Gas on the move: Malaysia’s energy crossroads

Malaysian gas demand will continue to increase over the next decade, driven by robust growth in both the power and the industrial sectors, before plateauing from the late 2030s.  

Peninsular Malaysia accounts for more than 70% of national gas demand, with data-centre expansion and coal-plant retirements fuelling a surge in gas-to-power demand into the 2030s. While gas is set to displace coal as the primary source of power generation from early next decade, the rise of renewable energy will moderate growth after 2040.  

In the eastern state of Sabah, the industrial sector currently dominates demand, but the power sector will drive growth through to 2035. Since 2023, Sabah has taken control of its gas infrastructure, aligning usage with industrial growth and enabling broader industrial expansion.  

The state of Sarawak anchors Malaysia’s liquefied natural gas (LNG) exports and remains self-sufficient in meeting local demand. Coupled with its hydropower advantage, this limits gas-to-power growth in the near term. Nonetheless, gas use in the industrial sector will grow steadily, underpinned by the Sarawak Gas Roadmap and new downstream investment.  

Read on for insights into Malaysia’s near- to medium-term gas supply and demand outlook, its export position and the country’s market liberalisation. 

Diverging gas supply outlooks across Malaysia 

Malaysia’s gas supply outlook will remain stable through the mid-2030s, underpinned by national oil and gas company PETRONAS’ upstream dominance and ongoing exploration efforts. Peninsular Malaysia faces a decline in production, however, as its mature Malay Basin yields fewer major discoveries. Regional production is likely to drop sharply from the mid-2020s. Infrastructure-led exploration and policy incentives are key to unlocking future volumes.  

Sabah and Sarawak, in contrast, have more promising outlook. Demand growth will remain strong, albeit from smaller bases. Sabah has sufficient gas to support both its (largely industrial) domestic needs and LNG exports, but the broader development of contingent resources is critical after 2030. Sarawak has a more secure long-term outlook, although rising development costs may hinder the new field developments needed to maintain LNG and domestic supply. 

A net gas exporter until the 2040s 

Thanks to the gas-abundant states of Sabah and Sarawak, Malaysia is set to remain a net gas exporter until the early 2040s. Meanwhile, LNG imports—particularly into Peninsular Malaysia—will rise sharply in response to declining regional supply. Since 2013, regional LNG demand has been growing steadily and is expected to surge six-fold by 2034, before leveling off in the early 2040s. 

Sabah will continue to sustain sufficient domestic supply while expanding its floating liquefied natural gas (FLNG) export capacity, with the new ZLNG facility slated to begin operations by 2027. Sarawak is poised to remain a key LNG exporter, supported by ample supply to meet both local demand and export commitments. 

Gradual gas market liberalisation underway 

Malaysia’s gas market is gradually being liberalised. The government ended regulated prices for the non-power sector in 2021, with the Malaysia Reference Price (MRP) now serving as the market benchmark. While power-sector pricing remains regulated until at least the end of 2027, they are  increasingly influenced by global price trends.  

Existing long-term contracts between PETRONAS and Tenaga Nasional Berhad and independent power producers reduce the incentive for these buyers to seek alternative suppliers. This in turn limits the development of a more competitive gas market, even though legal framework for third-party access (TPA) exist. 

The Malaysian government is preparing to launch a National Gas Roadmap by the third quarter of 2025, which aims to address existing barriers to TPA and identify opportunities to develop a robust gas infrastructure, including the expansion of regasification terminals and pipelines. 

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