Image courtesy of the Singapore Tourism Board(photographer: Lim Lian Hai)
As Asian economies need more energy to power their growth, the locus of the energy future is increasingly being occupied by natural gas. With cleaner and more efficient gas-fired turbines, the discovery of sizeable gas reserves and the easing of prices, gas has become an apt replacement for oil and coal in emerging economies for industrial, commercial and residential uses.
Projected natural gas consumption is expected to soar by more than 20 trillion cubic feet (565Bcm) annually from now till 2035, and China and India alone expected to account for more than 12 trillion cubic feet (340Bcm) of the global demand increment.
Singapore, which is dependent on foreign imports of fossil fuels to generate power, is already heavily reliant on gas. Piped into the country from Malaysia and Indonesia, natural gas makes up 80 percent of Singapore's electricity generation mix today, and is expected to rise to over 90 percent by 2030. In developing regions in Asia, gas accounts for about 20-30 percent of the mix and there is room for penetration levels to increase in these areas.
As a gateway economy in a strategic location, Singapore has always been mindful of the need to diversify its energy sources. Hence its decision some years back to build an LNG terminal, which is due to open in Q2 next year (2013). The terminal will have three tanks, three jetties and a vaporisation and send-out capacity of around 6 million tonnes per annum (Mtpa) by the end of 2013, with this figure potentially hitting 12Mtpa within the next decade.
While the terminal is meant to serve growing domestic demand, its development will also allow Singapore to become a major player in the LNG trade in Asia as well. The terminal in Singapore has been designed and built with an eye to importing and then re-exporting LNG as a commodity, leveraging Singapore's geographic position.
Growing demand from Asia
LNG production in Russia, the Middle East and Africa has traditionally supplied markets in Europe, the Atlantic and Asia, but things are changing. Europe's stagnant economy has been a drag on the LNG market and in the Atlantic basin, the discovery of shale gas has changed the playing field. LNG supplies meant for American markets are now looking for new outlets.
China and India are two favoured options with other potential options opening up in Singapore, Thailand, (West) Malaysia and Vietnam, in addition to the traditional markets of Japan, Korea and Taiwan. The multitude of export options will set up more of an east-west trade to bring supply across the equator, especially when the US joins the equation with Qatar, Russia, Australia and East Africa as major sources of LNG supply in the future.
Regional trends in Singapore's favour
Singapore's natural advantage, apart from its deep port and stable political environment, is that it already has the infrastructure to facilitate LNG trade. For instance, China and India will require LNG to be price competitive compared with other fossil fuels. Plans to ship LNG from shale gas sites in North America to Asia could address those needs, and in addition, the two markets would also need short term volumes that fit with sudden changes in demand and prices.
Already, short-term demand for LNG in Asia as a whole has increased over the last five years due to seasonal shortages and nuclear outages. Traders will also require storage, particularly if large pricing spreads, between spot and long term, or between summer and winter spot cargoes, continue to persist in the LNG market. Singapore stands to gain from these trends as its regional rivals such as Australia--which have elevated construction costs for production facilities--usually require LNG sales to be done via long-term contracts.
Frameworks already in place
Unlike other markets, Singapore has a framework for energy trading in place. Reuters last year reported that at least 12 global players, including oil majors Shell and BP and major lenders like Citibank, had set up teams to tap on the surge in shipments of gas to China and India. The Chief Economist at the Energy Studies Institute of the National University of Singapore, Dr Tilak K Doshi, told Bloomberg last year that Singapore could attain global LNG trading hub status in the next five years.
"If you see liquidity in regional gas trade, then you see possibilities for real-time gas price discovery for the first time in Asia… It gives buyers the chance to convince suppliers to stop pegging gas prices to crude oil," he said.
While it remains to be seen how Singapore's regulatory framework will evolve to facilitate LNG trade, the outlook is rosy. The development of Singapore as a gas hub will ensure positive spinoffs for related industries, encourage growth of new technology and create jobs.
BY: Energy Market Authority