At the Gas Asia Summit 2013 Conference and Workshop in Singapore, Second Minister for Home Affairs and Trade and Industry, Mr S Iswaran, delivered the below keynote speech outlining the expanding role Asia, and consequentially Singapore, is to play in the future LNG market.
Sustained Growth in the Asian Gas Market
There’s been much discussion on the global energy market, and certainly the gas market. It would be fair to say that the centre of gravity of the global natural gas market is shifting eastwards, in tandem with economic growth and rising energy demand. Asia has overtaken Europe as the world’s largest importing region, and, according to the International Energy Agency (IEA), it is the fastest-growing gas market in the world, with an estimated total demand of 790 billion m3 by 2015.
Looking ahead, Asian gas demand should continue its strong growth with high demand from traditional importers like Japan, Korea and Taiwan, as well as large energy users like China and India.
This growing gas demand has spurred a wave of gas infrastructure investment in Asia. Over the past two years, LNG terminals have commenced operations in India, Thailand, Malaysia and here in Singapore. Some of these terminals, such as those in Thailand and Singapore, already have plans for further expansion. More LNG terminals are also being planned for, or are already under construction, all around Asia – in China, India, the Philippines and Indonesia, to name a few countries.
This is good news for suppliers and upstream investors, as these LNG terminals will provide access to new markets in Asia, and they herald greater opportunities in the region.
On the supply front, the industry is anticipating a surge in LNG supplies beyond 2015. One key source will be the United States. Although the US has been the world’s largest gas producer, this has traditionally been for domestic consumption. The game-changer has really been the US government’s recent decision to award gas export approvals. When I spoke at the inaugural Gas Asia Summit last year, Cheniere Energy’s Sabine Pass was the only export facility in the United States to have secured approval for export to non-FTA countries. One year on, another three facilities, Freeport LNG, Lake Charles Exports and Dominion Cove Point LNG have received export approvals, and they have seized the opportunity to sign export deals with Asia. As gas production in the United States continues to rise, so too will the expectation for more export approvals.
Buyers are also expecting an increase in LNG exports from other countries such as Australia, Papua New Guinea, Nigeria, Mozambique and possibly Russia. Further upstream, we are seeing more exploration for unconventional gas reserves in China, South America and parts of Europe.
Developments in Gas Markets
With abundant global gas supplies and growing demand from Asia, global LNG trade volume has more than doubled over the last 10 years. According to the June 2013 BP Statistical Review of World Energy, LNG exports grew from 150 billion m3 in 2002, to 328 m3 in 2012.
Along with increased LNG trade volume, more spot cargoes are also being traded. In 2012, worldwide spot and short-term volumes exceeded 30% of total LNG trade, with Asian buyers accounting for more than 70% of spot import.
LNG contracts in Asia have predominantly been long-term contracts indexed to oil prices. This has meant that Asian gas buyers are highly exposed to movements in oil prices, even when the fundamentals of the gas market remain relatively unchanged. This is in contrast to other regional markets, like North America and Europe, where we see gas markets, which are more liquid, so to speak, based on spot prices or gas-on-gas competition.
A more liquid and transparent gas market in Asia will offer buyers and sellers more choices to diversify their import and export portfolios. Such diversification will not automatically translate into cheaper gas prices. However, a more competitive market is crucial to ensure long-term sustainable growth in the Asian gas market, to the benefit of sellers and buyers alike. Indeed, we are already seeing Asian buyers making a concerted effort to push for gas contracts that are based on gas-on-gas competition.
Singapore’s Gas Landscape
In line with the emerging picture in Asia, gas and LNG are key to Singapore’s energy needs. Singapore’s LNG terminal commenced operations in May this year and it has allowed us to diversify our gas sources and enhance energy security. It will be expanded from 3.5 million tpa to 6 million tpa by the end of the year. We have also announced plans to expand the terminal by adding a fourth tank, which will boost capacity to 9 million tpa by 2016.The LNG terminal also gives Singapore an opportunity to play a greater role in the region, by supporting LNG trade and providing ancillary services. Designed to support open access and re-export, this infrastructure complements the growing presence of LNG traders in Singapore. The terminal also performed its first vessel cool-down service last month, expanding its portfolio of service offerings.
On the import front, the Energy Market of Authority (EMA) has closed the second round of consultation on Singapore’s proposed LNG import framework. In general, industry players have expressed broad support for the Competitive Licensing Framework, which has been mooted by EMA. The Competitive Licensing Framework will provide Singapore with the flexibility to procure LNG on a tranche-by-tranche basis, to meet incremental market demand. It also entails a competitive process to select the LNG importer, based on offers from sellers and feedback from buyers. With this framework, Singapore has the flexibility to take advantage of opportunities, which may arise from changing global market conditions and the emergence of new suppliers. In addition, it will help ensure that Singapore-based gas buyers continue to have access to competitive LNG supplies as the market grows.
Therefore, EMA will launch a two-stage Request for Proposal (RFP) in 2014 to supply Singapore’s next tranche of LNG.
In the first stage, interested importers will be invited to submit proposals to show how they can help us achieve supply security and price competitiveness for Singapore through diversification of sources, price indexation and contract duration. The ability to better meet gas consumers’ needs as well as facilitate the development of an LNG trading hub in Singapore will also be given favourable consideration. EMA will shortlist up to three parties for the second stage.In the second stage, the shortlisted importers will be given up to six months to negotiate with potential buyers to secure commitments for LNG sales and purchase. Shortlisted importers will also be required to submit a Baseline Gas Supply Agreement to EMA, which would be applicable to future gas buyers not already covered by the contract that have been negotiated. EMA will take these and other factors, such as the ability to meet future demand and diversification of sources, into consideration before making a decision. We expect that EMA may award up to two licences, depending on market demand and the quality of the proposals.
EMA will give more details of the RFP process in its draft determination paper that will be launched within the next two months.EMA had also consulted the industry on allowing imports of spot LNG and piped gas, as well as the on-selling in a domestic secondary gas market. These initiatives were well received. EMA is currently developing a Terminal Access Code to provide clarity on how terminal capacity can be allocated to spot import and other ancillary services without affecting the terminal’s throughput services. In addition, EMA intends to lift the piped gas import moratorium after the current aggregator, BG, reaches its 3 million tpa franchise or in 2018, whichever comes first. These initiatives will complement the Competitive Licensing Framework and give gas buyers more choice.
This is a major review of Singapore’s gas import framework and a significant step forward in fulfillment of our aim to enhance our ability to meet our goals of energy security and price competitiveness. We thank all industry players who have provided their considered views to EMA during the consultation process. We look forward to continued deep engagement between the regulator and the industry as we develop the market, going forward.
So to conclude, with growth in both demand and supply, we will continue to see exciting developments in the global gas market, certainly in the Asian context. Singapore, in turn, is steadily building its capabilities, expertise and presence in the sector.
Keynote speech by Mr S Iswaran, adapted to house style by Ted Monroe
Read the article online at: https://www.lngindustry.com/lng-shipping/05112013/keynote_speech_highlighting_the_important_role_asia_is_set_to_play_in-the_lng_industry/