Malaysia pivots from LNG exporter to importer

Malaysia is facing systemic changes in how it fuels its power sector. From being a major LNG exporter just a few years ago, it’s now being forced to reach long-term off-take LNG deals to keep the lights on. Some of those deals cross over into geopolitical posturing as the country staves off pending tariff hikes from the Trump Administration.

On August 4th, Malaysia’s Petronas inked a deal to procure an estimated $43.4 billion of U.S. LNG over the next five years. This is a fundamental pivot for the state-owned company. While Malaysia exported nearly 28 million tonnes (mt) of LNG in 2023, making it a top global exporter, that dynamic changed in just a year. In 2024, Petronas imported around 3.3 mt of the super-cooled fuel, marking a strategic shift in its energy trade posture.

The LNG deal was part of a broader $150 billion agreement reached between the U.S. and Malaysia that included purchases of U.S. semiconductors, aerospace and data centre equipment, along with $70 billion in cross-border investments.

The agreements were aimed at reducing Malaysia’s $24.8 billion trade deficit with the U.S. In response, the U.S. reduced the proposed tariff on Malaysian goods from 25% to 19%. Malaysia also agreed to slash or abolish duties on some 98.4% of U.S. imports, ease non-tariff barriers, and dropped revenue-sharing requirements for U.S. tech/cloud giants.

U.S. officials presented this as a win for American energy exports and high-tech equipment makers, but it also complicates U.S.-Malaysian bilateral relations. “Across the world, tools once used to generate growth are now wielded to pressure, isolate and contain,” said Malaysian Prime Minister Anwar Ibrahim, speaking at an ASEAN summit as U.S. tariff threats loomed.

Changing energy landscape

Malaysia’s electricity demand is increasing amid economic growth of 5.1% in 2025, with projections of expansion around 4%-4.6% this year. Growth was driven mainly by the services and manufacturing sectors, which contributed 82.5% of GDP. Malaysia also has a robust data centre industry, with Johor emerging as a hub that could consume over 20% of national power within a few years, fuelling worries about greenhouse gas emissions and pressure to expand renewable supply.

In June, Malaysia also agreed to potentially buy more U.S.-sourced LNG via a deal with Perth-based Woodside Energy. The company will supply 1 mpta of LNG from its global portfolio, likely including its recently approved Louisiana LNG project, to Petronas, under a 15-year contract beginning in 2028.

Imported LNG currently makes up 32 percent of total gas used in Malaysia’s power generation, according to an Argus report. That amount is projected to grow. Analysts from UK-based energy major Shell see Malaysia following the exporter-to-importer path by 2040, contributing to around 50 mtpa of new global demand. As electricity demand grows along with LNG imports, Malaysia could become a net LNG importer by 2035.

LNG usage will also increase due to commitment to phase out coal-fired power projects that’s earmarked to help the country reach its net-zero-by-2050 goal. However, less coal will come at the cost of more LNG import reliance. The fuel is set to account for as much as 56% of the country’s energy mix by 2050.

Renato Lima de Oliveira, associate professor at the Kuala Lumpur-based Asia School of Business, told Gas Outlook that the gas forecast points to a very fossil fuel-heavy energy matrix which is hard to reconcile with the country’s pledge to achieve net-zero-by-2050. “And [with] over 70% of Malaysia’s emissions concentrated in the power and transport sector, without heavily decarbonising them, it is very hard to achieve a net zero goal,” he said.

Domestic production declines

Malaysia’s reputation as a major gas producer is also being eroded from within. The country’s gas output shrank notably during the Covid era, dropping from 79.3 bcm in 2019 to roughly 73.2 bcm in 2020. The decline has persisted. The International Energy Agency (IEA) reported a further 3% drop in domestic gas production during the first five months of 2025. This underscores why Malaysia is pivoting from LNG exporter to importer.

In the long-term, industry analysts, including Wood Mackenzie, forecast Malaysia’s gas production to hold flat through 2030. They also warn that offshore fields off Peninsular Malaysia are in long-term decline, meaning future supply will have to come from LNG imports or Petronas projects abroad.

After the Petronas-U.S. LNG deal was reached, Prime Minister Anwar Ibrahim said that importing more LNG isn’t a problem “because we only import what we need and it is based on commercial terms which will not be a burden on Petronas and the nation… if the price is competitive and the project is conventionally viable, it makes sense for us to import more, including from the U.S., if it is profitable.”

A recent Zero Carbon analytics report, however, offered a different take. It said that it’s unclear if LNG imports can guarantee energy security because the fuel can become unaffordable or supply can be disrupted. “Asia now has to live with the risk of LNG price volatility and sudden surges in demand from Europe,” it said. “In recent years traders have diverted LNG cargoes from Asia towards Europe because they can obtain higher profits, and this trend is likely to continue if European demand for LNG remains high,” the report found.

de Oliveira offered a more nuanced approach. He said that to have the infrastructure to import LNG and the flexibility to do so when needed enhances Malaysia’s energy security. “However, to be dependant from gas imports will expose the national economy to price fluctuations and potential supply shortages, thus impacting its energy security,” he added.

(Writing by Tim Daiss; editing by Sophie Davies)