Mr S Iswaran at "Next Generation LNG - Asia Pacific 2009" Conference, 30 Jun 09

SPEECH BY MR S ISWARAN, SENIOR MINISTER OF STATE FOR TRADE & INDUSTRY AND EDUCATION, AT “NEXT GENERATION LNG - ASIA PACIFIC 2009” CONFERENCE, TUESDAY, 30 JUNE 2009, 0900 HRS, PAN PACIFIC HOTEL, SINGAPORE

Distinguished Guests,

Ladies and Gentlemen,

Good Morning

I am pleased to join you at this conference entitled “Next Generation LNG - Asia Pacific 2009”

“Next Generation LNG”

“Next Generation LNG” is an apt and timely theme – especially against the backdrop of an energy industry that faces unprecedented challenges posed by the current global economic downturn. As the industry adjusts and reinvents itself, it is clear that Asia will play a pivotal role in the evolution of the “Next Generation of LNG”. I am, therefore, pleased that the CWC Group has chosen Singapore as the venue for this Conference.

From Singapore’s perspective, this conference and its deliberations coincide with and complement key developments within our energy sector, in particular the development of our first LNG import terminal.Land reclamation on JurongIsland, where the terminal is to be sited, has been completed.Our LNG terminal will have an initial capacity of 3 million tones per annum (or mtpa), with the potential for expansion to 6 mtpa.

Uncertain Times Ahead – Impact on Energy Markets

Natural gas is an attractive choice for new power plants given its relative fuel efficiency and low carbon dioxide intensity. More countries have increasingly turned to the use of natural gas for power generation.In the past two to three years, the industry has had to grapple with high LNG prices given the tight supply and strong demand stemming from high growth.

The situation has since changed quite dramatically. Today, the global economy faces one of its biggest challenges in history, with the International Monetary Fund (IMF) projecting global Gross Domestic Product to drop by 1.3 per cent this year before a slow recovery next year.The question is not just whether an economic recovery is in sight but also how strong and durable such a turnaround will be.

The International Energy Agency (IEA) has estimated that global electricity consumption could consequently drop by as much as 3.5 per cent in 2009 – the first annual contraction since the end of the Second World War. Amongst OECD countries, electricity demand in the first quarter of 2009 fell by 4.9 per cent on a year-on-year basis. The decline in demand in non-OECD countries was even more pronounced. In China, for example, electricity demand fell by 7.1 per cent in the fourth quarter of 2008 and by a further 4 per cent in the first quarter of 2009.

Asia-Pacific and LNG Trading

Despite the global downturn and the attendant gas demand uncertainty, the fundamentals of the Asia Pacific LNG market remain strong in the medium to longer term, fuelled by the growth of emerging markets in Asia. The Energy Information Administration (EIA) forecasts that natural gas demand in non-OECD Asia will still grow from 9.4 trillion cubic feet in 2006 to 24.5 trillion cubic feet by 2030. In terms of average annual growth, this would be more than 4 times faster than that of OECD countries.

Coupled with industrial growth and increasing energy needs, there is also a greater emphasis on cleaner and more efficient sources of fuel in order that electricity generation is sustainable over the long term. Natural gas is thus expected to become one of the fastest growing energy sources in the next few decades in Asia.

At the same time, the development of new LNG projects in the Asia-Pacific region, namely, China, India, Australia and Papua New Guinea will also create more opportunities for LNG trade within the region. For example, companies like Santos, BG Group, Origin/ConocoPhillips and Shell are all competing to export the vast coal-seam gas reserves in Queensland, Australia, as LNG.GdF-Suez estimates that by 2015, there is likely be 120 million tonnes of “flexible” LNG supplies available for spot trading, making up 30 per cent of the total global supply base. In comparison, there were only 35 million tonnes of flexible supplies available in 2008, making up 20 per cent of the total market.

Singapore and LNG Trading

We believe that Singapore is in a good position to become a major player in the LNG trade in Asia. We have a rich history in trading by virtue of our strategic geographical location - Singapore is Asia’s oil centre and the world’s third largest oil trading market, after London and New York. We are also widely acknowledged as one of the world’s leading commodity trading hubs, particularly for energy.

We already have a large base of energy players who have established oil trading, regional headquarters and manufacturing operations in Singapore. Many of them are also major gas and LNG players. These companies can leverage on their existing operations to expand into LNG trading in Singapore, given our proximity to major demand centres like China and India, and supply centres such as Australia and Indonesia.

In 2007, we introduced a 5 per cent corporate tax rate for LNG trading income. This was the first initiative by the Singapore Government to attract new LNG players to Singapore and encourage existing energy players to expand into LNG trading here. As a result, some companies have already started trading LNG in Singapore. The new LNG terminal will enhance existing infrastructure and generate further opportunities for trading.

Energy Security and Development of LNG Terminal

The LNG terminal is also essential for Singapore’s energy security.In 2006, the Government announced that Singapore would be importing LNG to diversify our energy sources and enhance our energy security.It allows us geographic diversification in sourcing for natural gas, and will help mitigate the impact of any piped natural gas (or PNG) disruption on our economy.

In 2007, the Government appointed PowerGas Ltd, a wholly owned subsidiary of Singapore Power Ltd which owns our national gas grid, to develop the LNG terminal. Since then, however, there have been profound changes in market conditions. In particular, there is greater uncertainty over the future build-up in demand for LNG, which, in turn, would affect the utilisation of the terminal and its revenue stream.Financial markets are also less hospitable and financing is more difficult and costly.It has, therefore, become significantly more challenging for PowerGas to proceed with this project on a commercial basis as originally intended.

Indeed, this is reflective of the wider impact the economic crisis has had on the global energy landscape.In the face of a tougher financing environment, new energy investments worldwide have contracted.According to IEA estimates, global liquefaction capacity will plateau by 2013 and LNG markets could tighten once again beyond 2013-2014, depending on the pace of economic recovery.The IEA has also highlighted that project financing of LNG projects has become costlier and harder to secure as a result of diminishing liquidity and increased risk-aversion among lenders.Sustained lower investment could lead to future capacity shortages and spikes in energy prices.

Having reviewed the situation and taking cognizance of the commercial challenges posed by current market conditions, the Government has decided to take over the ownership and development of the LNG terminal in Singapore.The Energy Market Authority (EMA) will form a company, the Singapore LNG Corporation, for this purpose.The aim is to ensure that the terminal is completed and operational by 2013, notwithstanding the present uncertainties in the market.The LNG terminal is a critical addition to Singapore’s energy infrastructure to ensure diversification of our gas supply sources. It is, therefore, in our national interest to develop the LNG terminal at the earliest opportunity, particularly to meet the anticipated growth in our domestic gas demand.Also, the timely completion of the terminal will allow Singapore to be fully prepared for future opportunities when the economy recovers and the need for gas increases.

While this move by the Government will help ensure continued progress in the development of the LNG terminal, the success of the overall project depends on its many stakeholders playing their part.

One key stakeholder is the LNG supplier and aggregator. In April 2008, EMA awarded BG an exclusive right to import LNG and sell regasified LNG in Singapore. I am pleased to announce that EMA has concluded discussions with BG on an Aggregator Agreement which sets out the pricing details and other terms and conditions for the supply of LNG to Singapore.We look forward to building a long-term relationship with BG, which will give Singapore access to a secure and reliable supply of LNG at competitive prices.

Conclusion

The world economic outlook remains challenging and it poses near term uncertainty for the global energy and LNG markets.However, the fundamentals of the Asia Pacific LNG market remain strong in the medium to longer term, fuelled by the growth of emerging markets in Asia.It is, therefore, essential that industry players be well positioned to seize these future opportunities.I wish all of you a fruitful conference and hope that your deliberations will help to ensure that the LNG industry is ready to participate in, and contribute to, the next phase of growth in Asia.

Thank you.