OPENING REMARKS FOR THE GAS ASIA SUMMIT BY DR KOH POH KOON, SENIOR MINISTER OF STATE FOR TRADE AND INDUSTRY, AT THE SINGAPORE INTERNATIONAL ENERGY WEEK 2017, ON WEDNESDAY, 25 OCTOBER 2017, 9:00 AM, SANDS EXPO & CONVENTION CENTRE, MARINA BAY SANDS
Distinguished Guests
Ladies and Gentlemen
Welcome
1. Good morning. I am pleased to join you at the 5th edition of the Gas Asia Summit conference.
Global Developments
2. The dynamics of the global gas market continues to evolve according to changing supply and demand trends.
3. On the demand side, Liquefied Natural Gas (LNG) demand in the Asia-Pacific region has surged in the first half of this year. This has been driven primarily by demand growth in countries in North East Asia, South East Asia, as well as South Asia.
4. In North East Asia, China’s LNG demand is driven largely by policy directions to replace the use of coal for residential demand, commercial consumption, and power generation, due to environmental considerations. South Korea looks set to increase its already significant LNG demand further with the planned shut-down of 10 coal-fired power plants. Here in South East Asia, increased electricity demand will continue to spur LNG demand growth from Thailand, Singapore, Philippines, Indonesia and Vietnam towards the end of this decade. The story is similar for India, Pakistan and Bangladesh.
5. On the other hand, LNG demand remains flat for Japan and Taiwan, where the share of power generation from coal, nuclear, and renewables is increasing. Notwithstanding this, Asia as a whole is expected to remain a major demand centre in the next few years.
6. While LNG demand growth in Asia remains healthy, it is likely to be overshadowed by significant supply growth in the next few years. New LNG supplies from Australia, the US, and Russia are expected to come on-stream over the next five years. Global LNG supply will rise by 106 Million tonnes per annum (Mtpa), an increase of over 40% compared to today. As a result, the global gas market is expected to remain oversupplied until the end of this decade.
Implications of Emerging Trends
7. An over-supplied market and attendant low gas prices presents challenges and opportunities alike for market players in several ways.
8. First, long-term investment decisions have become more complicated. A challenging economic environment coupled with low energy prices have delayed investments on new long-term upstream projects. New developments such as Floating LNG (FLNG) facilities may offer less capital-intensive approaches. However, the perennial challenge for suppliers to reduce costs along the value chain still remains.
9. Adding to the challenge for suppliers is the desire by more buyers for shorter term contracts with greater flexibility in contract durations, volumes and destinations. While this helps buyers deal with market uncertainties, it exacerbates the difficulty for investors to make long-term investment decisions.
10. Policy makers will play an important role in charting a path forward. Clear articulation of regulatory and policy directions on the energy vision for the future will help investors and consumers alike to plan forward.
11. Second, depressed oil prices have dampened the push for gas-on-gas pricing indices. However, having gas pricing that better reflects gas supply and demand dynamics remains vital to the long-term prospects of the gas market. It will also help buyers better handle price volatility, as seen in how Asian spot LNG prices jumped from a low of around 5 US dollars to 8.50 US dollars per million British thermal units over the past six months, due to the upcoming winter.
Singapore’s Gas Market Developments
12. Singapore has sought to respond to these trends by putting in place a number of initiatives that help us stay nimble and better position ourselves for the future.
13. At last year’s SIEW, Pavilion Gas and Shell Eastern Trading Limited were announced as the winners of a competitive Request for Proposal for Singapore’s next tranche of LNG. Both parties will each have exclusivity to market up to 1 Million tonnes per annum (Mtpa) of LNG or for three years, whichever is earlier. The two companies will offer buyers competitive pricing and more flexible destination and volume terms.
14. I am pleased to announce that the Energy Market Authority has formally issued Pavilion Gas and Shell Eastern Trading Limited with LNG import licences on 23 October 2017. This also marks the conclusion of the first exclusive franchise that was awarded to BG, now Shell.
15. With the end of the first franchise, the Government has also lifted the moratorium on Piped Natural Gas (PNG) import. This will encourage greater competition among gas suppliers to offer secure and competitively priced supplies.
16. To further increase dynamism in our gas market, EMA has also formalised the spot LNG import framework. From the first quarter of 2018, interested parties can import spot LNG. This is subject to a market-wide cap of 10% of our long-term contracted gas supplies, out of which 3% will be based on Singapore LNG Index Group or Sling prices to promote the diversification of LNG indices. Details are available in EMA’s policy paper on this subject released on 23 October.
17. EMA is also making progress in developing a domestic Secondary Gas Trading Market. This will provide more options for gas buyers to manage their portfolio and improve the gas market’s efficiency, competitiveness and price discovery. The Industry Working Group convened by EMA will be discussing details of the proposed market design.
Development of Trading and Ancillary Services
18. In addition to meeting domestic gas demand, we are developing Singapore as a gas hub by adding infrastructure and supporting new business initiatives.
19. As of September 2017, the throughput capacity of the LNG terminal on Jurong Island has increased from 6 Mtpa to 11 Mtpa, with the completion of additional regasification facilities. The completion of a fourth LNG storage tank in 2018 will also create more opportunities for ancillary services and trading activities. Examples include provision of small-scale LNG solutions, LNG bunkering, and vessel cool-down services.
20. These will aid in the growth of Singapore’s already sizable LNG trading ecosystem – we now have around 45 international firms with LNG trading desks in Singapore today. Supporting industry players such as consulting firms, law firms, ship brokers, Price Reporting Agencies (PRAs) and other services providers have also established their presence in Singapore, adding to the depth of the ecosystem.
21. We continue to see industry-led initiatives to facilitate price discovery and develop LNG trading. For example, SLNG signed a two-year Storage-and-Reload agreement with Pavilion Gas earlier this year. SLNG has also completed a pilot LNG truck loading bay to facilitate various services, including truck-to-ship LNG bunkering. This can be expanded with four additional LNG truck loading bays, to cater to growth in this sector.
22. Another prospective area of growth is small-scale LNG, which can replace the use of more expensive liquid fuels for power generation in less accessible areas. To cater for this, SLNG is modifying its secondary jetty to cater for smaller vessels ranging from 2,000 to 10,000 cubic meters. In June of this year, SLNG completed its first small scale reload of the Cardissa, Shell’s newly built 6,500 cubic meters LNG bunkering vessel.
23. There are also exciting developments in the area of derivatives. Since starting its Singapore LNG Index Group, or Sling in 2016, the Singapore Exchange (SGX) has since more recently launched new LNG indices such as the Dubai-Kuwait-India (DKI) Index.
24. These developments will enhance vibrancy of the Singapore gas market. We welcome companies to explore opportunities to utilise the terminal for ancillary services, establish their LNG trading presence here, and participate in gas market developments.
Conclusion
25. As the dynamics in the global gas market continue to evolve and transform, policy-makers, buyers and sellers must work together and explore solutions to achieve long term sustainability of the gas industry. The Gas Asia Summit is an excellent platform for all sides to exchange views and consider how to collectively address challenges and opportunities.
26. I wish everyone a fruitful and productive session ahead. Thank you.