Petronas expedites new gas fields, Sabah-Sarawak Gas Pipeline to restart in H2 2022

Malaysia's Petronas expects the Sabah-Sarawak Gas Pipeline to resume operations in the second half of 2022 and first gas from the key Pegaga project by the first quarter of 2022, a spokesperson for the national oil company said in response to queries.

The projects will bolster Petronas' attempts to ramp up gas production from upstream assets and boost LNG exports, including from its flagship nine-train Bintulu LNG complex in Sarawak that has been operating below full capacity due to delays in bringing new gas fields into production.

Malaysia, which has dropped to being the world's fifth largest LNG producer, has three main oil and gas producing regions -- peninsular Malaysia and the more prolific Sabah and Sarawak states in the east. Sarawak state, where Bintulu is located, accounts for more than half of the country's gas production and reserves.

The Sabah-Sarawak Gas Pipeline was designed to boost gas supply from Sabah state's offshore assets to Bintulu LNG, with a design capacity to transport a sizable 750 million cu ft/d of feedgas. But the pipeline has been out of operation due to damages, gas leaks and other incidents.

"The Sabah-Sarawak Gas Pipeline (SSGP) has been shut down since January 2020 as part of its planned maintenance and repair works. It is expected to resume operations in the second half of 2022 after full assessment and testing are completed," a company spokesperson said.

Resuming pipeline operations would significantly beef up feedgas supply to the Bintulu LNG complex, which was expanded to almost 30 million mt/year capacity in recent years, but has been operating under 80% of its designed capacity for most of 2021 due to insufficient gas supply.

The spokesperson also said "the Pegaga gas project in Block SK320 is currently progressing as planned and the first gas is expected to be achieved by Q1 2022 with a mercury removal unit in place."

"The Kasawari gas field is expected to come on stream by 2023, while its Carbon Capture and Storage (CCS) is expected to be operational by 2025. Petronas is not able to share the details related to cost and the CO2 content of Kasawari and Lang Lebah gas fields as the information is confidential," the spokesperson said, but added that for future Petronas upstream projects in Malaysia, it will factor in CCS development options where necessary.

Petronas is relying on commercializing new gas discoveries around Sarawak to boost LNG exports -- mainly the Pegaga, Kasawari, Jerun and Lang Lebah gas field, all in offshore waters, over the next three to five years.

Pegaga was expected to start production and feed Bintulu LNG's Tiga plant from the last quarter of 2021, but was delayed due to the discovery of mercury contaminants, according to notifications received by customers in north Asia who previously said output could be delayed as far out as the end of 2022.

However, Petronas' confirmation of first gas by Q1 2022 signals expedited resolution that offtakers said involved the setting up of a mercury removal unit, leading to fewer LNG cargo losses in coming months.

Meanwhile, the economics of carbon capture projects will be critical to any future LNG projects that have not yet cleared a final investment decision, involving additional costs and extended project delivery dates, not just for Southeast Asia but for upstream projects from the Middle East to Australia.