddin, general manager of NGC Energy, about potential changes to regulations that will affect the LPG market in Malaysia and the company’s recently introduced products. NGC Energy provides LPG supply for domestic and industrial customers and provides EPC services for LPG facilities. In 2012, the company acquired Shell Malaysia's LPG business, which it rebranded as MiraGas.

NGC Energy supplies LPG and gas derivatives, such as synthetic natural gas and cutting gas, for individual and industrial customers as well as provides EPC services for LPG facilities. As of late 2016, the company had a 22% share of the LPG market, with a domestic demand of 1 million tpy. The company has a long-term supply agreement with Shell Refining Company. NGC Energy’s closest competitor is BHPetrol.

• On government subsidies related to LPG: “In the past couple of years, I think the economy of the country has changed quite a bit. The government feels the pinch in terms of subsidy payments. At the moment, the contract price for LPG has come down and the government is considering making some changes.”

• On challenges to keeping subsidies: “For the industry to remain relevant and sustainable, there must be a change. The mechanism of giving out subsidies will not to be sustainable going forward because costs will continue to increase. Either oil companies will be given the space to work out market forces or the government will have to continue to compensate companies.”

• On the decentralisation of LPG: “We have seen a change. In the past, LPG companies tended to be linked to major oil companies. Well before our transition, BP divested its entire downstream marketing business to a local company, BHPetrol, and LPG went with it. BHPetrol is our next competitor. You also see the likes of Esso, which has been taken over by Petron.”

• On government control of LPG: “LPG, by which I mean cylinders for household use, is under the purview of the Ministry of Domestic Trade. The price is controlled, and the government has strict expectations about supply being sufficient in the market. This is mandated by Petroleum Development Act 1974 licensing.”

The company is is a joint venture between National Gas Company of Oman and Malaysia’s Kumpulan Perangsang. NGC Energy was established on November 8, 2012. The National Gas Company of Oman holds a 60% stake in the company, with the remaining 40% belonging to Kumpulan Perangsang Selangor. The company has three filling stations in Johor, Ipoh and Port Dicksen. The latter is the largest and normally produces around 1 million cylinders per month. The company also has access to two independent filling stations in Penang and on the eastern coast. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Julianna Kamaruddin below.

How is the LPG market regulated in Malaysia?
The price is regulated by the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC). It falls under the Control of Supplies Act 1961, as does petrol and diesel.
A subsidy is in place for companies like us to get reimbursement from the government, but it only applies to the domestic consumption of LPG cylinders. When we sell to industrial or commercial customers, the regulation is not applicable. About 80% of our volume goes for domestic use, and is therefore subsidised.
Since 2013, NGC Energy, together with LPG industry players, participated in a discussion with the government about the challenges [we] faced. Growth was not being encouraged in areas where the cost of procuring LPG was much higher than the subsidy provided; the subsidy structure should be reviewed.
We lobbied for the government to either increase the amount of the subsidy or start allowing companies to rationalise the market. We proposed that the government adopt a stance quite similar to its position on petrol and diesel.
In the past couple of years, I think the economy of the country has changed quite a bit. The government feels the pinch in terms of subsidy payments. At the moment, the contract price for LPG has come down and the government is considering making some changes. We have yet to see whether it will move the subsidy limit, but there are ongoing discussions about how we can help the government to manage the burden of the subsidy.

What is your opinion on the removal of the subsidy for LPG suppliers?
For the industry to remain relevant and sustainable, there must be a change. The mechanism of giving out subsidies will not to be sustainable going forward because costs will continue to increase. Either oil companies will be given the space to work out market forces or the government will have to continue to compensate companies.
For example, we made the difficult decision to contract some of our volume in 2013. Serving certain areas did not make sense to us from a business standpoint, given subsidy levels at the time. When we contracted our volume, other companies had to fill in because the demand remained [the] same. This was not something that some oil companies would jump into because it took a toll on their business too.
We should be looking for a solution that works better for the industry and the government, which does not overburden consumers. The price must be reasonable and take into account the impact on the government.
In the past 24 months, actual discussions have taken place between the industry players and the government to look into a more sustainable plan with regard to the subsidy and supply continuity.

What is the source of your LPG?
We have a long-term supply agreement with a local refinery company. An estimated 80% of our LPG is locally sourced, while 20% of the volume that we put into the market is imported. We have our own import terminal in Johor.
The domestic demand for LPG is around 1 million tonnes per year, and we hold about a 22% market share, making us the second-largest player in LPG after Petronas.

How would you describe the competition in Malaysia’s LPG sector?
We have seen a change. In the past, LPG companies tended to be linked to major oil companies. Well before our transition, BP divested its entire downstream marketing business to a local company, BHPetrol, and LPG went with it. BHPetrol is our next competitor. You also see the likes of Esso, which has been taken over by Petron.
The rest of our competition is locally based. Excluding Petronas, none of our competitors are linked to major oil companies.

Is this trend of major companies divesting LPG businesses unique to Malaysia?
I think you see this in other markets as well. I managed Shell Gas businesses in Malaysia, Singapore and Brunei. Over a three-year period, Shell divested these businesses. We’ve seen this in other parts of the world, such as Europe, Sri Lanka and the Philippines.

What is your outlook for the LPG market in Malaysia?
Domestic demand for cylinders will generally correspond with population growth. In terms of LPG penetration, Malaysia is a mature market, distinguishing itself from some neighbouring Asian countries. The market experiences about 2-3% annual growth. We will want more of a share in the future and our appetite is whetted, as the structure of the subsidy has been more favourable to us since 2015.

How might alternative energies affect demand for LPG?
We want to increase our share of the industrial and commercial market. Now that Malacca has a regasification terminal, the government has a plan for natural gas and third-party access is being looked into. While this will negatively affect the demand for LPG, we feel that there are niche areas in which we can provide it as the best solution. This may be due to the fact that the supply of natural gas is still very much dependent on the grid system in Malaysia.

Could you describe the formation of NGC Energy?
In 2012, NGC Energy completed its acquisition of the LPG business and assets from Shell Malaysia Trading.
I was involved in this process, and on November 8, 2012, Oman’s National Gas Company SAOG successfully commenced operations of its subsidiary NGC Energy in Peninsular Malaysia, which was carried out as an asset sale, not a shares sale. We have a local partner, the investment arm of the state, Kumpulan Perangsang Selangor, which owns a 40% share.
The transition was seamless, and we took on the business as a going concern. About 80–85% of the staff was maintained and voluntarily joined the new company, which was a major factor in the success of the take over with no disruption to the market and the quality of our service.

How much of your volume is supplied to the domestic market?
About 80% of our volume goes to the domestic market. LPG, by which I mean cylinders for household use, is under the purview of the Ministry of Domestic Trade. The price is controlled, and the government has strict expectations about supply being sufficient in the market. This is mandated by Petroleum Development Act 1974 licensing.
When the transition took place we had to ensure that there was no disruption to the market in terms of domestic consumption, and that was very successful.

Could you describe the process of rebranding?
We retained the yellow cylinder because it is iconic nature and historically commands a premium in the market. Having served Malaysians for over 40 years, the iconic yellow gas cylinder was preserved and reintroduced with whole new identity and a new brand name, MiraGas.
MiraGas is the new face of energy with the same yellow cylinder and heritage that has always been trusted. In addition, it is a brand promise of offering not just LPG solutions, but reliable and sustainable energy solutions.
It took us beyond three years to rebrand over a million cylinders of the yellow cylinders to our own brand name, MiraGas. We have also rebranded our trucks and industrial installation with NGC Energy, to increase visibility. Because these trucks are on the country’s major highways, we want to be well presented and visible in the market.
Nonetheless, we feel strongly about our past in terms of product differentiation compared with our competitors, and we will continue to offer a safe and reliable product to customers. We definitely want to continue to be a strong player within the LPG industry in Malaysia.
We offer differentiated products to our dealers and customers compared to our competitors, as well as through our association with the National Gas Company. We have successfully brought some new products to the market, and we offer a total solution for applications in the market [that is] not limited to only LPG.
We will have an exciting website for MiraGas to reach out to our end-users. Our NGC Energy’s website will also be revamped to showcase our technical services, products and knowledge.
In terms of future plans, we are excited to bring new solutions, applications and products to the market. There are opportunities identified for NGC Energy to serve the needs of energy users in Malaysia.

What image are you hoping to generate for MiraGas?
Our MiraGas theme is “Fostering Moments Together.” “Energizing the Nation” is the tagline for the NGC Energy corporate site.
In Malaysia, we are very proud of our food culture. We have just begun to distribute our calendars, which showcase some of our customers’ outlets and the foods they are famous for. We will also be connecting with food bloggers to ensure that the message is conveyed.

What other product lines have you brought to the market?
We have brought in a cylinder of a different size, 200 kilograms, in an effort to focus on the commercial segment. The C200 cylinder is used in restaurants and other places that do not require industrial tanks. It is a product that has been very successful in the GCC markets, the Middle East, where the tanks undergo onsite filling without the hassle of handling the 50 kilogram cylinder.
There would be no downtime if we were to re-qualify or re-certify the integrity of the tank, which had never been offered before we introduced the C200. The process is seamless. If we needed to requalify the C200 cylinder, we would just pull it out and replace it with another. There would be almost no impact on the customer.
We have also introduced a specialised metal cutting gas, namely NC+. It is superior than dissolved acetylene and a completely new market segment for us. It provides a new application for LPG-based cutting gas, and we are now offering this product for use in construction and fabrication as well as in shipyards in Malaysia. We are confident this product will change the way metal cutting is done.

What is the scope of your facilities in Malaysia?
We own and operate three filling facilities. The one in Johor is the import terminal and it serves the southern market. Our largest is in Port Dickson and it is situated within the local refining complex. It is our flagship filling facility, with a [production] capacity [of] close to 1 million cylinders per month.
We then have another facility in Ipoh, in the state of Perak. This facility takes supply via bridging and ground transportation between Port Dickson and the plant. We also have access to two independent filling plants run by a third party, one in the Penang area and the other on the East Coast.

Do you have plans to add additional plants to the three under your management?
We are always looking for opportunities to expand, though I do not think it is a numbers game of how many plants you have. I think it is more important to find strategic locations to ensure we can save the market in a secure and most efficient manner.

What is the geographical focus of your growth?
Our growth focuses area around the north and central region. We also recognise the domestic, commercial and industrial potential of the southern part of Johor as growth opportunity, with increased property and transportation development raising the population of the area.

How do you distribute LPG to your customers?
We have a dedicated, contracted fleet and distribute cylinders using a metal palette system resulting in an efficient handling of logistics.
Our fleet serves our network of distributors across the country, and we now have our own trucks that primarily serve the 200-kilogram cylinder market. They are small trucks and can fit into urban back alleys safely and easily.

How do you work with your Omani shareholders?
While we are essentially a subsidiary of the Omani company, we are independent in terms of business operations in Malaysia.
We have discussions regarding technology and application, but NGC Energy is run as a Malaysian-based company. We aspire to venture into neighbouring markets and continue to look for opportunities. I believe that our shareholders want to see NGC Energy as the hub for regional growth.

Which countries hold the most potential?
We are still looking. The Malaysian LPG market has understandably matured. While there will be some growth, it will not be exciting in terms of volume, so we want to look at markets that are still developing and the penetration of LPG is still low.
There could be opportunities in places like Myanmar, Cambodia and Indonesia, and we have to weigh returns and the challenges of doing business there.
We have also been looking into brownfield and greenfield projects.

In which sector do you expect most growth?
We recognise that opportunities are more in the industrial and commercial businesses. We are limited by regulated pricing for the domestic market and we want to ensure that we offer end-to-end solutions to the customer. That will be the basis of our growth.
We already have strong in-house engineering capabilities that are responsible for making pre-operational designs. We observed that space planning for the necessary size of an LPG tank is often not incorporated into the design of a building.
We will do a lot more marketing with architects and construction companies. Our goal is to become involved earlier in the process and offer the best solution for any particular installation. Rather than focus entirely on the end consumer, we will focus on how buildings are designed and constructed to make sure we can offer the best service.

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