Distinguished Guests
Ladies and Gentlemen
Welcome
Good morning. I am pleased to join you at the 10th edition of the LNG Supplies for Asian Markets (LNGA) conference.
Impact of Global Gas Market Developments on Asia
The global LNG market has changed significantly in the last year. When we met at last year’s LNGA conference, the market outlook was optimistic on the back of growing global demand for natural gas, and new natural gas projects coming online.
Since then, the most striking market development has been the sharp fall in crude oil prices. Brent crude price has decreased some 50% since the middle of 2014. We are also starting to see new LNG supplies come online in 2015. Australia is expected to add LNG supplies from at least three new projects in 2015 alone – Gorgon, Gladstone and Australia Pacific. In the US, the Sabine Pass LNG project is on track to commence operations in late 2015. These new supplies are expected to ease the tight global gas market. At the same time, Asian demand for LNG is expected to remain subdued in the near future, with key buyers such as Japan, South Korea, China and India forecasting lower LNG demand, or its growth, for their needs.
The present market conditions suggest a favourable shift towards Asian LNG buyers. Asian LNG spot prices have fallen from a monthly average of US$14/mmbtu (in October 2014) to present levels of around US$6-7/mmbtu (for April 2015 delivery).
In the longer term, it remains to be seen whether lower oil prices would reduce Asian buyers’ appetites for gas-on-gas pricing or Henry Hub-indexation. The past few years have seen many Asian LNG buyers seeking Henry Hub-indexation for their LNG contracts in a bid to reduce gas prices in the region. The question is whether lower oil prices will trigger a return for contracts with traditional oil-linked pricing over Henry Hub or hybrid-pricing.
On the other hand, for LNG producers, the downward pressure on oil prices may affect the viability and sustainability of new and planned LNG projects. In fact, the low oil prices have already eroded the margins of some LNG producers, leading to the shelving or postponement of some projects. Continuing weakness in oil prices may make it even more challenging for projects to commit to their investments.
Given the uncertain and challenging environment in the short term, adjustments and consolidation can be expected. However, consumers and producers should take a long-term view in order to ride out these cycles. Natural gas, being the cleanest fossil fuel, will continue to be, and grow, as a significant part of Asia’s energy mix. Many Asian countries have already made a long-term commitment to natural gas, and many of the LNG import terminals currently under construction or being planned around the world are in Asia. These include neighbouring Malaysia and Indonesia, China, Japan and the Philippines, to name a few. Asia will remain the leading LNG export market for the foreseeable future.
Implications for Singapore
Against this backdrop, let me briefly share Singapore’s plans to grow our gas market. As an energy price-taker, our long-term policies must be flexible yet resilient to allow us to respond nimbly to changing global market developments.
POST-3 MTPA RFP
Our tranche-by-tranche approach of importing future LNG supplies will help position us to capture some of the upside from emerging new suppliers and price indices. In December 2014, we closed Stage One of our two-stage Request for Proposal (RFP) selection process to appoint up to two LNG importers. This is to meet incremental demand beyond BG’s exclusive 3 Mtpa franchise.
I am heartened that the RFP has elicited keen interest from the industry. We received nine competitive and strong bids proposing a variety of LNG supply solutions and price indices for Singapore.
Among the evaluation criteria for the Stage One bids are factors such as supply diversification both at the country and portfolio levels, price competitiveness, flexibility of terms and price index diversification. Bidders have collectively proposed more than ten new source countries to supply the next tranche of LNG to Singapore at competitive prices. These new supply options will improve the diversification and competitiveness of our gas sources when our next LNG importer or importers commence supply for our next tranche of LNG.
In Stage Two, shortlisted parties will be required to negotiate with potential buyers to secure binding commitments for LNG purchases. Additional key evaluation criteria in Stage Two include the shortlisted parties’ ability to successfully aggregate buyers’ demand based on the attractiveness of their Gas Sales Agreements.
Our government agencies are currently evaluating the bids and will announce the shortlisted parties and more details on Stage Two in due course.
GAS TRADING HUB
Beyond domestic needs, Singapore seeks to develop itself as a regional gas trading hub. A gas trading hub, or a network of such hubs, can serve as a platform for price discovery and more efficient market outcomes. The resulting emergence of an Asian price marker reflecting the region’s demand and supply dynamics will provide yet another option for price diversification for buyers and sellers alike.
In addition, a well-coordinated and connected gas market in Asia can also bring about a range of benefits, such as enhancing the security of energy supplies in the region and strengthening regional cooperation on natural gas.
The Singapore Government is working on a range of initiatives to facilitate the development of a gas trading hub here. This includes enhancing our LNG infrastructure by building ahead of demand to better support a wide spectrum of ancillary LNG activities, developing the Terminal Access Code (TAC), and studying the development of a domestic secondary gas trading market.
The Government will do its part to facilitate the creation of trading markets through our policies and infrastructure investments. But the success of a gas trading hub will ultimately be determined by industry participation. In that regard, I am pleased that approximately 30 companies have already located their gas/LNG trading operations here. I invite you to share your perspectives with EMA which will inform the evolution of our policies and plans.
Conclusion
In conclusion, as demand and supply dynamics evolve, policy-makers, suppliers and buyers must continue to work in partnership to ensure that markets and policies are “future-ready”. Recent events in the global energy market serve to reinforce this message. This conference is an excellent opportunity for us to come together and exchange views on this topic. I wish you all a productive and insightful session at LNGA 2015.
Thank you.