Government to take over development & ownership of LNG import terminal

Wong Siew Ying, Channel NewsAsia 30 Jun 09;

SINGAPORE: The Singapore government will take over the development of the country's first liquefied natural gas (LNG) import terminal on Jurong Island. It will take over ownership of the facility from current owners Power Gas and its partner GDF Suez.

The government said this is to prevent delays in the building of the terminal which is part of Singapore's strategy to diversify its energy sources.

It's now slated to be ready in 2013, a year later than originally planned.

Factories have seen orders fall amid the current economic downturn resulting in lower demand for electricity.

The International Energy Agency estimates that global electricity consumption could drop by up to 3.5 per cent in 2009, the first annual contraction since the end of Second World War.

The Singapore government said uncertainty over energy demand has made it less commercially viable for PowerGas and GDF Suez to proceed with the country's liquified natural gas terminal.

The global economic downturn has also made raising funds more difficult.

The cost to build the facility could also have gone up by 50 per cent to S$1.5 billion.

In 2007, PowerGas, a wholly-owned subsidiary of Singapore Power, was designated as the LNG terminal owner and operator.

S Iswaran, Senior Minister of State, Trade & Industry and Education, said: "If we were to pursue this option of continuing on a commercial basis with Power Gas, there will inevitably be more delays as PowerGas tries to put together a proposition that works for all parties.

“Secondly, the costs are likely to be higher because of the financing element. From Singapore's point of view, it is of national interest to proceed with this project and that we do it in a timely way."

The Energy Market Authority (EMA) will set up a new firm, Singapore LNG Corporation, to develop the terminal.

EMA said it will hire up to 60 staff.

Lawrence Wong, chief executive, Energy Market Authority, said: "EMA will second some staff. I have about 20 people in the company. We will recruit more including a potentially new person to head the company. We haven't found that yet and we are opening up for recruitment. We need engineers and people with LNG expertise."

EMA said the land for the project on Jurong Island has been fully reclaimed.

It also said it will award the design and construction contract by year's end.

PowerGas will receive compensation for the work that has been done so far.

EMA added that these are mainly consultancy work that accounted for a small portion of the billion-dollar investment.

Going forward, EMA will study and put in place an appropriate financing model.

The government will also not rule out divesting its stake in the terminal should the opportunity arises.

Observers said the nationalisation of the LNG terminal is unlikely to affect the energy market but could raise concerns among utilities firms.

David Ernsberger, editorial director (Asia), Platts, said: "The power utilities are certainly going to be fearful that they are about to have something rammed down their throats in the form of a consumption requirement. How do you make people consume stuff that is twice as expensive as stuff that are already available?"

Analysts expect a long line of potential investors wanting to buy a stake in the terminal when it is economically viable, including local players and big names like Petronas and Shell.

Still, the future prospects look bright.

Mr Iswaran said the fundamentals of the Asia Pacific LNG market remain strong in the mid to long term, fuelled by the growth of emerging markets.

The Energy Information Administration forecasts that natural gas demand in non-OECD (Organisation for Economic Cooperation and Development) Asia will grow from 9.4 trillion cubic feet in 2006 to 24.5 trillion cubic feet by 2030.

This represents more than four times the average annual demand growth of OECD countries.

Mr Iswaran added that Singapore can also become a major player in the LNG trade in Asia.

It's estimated that there will be 120 million tonnes of "flexible" LNG supplies available for spot trading by 2015, making up 30 per cent of the total global supply base.

Mr Iswaran also told conference delegates that LNG supplier BG Asia Pacific has concluded discussions with EMA on an agreement which sets out the pricing details and other terms for the supply of LNG to Singapore. - CNA/vm

Government takes over Jurong Island LNG project
Developers find it 'challenging' amid slowing gas demand and costly financing
Ronnie Lim, Business Times 1 Jul 09;

(SINGAPORE) The government is taking over the development and ownership of Singapore's planned $1 billion-plus liquefied natural gas (LNG) terminal to ensure timely and sufficient supplies for power stations and industry, Senior Minister of State for Trade and Industry S Iswaran said yesterday.

This is because the appointed developers - Singapore Power subsidiary PowerGas (70 per cent) and GDF Suez (30 per cent) - have found it 'challenging' to develop the Jurong Island project on a commercial basis and on time, amid a slowdown in gas demand and 'more difficult and costly' financing over the past 12 months due to the credit crunch.

Mr Iswaran made the announcement at an international LNG conference yesterday, surprising many participants, given the developers have been working on the project since April 2008.

'The aim is to ensure the terminal is completed and operational by 2013, notwithstanding the present uncertainties in the market,' he said, adding that the government decided after a review that this is the best course of action.

It is in Singapore's interest to develop the terminal 'at the earliest opportunity' to meet anticipated growth in gas demand and be prepared for future opportunities, like regional LNG trading, when economies recover, Mr Iswaran added. Pushing on with the project on a commercial basis would 'inevitably mean further delays and likely higher costs because of the financing difficulties', he explained.

Even now, despite the government stepping in, the LNG terminal will start a year later than 2012 as originally scheduled.

Energy Market Authority (EMA) CEO Lawrence Wong said the delay could have stretched to two or three years if the existing developers were left to plough on.

With the takeover, EMA will spearhead the LNG terminal project by forming a new company, Singapore LNG Corporation, to own and oversee the development. PowerGas staff earlier involved in the project, plus EMA personnel, will be seconded to the new company, which also needs to recruit foreign expertise, Mr Wong said.

As to what form government financing for the terminal will take, Mr Iswaran said this will be worked out by the new company with the Ministry of Trade and Industry (MTI), the Finance Ministry and the EMA.

'Our immediate priority is to ensure a smooth transition from PowerGas to the new company,' he said.

With government ownership, there will also be a need for a different financing model for the terminal's operation, which the EMA will study and put in place.

Still, the government has left the door open to future private ownership, with Mr Iswaran saying that when the market improves 'it will leave open the option of divesting its stake in the terminal'.

Reclamation of the project's 30-hectare site on the south-western part of Jurong Island, plus the front-end engineering design, has been completed.

Mr Wong said that following a design tender involving three competing contractors, the EMA expects to award the main engineering, procurement and construction contract to the winner by end-2009, with the terminal now slated to start operating in 2013 after a three-year building process.

The EMA has just concluded an agreement with the LNG aggregator or sole buyer, BG Group, which sets out the pricing details and other terms and conditions for its LNG supplies to Singapore, Mr Wong revealed. The details are confidential, although the EMA apparently looked to secure competitively-priced LNG.

Dan Werner, general manager of BG's Singapore LNG team, said it intends to source most of the LNG from its Curtis project in Queensland, Australia, with two LNG plants there, each of 7.4 million tonnes capacity, starting up in 2014.

At present, Singapore imports about six million tonnes per annum (tpa) of piped natural gas from Indonesia and Malaysia. The LNG terminal is expected to bring in 0.8-1.2 million tpa in 2013, building up to 3.3 million tpa by 2018.

Govt steps in to build LNG plant
Essential part of energy plan, plant risked delay due to economic crisis
Jessica Cheam, Straits Times 1 Jul 09;

THE Government has taken over the development of Singapore's first LNG terminal as the global credit crunch threatens to delay plans for its completion.

Singapore Power's unit PowerGas and French partner GDF Suez were originally appointed to develop and operate the $1 billion terminal, designed to import liquefied natural gas (LNG) and add an emerging energy source to Singapore's power supply.

Senior Minister of State for Trade and Industry S Iswaran said yesterday that the fallout from the global economic crisis had made it 'significantly more challenging' for PowerGas and GDF Suez to proceed on a commercial basis.

So the Government has decided to take over ownership and development of the LNG terminal, he said.

The consortium, with a 30 per cent stake by GDF, had been due to make its final investment decision this month for the project which will now be completed by 2013 instead of 2012.

'If we were to pursue this option of continuing on a commercial basis, there will inevitably be further delays as PowerGas tries to put together a proposition that works for all parties,' Mr Iswaran told reporters at an Asia-Pacific LNG conference at the Pan Pacific Hotel yesterday.

'It is in our national interest to proceed with this project at the earliest opportunity... because it is an essential part of our energy strategy to diversify our sources,' he said.

The Energy Market Authority (EMA) will now facilitate the takeover by setting up a new company - Singapore LNG Corporation - to take ownership of the terminal and oversee its development.

PowerGas staff familiar with the project will be seconded to this new firm to continue the work, said Mr Iswaran.

In 2007, Singapore first announced plans for an LNG terminal designed to reduce its reliance on piped natural gas from its neighbours Malaysia and Indonesia.

Since then, PowerGas has been designing the terminal, while EMA has appointed London-listed BG Group as the sole aggregator for LNG in Singapore.

LNG is natural gas cooled to liquid form and globally exported via tankers from source countries such as Australia.

Industry watchers noted that the high-profile rescue of the terminal signalled the Government's determination to diversify Singapore's energy landscape as quickly as possible.

Chief executive John Ng of genco PowerSeraya told The Straits Times that with the Government 'taking the lead in spite of the economic challenges, the industry can be assured of LNG security'.

He added: 'This spells good news for the energy sector, as the terminal will open up a diversified source of fuel... thereby leading to an improved fuel range and reach.'

Mr Lim Kong Puay, president and CEO of Tuas Power, said that the move was not surprising, 'given the current economic situation and tightness of credit'.

'Having this alternate source will enhance energy security and make the supply market more competitive,' he added.

The terminal - to be built on a 30-ha site on Jurong Island - will initially comprise two 150,000 cu m tanks with capacity of three million tonnes per annum and flexibility to double it.

EMA chief executive Lawrence Wong said yesterday that PowerGas had made good progress in completing the front-end engineering and design for the terminal and that the firm will be compensated for sunk costs.

EMA will award the design and construction contract by year end and work towards having the terminal ready for its start-up by 2013.

The impact of new LNG supply on electricity prices from 2013 is unknown for now and will depend on the market price of LNG at that time, said Mr Iswaran.

CIMB-GK economist Song Seng Wun said the takeover showed that the Government was not letting Singapore's long-term growth be interrupted by short-term financial problems.

'We have the financial resources so we can do this - rather than wait for the private sector, which may potentially mean that Singapore misses out when the recovery comes,' said Mr Song.

Mr Iswaran said yesterday that the Government will leave open the option of divesting its stake in the terminal at an opportune time.

Govt to build terminal
Today Online 1 Jul 09;

THE Singapore Government will take over the development of its first liquefied natural gas (LNG) terminal from a Singapore Power consortium to avoid any more delays, and has pushed back its completion date by a year to 2013.

PowerGas, a wholly-owned subsidiary of Singapore Power, was appointed in 2007 to jointly build and operate the terminal with French-utility Gaz de France - now known as GDF Suez.

The downturn has tightened liquidity and dampened the fuel's demand outlook, posing an additional threat to the project. Singapore initiated the project to boost supplies and diversify its natural gas sources.

"The LNG terminal is a critical part of Singapore's energy infrastructure to ensure diversification of our gas supply sources," Mr S Iswaran, Senior Minister of State for Trade and Industry, said at the Next Generation LNG Asia-Pacific 2009.

The downturn has also "created considerable uncertainty in demand, going forward", he told reporters on the sidelines of the conference.

The proposed terminal may cost around US$1 billion ($1.45 billion) to US$1.5 billion, said Mr Iswaran. "It's difficult to give an exact number" as engineering, procurement and construction costs have fallen in the past 12 to 18 months, he added.

The Energy Market Authority (EMA) will set up a new company, Singapore LNG Corp, to build and own the terminal and it will study financing options, added Mr Iswaran. The Government may divest its stake in the terminal in future, he said.

The terminal will be built on a 30-hectare site on Jurong Island and will have an initial capacity of 3 million metric tonnes a year.

United Kingdom-based BG Group secured the franchise in April last year to be the exclusive supplier and distributor of LNG for the terminal.

EMA and BG have reached an agreement on the price and other conditions for supplying the LNG, said Mr Iswaran, declining to elaborate.

While BG is committed to selling 3 million tonnes a year, Singapore is open to securing supplies from other sellers when the terminal expands, he added. Dow Jones

Wise move for energy security
Business Times 2 Jul 09;

WHILE some may consider it a $1 billion bailout, the Singapore government's takeover of both ownership and development of the liquefied natural gas (LNG) terminal here is clearly a calculated and critical move to ensure the country's long-term energy security. In short, it could not afford to let the crucial project get derailed by short-term problems.

Like many investors, the original developers (PowerGas and GDF Suez) unfortunately ran smack into the global economic storm. If left to their own devices, the project may have seen light only in 2-3 years. That's as long as the postponement which Germany's Lanxess announced for its $800 million-plus synthetic rubber investment on Jurong Island just a day earlier.

Clearly, the last 12 months have been tough. With the economic downturn, demand for power - and, correspondingly, natural gas - is down, while securing project financing is more difficult and costly. This has raised questions about the LNG terminal's commercial viability. Furthermore, there is no visibility right now of exactly when the economic recovery will come.

So, as one official noted, 'France's GDF Suez (with a 30 per cent terminal stake) was no mere, small fry', and given today's difficult circumstances, there was no point approaching other companies to try to take over the Singapore LNG project. On the other hand, deferring the LNG terminal would have created a bottleneck once the economic recovery came and gas demand from power stations and industries here picked up quickly; two new mega petrochemical complexes of Shell and ExxonMobil are already scheduled to start up here in 2010 and 2011.

Currently, 80 per cent of Singapore's electricity is generated from natural gas, which is a clean and efficient fuel, with 100 per cent of this piped in from Indonesia and Malaysia - although both countries will increasingly need more gas for their own growing domestic needs. Generation companies here like PowerSeraya reckon that even though electricity demand here will slow in the next 1-2 years, it will pick up again - and, with that, gas demand will rise too. The government's LNG move is therefore a no-brainer.

Apart from new governmental financial muscle, the designated new Singapore LNG Corporation overseeing the terminal will also benefit from an existing moratorium, or ban - meant to reduce investment risk for the terminal investor - on further piped natural gas imports here until LNG imports reach 3.3 million tonnes per annum or 2018, whichever comes earlier.

Singapore also sees opportunity in that the LNG terminal can potentially provide the oil trading hub here with the potential to tap into the regional LNG spot trade, given the Republic's proximity to LNG suppliers such as Australia and Indonesia, and demand centres in powerhouses China and India. Capitalising on recent tax incentives, some companies have already started LNG trading here. All the pieces of the jigsaw should start falling neatly into place come 2013, when the LNG terminal is scheduled to start up.

Govt lauded for leading the way in building LNG terminal
Straits Times Forum 3 Jul 09;

I REFER to Wednesday's report, 'Govt steps in to build LNG plant'.

On behalf of the Compressed Natural Gas (CNG) Committee in Singapore, I congratulate the Government on having taken leadership in the development of the first liquefied natural gas (LNG) terminal.

Natural gas is the most environment-friendly fossil fuel and it is therefore the right decision to diversify the sources of natural gas and not let the economic downturn disrupt our efforts to have cleaner air in Singapore.

This is also important for the transport sector. More CNG stations will be built in Singapore with rising demand for CNG vehicles, which do not emit any particle matters.

Alexander C. Melchers
Chairman, CNG Committee @ SEAS
Sustainable Energy Association of Singapore