Updated : Gas Crisis And Rice Crisis?

By Syed Akbar Ali

I first heard this disturbing news in some detail three days ago. Then yesterday I heard it again from someone else in almost the same version with some variations. So it is going around Kuala Lumpur among those “in the know”. The media has not reported about it yet – meaning they don’t know or there is some kind of gag order.

Two gas production platforms in the South China Sea (off Terengganu) are facing mechanical troubles. This has curtailed the supply of natural gas into the PGU (Peninsula Gas Utilisation) Gas Pipelines. The platforms are or should be under the ‘duty and care’ of Petronas Carigali.

Anyway nothing to panic about. First off, I must say that the ‘crisis’ is being handled well. Bottom line is the power supply in the country is intact. We do not even know that a “gas crisis” is going on. This is entirely due to the IPPs – we owe them a huge amount of thanks – I will explain more here.

The bulk of the gas that is pumped out of the South China Sea is used for power generation by TNB as well as the IPPs. Talk is a few days ago, the Government called TNB and the IPPs to discuss this crisis. Syabas to the Government for handling this well so far. (But it should NOT have happened in the first place).

It may take a few weeks for Petronas Carigali to fix everything back to normal. Now with my highlighting this in my Blog, I hope the few weeks will shrink to days. This can save TNB millions and millions of Ringgit. Do read on. (So janganlah marah OutSyed The Box OK. I could be helping you folks save plenty of millions. No consultancy fees needed. Free of charge)

Folks say that a major mechanical breakdown happened on one production platform resulting in gas pressure going kaput. So to compensate, they tried to ‘ramp up’ a gas compressor on another platform to pump more gas. That compressor then also “blew”. (I must confess this is ‘word of mouth’ ok, not an engineer’s report from Bechtel or Schlumberger, please take it with some salt. I am not a full fledged engineer. The problem however is real.)

There is information about why the mechanical problem happened, who was responsible etc. I wont go into that here but someone has been sloppy. Do wake up. Read your contracts carefully. Learn to speak, read and write good English. All your Engineering, Procurement and Construction contracts and all your Maintenance Contracts are in English.

Fortunately for all of us, the kafir Western scientists have invented fantastic gas turbine technology (which is used in our gas fired power stations) which can also feed on alternate fuels like diesel and bunker oil.

So to overcome the loss of gas supply, the IPP’s and TNB’s gas fired stations have been running on diesel (and possibly bunker as well) since the past few days. This was the main topic at that meeting with the Government a few days ago ie

i. money talk, who pays for the diesel and

ii. ii. security of the diesel supply, from the oil companies.

Now here is the catch (there is always a catch). Alternate fuels cost much, much more than gas. Diesel may cost up to three times more than natural gas. This higher cost will be absorbed by TNB. Although TNB has just raised the power tariff, TNB will have to take quite a wallop here. The longer it takes Petronas Carigali to fix this problem, the more losses will be suffered by TNB. Can TNB claim for losses from Petronas Carigali, who operates the oil platforms? Malaysia Boleh ma.

The power generation capacity connected to the Malaysian National Grid is over 19,000 Megawatt (MW). The demand for power is over 13,000 MW. This means there is an excess capacity or “spin reserve” of over 30% in our Grid. However 63% of our power is generated using gas fired power plants, 20% is coal fired, 9.5% hydro and 7% from other generation.

(FYI folks, after I left banking in 1997 I was a Director of an IPP in Kedah. We built and fully commissioned a 250 MW gas fired power plant in Kulim, Kedah. Our alternate fuel was bunker).

With a ‘spin reserve’ in excess of 30% in our National Grid, there should be enough ‘spare capacity’ to take up the slack if the gas supply is reduced. The problem is gas fired plants contribute over 63% of our power generation. This is huge. This is also why the TNB management should be losing plenty of sleep over the past few days.

Folks say that TNB did try to ramp up generation at its ‘new’ coal fired plant in Perak. One report says the ramping up was not fully successful. Another person says there was no problem, the coal fired plants are now working harder than ever. If so, very good. Congrats to TNB.

However the ‘excess spin reserve of over 30%’ has always been a myth. Firstly, spin reserve is calculated on ‘full capacity’ of all power plants hooked up to the Grid. But a hydro plant for example can rarely if ever reach full capacity – dams never fill up to full capacity. Even if there is a Hurricane Katrina type heavy rain, the excess rainfall will just flow away in a few days.

Then power plants are always down for maintenance and inspection. That takes out chunks of their generating capacity. And things like this can happen – gas supply pula putus. So the 30% ‘spin reserve’ is not accurate. And if the ‘spin reserve’ slips below 25% we could have serious problems, for example if something goes rosak. We could be in real trouble.

It is better to measure ‘available capacity’. How much of the generation capacity is actually available at any time. Then work with this ‘available capacity’ to get a comfortable ‘guarantee of supply’. For example, our Grid capacity is 19,000 MW. Demand is 13,000 MW. Available capacity should be between 13,000MW and 19,000MW. Then work to make sure that a comfortable figure say 15,000MW will always be available 100% of the time, still leaving a low ‘spin reserve’ of 20%. (I am just thinking aloud here. It’s a suggestion only, I know this translates into hundreds of millions of Ringgit.)

The news says that Malakoff has been given a license to generate another 1000MW of power. OK. How do we manage our generating capacity?

(Folks, don’t we wish now we had built that Bakun Dam and that undersea connection twenty years ago, when it cost a fraction of what it would cost today? Its ok if you feel dunggu-ish.)

Please also note that since the IPPs came into play in the mid 90s, we have never had a serious disruption in power generation. Foreign investors who set up high tech manufacturing plants which provide so much employment in the country know this better than anyone else. Not only that but the quality of our power supply is very good (fewer surges, brown outs). We just take things for granted. Much gratitude is due to the IPPs.

TNB’s stubbornness and lack of business acumen delayed negotiations with the earliest IPPs, resulting in some IPPs making windfall gains. However the tariffs charged by the IPP’s are now closer to the market. The window on that articular “windfall gains” have now also decreased substantially.

Next is the potential rice crisis. Thailand exports 30% of the world's rice. So if Thail rice gets cold, the rice eating world is going to get very hungry. In 2008, the price of rice went through the roof because of politics in Thailand. To win the elections, Thaksin Shinawatra promised and then raised the ‘guaranteed price’ paid by the Government to poor Thai rice farmers. This caused world rice process to shoot up. And caused riots in the rice eating countries including Egypt.

The same thing is happening again now. Thaksin’s sister Yingluck Shinawatra is vying for the Top Job in Thailand on July 3^rd. Her Pheu Thai Party is making the same promise. If she wins she wants to double the ‘guaranteed price’ paid to farmers for their rice output. And she is favored to win the general elections in 28 days.

Here is a news report

• Rice prices in Thailand, the biggest exporter, may jump 50 percent by the end of the year under a plan by the party favored to win the July 3 election to buy the grain directly from farmers
• Yingluck Shinawatra’s Pheu Thai party plans to reinstate a policy introduced by her brother, Thaksin Shinawatra, to buy unmilled rice at 15,000 baht ($496) per metric ton, twice the current level. That would raise costs for exporters and boost the price of shipments to about $750 per ton from $500, according to a survey of eight millers and traders.
• ..Thai export prices would immediately rise 10 percent after a Pheu Thai victory, and climb to $800 per ton by the end of the year.
• “If this measure is taken, world prices will definitely increase as Thailand represents one-third of world trade and cannot be ignored,”
• In 2008, when Thaksin’s allies were last in power, the government bought 5.4 million tons of rice from about 700,000 farmers, prices rose to a record 17,000 baht per ton in April that year and export rates hit an all-time high of $1,038 per ton the following month after India, China and Vietnam curbed shipments, spurring unrest from Haiti to Egypt.
• Global food prices reached a record in February 2011, driving 44 million more people into extreme poverty, the World Bank said that month.

So lets be warned. Can the Malaysian Ambassador in Thailand prepare a position paper on this and advise the Government on the political situation in Thailand? Yingluck is leading Abhisit in the polls.

What if rice prices go up by 50%?

Of course if rice prices shoot up, farmers in Vietnam, Myanmar, China, India and Malaysia too will increase their output. Production will increase. Ultimately the rice prices will stabilize again.

But that will take time. It is the “in between period” that always causes chaos. The Opposition will say ‘BN’ again : ‘Barang Naik’ and blame it on the BN. Lets say Yingluck wins and the rice prices go up by December, can we call an election in March 2012? Maybe that fellow in PAS was right - call for elections in July this year, before the prices go up.

What happened to that plan to open 30,000 acres of rice farms in Sarawak? Dah lupa ke? It will not lower the price of rice. Whoever farms rice is set to make windfall profits. Or are we resorting to managing the country “mengikut cara terkejut tergempar.’

Its easier to start advising the people now that if Yingluck Shinawatra wins, the price of rice will be going up