LNG terminal may turn Singapore into hub

Alvin Foo Straits Times 11 Sep 12;

SINGAPORE is poised for a new chapter in energy security, when the liquefied natural gas (LNG) terminal on Jurong Island opens in the second quarter of next year.

To begin with, the $1.7 billion terminal will allow Singapore to import LNG from all over the world for domestic use. This is expected to bring down electricity prices.

Right now, 80 per cent of Singapore's electricity is generated with piped gas imported from Malaysia and Indonesia. Piped gas is transported in gaseous state, requiring specially built pipelines.

In contrast, LNG is gas cooled at -160 deg C into liquid form. It is thus much easier to store and transport. But importers need to build a special terminal to handle LNG.

Opening its own LNG terminal means Singapore has access to plentiful gas supplies from around the world, and can generate power from another energy source.

As Second Minister for Trade and Industry S. Iswaran said in February: "Our aim is to make sure that every Singapore home and all our businesses have access to reliable and competitively priced energy... our key strategy is diversification."

The terminal's first phase, already more than 90 per cent built, will feature one jetty and two storage tanks, and can process 3.5 million tonnes yearly.

A third tank and up to two more jetties will be ready by the end of next year.

Singapore's terminal is the first of its kind in the world to be specifically designed for the import and export of LNG. Terminals now handle either imports or exports.

With a terminal that can handle imports, and re-exports, Singapore thus stands a good chance of becoming an LNG trans-shipment and trading hub, in the same way it is already an oil hub.

Ships carrying LNG from supplier countries can dock at the new Jurong terminal. The LNG can then be reprocessed and re-exported to Asian countries where demand is raging.

One game-changing factor is the availability of LNG imports from the United States, where record production from newly developed shale deposits has pushed prices to 10-year lows. Industry players have tipped that the US LNG imports that land here could cost at least one-third less than current Asian prices.

Reuters reported last month that the Government of Singapore Investment Corp and China Investment Corp pumped in a combined US$1 billion (S$1.24 billion) into a huge new LNG export plant in the US. This was into Cheniere Energy's US$5.6 billion plant in Sabine Pass, Louisiana, which is due to be completed by 2015. That is a significant milestone, as it will be America's first LNG export plant since 1969.

In May, Singapore's Temasek Holdings also invested $300 million in Cheniere, which has already lined up customers in India and South Korea.

In fact, industry players have been positioning themselves here in the last three years in anticipation of the growth of LNG activities.

But the path ahead is not easy.

Singapore has relatively less experience in the industry and faces competition from other more established Asian markets such as South Korea and Japan.

"These markets would have established the necessary infrastructure and ecosystem for LNG trading," said Mr Sanjeev Gupta, Ernst & Young's Asia-Pacific oil and gas leader.

For example, they would have infrastructure such as storage tanks and related facilities needed to trade the fuel, and the skilled manpower and support services such as spot trading and bunkering.

Closer to home, Malaysia and Indonesia - two of the world's top LNG exporters - also have similar aspirations to become an LNG trading hub and could pose keen competition.

CIMB regional economist Song Seng Wun said: "They have the raw materials situated there, infrastructure and space. They'll probably want to explore similar opportunities."

Still, there are strong factors backing Singapore's bid.

Asian demand is set to boom, as Japan seeks to fill its energy gap following last year's Fukushima nuclear disaster and China looks at reducing its dependence on coal by tapping cleaner energy sources.

The region consumed nearly two-thirds of total global LNG output last year. Demand is tipped to double in the next 15 years, given Asia's rapid economic growth and the opening of new import terminals. "Asia is currently paying the highest prices for LNG in the world," said Singapore LNG Corporation chief executive Neil McGregor.

The Republic is strategically positioned between key LNG importers like China, India, Japan and South Korea, and LNG supply sources such as Qatar, Malaysia, Indonesia and Australia.

Moreover, Singapore's background and heritage as an oil trading hub makes it an ideal place to market LNG, as many of the major energy trading houses are already based here, and infrastructure exists in banking and legal facilities.

Then there is the 5 per cent concessionary corporate tax rate for LNG trading income, which was introduced here in 2007 to spur this sector's growth.

Already, the industry has been abuzz with activity in recent years.

Five years ago, there were no significant LNG players here. Now, there are 14 companies with significant LNG trading or marketing desks here, said trade promotion agency IE Singapore's chief executive Teo Eng Cheong.

Many have expanded their LNG desks, as well as the breadth of activities done out of Singapore, which now range from trading and marketing to operations and risk management.

Recent entrants include PetroChina, while Trafigura will be establishing an LNG desk here in the near term.

International legal firms with LNG expertise, such as King & Spalding, are beefing up their LNG teams here. Such expertise includes project structuring, risk analysis, sale and purchase arrangements and transport arrangements.

Key price reporting agencies - Platts, ICIS and Argus - now have LNG representatives here covering the regional market.

Having the LNG terminal could turn Singapore into a trans-shipment hub for the product, similar to the roles that PSA and Changi Airport now play for container shipments and aviation, respectively, Mr McGregor noted.

The Government envisages that the terminal will be a key component of the LNG ecosystem which will create economic spin-offs such as LNG trading, bunkering, storage and reloading for re-export.

It could provide the spark which ignites a multibillion-dollar industry.