Keynote Address by Senior Minister of State for Trade & Industry and National Development Lee Yi Shyan at the LNG Supplies for Asian Markets 2013

Conference Co-Chairmen,

Dr Andy Flower and Dr Fereidun Fesharaki,

Distinguished Guests,

Ladies and Gentlemen

Good morning. Thank you for inviting me to be part of this conference.

2. The theme for this year’s conference – “Asian LNG markets in transition – traditional versus new LNG supplies” – is apt and timely. The advent of unconventional gas production in North America has introduced new dynamics to the global gas market Asian economies, with its rising demands for energy, are proactively seeking alternative sources of fuel to boost supply and enhance energy security. It is, hence, important for us as policy makers and industry leaders here in Asia, to understand the drivers and implications of these changes.

LNG supply changes

3. The single largest game-changer on the supply scene in recent years has been the significant breakthrough in shale gas extraction methods in North America. It has already affected the flow of LNG trades: US demand for LNG import has drastically decreased from a peak of 16 million tonnes in 2007, to 7 million tonnes in 2011. LNG supplies from projects that were developed to meet expected demand from the US are now available to the global market. In fact, the US could also become a significant exporter of LNG. A detailed study recently commissioned by the US Department of Energy projected net economic benefits to the US from exporting LNG. LNG exports from the US could therefore add to the supply of gas available for global buyers.

4. The successful development of shale gas production in the US has further prompted companies to invest in similar operations in China, Latin America and parts of Europe. Together with the other supply sources in the Middle East, Russia and Africa, the prospect of an enlarged, diversified and tradable LNG market becomes more accessible than ever. Asian LNG importers natuarlly welcome this prospect.

Impact on Asian LNG importers

5. In fact, Asian importers are looking forward not just to diversifying their supply sources, they are also seeking flexibility in pricing LNG away from traditional long- term, oil-indexed formula. The inclusion of alternative pricing indices could reduce the overall price volatility of their supply portfolios.

6. We have already seen several large Asian importers contract for US LNG at prices indexed to Henry Hub prices. For example, KOGAS and GAIL signed a Sale and Purchase Agreement with Cheniere for 3.5 million tonnes of LNG, while Sumitomo and Tokyo Gas agreed to buy 2.3 million tonnes of LNG from Cove Point. Furthermore, there are signs of Henry Hub prices being incorporated into contracts for supply originating outside the US. Japan’s Kansai Electric recently signed an agreement with BP Singapore for 0.5 million tonnes of LNG with prices linked to Henry Hub, even though the gas will be supplied from Egypt as well as Trinidad & Tobago.

7. New LNG supplies also provide Asian LNG importers with the opportunity to take on shorter contracts with increased flexibility to include spot cargoes. As spot cargoes are priced accordingly to prevailing demand and supply conditions, this could potentially reduce costs for Asian importers. The added flexibility could also help Asian importers better handle changes in their demand and supply.

Singapore’s LNG landscape

8. It is against this exciting global backdrop that Singapore is developing its LNG infrastructure and future import framework. Our first phase of the LNG terminal is on track to begin commercial operations in the second quarter of this year. It will have two storage tanks and a throughput capacity of 3.5 Million tonnes per annum (Mtpa). We are also constructing a third tank to be ready by the end of 2013. It will raise the throughput capacity to 6 Mtpa.

9. We recently announced plans to add a fourth storage tank to further increase the terminal’s throughput capacity to 9 Mtpa. By then, we will have some critical mass not just for enhanced energy security, but it will also enable Singapore to be a hub for LNG-related businesses, such as LNG trading, break-bulk services and bunkering.

10. Besides our LNG infrastructure, we are also developing our future LNG import framework. In 2007, BG was appointed as the exclusive aggregator for Singapore’s first 3 million tonnes of LNG demand. The LNG take-up rate has been faster than anticipated, with around 2.7 Mtpa contracted by local power generation companies and industries.

11. As BG’s franchise is nearing completion, we have been studying possible frameworks for our future import of LNG, with the objectives of achieving a reliable and competitively priced supply of LNG, while taking into consideration the needs of our consumers and the operational efficiency of the LNG terminal. The Energy Market Authority of Singapore (EMA) conducted the first round of industry consultations last year. In the near future, EMA will commence the second round of consultation to seek the industry’s views on the new supply framework and implementation details.

Conclusion

12. It is clear that the emergence of new supplies is shaping a new global LNG market. Singapore, as one of the energy centres in the world, has a keen interests in the development. We therefore welcome this conference and the insights it will bring. On this note, I wish you all a fruitful and rewarding time at this year’s conference. Thank you.

Source: Ministry of Trade and Industry Singapore