The full-scale commercial development of the gas industry in Malaysia has its origins in the discovery of abundant gas reserves offshore Sarawak, Sabah and Terengganu in the 1970's. Following the discovery various studies were conducted to assess, among other things, the importance of gas to the nation and various strategies for gas utilization as a replacement for petroleum products. The main findings of the studies can be summarized as follows:

• Gas represents an alternative source of energy for Malaysia domestic consumption. Utilizing domestic resources in this way would lessen the burden of importing fuel as well as reducing the country's dependence on oil. This would also increase national energy independence.
• Gas can provide a secure and stable supply of energy to meet the needs of a rapidly industrialization nation like Malaysia. Gas can be the main energy source for power (principally electricity generation) industrial and domestic sectors;
• Development of gas as a natural resource would increase industrialization and regional development throughout the country as well as improve the competitiveness of the local industry;
• The structure of the national economy would be further diversified;
• Gas is a more efficient source of energy than oil and is environmentally cleaner and safer to use; and
• Usage of gas will replace imported fuel, thereby saving foreign exchange and improving the nation's balance of payments. Sales gas to potential markets such as Singapore and Japan, in particular of Liquefied Natural Gas (LNG) could also be a useful source of foreign exchange.

Further, it was identified that to maximize utilization of Malaysia's indigenous gas reserves, natural gas extracted offshore Sabah and Sarawak would be mainly for export whereas gas extracted offshore Terengganu would be delivered mainly for consumption in Peninsular Malaysia.

In Peninsular Malaysia, PETRONAS initiated the development of facilities to enable the processing and transmission of gas supplied by the gas fields offshore Terengganu to the whole of entire peninsula. The project is known as the Peninsular Gas utilization (PGU) project and is being implemented in three stages: PGU I, PGU II and PGU III.

Apart from the above factors, the implementation of the PGU Project is also expected to provide opportunities for the transfer of technology from international contractors to Malaysians, provide impetus to the country's industrial development, increase employment and provide opportunity for spin-off industries.