Speech by Mr S. Iswaran, Minister in Prime Minister’s Office and Second Minister for Home Affairs and Trade & Industry at the KPMG Global Energy Conference and Opening of KPMG’s Global Energy Institute for Asia, Thursday, 25 April 2013, 09:00 AM, Ritz Carlton Hotel
Mr. Michael Andrew, Global Chairman of KPMG,
Mr. Tham Sai Choy, Managing Partner of KPMG Singapore,
Distinguished Guests,
Ladies and Gentlemen.
Good morning. I am pleased to join you this morning at the inaugural KPMG Global Energy Conference in the Asia Pacific. The theme of this conference – “Opportunities in Asia: Managing complexities in the fast-changing energy landscape” – is quite apposite because given the major developments in the energy space that are occurring, this theme captures the need for policy-makers and industry leaders to really not just think about the current trends and developments, but also the trends of the future, which will have a profound implication for all of us.
Today, Asia is a major engine of growth for the global economy as well as the region. Energy demand in Asia will continue to rise in tandem with the economic growth in the region. China and India will account for over half of the increase in energy consumption over the next 20 years1. The need therefore to secure sufficient and competitively priced energy resources, to fuel economic growth and to enhance competitiveness, is a key imperative for all governments, but specifically, for Asian governments.
On the supply side, we’ve seen some tectonic shifts in the global energy landscape. The boom in shale gas and oil production in the United States has injected significant new supply into the market, transforming the US from an importer into a potentially significant exporter of natural gas. While this may pose new and different challenges to traditional energy producers, it also presents interesting opportunities for consumers, like Singapore. For instance, we are beginning to see Asian liquefied natural gas (LNG) importers negotiating for more attractive terms, or certainly differentiated terms, whether it’s in terms of index diversification, shorter contract terms and also more competitive pricing. These variegated procurement strategies enable them to enhance the resilience and cost competitiveness of their gas portfolios. At the same time, events such as the Fukushima nuclear disaster and geopolitical developments in the Middle East have highlighted the need for countries to enhance energy security through source as well as fuel diversification.
So collectively, these developments underscore the need for policy-makers and industry leaders to develop nimble strategies that will allow us to adapt to the changes, and seize the opportunities, that will arise in this rapidly evolving energy landscape.
Singapore’s Energy Strategies
We in Singapore are by no means insulated from these changes. In fact, quite the converse. Our energy policy and our entire system are deeply embedded in the global system and rely on it. Indeed, it is a country that relies almost entirely on imported fuel for our energy needs. Our energy future is inextricably linked with the trends and uncertainties in regional and global energy markets. So striking a balance between economic competitiveness, energy security and environmental sustainability has long been, and continues to be, the priority for the Government.
Enhancing Competitiveness
In that context, we have been actively pursuing measures to enhance our economic competitiveness by promoting a competitive electricity industry. For example, earlier this year, we announced plans to extend electricity retail competition to a greater number of consumers, thereby allowing them to choose the electricity supply package that best suits their needs. Over the next two years, there will be a net increase of 2,000 MW in our generation capacity as our generation companies build new and more efficient gas-fired plants. These changes across the electricity generation and retail sectors will improve competition and help consumers better manage their energy costs. We are also studying other initiatives, such as the development of an electricity futures market, the introduction of electricity imports, as well as the implementation of a demand response programme.
Diversification of Natural Gas Supplies
In the larger scale look at the region, potential for greater integration within ASEAN and the emergence of an ASEAN power grid also present interesting possibilities for all ASEAN member states.
We have also been seeking to strengthen Singapore’s energy security and resilience through measures to diversify our energy sources. The development of our first LNG terminal is a key and important step towards this end.
To date, Singapore has relied almost entirely on piped natural gas for our power generation and industrial needs. This year, with the start of commercial operations for the LNG terminal on Jurong Island, LNG will be made available in Singapore for the first time. This is an important milestone for Singapore, as it will allow us to access LNG from global gas markets, to diversify our energy sources beyond the region and to benefit from trends in the global gas market.
We are in the process of commissioning the LNG terminal, which is on track to commence operations this quarter. With the first two tanks that have already been built, the terminal will have an initial throughput capacity of 3 million tonnes per annum (Mtpa). By the end of this year, we’ll have a third tank added, and that will increase the capacity to 6 Mtpa. We will be building a fourth tank, which will come on stream in two or three years, and it will boost the terminal’s capacity to 9 Mtpa. Besides providing storage capacity to meet industry and domestic needs, the expanded infrastructure could also catalyse business opportunities in LNG trading, break-bulk services and LNG bunkering.
Our first tranche of LNG will be brought in by BG, which has been awarded an exclusive franchise for up to 3 Mtpa or the year 2023, whichever is attained earlier. The take-up rate for LNG has been much better than we had anticipated. Power generation companies and industries have committed to purchase around 2.7 Mtpa of LNG, in other words, about 90 per cent of BG’s franchise has been spoken for. Therefore, even as our LNG terminal is poised to begin operations, we are at a juncture where we need to look beyond the first tranche of LNG supply.
With LNG set to play a major and significant role in our energy mix, we need to put in place a robust LNG import framework that achieves Singapore’s objectives of enhancing energy security through a diversity of reliable supply sources and ensuring end-users receive competitively priced gas. There are several considerations that underpin our own assessment of a viable LNG import framework. First, while Singapore’s incremental gas demand in the near-term may be relatively small, our total demand for gas could eventually increase to about 15 Mtpa by 2024. It’s a substantial volume, and any procurement framework for future LNG must be able to effectively address this future demand for us. Second, future LNG import should enhance the price competitiveness of our gas supply and also help to minimise volatility. This could be achieved through a diversified portfolio of LNG from multiple supply sources and, where possible, a blend of contract durations and price indexation. Third, the future LNG import framework should take into consideration the available capacity and operational efficiency of the LNG terminal, and the number of users it can effectively accommodate. Finally, the framework should allow our domestic end users to benefit from opportunities that may arise from developments in the global gas market, such as the emergence of new gas supplies and movements in gas prices.
Last year, the Energy Market Authority (EMA) published a consultation paper to seek industry views on the possible options for Singapore’s future import of LNG. The consultation introduced two quite different but possible options for us to consider. The first was the model of the regulated sole importer as the framework. This model has been adopted by Asian LNG importers, such as South Korea, Japan, Taiwan and Thailand. Under this framework, a regulated sole importer is tasked with procuring all future LNG demand for end users in the country. It also simplifies negotiations on terminal access and operational issues.
The second option is the multiple aggregator framework. Similar frameworks have been adopted in the EU and the US. Under this model, importers could either be appointed by EMA through a competitive request-for-proposal process, or it could emerge from the natural competition between players in the LNG import sector, resulting in natural aggregation.
The views that have been put forward in favour of, or against, these two models have been quite varied, as is to be expected. Some industry players argue that demand aggregation under a sole importer would allow for scale in procurement that would help to secure more favourable LNG prices and terms. On the other hand, some are concerned whether a sole importer would be able to secure the most competitive terms for end-users. They note that allowing multiple aggregators will allow for price discovery, and that recent empirical data suggests that there are limits to the price advantage that can accrue to volume buying.
Ultimately, our decision and our aim in this exercise is to ensure that end-users of gas in Singapore will have more options and flexibility to secure stable, secure and competitively priced gas to meet their needs. Taking into consideration this industry feedback, EMA will launch a second phase of industry consultation next month on a proposed LNG import framework for Singapore. I think this will be an important document as it will shape the evolution of the sector, going forward, in Singapore.
We look forward to working closely with the industry to further develop the model, and remain open to consider best practices of other LNG-importing countries. I encourage all of you, as industry stakeholders, to submit your thoughts and ideas to the EMA to help refine the proposals in the consultation paper. I also invite all of you, specifically those who are interested to participate in Singapore’s LNG market to discuss their specific ideas and proposals with EMA.
Singapore as a Thought Leadership Hub for Professional Services Firms
Another key plank of our strategy in the energy sector is to ensure that Singapore remains attractive to global energy companies, which can continue to build a vibrant energy hub here. Even in a challenging global environment, we remain home to the regional headquarters, research & development and manufacturing bases of some of the world’s largest clean energy companies, such as Renewable Energy Corporation, Vestas and Trina Solar. Recent investments also bear strong testament to Singapore’s position as an energy hub in the region. Two years ago, Neste Oil opened the world’s largest bio-renewable diesel plant in Singapore. More recently, Shell announced its plans to shift its Integrated Gas Global Headquarters to Singapore.
So we see exciting opportunities for businesses in the energy sphere, but we also recognise that companies face an increasingly complex energy landscape. Hence, consultancies like KPMG and others play an important role in helping companies navigate this complex terrain, exploit growth opportunities as well as achieve greater energy and resource efficiency.
So I am very pleased that KPMG has decided to establish its Global Energy Institute for Asia and its Centre of Excellence for Energy & Natural Resources in Singapore. It will be an important and valuable addition to our energy eco-system. I hope that the Institute will collaborate closely with the myriad companies and organisations in our energy landscape, to yield insights, gain mindshare and also to generate innovative business solutions in the sector and in the region.
So, let me conclude by congratulating KPMG on the establishment of the Institute and the Centre of Excellence. We look forward to a long and close partnership with KPMG in this important domain of energy. And I also want to wish all of you a very productive and fruitful conference.
Thank you.
1 International Energy Agency, World Energy Outlook 2012