Malaysia’s Petronas Makes Big Natural Gas Moves

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The natural gas story gets more and more interesting by the day.  There are some who have serious doubts as to the viability of the natural gas industry at current prices, which have dropped to historic lows relative to the price of crude oil in the past year. But the reality is that both dry and liquid natural gas demand is extremely high and only going higher as the century wears on as the needs of the growing ASEAN countries rise at a near exponential rate. 

Malaysia has proven natural gas reserves of nearly 90 trillion cubic feet, ranking it 14th in the world.  Next-door neighbor Myanmar has even more, for those who haven’t been keeping score.  Their reserves stand at 10th in the world.  If anyone was wondering why China was building a 2,000-km pipeline from Kunming to Kyaukpyu in the Bay of Bengal, that number should tell you all you need to know. 

Gas Giant

Malaysia’s state oil and gas company, Petronas, has been involved in three of the most important headline-making deals this month.  First, they have been granted the permit to build the world’s first floating natural gas liquefaction plant off the shore of Malaysia.  The plant is due to go into production by 2015.  Their first LNG import terminal is set to open next month.

Royal Dutch Shell (NYSE: RDS-A) has just been given the green light, along with PetroChina (NYSE: PTR) and others, to build a similar facility off the coast of Kitimat, British Columbia, to serve China, Japan and South Korea with LNG from the vast fields of Alberta, B.C. and Saskatchewan. 

Petronas, two weeks ago, awarded Hess Corp. (NYSE: HES) with production-sharing contracts for three blocks in the North Malay Basin off Malaysia’s east coast worth $5.2 billion, which should start delivering gas by next year.

Lastly, it was announced that they are buying Canada’s Progress Energy Resources for $4.6 billion, paying a huge 77% premium over the price of the shares a day before the deal was announced. 

With LNG prices being paid by Asian countries as high as $18 per million BTUs and companies like Progress producing it for less than $2, the incentive is there for Asian companies like Petronas to engage in as much land-grabbing as possible to secure future supplies.  

Petronas is a major component of the iShares MSCI Malaysia ETF (NYSEMKT: EWM) and is currently trading at 22 times year-end earnings.  The FTSE KCLI Bursa Malaysia Index, which Petronas’ divisions are a part of, began rallying in mid-May and is now trading within a breath of its all-time high of 1611.  The 1600 area looks to be serving as near term resistance.  The ETF trades in sympathy with this index but has lagged behind in the past six months or so. 

A definitive push through the 1600 area on the KCLI index should spark a rally in EWM. 


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