(Photo credit: Energy Market Authority)
Excellencies, Distinguished Guests, Ladies & gentlemen,
A very good morning to you.
Allow me first to express my sincere thanks and appreciation to the Energy Market Authority of Singapore for hosting this important event and for inviting me to give the opening keynote address. A year ago, this event gathered more than 11,000 participants from more than 60 countries and attracted a lot of interest from consumers, producers and other industry players.
As I stand before you today, I think about the many similarities that Singapore and Qatar share. Both are small countries located on important seafaring trade routes and are relatively young nations. We also enjoy a high per capita GDP and continue to seek foreign investment. We are both made up of diverse populations on the same upward trajectory path.
Singapore is one of Qatar’s key trade partners. An example of the strong business relations between Singapore and Qatar is when Qatari Diar, the property investment arm of the Qatar Investment Authority, bought Singapore’s iconic Raffles Hotel in 2012.
Qatar also has relations with large Singapore companies, like Keppel Corporation, a global leader in ship repair and construction of offshore drilling rigs. Nakilat, who operates and leases Qatar’s Liquefied Natural Gas (LNG) fleet, created the Nakilat-Keppel Offshore & Marine, a joint venture with Keppel Corporation in 2007 for ship repairing.
Keppel Seghers, the environmental technology arm of Singapore’s Keppel Group, has worked on the Doha North Sewage Treatment Works plant. Qatar also has close relations with Singapore’s major banks and financial institutions.
Finally, Qatar enjoys a solid relationship with Singapore LNG. As you are aware we supplied your country’s first cargo of LNG for commissioning of SLNG’s new regas terminal in March of this year. This was a significant milestone for Qatar in its role in meeting the growing South East Asian energy demand.
Furthermore, in June of this year, Singapore and Qatar agreed to enhance the existing bilateral partnerships and explore additional new areas of cooperation which are to be discussed at the 6th Qatar-Singapore High Level Joint Committee Meeting at Singapore in November 2013.
During the last few years Singapore and Qatar have been developing and pursuing various opportunities which have led to a strong partnership between our two nations.
I am therefore delighted to be given the opportunity here in Singapore to share with you this morning my thoughts on “new horizons in energy”.
Let me briefly outline my observations on recent developments in the global gas market which remains divided into three main regions with large discrepancies persisting among them in terms of pricing, market outlook and structure.
In North America, the resilient shale gas production growth combined with infrastructure development has helped maintain a low domestic gas price environment. These low gas prices have contributed to stimulating a switch to natural gas fueled electricity generation, providing a significant boost to the petrochemical and manufacturing industries and set the stage for a significant expansion of natural gas use as fuel for transportation.
On the export front however, the pace of clearing the path to allow the export of sizable volumes of LNG to Non-Free Trade Agreement Countries has been much slower than expected. In the past two years, the US Energy Department has granted only four such authorizations which leads to the conclusion that, if this pace is maintained, it will take years to clear the backlog of the twenty or so applications currently under review.
Considering that each project can take at least five to six years to move from regulatory approval to exports flow, unless the review process is streamlined and expedited many projects will face additional risks and uncertainties and may lose the advantages of their fundamentals as a result.
Let me briefly say a few words about the Canadian LNG export plans which highlight the remarkable transition now taking place in Canada’s natural gas industry and its rapid shift from reliance on the US to growing Pacific Rim markets. There are currently half a dozen export projects from Western Canada at various stages of permitting and development and their further progress will depend on their ability to secure project financing, to build the required infrastructure and to line up the commercial arrangements and other resources needed to monetize such vast gas resources. Considering the complexity of project logistics, rising development costs and looming skill shortages, Canadian LNG project developers will face considerable challenges to bring LNG to market.
Let me now shift to the European market where in 2012, natural gas consumption fell for the second consecutive year by 3.6% compared with a year earlier. Europe’s LNG net imports recorded a more drastic fall of 28.2% during the same period. Data for LNG flows into Europe during the first half of 2013 shows a similar trend with a fall of around 35% year-on-year. The continued economic slowdown coupled with the impact of European energy and climate change policies and their unintended effects on the energy markets, has seriously dampened and even reversed in some cases the growth of gas consumption that was achieved in the continent during the last decade.
In contrast however, Europe’s imports of US coal recorded a huge jump of 23% in 2012 according to data from the US Energy Information Administration. Much of this coal displaced natural gas as fuel in the power generation sector and this trend seems to continue unabated in 2013.
It is indeed ironic that at a time when power companies in the US are massively switching away from coal to natural gas thus dramatically reducing Carbon Dioxide and other harmful emissions, excess US coal production is finding its way to Europe. Utilities across the continent are shutting down their modern gas fired plants and burning imported coal instead, on the background of a collapsing carbon emissions market and overly generous subsidies to renewables.
This dash for coal in Europe comes at a time when all studies are showing that natural gas is the ideal companion to renewables in the power generation sector as it produces half the emissions from coal. This situation is not only threatening Europe’s plans to tackle climate change and sustain the environment but is also creating growing uncertainties over future gas demand in the Continent.
There is no doubt that the European economies will start recovering in the near future and consequently, gas consumption growth will return. While at the same time, European domestic gas production continues to decline. We are therefore hopeful that the serious loopholes and inconsistencies in energy and climate change policies will be addressed and corrected soon to encourage long term investment in gas infrastructure and enhance the energy security of Europe.
Let me now turn to Asia, where most of the growth in the global energy demand is coming from. Driven by robust economic growth coupled with rising urban populations and improved standards of living particularly in China and India, Asian economies are demanding not only more energy but also cleaner and more flexible energy sources with LNG expected to fill a sizable part of such demand.
In 2012, Asia imported an additional 15.6 Million Tons of LNG over the 2011 figure which represents a year-on-year increase of 10%. As a consequence of its nuclear reactors shutdown, Japan alone represented over 50% of the Asian LNG consumption growth with imports reaching 87.5 MT in 2012.
Over the next three years, new LNG receiving terminals with a total capacity of 23 MTA will be added in China alone. Moreover, there are currently a dozen new LNG terminal projects at various planning stages. Similarly, India is expanding its LNG receiving capacity and its gas pipeline network to pave the way for increased imports over the coming years.
It is worth mentioning here that Chinese and Indian policy makers have recently taken bold decisions which allow domestic gas prices to rise significantly in order to bring them closer to international levels.
This in turn will help stimulate much needed investment in the domestic upstream sector and at the same time encourage more LNG imports in the future in order to meet rising demand.
In the short to medium term, however, and whilst we see a continuing growth in Asian LNG demand, the future of Japan’s nuclear reactors operations will have a significant impact on the market. We know that this matter continues to be the subject of intense internal debate and evaluation at all levels in Japan. We hope to gain more insight as to what the future will hold during the deliberations that are taking place at this gathering.
Let me now focus on South East Asia and Qatargas’ increasing focus on this region. Just a little over two years ago, South East Asia had never imported LNG. Then in 2011, Thailand began importing LNG followed by Indonesia in 2012. Two more regional importers started this year. In March, Qatargas helped commission Singapore’s SLNG terminal and Malaysia commissioned their Melaka LNG terminal in May. Qatargas is very proud to have delivered the first LNG to Thailand and Singapore and to have supplied Malaysia with its first cargo of Qatari LNG.
Vietnam and the Philippines are expected to join these four existing markets and also begin LNG imports by the end of the decade. South East Asian LNG demand is expected to be well over 40 million tonnes per annum by 2025 and will account for 13% of total Asia Pacific demand. Several factors are driving this increasing LNG demand, including this region’s strong economic growth, the need for diversified gas supplies and to offset declining legacy and remote gas supply sources.
In addition, Latin American LNG demand is growing strongly. This is due to the region’s robust economic growth and the challenges with monetizing their domestic gas resources on a sufficient scale to keep up with gas demand growth.
On the supply side and looking ahead to the 2015-2018 horizon, we expect to see some growth in the global LNG supply picture due to the start-up of new production facilities in Australia and North America. However, these additions alone will not be enough to compensate for the increasing appetite of the new emerging markets and the expected growth in the global consumption that will return with the gradual recovery in the traditional economies. And finally, closer to home, Qatar is expected to also play a critical role in helping its neighbours in the Middle East meet their growing demand for natural gas as well.
There is indeed a looming widening gap between demand growth and resources development. The uncertainties and hesitations that we see in the market today are not helping to create the right environment for capital intensive gas resources to be developed in a timely fashion. Yet we all know that the need for gas is here and now. We also know without a doubt that natural gas is the cleanest fossil fuel and the best companion to interruptible renewable energy. Promoting the use of gas plus renewables in the power sector is therefore the best option for meeting the climate change imperatives in the most affordable conditions.
There are also promising markets that are being actively developed through the use of natural gas as transportation fuel in the form of Compressed Natural Gas (CNG) or LNG to reduce the emissions of CO2 and other pollutants. The use of LNG as fuel in the long haul trucking and marine sectors in particular offer huge opportunities especially if combined with the development of small scale LNG facilities, which could benefit small and medium size consuming centers that are not easily accessible by large LNG infrastructures.
There has been intense discussion recently about the trend in LNG pricing and the future of oil indexation in the Asian markets and I wish to share a perspective on this subject.
I believe that gas prices will remain regionalized for the foreseeable future and believe that the North American exports pricing structure will not attain the scale and pace that would allow it to significantly alter the current pricing structure in the regional markets of Europe and Asia. Therefore, in my opinion, the current expectations from consumers regarding the long-term LNG supply/demand balance and price trend may be overly optimistic.
History has taught us through the various LNG industry cycles that demand creation always outpaces supply. Despite the current delivery projections and intense level of activities on the supply side underpinned by the North American shale boom and other conventional and unconventional developments in East Africa, Australia and East Mediterranean, unlocking such resources and bringing them to the markets continue to pose huge risks and challenges. They also come with certain harsh economic and project execution realities.
Final investment decisions for LNG projects will continue to hinge on the long-term outlook for natural gas demand supported by buyers’ willingness to commit to off-take contracts at terms and conditions that take into account the reality of capital intensive investment risks and the legitimate economic expectations of resource holders. In my opinion this will remain the guiding principle to expand the industry and bring to the market much needed new supplies. We continue to believe that despite Asian buyers’ desire to shift from the traditional oil linked pricing structure in future long-term supply contracts, LNG producers will find it difficult to take on the price risks that are associated with remote spot market indices which reflect fundamentals and policies that have no relevance to the Asian markets.
In summary, we believe that gas demand is outstripping gas supply especially in the Asia-Pacific region and that traditional forms of contracting will still be required to encourage sufficient growth in LNG supply.
Within the Asia-Pacific, I have emphasized how South East Asia is increasingly a focus market for Qatargas. In this regard, I am pleased to announce the opening of our first representative office in the region which will be located in Bangkok, in support of our customer PTT with whom we signed Thailand’s first long term supply contract of 20 years for 2 million tonnes of LNG per year. Qatargas has a history of opening liaison offices in our key customer countries and now the South East Asia Liaison Office, SEALO, will join our Japan Liaison Office, Beijing Representative Office and American Liaison Office.
We acknowledge that Singapore’s energy needs continue to grow and we are aware that the Government is undergoing a review on structuring the second tranche of LNG imports. Singapore has a history of strong business partnerships and Qatargas is interested in exploring opportunities to partner with Singapore for LNG supply.
Indeed, we hope to also open a representative office here ….when we become a long term LNG supplier to Singapore!
Thank you for your attention.