Speech by Senior Minister of State for Trade & Industry and Education S Iswaran at the 6th LNGA 2011 Conference
Ladies and Gentlemen
I am pleased to join you this morning at the “LNG Supplies for Asian Markets 2011” Conference.
Amidst political upheavals, volatile energy markets and rising prices, the theme for this year’s conference – “Current and Future LNG Markets: Surplus, Deficit or Balance, and When?” – will challenge the best of experts and pundits. Much has transpired over recent months that has had a direct impact on global energy markets. The political uncertainty in Egypt, Tunisia and other parts of the Middle East has pushed crude oil prices well past the US$100 per barrel mark. These developments have a significant impact on the Asian LNG market, where the price of LNG is typically linked to oil prices. Apart from geopolitical events, gas markets and prices are also being driven by longer-term demand and supply dynamics.
Developments in Global Gas Markets
In general, the three distinct geographical regions of the global natural gas market - North America, Europe and Asia – have their own market dynamics. Consequently, gas prices in these markets move somewhat independently of each other. They are determined by each region’s unique systems of pipelines and LNG transportation routes that link gas supplies to their demand centres. Asia imports a substantial proportion of its gas over long distances and Asian LNG, therefore, generally commands a price premium of US$4 to US$10 per mmBtu over the other markets.
However, global gas markets are fast evolving. The rise of unconventional gas in the US market has introduced a new and significant supply source. So much so that current US shale gas production, at about 10 billion cubic feet per day, accounts for 20 per cent of total US natural gas production. With such volumes, far from needing to import natural gas as was previously expected, the US may well become an exporter to the rest of the world. Energy companies are also beginning to develop unconventional gas operations in Australia, Europe and China. If this current rate of development is extrapolated, unconventional gas could be a game-changer for the global LNG industry.
Meanwhile, the global LNG trade continues to expand rapidly. Qatar, the world’s largest LNG producer, announced in early February this year that its supply capacity has reached 77 Mtpa. Investments by both the BG Group and Santos in their Australian coal seam gas-based LNG projects will raise Australia’s LNG exports by about 16 Mtpa. With the US out of the import equation for now, LNG suppliers will focus on European and Asian markets. If the US were to emerge as a significant LNG exporter, there would be significant scope for arbitrage across the three regions, leading to more active trading in the LNG market.
Fortunately, at least from a suppliers’ perspective, gas demand in Asia is rising in tandem with economic growth. China and India have emerged as significant new demand centres, along with new Southeast Asian buyers like Singapore and Thailand. In Southeast Asia, traditional LNG exporters like Malaysia and Indonesia are also building LNG re-gasification facilities to import LNG.
Give the uncertainties and wider range of supply options, we can expect Asian importers to adopt variegated buying strategies, and to focus on securing better terms for their LNG. Indeed, buyers are beginning to negotiate for more competitive terms such as index diversification, shorter terms and better price. As the Asian market continues to develop, we may see more buyers adopt a portfolio of spot, short-term and long-term contracts.
Singapore’s LNG Commitments
Though a new player in this business, Singapore is committed to developing our own LNG industry. In 2008, we awarded BG Group an exclusive franchise to import and sell up to 3 Mtpa of LNG. Back then, we had estimated that demand would reach 3 Mtpa in 2018. However, our local power generation companies have already signed up for about 2 Mtpa of LNG and EMA expects the remaining volume to be taken up by other industry players who have expressed a keen interest to purchase LNG.
Besides buying long-term LNG from BG, there are provisions within BG’s franchise for Singapore gas buyers to gain access to the spot LNG market. This means that once the terminal is in operation, gas users can take advantage of movements in spot prices, should these move in their favour. To ensure that there is sufficient terminal capacity to harness spot cargoes, Singapore LNG Corporation (SLNG) has commenced work on a third LNG storage tank in the LNG terminal.
The terminal is on track to commence commercial operations by mid-2013. The third tank is scheduled to come on stream about a year later. The additional LNG storage capacity will encourage the trading of LNG in Singapore, allowing LNG traders to store and arbitrage LNG cargoes.
Singapore’s first LNG terminal could also present new business opportunities in areas such as LNG bunkering. The Maritime Port Authority of Singapore (MPA) is partnering DNV of Norway to conduct a feasibility study on the use of LNG as a fuel for ships. As the maritime industry responds to calls to adopt environmentally-friendly solutions for fuel, LNG has the potential to be a cleaner alternative to marine diesel.
The LNG terminal could also offer low-cost and low-carbon integrated services for industries located on Jurong Island. Cold energy from the LNG terminal could be used for air separation or as a coolant for plant operations. In addition, the terminal could also be used to import liquefied petroleum gas (LPG) as feedstock for petrochemical companies. Mr Neil McGregor, CEO of Singapore LNG, will share more details on this later today.
Like many other countries, Singapore continues to keep a keen eye on global energy market trends. Governments and businesses alike are mindful of the need to tack our sails according to the prevailing political and economic winds that buffet energy prices. Policy makers and business leaders have to synthesise a gamut of information on the market and global developments before charting a course. This conference is a good platform for public and private sector participants to network, keep abreast of recent trends and glean key insights on the evolving LNG market. I wish you all a fruitful conference and a pleasant stay in Singapore.
Source: Ministry of Trade and Industry