SPEECH BY MR S ISWARAN MINISTER OF STATE FOR TRADE AND INDUSTRY at the 23rd asia-pacific PETROLEUM CONFERENCE on TUESDAY, 11 SEPTEMBER 2007, 6.30pm at THE STAMFORD BALLROOM, RAFFLES CITY CONVENTION CENTRE
Mr Cheng Hong Kok, Director & Executive Committee Member, Singapore Petroleum Company Ltd
Distinguished guests, Ladies and gentlemen
Good evening
I am pleased to join you this evening at the 23rd Asia-Pacific Petroleum Conference.
Energy Challenges today
The global energy scene is transforming rapidly.The complexity of today’s energy landscape is compounded by the high and volatile energy prices of the past few years. Strong economic growth, particularly in Asia, has resulted in a significant increase in energy demand. According to the International Energy Agency, global energy demand is expected to grow by about 50 per cent over the next two decades. Against this backdrop, the industry’s ability to quench the global thirst for energy will certainly be put to the test.
Climate change has also emerged as a major socio-political concern, as evident from the recent APEC meeting in Australia and other international summits. A consensus is forming within the scientific community that climate change will have severe consequences if urgent measures are not undertaken to avert it. Concern over climate change is also driving the trend towards improving energy efficiency and the use of low carbon energy sources.
But, even as countries actively seek alternative energy sources to meet global energy demand, oil will continue to play a critical and dominant role in the energy arena.Within the oil industry, there are important emerging trends that warrantattention. Let me touch on three of them.
The first is the broadening pool of players in the oil industry. International Oil Majors have been joined by new entrants including national oil companies, as well as independent entrepreneurs and traders. Each has its own objectives and competes for a share of the energy pie, relying on their respective competitive strengths, be it in upstream and downstream assets, technology, market access, or a combination of these factors. This new array of players has rendered the oil landscape far more diverse and the path ahead for the industry much more complex and competitive.
The second trend is the recognition that biofuels have a material role within the oil industry. Sustained high oil prices have increased the attractiveness of biofuels as an alternative fuel for transportation. Although biofuels might account for only one to two per cent of overall energy demand, its future potential should not be underestimated.Biofuels are likely to be an enduring aspect of the oil industry.
Third, the global oil market is becoming even more interconnected and interdependent. Rapid economic growth in major developing nations is fuelling their energy demand with great potential to foster inter-regional energy trade. Going forward, we can expect regional trading and logistics hubs that are along the main supply routes to play a bigger and more significant role in this regard.
Singapore – A Major Oil Hub in Asia
In Singapore, the oil industry is an integral part of our economy.Since the late 19th century, when Singapore was chosen as Shell’s first distribution hub for kerosene in Asia, Singapore has not looked back. Today, Singapore is Asia’s price discovery and trading centre for oil products, and we remain an important refining and distribution hub.The oil industry contributes a substantial five per cent of Singapore’s GDP.The foundation laid by the oil industry in logistics, trading and refining has spun-off further economic activities in related industries. This includes the flourishing chemicals sector, which has been growing at about 20 per cent a year since 2000.
However, the future of the oil industry in Singapore cannot be guaranteed and there is no room for complacency.Regional competition is intense and unrelenting. The local oil industry has to find new opportunities to widen its lead and flourish, taking the industry and the Singapore-based players within it to the next level.To do so, a few key initiatives are needed.
Oil – Widening Our Lead
(A) Growing Refining
The first is to raise Singapore’s refining capacity from the current 1.3 million barrels per day. The value of refining goes beyond the capital-intensive assets.Refining investments are also knowledge and technology intensive, and create many good jobs for chemical, process, electrical and environment engineers.
Growing our refining capacity will also put Singapore in good stead to enhance the growth of oil trading activities.Global refining capacity is expected to increase by another 30 million barrels per day by 2030. Hence, it is important that we expand our existing refineries or attract greenfield investments to maintain Singapore’s share of global refining capacity. This is necessary to provide the critical volume of export oriented refining throughput, creating the liquidity needed to anchor oil trading and price discovery activities in Singapore.
(B) Entrenching Biofuels
Second, we will endeavour to integrate biofuels into our oil industry. In the last 3 years, the Economic Development Board of Singapore has made considerable headway in the biofuels sector by jump-starting biodiesel manufacturing on JurongIsland.With these efforts, Singapore’s biodiesel production output is expected to exceed one million tons per annum by 2010, and reach three million tons per annum by 2015.
A number of new biodiesel plants on JurongIsland are close to commencing operations. Therefore, we are embarking on the next phase of industry development for biofuels, which is biofuels trading. One key step in this direction would be Platts’ upcoming plans to commence price assessment for biodiesel loaded out of Singapore. Knowing the price of biodiesel is vital to exporters who are planning to establish their production bases here in Singapore to serve both regional and global markets. However, until now, there has been an acute lack of biofuels pricing information, which has hindered the development of the biofuels industry in Southeast Asia.
I am happy that Singapore will be one of the first locations in Asia where biodiesel price assessment will be launched.Singapore's well-established, stable, transparent and reputable trading market, coupled with the robust price assessment processes of companies such as Platt’s, would provide investors with a reliable benchmark for the price of biodiesel. This will enable investors to accelerate the development of this new and important industry. Consumers, too, will have a clearer picture of the cost of biodiesel, fostering a more open trading environment.Consequently, the mix, diversity and hedging opportunities for the energy trading community in Singapore will become more vibrant.
(C) Advancing Technology
Growing our refining capacity and developing a new biofuels arm will enable Singapore to stay in the game.But, we also have to invest in research and development (R&D), to develop technologies and know-how that will enable Singapore to stay ahead of the global competition.
For example, to maximise the use of our intensive refinery assets, Singapore, through our public universities and research institutes such as the Institute of Chemical and Engineering Sciences, will do more R&D in areas such as lubricants, process optimisation and catalyst development. This will deepen and “whiten” the barrel, thus extracting more value from refineries. The development of next generation biofuels, with flexibility of biomass feedstock as well as superior fuel quality, will be another key area of focus for research.
Our biofuels R&D efforts will help to address the sustainability of biofuels, as well as integrate biofuels into Singapore’s oil and chemical industry.
Conclusion
We are confident that these initiatives – growing refinery capacity, entrenching biofuels and advancing technologies – will position Singapore competitively in the global industry landscape.
Singapore’s energy landscape is also becoming more diversified and exciting.While we continue to develop our oil industry, we will also pursue new thrusts such as natural gas and alternative energy.With these and other efforts, I am confident that Singapore will continue to play an important and useful role in helping the world overcome the twin challenges of energy security and climate change.
I would like to conclude by congratulating all winners of the Energy Business Awards, Asia 2007, and wishing all of you a fruitful and rewarding conference. Thank you.