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Pathway for Development of Hydrogen Economy in Malaysia

Authors: Shwe Sin Han and Rika Safrina
16 November 2023

In need of energy diversification

The energy mix in Malaysia depends mainly on natural gas. According to the ASEAN Energy Database System (AEDS), about 42% of Malaysia’s total primary energy supply (TPES) in 2019 came from natural gas, followed by oil (33%). The remaining share is provided by coal (21%), while renewable energies – hydro, bioenergy, and solar – account for approximately 3%. Without any policy intervention, the 7th ASEAN Energy Outlook projected the natural gas in Malaysia’s TPES by 2050 will triple the 2019 level.

Not only in TPES, but natural gas also dominated Malaysia’s primary energy production. In 2019, AEDS noted the share reached 67%, making it the major gas producer in Southeast Asia. This massive production could deplete natural gas reserves in a few years. Malaysia Energy Statistics Handbook 2020 reported the total natural gas reserves were over 100 trillion standard cubic feet (TSCF) in 2015 but declined to approximately 80 TSCF in 2018.

Malaysia’s Energy Supply and Production from 2005 to 2019 (Source: AEDS)

In terms of end-user, AEDS recorded Malaysia’s total final energy consumption (TFEC) increased from 34.5 to 50.2 million tonnes of oil equivalent from 2005 to 2019. The share of energy demand in all sectors increased, except for commercial, which remained the same and industrial, which dropped 7 percentage points. The transport sector utilised the highest energy with 40% and 44% in both years respectively. Like in the other ASEAN Member States, fossil fuels became the majority energy source of transportation in Malaysia, accounting for approximately 98% of TFEC in the sector.

Excessive greenhouse gas emissions and other major environmental issues related to the transport sector are of massive concern for the future of the country’s carbon-neutral goal. To diversify the energy sources in a more environmental-friendly way and improve climate change conditions, the government has implemented various strategies and initiatives in fuel-shifting policies. Among them, hydrogen is seen as a promising alternative clean energy today as a fuel for the transportation sectors to beat climate change and energy security.

The sustainable way to produce hydrogen

Hydrogen can be produced directly from fossil fuels and biomass. Nowadays, most hydrogen production comes from steam-reformed natural gas. However, to reduce fossil fuel dependence and carbon dioxide emissions, green hydrogen production from biomass would be the appropriate way in Malaysia. As an agricultural country, Malaysia has an abundance of biomass residues produced from oil palm, rice, sugar cane, the wood industry and municipal solid waste. The palm oil industry of Malaysia is one of the largest producers in the world and generates a large amount of biomass waste. The biomass waste of palm oil accounts for 94% of 168 million tonnes of total biomass waste annually, while wood residues, rice and sugarcane wastes contribute 4%, 1% and 1%, respectively.

Due to the vast amount of biomass waste produced, the potential for producing hydrogen from biomass sources is enormous. Renewable hydrogen production technologies, including biomass gasification, will be considered the best technology to produce hydrogen in Malaysia. In addition, hydrogen production in the electrolysis of water using solar is another potential method, as the country possesses plentiful solar energy.

Looking at the energy and exergy efficiencies of various hydrogen production methods is important for developing large-scale commercial production. A study reported that the biomass gasification method in hydrogen production has the highest energy and exergy efficiency, among other techniques, while electrolysis from solar energy has the lowest performance. Higher exergy efficiency means higher energy quality produced in the hydrogen generation system, which makes a better sustainable system.

The economic aspect should also be considered when producing hydrogen. The same study observed that the cost of green hydrogen production by solar is relatively high (about $10/kg) due to its low process efficiency and the high cost of electricity produced by solar cells. However, hydrogen production cost by biomass is relatively low (less than $2/kg) compared to solar and wind technologies, even to natural gas, coal, and nuclear. Therefore, biomass gasification can be used as the most cost-effective hydrogen production in the case of Malaysia due to its resource abundance and highest efficiency.

Challenges and recommendations in the hydrogen development

Hydrogen is considered an attractive and competitive alternative energy in Malaysia, to reduce carbon emissions in the transportation sector by replacing fossil fuel use in hydrogen cars. Two roadmaps for hydrogen production and fuel cells from 2005 until 2030 were developed by the Sarawak government. The roadmap aims to reduce the cost of technology by 50% in 2025, as well as to reach 100% motorcycles, 2% passenger cars, and 5% “official” vehicles powered by fuel cells.

However, even with the ambitious targets, the development of the fuel cell industry in Malaysia is relatively slow due to the narrow domestic market and underdeveloped manufacturing capacity. As the large-scale generation and applications are noticeably low, higher financial support and investment in technology, as well as enabling policies and incentives, are essential to support interest in hydrogen production in Malaysia. In September 2022, Sarawak and the South Korean governments signed a Memorandum of Understanding to collaborate on a hydrogen project, hoping to secure energy for source diversification in Malaysia. Sarawak intends to develop a hydrogen export hub in Malaysia, starting with large-scale commercial production and the export of hydrogen by 2027.

Hydrogen production from palm oil residues could be the best alternative for the future of Malaysia. It will solve the main problem of oil palm cultivation and its related industries, which produce a large amount of biomass waste and carbon emissions from burning these wastes. It is the most cost-effective technology for the utilisation of hydrogen fuel cells in the transportation sector, as fuel prices in Malaysia are heavily subsidised.

As financing is one of the barriers, Malaysia needs to adopt policy and financial instruments to attract investment and encourage the private sector’s involvement in deploying large-scale hydrogen projects, which will lead to a reduction in production costs. Affordable prices and public acceptance are also important factors for the widespread of hydrogen fuel cell vehicles. The cheapest option of hydrogen application would be attractive to consumers.

Since a state government initiated the current roadmap, and the targets of 2025 and 2030 are fast approaching, the central government should now take action forward to introduce a new viable path for the future hydrogen economy in Malaysia. Hydrogen is a key decarbonisation pathway to support the energy transition towards net zero.