Mr S Iswaran at the LNG supplies for Asian Markets 2007 Conference

SPEECH BY MR S ISWARAN, MINISTER OF STATE FOR TRADE AND INDUSTRY AT LNG SUPPLIES FOR ASIAN MARKETS 2007 CONFERENCE HELD ON 4 SEP 2007 AT 9 AM, HILTON HOTEL SINGAPORE

Distinguished guests,

Ladies and gentlemen,

I am pleased to be here this morning at this year’s LNG Supplies for Asian Markets conference.

The theme of the conference – “Sellers’ Market, Buyer Resistance: Where Next for Asian LNG?” – goes to the heart of the challenge that Asia faces today.Asia is grappling with the prospect of procuring LNG from a tight supply market to meet growing energy needs arising from strong economic growth.

According to the Asia Pacific Energy Research Centre (APERC), energy demand in the Asia-Pacific Economic Cooperation (APEC) region is projected to grow at 2% per annum till 2030. This would mean a doubling of energy demand before 2040.Our economies will have to find reliable, affordable and adequate energy supplies to sustain population growth, economic growth and developmental needs.

The International Energy Agency has projected that by 2030, natural gas will account for a larger 24% share of the total energy used worldwide for electricity generation, compared to slightly more than 20% today. While pipeline gas will fuel Europe’s increasing demand, LNG will be more dominant in the Asia-Pacific. Total LNG imports to APEC are expected to increase fourfold to about 400 million tonnes by 2030. With lower production within the APEC region compared to demand growth, APEC as a whole may become a net importer of natural gas as early as 2015.

Evolving Business Models for LNG Industry

The business models within the LNG industry are also evolving in tandem with adjustments in global gas markets. Against a backdrop of strong demand growth, de-regulation, and the relatively high price of oil, some buyers are seeking to reduce volume risks by shifting from the traditional long-term LNG trades to short-term and spot contracts. Data from the International Group of LNG Importers (GIIGNL) shows that in 2005, 348 spot LNG cargoes accounted for about 13% of global LNG trade, compared to only 5% in 2000. This is almost one cargo per day.

In addition, the current model of point-to-point utility supply with little on-selling is similarly evolving. Given that storage and regasification capacities are the relatively lower cost components in the LNG value chain, there may be a potential “mid-stream” model for LNG brokers to utilise limited spare storage and regasification capacities to bring more LNG to the market to meet demand spikes.How this model develops would ultimately depend on the availability of an LNG fleet and a network of terminals operated by independents. In this regard, one forward indicator is Golar LNG’s estimate that more than 30% of new ship orders after 2006 were by independents compared to less than 20% in the existing fleet.

Opportunities for Gas in Singapore

Against the backdrop of these global developments in the LNG industry, let me now share with you the key opportunities in Singapore.Today, about 80% of Singapore’s electricity is generated from natural gas. As gas-fired power plants are amongst the most efficient and competitive power generation technologies, the economics of the market will ensure that gas remains a mainstay for our power generation.

Demand for gas is also expected to rise as new industrial projects come on stream.Many of these projects, such as those in the petrochemical sector, are gas-intensive and have the potential to consume significant amounts of natural gas. Having more supply options will enhance our energy and gas security while attracting industries that can add value to our economy.

In August last year, we announced the decision to import LNG to meet our future demand for energy.It will allow us to source for natural gas from all over the world.Today, I am pleased to elaborate on our plans to import LNG to meet our energy needs.

Singapore is well-positioned to import LNG.Due to our geographical location at the equator, we enjoy a steady gas demand profile, unlike the seasonal profiles of countries in the temperate region like Japan and Korea. We have also taken steps to ensure competition in our gas market by enacting an open access regime for all players.Our Gas Act ensures that there is open and non-discriminatory access to the entire gas pipeline network and relevant gas infrastructure in Singapore.This, together with a liberalised electricity market, will ensure that natural gas remains the preferred fuel type in the medium term.

The import of LNG also creates greater opportunities for LNG trading in Singapore, boosted by our strategic location along the major shipping lanes. Singapore will also be able to leverage on its current piped natural gas profile to enable gas-on-gas competition. Today, Singapore imports around 6 mtpa of piped natural gas from Malaysia and Indonesia. Moving forward, gas-using companies in Singapore will have the opportunity to arbitrage between PNG and LNG prices to unlock value for themselves. Companies will also have the opportunity to conduct LNG trading.

In May 2007, we announced that for the next 10 years, there will be a special tax rate of 5% specifically on LNG trading income. We recognise the economic potential of LNG trading.It is our aim to catalyse the development of the LNG trading sector in Singapore through this fiscal measure. We hope that this will also facilitate the development of Singapore’s LNG project.

LNG Terminal

For Singapore’s first LNG terminal, we have designated PowerGas, a wholly-owned subsidiary of Singapore Power, to build and operate the terminal.There are clear synergistic benefits for PowerGas to operate the LNG terminal, given its current role as the gas transporter and system operator in Singapore.PowerGas will be able to ensure that the operation of the terminal, which is strategic and critical, is efficiently integrated with the gas pipeline network.PowerGas will also be able to manage periodic demand and supply imbalances in the gas network by adjusting gas supply from the LNG terminal.

To ensure the success of the LNG terminal, we also welcome industry players with the relevant commercial and technical expertise to partner PowerGas to jointly develop and operate the terminal. Such complementary strengths will enhance the commercial model and value proposition underpinning the LNG terminal business.

The Energy Market Authority (EMA) is currently negotiating with PowerGas to procure its services to build and operate the LNG terminal. We aim for the LNG terminal to be operational in 2012.It will be located at a 30-hectare site on the south-western part of JurongIsland. EMA will regulate PowerGas’ returns to ensure a fair and reasonable tariff for users of the terminal.

LNG Procurement

In parallel with the work on the LNG terminal, Singapore will also need to procure LNG. After consultation with industry players, the Ministry of Trade & Industry has decided that LNG should be procured through a single buyer or Aggregator. This is in line with industry feedback that Singapore should go for a single-buyer approach, given our small market. LNG suppliers will find it easier and more attractive to deal with a single buyer who has a critical mass of demand.

The Aggregator will consolidate the gas demand from all end users in Singapore and procure LNG from suppliers on their behalf. EMA will issue a licence to the Aggregator to exclusively import LNG and sell re-gasified LNG in Singapore until the quantity of LNG contracted reaches 3 mtpa.

Similar to the terminal operator, EMA will regulate the Aggregator’s returns when he retails re-gasified LNG to domestic customers.EMA will also ensure that the Aggregator is non-discriminatory and provides equitable pricing to all consumers that require LNG.

To select the Aggregator, I am pleased to announce the launch, today, of the first stage of a 2-stage Request for Proposal (RFP) process.

It is clear from our discussions with local and foreign industry players that different business models can be adopted to aggregate and procure LNG for Singapore.Hence, rather than pre-judge the issue, the aim of the first stage of the RFP is to establish a framework for potential aggregators to clearly understand the nature of the Singapore gas market and the expected roles of the Aggregator, before submitting their ideas and proposals on how to aggregate gas demand and import LNG into Singapore.EMA will also be keen to learn from interested bidders how they would arrange for the supply of LNG at the best possible terms for Singapore. We are open to proposals from local or foreign players, whether as individual companies or as joint ventures.

In the second stage, EMA will select and appoint the Aggregator from the shortlisted candidates at the end of the first stage.We plan to appoint the Aggregator in the second quarter of 2008.

Conclusion

Ladies and gentlemen, these are exciting times for the LNG industry in particular, and the energy sector in general. Singapore is embarking on a journey into this new arena – that of LNG procurement and the building of our first LNG terminal.With today’s announcements, my message to the global LNG industry is simple – Singapore is ready for business.We look forward to working with the industry to enhance our energy security and opening new opportunities in the energy sector.

I wish you a fruitful conference.Thank you.

Please click here for Press Release by the Energy Market Authority "Energy Market Authority Kicks off Request for Proposal to Select LNG Aggregator following Designation of PowerGas as LNG Terminal Operator".

The link embedded in this PDF is no longer active as the submission period for business model concepts for the Aggregator closed at 4 PM (Singapore time) on 4 December 2007.