Opening Ministerial Address By Minister S Iswaran, At LNG Supplies For Asian Markets 2017

​OPENING MINISTERIAL ADDRESS BY MR S ISWARAN, MINISTER FOR TRADE AND INDUSTRY (INDUSTRY), AT  LNG SUPPLIES FOR ASIAN MARKETS 2017, AT ONE°15 MARINA CLUB, ON TUESDAY, 14 FEBRUARY 2017, 9.45 AM

Distinguished Guests

Ladies and Gentlemen

Introduction

1.            Good morning.  I am pleased to join you at the 12th edition of the LNG Supplies for Asian Markets (LNGA) conference.  

Volatile Global Gas Market Developments

2.            The conference theme this year “The Great LNG Rebalance: Opportunities & Painful Consequences” is apt.  LNG buyers and sellers alike have faced significant changes over the past few years that have changed the dynamics of the global energy market. 

3.            One such change has been the sustained period of low oil prices, brought about by the weak economic climate and oversupply of oil.  This has eroded margins of LNG producers, leading to the shelving or delay of some projects.  According to the International Energy Agency (IEA), investments in oil and gas fell by 25% in 2015 and a further 24% decrease is estimated for 2016, the first two-year drop in 30 years[1]. 

4.            Nonetheless, LNG production is expected to continue growing in the near term due to previous investments.  Platts has estimated LNG production in Asia to grow by 16% to 127 million tonnes per year in 2017.  Australia and the US will supply close to 140 million tonnes of LNG annually over the next five years, increasing the global LNG supply by over 50%. 

5.            There have been several developments on the demand side as well.  While several Asian countries have begun to import LNG, demand growth among the traditional LNG users remains weak.  Gas demand from the world’s two largest LNG importers – Japan and South Korea – looks set to decline, as they intend to increase the use of alternative sources such as nuclear and coal.  The global LNG surplus is hence expected to persist until the early and mid part of the next decade. 

6.            These developments have presented buyers and sellers with the opportunity to rebalance their portfolios.  Buyers have capitalised on the softer market to push for shorter-term contracts, with smaller volumes and more price re-negotiations.  At the same time, companies are adapting their business models.  Commodity traders such as Trafigura, Vitol, Gunvor, Noble, and Glencore are expanding their portfolio to include LNG and have an increasing interest in supplying LNG on both a short and long-term basis.  According to Wood Mackenzie, these five trading companies captured about 15% of the 68 million tonnes of LNG traded in the spot and short-term markets in 2015.

7.            The line between buyers and sellers is also becoming increasingly blurred as a result of such rebalancing.  One of the world’s largest LNG importers, JERA, began selling LNG to Europe last year.  It is also in talks with European companies to swap its US cargoes with those in Asia, to reduce shipping times and costs.  Such developments continue to change the dynamics of the global LNG market.

8.            In addition, we would need to consider the impact of recent international developments on the global energy landscape. 

9.            One such development is the International Maritime Organisation’s (IMO) announcement last October to cap the sulphur content of marine fuel at 0.5% from 2020.  This new regulation may bolster demand for LNG as a bunker fuel and support existing efforts to develop this sector.  For example, break-bulking facilities were recently installed at the GATE terminal in Rotterdam to boost the use of LNG as a transportation fuel.  In Germany, the utility group RWE plans to work with port officials to develop infrastructure to fuel port vehicles with LNG fuel. 

Implications for Singapore

10.         As a small country that is highly dependent on gas imports, Singapore has to adopt flexible yet resilient policies to respond nimbly to global market developments.  We have therefore embarked on a series of policy initiatives to move towards a more dynamic gas market and position ourselves for the future.

Providing options for domestic buyers and sellers

11.         For instance, our recently concluded competitive Request for Proposal for LNG suppliers has not only given end-users here access to new sources of gas supplies, but also more flexible contracts with competitive pricing. This indeed is one of our key objectives of the exercise. We want to create greater diversity in the market and increasingly we want to create greater competitive options that end-users can participate in and benefit from.   These new supplies from Shell and Pavilion Gas are expected to commence later this year.  Together with this, the Energy Market Authority (EMA) will also allow new Piped Natural Gas (PNG) supplies on a case-by-case basis, to offer users more options.

12.         In light of buyers’ increasing appetite for shorter-term contracts with smaller volumes, we will also allow interested parties to import spot LNG in the second half of 2017, up to 10% of the total gas imports in Singapore.  This will enhance the competition in our gas market, to the benefit of our buyers.  

Advancing our ambitions to be an LNG hub

13.         The Singapore Government is also working with industry players on a range of initiatives to advance the development of a gas trading hub.  These efforts will build on Singapore’s existing advantages, which include a strong legal and financial ecosystem, with an emphasis on fair and transparent rules.

14.         For instance, EMA is developing the design and rules for a domestic secondary gas trading market (SGTM).  The trades and gas-on-gas price discovery from this SGTM will support the evolution of an LNG hub.  EMA convened the first industry working group meeting last week to discuss the proposed market design with industry representatives.  Once the group has completed its work and submitted its recommendations, EMA will be consulting the broader industry on the proposed SGTM design.

15.         There are also industry-led initiatives to facilitate price discovery and develop LNG trading in Singapore.  For instance, the Singapore Exchange (SGX) has launched several indices based on its Singapore LNG Index Group (SLiNG) market, such as the North Asia SLiNG.  SGX is also developing a new SLiNG spot pricing index for the Dubai, Kuwait and Indian LNG markets scheduled for launch in the later part of this year. 

16.         In terms of ancillary services, we have seen interest from a number of companies to utilise the spare capacity at Singapore’s LNG terminal to conduct storage and reload services.  This is a business area that will grow with the completion of a fourth tank at SLNG by 2018, which will increase our storage capacity by 260,000m3, to a total of 800,000m3.  This is in excess of our needs to fulfil domestic requirements, and it creates capacity and the opportunity to leverage this for other applications and business purposes.  SLNG, the owner and operator of our LNG terminal, will make a call for proposals later this year to use its spare capacity and we invite interested parties to explore this opportunity with SLNG.  SLNG also intends to commission a nitrogen blending facility this year, which will enable Singapore to accept a wider range of cargoes with varying LNG specifications.  

17.         In addition, Singapore is taking steps to grow our LNG bunkering sector.  Last January, the Maritime and Port Authority of Singapore (MPA) awarded LNG bunkering licenses to Pavilion Gas and a joint venture between Shell and Keppel Corporation.  In support of these efforts, SLNG recently launched Singapore’s first LNG truck loading facility at its terminal, to allow small volumes of LNG to be transported overland.  This will also open up possibilities for gas supply to domestic customers with no pipeline access.

18.         As you can see, Singapore is embarking on a range of activities. Although by global standards, the scale is limited, we believe there is room for innovation, and the creation of new options and possibilities, which can be enhanced and leveraged for application around the region, for the benefit of players in the industry.

Conclusion

19.         The changes in the global gas market pose challenges and offer opportunities to buyers, sellers, and policy-makers alike.  This conference is a good platform for bringing together the different parties to share perspectives on the LNG market and forge partnerships to achieve mutually beneficial outcomes, especially in the somewhat fluid global environment that we find ourselves in. 

20.         I wish everyone a fruitful and productive conference.  Thank you.

[1] Source: IEA’s World Energy Investment 2016 Factsheet