Malaysia secures 20-year LNG deal with Japan as Iran war tightens supply

Malaysia is scouring global markets for new fuel sources as the war in Iran tightens energy supply chains, Economy Minister Rafizi Ramli said Wednesday, with any alternative crude needing to match the country's refinery specifications.

"We are looking at various sources, but the key constraint is our refinery configuration — not all crude grades can be processed," Rafizi said at a press conference in Putrajaya.

The search comes as Petronas, Malaysia's state energy company, signed a 20-year deal to supply Japanese utility JERA with 2 million tons of LNG per annum starting in 2028, Prime Minister Anwar Ibrahim and his Japanese counterpart Sanae Takaichi said after their meeting in Tokyo. The two leaders also agreed to cooperate on fertilizer feedstocks, critical mineral supply chains and bilateral trade settlement in ringgit and yen.

The dual pressure — securing refinery-compatible crude while locking in long-term LNG commitments — shows how the Iran conflict is reshaping energy flows across Asia. Malaysia is a net exporter of LNG but a net importer of crude, leaving it exposed on both fronts as Brent crude faces upward pressure from the supply disruption and spot LNG cargoes command widening premiums over long-term contract prices.

Refinery Constraints Limit Options

Malaysia's refining system is configured primarily to process lighter, sweeter crude grades, which limits the pool of alternative suppliers it can tap. The country operates six refineries with a combined capacity of about 1 million barrels per day, according to Petronas data. A shift to heavier or sourer crude would require costly retrofitting or blending with existing feedstock.

The Iran conflict has removed roughly 2 million barrels per day of Iranian crude from global markets, according to International Energy Agency estimates, tightening supply of the medium-sour grades that many Asian refineries were built to process. Malaysia imported about 80,000 barrels per day of Iranian crude before the conflict escalated, data from Kpler show. The last time a major Middle Eastern producer was cut off from global markets — Iraq in 1990 — Brent crude doubled within three months, according to historical pricing data.

Rafizi did not specify which alternative suppliers Malaysia is in talks with, but potential candidates include Saudi Arabia, the United Arab Emirates and West African producers such as Nigeria and Angola, which export lighter grades compatible with Malaysian refineries. Any new supply agreements would need to be negotiated at prevailing market prices, which have risen sharply since the Iran conflict began.

Japan Locks In Long-Term LNG

The Petronas-JERA agreement, which begins in 2028, adds to a wave of long-term LNG contracting as Asian buyers race to secure supply. Japan, the world's second-largest LNG importer after China, is particularly vulnerable given its limited domestic energy resources and the shutdown of most of its nuclear fleet after the 2011 Fukushima disaster. Japanese utilities have signed more than 15 million tons per year of long-term LNG contracts since the start of 2025, according to data from S&P Global Commodity Insights.

"Amid growing uncertainty in the international energy situation, cooperation with Malaysia, a stable supplier of LNG to Japan, is becoming increasingly important," Takaichi said at a press conference following her meeting with Anwar.

The deal also strengthens Malaysia's position as a reliable LNG supplier in Asia, competing with Qatar, Australia and the U.S. for long-term contracts. Petronas is one of the world's largest LNG producers, with capacity exceeding 30 million tons per year from its Bintulu complex in Sarawak and its stake in Canada's LNG Canada project. The company has been expanding its LNG portfolio, targeting production of 35 million tons per year by 2030.

The broader bilateral agreement covers cooperation on AI, semiconductors and defense, reflecting a deepening of economic ties between the two nations as supply chains realign across the region. Anwar said the two countries will seek to boost trade in ringgit and yen currencies, part of a broader push by Asian nations to reduce reliance on the U.S. dollar in bilateral trade.

The Malaysia-Japan energy pact mirrors similar deals across Asia, with South Korea, China and India all racing to secure long-term LNG contracts as the Iran war reshapes global energy trade routes. Spot LNG prices in Asia have more than doubled since the conflict began, according to Platts data, making long-term contracts increasingly attractive for both buyers and sellers.

Malaysia's search for alternative crude suppliers is likely to intensify in the coming weeks as existing term contracts come up for renewal. The country's refining margins have narrowed as the Iran disruption pushes up feedstock costs, according to traders familiar with the matter. Any failure to secure replacement barrels at competitive prices could force run cuts at Malaysian refineries, reducing output of diesel, gasoline and jet fuel for the domestic market and potentially pushing up pump prices for consumers.

This article is for informational purposes only and does not constitute investment advice.