Keynote Address by Mr S Iswaran, Minister, Prime Minister's Office and Second Minister for Home Affairs and Trade & Industry, at the Gas Asia Summit Networking and Conference, 24 October 2012
KEYNOTE ADDRESS BY MR S ISWARAN, MINISTER, PRIME MINISTER’S OFFICE AND SECOND MINISTER FOR HOME AFFAIRS AND TRADE & INDUSTRY, AT THE GAS ASIA SUMMIT NETWORKING AND CONFERENCE, 24 OCTOBER 2012
Ladies and Gentlemen
Good morning. I am pleased to join you today at the inaugural Gas Asia Summit.
1.Against the backdrop of global and regional energy trends, the theme of this summit is quite apt - “The role of natural gas and LNG in the race to fuel Asia”. The advent of unconventional in the US has caused a paradigm shift in global gas markets, challenging industry leaders and policy-makers to revisit, and perhaps revise, long-held assumptions and assess the impact of these developments on Asian economies. It is imperative that Asia understand these trends and position itself to benefit from these changes to fuel economic growth.
The impact of unconventional gas
2.Over the last five years, technological advancements have made extraction from the abundant shale gas reserves in the US economically viable. This led to a significant increase in gas production in the US – output from the lower 48 states grew by almost 20 per cent over a 4-year period from 2008 to the first half of 2012 . As a result, the Henry Hub price fell from a peak of more than US$12/mmBtu in 2008 to less than US$3/mmBtu today. Prior to the unconventional gas revolution, the US was expected to be a large importer of natural gas. Today, the US could well become a major exporter of shale gas to the rest of the world. Cheniere Energy’s success in securing the first export approvals for its Sabine Pass facility was a milestone that was noted by global markets.
3.It is unclear how much US gas would eventually be available for export and what impact it would have on the global LNG market. But, the shale gas boom has already led to shifts in investment and trade flows. Companies are acquiring shale plays in the US and developing shale operations in China, Latin America and parts of Europe. LNG export facilities that had been developed to supply the US market have found their circumstances profoundly altered. With energy demand in Europe slowing due to the economic downturn, LNG suppliers have turned towards Asia, where demand for gas remains bolstered by economic growth and Japan’s shift from nuclear power to gas.
Asia’s pursuit of natural gas
4.Today, Asia is a key market for gas suppliers. According to the International Energy Agency (IEA) , China will emerge as the third largest gas user by 2013, behind the US and Russia, with its natural gas demand set to double to 273 billion cubic meters in 2017, from 130 billion in 2011. Demand for gas is also likely to grow in other countries such as Singapore, Thailand and the Philippines. Two major factors in Asia could swing the demand and supply balance in the global gas market – how significantly Japan will shift its fuel mix towards gas to replace nuclear energy post-Fukushima, and China’s ability to produce its own indigenous unconventional gas.
5.Against this backdrop, Asian importers are seeking to ensure secure gas supplies at more competitive prices. Indeed, buyers are beginning to deviate from the longstanding practice of entering oil-linked, long-term gas contracts, to negotiate for index diversification and shorter contract terms. As the Asian and global market continues to develop, we may see variegated gas contracts from several supply sources in the portfolio of buyers – which will better position them to respond to changing market dynamics.
The growing importance of LNG in Singapore’s energy mix
6.Singapore is not immune to these changes, as we face the same concern of ensuring a continued supply of reliable and affordable energy to fuel our economic growth. Gas is our main fuel for power generation. It is also used as feedstock for our industries. Today, our needs are met through pipeline gas from our neighbours. To diversify our sources, we are building a liquefied natural gas (LNG) terminal on Jurong Island, which will enable Singapore to import LNG from global markets. BG has been appointed the aggregator for our first 3 Million tonnes per annum (Mtpa) of LNG demand.
7.The first phase of the LNG terminal development with 2 LNG storage tanks is nearly complete. It is on track to begin commercial operations in the second quarter of 2013. This will allow the terminal to handle 3.5 million tonnes of throughput per year. A third LNG storage tank, targeted for completion by the fourth quarter of 2013, will increase the throughput capacity to 6 Mtpa.
8.The LNG take up rate has been faster than initially anticipated. Power generation companies and industries have committed to purchasing around 2.7 Mtpa of LNG, accounting for about 90 per cent of BG’s franchise. The Government is now studying possible frameworks for future import of LNG. The eventual framework should allow for a competitively-priced and reliable supply of LNG, while taking into consideration the needs of our consumers and the operational efficiency of the LNG terminal.
9.Demand for gas is expected to grow in tandem with our economy in the years ahead. As the cleanest fossil fuel that can now be procured from diverse supply sources, LNG is set to play an increasingly important role in Singapore’s energy mix. Hence, we must plan ahead to ensure that our infrastructure can cater to our future energy needs. Therefore, we will be building a fourth LNG tank, which will boost the capacity of the LNG terminal to about 9 Mtpa. This fourth tank will enhance our energy security by allowing further diversification of our fuel sources. The additional capacity will also allow us to respond to new opportunities in global LNG markets.
10.The increased storage infrastructure could also catalyse business opportunities such as LNG trading, break-bulk services and LNG bunkering. Over the last few years, global energy players including Shell, BP and Gazprom have established trading desks in Singapore. The fourth LNG tank will further spur the growth of such LNG-related businesses, which bodes well for the emergence of a more vibrant LNG industry both in Singapore and in Asia. We look forward to working with the industry in the development of this sector and welcome your thoughts and proposals.
11.The next decade and beyond promises to be an exciting time for the gas market in Asia. Singapore, like many other countries, seeks to stay abreast of market trends so as to seize emerging opportunities. Governments and industry leaders must come to grips with the underlying trends that shape the global energy landscape if we are to adapt our strategies and policies. This Gas Asia Summit is an excellent opportunity for the policy makers and industry players to convene, consult and collaborate as we prepare for the challenges that lie ahead.
12.On this note, I wish you all a fruitful summit and a rewarding experience at this year’s Singapore International Energy Week.