By Ts Dr. Hj Ramli Amir, former President of the Chartered Institute of Logistics and Transport (CILT) Malaysia and Vice-President of CILT International for Southeast Asia
KOTA KINABALU: Petronas recently announced the decommissioning of the 500 million standard cubic feet per day (mmscf/d) Sabah-Sarawak Gas Pipeline (SSGP), signalling a significant shift in Sabah’s natural gas strategy.
The gas, previously transported via SSGP, is now set to be rerouted to feed Petronas’ ZLNG project, which is expected to produce approximately 2 million tonnes per annum (MTPA) of LNG for export to global markets over the next two decades. While this benefits the national LNG portfolio, the decision raises a critical question: Why isn’t the government exploring an onshore LNG plant in Sabah, built and operated as a joint venture between the State Government and Petronas?
ZLNG: A Lost Opportunity for Local Economic Growth
The ZLNG project highlights a recurring trend: Sabah’s natural gas resources are monetized externally, bypassing local value retention. Producing 2 MTPA of LNG translates into approximately USD 2 billion in annual revenue over the plant’s 20-year lifecycle. However, much of this economic benefit will accrue outside Sabah, leaving the state to settle for limited spillover effects like gas royalties and marginal investments.
An onshore LNG plant in Sabah would serve as a game-changer, retaining billions in revenue within the state and fostering robust economic growth through downstream activities. By processing natural gas locally, Sabah could leverage its resources to create broader economic opportunities and position itself as a major player in the global LNG market. More critically, retaining gas within Sabah ensures that a portion of the production remains for domestic use, enhancing energy security and reducing reliance on costly imported fuels. Affordable and stable energy prices would, in turn, stimulate industrialization by attracting petrochemicals, gas-to-liquids processing, and other downstream industries that thrive on competitive energy costs.
SOGIP: A Viable Location for LNG Development
The Sabah Oil and Gas Industrial Park (SOGIP), located in Sipitang, presents a ready-made opportunity to host an LNG plant. Despite its strategic location and existing infrastructure, the park has remained underutilized since its inception in 2010, with only 10% of its capacity utilized.
However, this is beginning to change as E-Steel, a China-based company, has affirmed its decision to invest in a steel manufacturing plant in SOGIP. The addition of an LNG plant alongside this new investment could further enhance the industrial park’s utilization, maximizing the value of its existing infrastructure and reducing the need for significant additional investments.
An LNG plant within SOGIP would also unlock significant synergies with potential downstream gas-based industries. Establishing an integrated energy and industrial hub could support the development of petrochemical complexes producing methanol, ammonia, and urea, as well as gas-to-liquids (GTL) plants and even hydrogen production facilities leveraging LNG for blue hydrogen. This would not only create a diversified energy economy but also elevate Sabah’s role as a competitive global LNG player.
The Strategic Advantage of Onshore LNG Processing
Constructing an onshore LNG plant offers far greater economic and strategic benefits compared to redirecting gas offshore. An onshore LNG facility ensures that revenues from gas processing and exports remain within the state, directly supporting Sabah’s economic growth. Economic spillovers from such a project include job creation, stimulation of local businesses, and the attraction of foreign and domestic investments.
Furthermore, an onshore LNG plant provides an opportunity to integrate cutting-edge carbon capture, utilization, and storage (CCUS) technology. As the world moves toward decarbonization, LNG buyers increasingly favour suppliers who offer low-emission LNG. By incorporating CCUS and renewable energy sources such as solar and hydro into LNG operations, Sabah could enhance the project’s environmental credentials and attract investors seeking sustainable energy solutions.
Beyond economic benefits, processing gas onshore enhances Sabah’s energy security by giving the state greater control over its natural resources. Instead of relying solely on royalties, Sabah would gain direct involvement in the LNG value chain, allowing it to influence pricing, supply agreements, and long-term development strategies. With rising global LNG demand, an onshore LNG plant positions Sabah as a key supplier while creating a sustainable revenue base for decades to come.
A Collaborative Model: State Government and Petronas
An onshore LNG project could be structured as a joint venture between the Sabah State Government and Petronas. Such an arrangement would ensure equitable sharing of revenues and risks while building local capacity and expertise in LNG production and export. This partnership would also strengthen Sabah’s negotiating position in future resource development projects, giving the state greater control over its economic destiny.
To maximize the success of this collaboration, Sabah should actively pursue strategic investors and technology partners, particularly from LNG-importing nations such as Japan, South Korea, and China. These countries are aggressively securing long-term LNG supplies, and their participation in a Sabah-based LNG project could bring in advanced technology, lower development costs, and enhance market access.
Timeline Issue
The timeline for developing an onshore LNG plant versus utilizing the existing ZLNG project varies significantly. ZLNG is expected to be operational relatively quickly because it leverages existing offshore infrastructure and avoids the time-intensive process of onshore construction.
Floating LNG facilities like ZLNG can typically be operational within four to five years from project sanctioning, making it an attractive option for quickly monetizing gas reserves.
In contrast, building an onshore LNG facility is more time-intensive. Permitting, feasibility studies, and construction require approximately seven to eight years before production begins. However, SOGIP’s existing infrastructure could reduce time and costs compared to a greenfield site. While floating LNG facilities have an operational lifespan of 20 to 25 years, onshore LNG plants can operate for 40 to 50 years, provided they undergo periodic maintenance and upgrades.
They are also more scalable, allowing for the addition of processing trains to increase capacity if new gas reserves are discovered.
Combined Approach: Leveraging ZLNG for Short-Term Monetization and Onshore LNG for Long-Term Growth
Sabah can strategically combine the short-term advantages of ZLNG with the long-term economic benefits of an onshore LNG plant. This dual approach balances immediate revenue generation with sustained economic development, ensuring the state maximizes its natural gas potential.
ZLNG, with its shorter deployment timeline, enables Sabah to start exporting LNG and generating revenue from offshore gas fields almost immediately.
This ensures that the state doesn’t lose out on the opportunity to capitalize on current global LNG demand. The revenue from ZLNG operations could also fund the planning and early-stage development of an onshore LNG facility, reducing the financial burden on the state.
In the long term, transitioning to an onshore LNG plant ensures that gas processing, job creation, and supporting industries are anchored locally, generating widespread economic benefits. Onshore LNG plants can also accommodate future gas discoveries through modular expansions, making them a sustainable solution for Sabah’s long-term natural gas strategy.
Long-Term Vision: Sabah as a Regional LNG Hub
The combined approach transforms Sabah into a regional LNG hub. Immediate revenues from ZLNG can fund development efforts, while an onshore LNG plant serves as a cornerstone for industrial growth and economic diversification. By leveraging both floating and onshore infrastructure, Sabah can meet diverse market demands and establish itself as a competitive global LNG player.
Beyond just LNG exports, Sabah must also push for stronger policy negotiations to secure a greater share of gas royalties and local processing rights. By advocating for favourable regulatory frameworks and tax incentives, the state can ensure that its natural gas development aligns with long-term economic growth objectives. While the pursuit of a greater share of gas royalties aligns with Sabah’s interests, it would involve complex discussions to modify the current fiscal framework established between the state and federal governments.
This strategy not only capitalizes on Sabah’s natural gas resources but also builds a sustainable economic foundation for future generations, ensuring the state realizes its full potential. Through strategic partnerships, infrastructure investments, and a focus on sustainable LNG production, Sabah can emerge as a dominant player in the regional LNG market while securing long-term prosperity for its people.
Latest from the State Government
Datuk Seri Masidi Manjun, Sabah’s Finance Minister, has assured that the decommissioning of the RM4.6 billion Sabah-Sarawak Gas Pipeline (SSGP) will not result in losses for the state. Instead, the move presents an opportunity for Sabah to retain more of its natural gas resources, aligning with the state’s long-term priorities.
The 512km pipeline, operational since 2014, faced recurring technical challenges, including costly leaks, ruptures, and a fatal fire, making its continued operation financially and operationally unviable.
Masidi highlighted that PETRONAS is now focusing on alternative strategies, including the development of the ZLNG offshore project in Sipitang, which allows Sabah to utilize its gas efficiently while keeping more of it for domestic use. He reassured that the state’s gas export revenue remains unaffected and emphasized that retaining the gas within Sabah will deliver greater long-term benefits compared to maintaining a problematic pipeline.
While Bintulu continues to be a key LNG hub for Malaysia, Sabah’s role in the energy sector is evolving as PETRONAS reassesses its priorities, exploring new ways to utilize Sabah’s resources to maximize local value. This marks a strategic shift that could position Sabah for greater economic growth and energy security in the future.
