1. I am pleased to join you at the 15th edition of the LNG Supplies for Asian Markets conference.
2. As we enter the new decade with challenges brought about by the impact of COVID-19, it is timely to discuss the changes in demand-supply cycles and their impact on Asia’s LNG markets.
Why are we talking about LNG?
3. The global shift towards cleaner and more efficient energy sources has sparked a stronger interest in the use of natural gas. LNG has high energy density and is the cleanest form of fossil fuel. These factors have made LNG an important alternative to traditional sources of energy, especially as companies and countries globally look towards more environmentally friendly energy sources.
LNG is important pre-COVID
4. The shift towards LNG has influenced the industry’s development and supply of natural gas in recent years, even before COVID-19. We observed two trends:
a. First, LNG buyers increasingly prefer shorter-term contracts with greater flexibility in offtake volumes and destinations. For example, around 90% of LNG contracted last year enjoyed destination flexibility. Spot and short-term contracts have also grown steadily from just 2% of total LNG trade in 2000 to 34% in 2019.
b. Second, there has been a supply boom due to new projects which will increase LNG liquefaction capacity into the market.
i. For example, in 2019, Final Investment Decisions were taken on 63 million tonnes per annum of new liquefaction capacity. Over the medium to longer-term, the market is also gearing up for another round of projects from Mozambique, Nigeria, Qatar and the United States.
There is strong upside in LNG even during COVID-19
5. But first, two trends due to COVID-19:
a. One, the demand shock due to COVID-19 may accelerate the trend of buyers opting for shorter contracts with greater flexibility. As countries entered lockdowns and suspended industrial activities, demand for LNG also weakened. Impacted by this demand shock, many LNG buyers have invoked force majeure clauses or sought to delay delivery of cargoes. This has resulted in contract disputes and distressed cargoes in the market. With market uncertainty, buyers are likely to increasingly opt for shorter-term contracts that can help them cope with such demand shocks in the future
b. Two, with global fall in demand and greater market uncertainty, the gas industry is reducing, postponing, or even cancelling some of the planned investments. According to the International Energy Agency (IEA), the industry should expect a tightening of the market around the middle of the decade due to a slowdown in investment in upstream LNG development.
6. However, while short-term global demand has fallen, there is still growth potential especially in the Asia Pacific. This region is expected to lead demand for LNG and will account for more than half of projected global gas demand growth through to 2025.
a. For example, the IEA estimates that China’s industrial sector will contribute to almost 50% of China’s incremental demand for LNG between now and 2025. This will come as economic activities pick up pace as the pandemic eases in China.
b. Emerging markets such as Bangladesh, India and Pakistan also have the potential to drive demand for LNG as they resume and increase their economic activities.
Navigating the Market Trends and Singapore’s Strategies
7. In Singapore, around 95% of our electricity is generated using natural gas. We expect natural gas mainstay for our power generation for at least the next decade. LNG will also play an important role in diversifying our gas sources and improving the efficiency of power generation in Singapore.
8. With these market opportunities and trends, we must work together to enhance Singapore’s value proposition as an LNG hub and remain nimble through market transitions. We have three key strategies to do so:
a. Enhance the price competitiveness of Singapore’s LNG supply,
b. Enhance Singapore’s value proposition as an LNG Hub; and
c. Support commercial developments.
Enhance price competitiveness of Singapore’s LNG supply
9. To help industry players remain nimble, we have taken steps to enhance the price competitiveness of Singapore’s LNG supply. The exclusive franchise which the Energy Market Authority (EMA) has awarded to our existing two LNG importers will end by April 2021. Moving forward, EMA will provide gas buyers more options to purchase gas at better terms and enhance the competitiveness of Singapore’s gas market. To do so, EMA has launched a Request-for-Proposal (RFP) in July 2020 for up to two new LNG term importers. The RFP closes on 9 November 2020 and EMA intends to announce the results by first quarter 2021. With more LNG term importers, we will create a more competitive ecosystem that enables our gas buyers to react quickly to global market changes.
Enhance Singapore’s value proposition as an LNG Hub
10. As the regional LNG hub, Singapore remains committed to supporting the shipping industry with a broad range of solutions, including LNG. The International Maritime Organisation introduced stricter regulations on emissions limits this year. Ships must now use marine fuel with a sulphur limit of no more than 0.50%. This makes LNG the choice fuel as it emits almost zero sulphur and will result in a more than 25% reduction in carbon emissions compared to marine fuels currently used.
11. We will also work towards making Singapore an attractive and trusted location for LNG bunkering, so that ships calling at our port can carry out LNG bunkering cost-effectively and efficiently. For example, FueLNG and Pavilion Energy have been providing truck-to-ship LNG bunkering in Singapore. As of 1 October 2020, they have collectively completed more than 270 of such operations in our port. In May 2019, Pavilion Energy also conducted the first ship-to-ship LNG bunkering at Sembmarine’s yard via a chartered LNG bunker vessel (“LBV”). Both FueLNG and Pavilion Energy are expected to have their own LNG bunker vessels ready by end-2020 and 2021 respectively. This will increase Singapore’s readiness to meet growing demand for ship-to-ship LNG bunkering.
Support commercial developments
12. On the commercial front, Singapore has seen strong and steady growth in our LNG-related services and infrastructure solution providers. We have more than 50 international firms involved in LNG trading and business development. Our total volume of onshore LNG trades amounted to 3.88 million tonnes in 2019. We expect this to grow as we continue to work closely with industry partners and firms to expand their LNG presence domestically and globally.
13. To support these opportunities, Singapore has been investing in the development of our LNG infrastructure.
a. Last November, EMA launched an Expression of Interest (EOI) for private companies to build, own and operate an Offshore LNG Terminal in Singapore. This Terminal will enhance Singapore’s value proposition as an LNG hub by increasing trade flows and providing ancillary services. These services include storage and reload, gassing up and cool down, as well as bulk-breaking services to enable LNG bunkering and small-scale LNG supply to the region. EMA has received good response to the EOI and is developing a regulatory framework to facilitate the entry of offshore LNG infrastructure in Singapore.
b. We have also continuously increased the capacity of Singapore LNG Corporation (SLNG)’s terminal on Jurong Island ahead of demand to support the growth of LNG trading activities here in Singapore. Last December, SLNG launched an RFP for an additional storage tank that can be used to further support the growth of LNG trading as well as ancillary services such as LNG bunkering. The RFP has since closed and SLNG is reviewing the proposals.
Conclusion
14. While the LNG market will likely continue to face market uncertainties, we will continue to keep abreast of global developments and adapt our policies and strategies to strengthen our value proposition as an LNG hub.
15. Our government is committed to serving the needs of market players and energy users in Singapore and the region. We will work with our companies to navigate through the structural shifts while leveraging on Singapore’s LNG ecosystem to support the growth of gas-related businesses.
16. I wish everyone a fruitful and productive conference. Thank you.