SPEECH BY MR S ISWARAN, MINISTER OF STATE FOR TRADE AND INDUSTRY AT THE FINANCING ENERGY PROJECTS IN ASIA CONFERENCE 2006 HELD ON 18 OCTOBER 2006 AT 9AM, PAN PACIFIC SINGAPORE

“ENERGY SECURITY AND ALTERNATIVE ENERGY”

Introduction

Ladies and gentlemen

A very good morning to all of you

It’s a pleasure to be here with you to deliver the opening address at this year’s Conference on Financing Energy Projects in Asia. I will be speaking today on the subject of “Energy Security and Alternative Energy”.

Energy Security

Energy is a fundamental input for the growth of any modern economy. It is therefore, axiomatic that energy security, which aims to ensure the availability of reliable and affordable supplies of energy, is important for any country.

The last decade has seen a surge in worldwide demand for energy, fuelled by the explosive economic growth of developing countries such as China and India. This, together with refining capacity bottlenecks, geopolitical uncertainties, the threat of terrorism and natural disasters have led to a climate of tight markets and high oil prices, propelling energy security to the top of the international agenda.

Diversification of fuel types and sources has been the key to energy security since the 1970’s and it remains a fundamental principle.But what is also needed is a long term perspective of the supply and use of energy. Dr Daniel Yergin, Chairman of Cambridge Energy Research Associates, advocates taking a wider approach to energy security that takes into account international cooperation to protect the entire global energy supply chain and infrastructure and the development of new energy technologies. There must be an awareness that with energy so deeply intertwined with our lifestyle and culture, the way we live our lives, and the way we use energy today will have to change as we adapt to an evolving energy landscape.

What will the global energy landscape look like in the long term? For one, fossil fuels, such as oil, natural gas and coal will remain the world’s main energy source for the foreseeable future. The US Energy Information Administration, or EIA, estimated that in 2003, 87% of world energy consumption came from oil, natural gas and coal. The EIA projects that in 2030, these three fuels will retain a prominent 86% share of global energy supply. Estimated reserves of fossil fuels are expected to be adequate well beyond 2030. The EIA estimates that oil production will not peak before 2030. World reserves-to-production ratio for natural gas is 67 years, and 180 years for coal. Rising energy prices will also spur more oil and gas exploration and increasingly render unconventional oil, such as tar sands, economically viable. In essence, actual physical reserves of fossil fuels do not appear to be the limiting factor in meeting increasing energy demand in the next few decades.

However, while there remain significant energy reserves which are untapped, substantial investments are needed to extract and market these energy sources. The International Energy Agency estimates that US$17 trillion of investments will be required in the worldwide energy sector by 2030 to meet forecasted demand growth – that works out to about US$630 billion a year. Over US$10 trillion is required for the electricity sector, and US$3 trillion each for oil and gas. This means we need efficient global capital markets to channel funds into energy production and distribution in an economically rational way.Equally, it also implies that resource rich countries should open themselves to international investments and offer investors regulatory certainty with consistent and transparent rules.

Energy Security in Singapore

In Singapore, natural gas has become the preferred fuel type for electricity generation in the last few years. We generate about 80% of our electricity using natural gas supplied from Indonesia and Malaysia via pipelines. The remaining 20% is generated from fuel oil, Orimulsion and waste incineration. Natural gas is the fuel of choice as it is clean and cost competitive.

In the long term, Singapore’s electricity demand is expected to grow at a rate of about 4% per annum. We will need more natural gas than what we have currently contracted for. This economic reality coupled with the need to diversify our energy sources has led the Government to decide to meet this additional demand quantum by importing Liquefied Natural Gas (or LNG). Our forthcoming LNG terminal is expected to have an annual operational capacity of 3 million tones and it is another energy investment opportunity in Singapore.We envisage that the private sector will own and drive this investment.Although some form of government involvement may be required, our primary role is to provide information, regulatory certainty and clarity for investors to make their calculations and decision.

LNG is an important step in enhancing Singapore’s energy security. But more needs to be done and it requires a multi-faceted whole-of-government approach to this complex issue. It is for this reason that the Singapore Government has established an inter-ministry Energy Policy Group (or EPG) to formulate and co-ordinate our national energy strategies.The EPG is led by the Ministry of Trade and Industry, and involves several key ministries and agencies such as the Ministry of the Environment and Water Resources, the Ministry of Foreign Affairs, the Ministry of Transport, the Ministry of Finance, the Energy Market Authority, the Economic Development Board, the National Environment Agency, the Land Transport Authority, and the Building and Construction Authority. The EPG looks at energy issues holistically, covering the four perspectives of Energy Security, Economic Competitiveness, Environmental Sustainability and Energy Industry Development.

The EPG has commenced initiatives in two areas – (i) Energy Conservation; and (ii) Alternative energy – that will help to augment Singapore’s energy security and achieve other energy policy objectives. Allow me now to share with you some of the measures that have been taken in the area of energy conservation, and also to comment on alternative energy.

Energy Conservation

The most straightforward way to reduce our dependence on energy imports is to simply consume less energy or, to put it another way, to use energy more efficiently. Energy conservation is perhaps the most universally beneficial policy, as it enhances security, reduces our energy bills, and protects the environment. In Singapore, we have adopted a differentiated approach towards energy conservation across the various verticals i.e. households, buildings, industries and transportation sectors.

In the buildings sector, the Building and Construction Authority has introduced an assessment system to rate the environmental impact and performance of buildings. This system is called the ‘Green Mark for Buildings’ programme and is aimed at promoting sustainable development in the construction industry. Energy conservation is one of the key criteria that the Green Mark assesses. Building designs must demonstrate that they promote energy savings and use energy efficiently to be eligible for the Green Mark.

A related scheme is the S$10 million Energy Efficiency Improvement Assistance Scheme. This is a co-funding scheme administered by the National Environment Agency to incentivise companies in the manufacturing and building sectors to carry out detailed studies on their energy consumption in order to identify potential areas for energy efficiency improvements. Funding is provided for up to 50% of the qualifying cost of engaging consultants to conduct energy appraisals and to recommend specific measures that can be implemented to improve energy efficiency. Energy efficiency measures can be simple but noteworthy. For example, City Developments Ltd installed motion-detecting lights in the stairwells of 13 of its commercial properties. This alone is expected to reduce electricity use in stairwells by 93%. Other building design initiatives to conserve energy include features that make greater use of natural lighting and the use of materials that reduces demand for air conditioning.

In land transportation, the Land Transport Authority and the National Environment Agency have the Green Vehicle Rebate designed to encourage the use of more fuel efficient green vehicles such as electric and hybrid cars. The rebates equivalent to 40% of the car's Open Market value (OMV) was first introduced in January 2001 with the aim of narrowing the cost differential between green vehicles and conventional vehicles.

More broadly, Singapore has consistently avoided the policy of fuel subsidies that can and do distort the market and lead to over-consumption of energy.Presented with artificially low energy costs, businesses and consumers would have little incentive to conserve energy.We have thus decided to leave it to a liberalised competitive market to determine energy prices which in turn promotes the efficient use of energy.

Alternative Energy

Alternative energy is an interesting field that from an industry development standpoint, is a potential growth sector.The Economic Development Board has secured early wins in this area. Pioneering investments in the Alternative Energy industry here include solar cell manufacturing, biodiesel production, fuel-cells and even wind technology. Homegrown Solar Energy Power (SEP) set up Singapore’s first silicon cell solar manufacturing plant. Germany’s Peter Cremer is building a 200,000 tonnes biodiesel plant on JurongIsland, which is due to be ready in early 2007. Energy giant BP established two hydrogen refueling systems here that DaimlerCrysler is now using to test their fuel cell vehicles.Recently, the world leader in wind technology, Vestas opened its Asia Pacific Headquarters here and will be investing an additional S$500 million in its Singapore R&D centre.

For many countries, renewable energy is a key strategy to diversify away from conventional fossil fuels. For Singapore, however, renewable options are more limited as a source of energy supply.Due to our geography, we are unable to tap geothermal or hydro sources.Our wind speeds and tidal differences are also not of sufficient magnitude for significant electricity generation. Wider applications for fuel-cells in Singapore, such as in distributed generation are possible. However, one issue that remains is the availability of clean sources of hydrogen. The most efficient and cost effective methods of producing hydrogen for fuel cells are still heavily dependent on fossil fuel sources.

With Singapore’s location on the sun-belt, solar energy perhaps offers the most promise to us. However, there are still cost and technological barriers that impede widespread adoption. At current technology levels, electricity from solar photovoltaic technology still costs more than three times the average Singapore electricity pool price. It has been estimated that even if all available roof top space in Singapore were covered with photovoltaic solar panels, that would only generate 3-4% of our annual electricity consumption.

That said, alternative energy technology is improving and advancing all the time. For example, the energy conversion efficiency of solar cells has improved from around 15% in the early 1980s, to nearly 25% today. With improving efficiency and greater economies of scale, the cost of solar cells is falling, at the rate of about 5% a year.For there to be continued improvement and cost reduction in alternative energy technologies, there must be ongoing financing of research and development, with demonstration and deployment. On this, I am happy to note that the private sector is leading the charge in Singapore with many innovative companies working on alternative energy technologies – in some instances in collaboration with the public sector. Rolls-Royce began research into fuel cells in 1992. In 2003, it established a wholly-owned subsidiary, Rolls-Royce Fuel Cell Systems Ltd, to manage its future research and development activities in this field. The Singapore connection came about in 2005, when Rolls-Royce signed an agreement with a Singaporean consortium of companies to jointly invest US$100 million in the project. The aim of the project is to develop a commercially viable, cost-effective, highly efficient, and environmentally friendly power system based on fuel cell technology. Just last Friday (13th October 2006), The Institute of Chemical and Engineering Sciences (ICES), a research institute under The Agency for Science, Technology and Research, announced that it was collaborating with Netherlands-based Shell Hydrogen BV to develop better hydrogen-powered cars. Among the key areas of study will be the search for more effective hydrogen storage materials and to lower storage temperatures

The Singapore Government is thus closely watching developments in the alternative energy field, and we are constantly on the lookout for R&D and testbedding opportunities that present win-win value propositions for both the public and private sectors.

Conclusion

In conclusion, let me emphasise that energy security requires not just the diversification of energy sources, but also energy conservation and development of alternative energy solutions. There needs to be a keen partnership between the private and the public sectors to ensure sufficient supplies of energy to support growth and development.The Government’s role is to create a conducive environment for energy investments.But the investments must come from the private sector if they are to make commercial sense and thus be sustainable in the long term. The Singapore Government looks forward to building more of these partnerships as we move forward.

On this note, I would like to wish all of you a fruitful time at this conference. For those of you from overseas, I wish you a pleasant stay in Singapore. Thank you.