Opening Keynote Address by Second Minister S Iswaran at Gas Asia Summit 2014 Conference and Workshop at Marina Bay Sands, Sands Expo & Convention Centre

Distinguished Guests

Ladies and Gentlemen

Welcome

Good morning.  I am pleased to join you at the third edition of the Gas Asia Summit.

Global Gas Market Developments

The global natural gas market is undergoing a period of major, indeed unprecedented, change.  Market dynamics and flows are being reshaped by factors such as the emergence of unconventional gas sources, changing geopolitical dynamics in major supply areas such as Russia and the Middle East, the evolving environmental policies of major energy consumers such as China and India, and the global outlook for alternative energy options such as nuclear and solar.

Despite these uncertainties, global demand for natural gas is expected to grow strongly at around 5% per year till 2020 , driven increasingly by Asian buyers.  According to the International Energy Agency, the Asian gas market will become the fastest-growing in the world, with an estimated total demand of 790 billion cubic meters by 2015 .

On the supply side, we are seeing a tight market.  Last year, global growth in natural gas production slowed to 1.1%, well below the 10-year average of 2.5% .  This is largely due to falling output from existing projects in Egypt, Indonesia, Algeria, and Angola.  However, this tightness is expected to ease with new LNG supplies from the US, Australia, and East Africa entering the market post-2015 .

Asia’s Search for Options

The impact of these changes in gas demand and supply will be felt acutely here in Asia.  For many countries in the region, gas is no longer just an alternative fuel to oil, but an essential part of our energy mix.  Over the past two years, LNG terminals have started operations in India, Thailand, Malaysia and here in Singapore.  Some of these terminals already have plans for further expansion, and more terminals are expected to be developed in Indonesia, Vietnam and China.

While gas demand growth in Asia has been strong, the pace of future growth will hinge on the terms at which gas can be imported, as countries will compare the price competitiveness and supply flexibility of gas against alternative fuels.

Gas prices in Asia have traditionally been indexed to oil.  However, oil price volatility and regional gas price divergences have led to Asian buyers adopting non-oil markers like the US Henry Hub index.  There are opposing views to adopting gas pricing indexed to the Henry Hub – some even view the Henry Hub as a riskier alternative to oil.  However, what is clear is that alternative price indices can help buyers diversify their gas portfolios and reduce their exposure to volatile movements in prices for a single commodity.

Gas buyers have also been diversifying from long-term contracts and adopting more short-term and spot trades within their portfolios.  These trades now account for around 33 per cent of global LNG trade, up from 8% in 2005 .  This trend is anticipated to increase post-2015, as more projects come online and market liquidity increases.

Such diversification is essential to enhance the competitiveness, reliability and flexibility of natural gas as a fuel option.  This, in turn, is key to fostering the long-term sustainable development of the Asian gas market.

Import

Here in Singapore, EMA has put in place a Competitive Licensing Framework to guide our procurement of future tranches of LNG.  In June this year, EMA launched the first stage of a Request-for-Proposal to select up to two LNG importers for the next import tranche.  As we move into the next tranche of LNG procurement, we want to encourage proposals which diversify options available to consumers in the market, including the development of alternative gas pricing models as well as market mechanisms to increase the flexibility of terms on which gas can be procured or managed.

Secondary Gas Trading
The Energy Market Company and other industry players are also working with EMA to develop a secondary gas market trading platform.  This can potentially allow gas users to better manage their gas portfolios and boost the competitiveness of our domestic gas market, by providing users with a platform to on-sell gas through the domestic pipeline network.  I am heartened to note the industry support for this initiative, which will further develop our gas market to cater to users' needs. 

LNG trading
At the regional level, the search by buyers for more options to diversify their portfolios has led to much interest in establishing an LNG trading hub and an Asian price index which is more reflective of the supply and demand dynamics in the region.

LNG trading is an important area of potential growth in the region.   An LNG trading hub can serve as a platform for efficient market outcomes and market-reflective prices.  A number of requirements are generally recognised to be key to the development of physical trading activities.  These include having available infrastructural capacity, and transparent rules for access to this capacity.

Infrastructure

Here in Singapore, we have equipped ourselves with infrastructural capacity to cater to domestic gas demand.  Spare capacity at our LNG terminal will also provide us with the opportunity to support ancillary LNG activities such as LNG trading and bunkering.  SLNG, the owner and operator of Singapore’s first LNG terminal on Jurong Island, recently announced the award of its Phase 3 Engineering, Procurement and Construction contract to Samsung C&T Corporation.   Under this contract, SLNG will expand its send-out capacity from the current 6 million tonnes per annum to around 11 million tonnes by 2017, and add a fourth, larger 260,000 cubic metres LNG storage tank by 2018.

While we expand our existing terminal, we are also exploring a few potential sites in eastern Singapore to build a second LNG terminal.  This terminal will geographically diversify our LNG import infrastructure, and support future industrial development and power plantings.

Terminal Access Code

We also note industry feedback on the need for transparent rules on access to terminal capacity.  In response,   EMA has commenced the process of developing a Terminal Access Code.  This will establish clear guidelines to ensure the efficient usage of the terminal while supporting the needs of various users for throughput or ancillary services.

With infrastructure capacity and a higher degree of transparency, as well as our existing strengths such as proximity to buyer demand in Asia, status as a neutral marketplace, with the presence of a growing community of LNG traders and legal and financial expertise, Singapore is putting together the building blocks to develop into a hub for LNG activities. 

Conclusion
As demand and supply dynamics continue to evolve, we will continue to witness exciting developments in the global gas market, especially here in Asia.  Policy-makers and industry leaders must work in tandem to ensure that domestic markets and infrastructure are able to support the continued availability of a secure and competitive energy supply for end users.  Enhancements to encourage gas trading are also essential, such as increasing terminal access transparency and the market pricing of gas.  Policies must remain investment-friendly, and industry players must be afforded certainty to make business decisions.

This conference continues to provide a useful opportunity for us to come together and exchange views on such issues.  I wish you a fruitful session at the Gas Asia Summit 2014.

Thank you.