Singapore is the most natural location for a regional LNG hub: IEA

Yvonne Chan Channel NewsAsia 1 Mar 13;

SINGAPORE : The International Energy Agency (IEA) says the emergence of a trading hub for liquefied natural gas (LNG) could significantly lower price and that would help companies that use it as a source of power.

And Singapore may soon be able to add another spoke to its "hub" status.

The IEA says Singapore is the most natural location to be the regional LNG hub.

Already an important centre for global oil trading, the Republic is being eyed as the next hub for LNG.

Stiff supply contacts presently keep the price of LNG higher than it needs to be.

Current LNG prices are kept artificially high by rigid long-term contracts, or oil price indexation.

For example, the IEA reports that Japan's import bill for LNG is US$10 billion higher than what it could be in a properly efficient LNG market.

Experts say less regulation and a freer market approach would foster competition and potentially lower prices, which would make the use of LNG in Asia more sustainable in the long term.

According to the IEA, gas consumption in Asia Pacific will outstrip demand by 2017.

Asia is also likely to be saddled with the highest LNG prices prices until it develops an LNG trading hub that promotes more transparent pricing.

A unique characteristic of the natural gas trade in Asia-Pacific is the limited amount of natural gas that is traded via pipelines, and the region's growing dependence on the global LNG supply chain.

The IEA, which gives policy advice to its 28 member countries, says Singapore has advantages over its competitors in becoming the main regional LNG hub although China may also be in the race.

Laszlo Varro, Head of Division, Gas, Coal, and Power Markets Division, IEA, says: "China is the only country in the region that has a realistic prospect of developing pipeline imports from outside the region. China can import gas from Uzbekistan and Russia. In the case of Korea, Japan and Taiwan, this is not only the economic development but also geography. They are isolated energy systems - Japan and Taiwan are islands. Korea has only North Korea as a neighbour so they have no physical option to bring in the gas except for LNG."

Singapore is on track to have its first operating LNG terminal costing S$1.7 billion by the second quarter of 2013.

And it will also be the first LNG terminal in Asia to provide third-party access.

Singapore is also providing storage facilities for traders, which is important to promote a competitive market.

Warner ten Kate, Public affairs Advisor, Gasterra, says: "You have a government in place that provides the long-term signals for stability and hands-off market attitude. You have the big financial players in place to support your activities, so the only thing you would need is somebody who could facilitate the actual hub and make it clear when that's going to happen. What you need as a trader is a haven to allow the flexibility to arrive and I don't think Singapore has a competitor at the moment.

The Shanghai hub has potential, Japan has potential but they have so much more stuff to do at the same time than Singapore would have. From our perspective, Singapore has the best starting position but needs to continue to work. So the things they need to work on are things like policy, create more clarity, what are they going to do, which institutes are involved."

Shanghai remains the closest competitor to Singapore due to China's rapid growth in domestic demand, with many of its factories already using LNG the primary source of power source.

Singapore an 'ideal hub for Asia gas trade'
IEA cites Republic's global oil trading hub status, good location, legal climate
Feng Zengkun Straits Times 2 Mar 13;

SINGAPORE has the best chance of becoming a trading hub for natural gas in Asia, said a global energy association yesterday.

The International Energy Agency (IEA) backed the Republic ahead of other countries such as South Korea, Japan and China, and said Singapore could set up this hub within three years if it went full steam ahead.

It unveiled an 86-page report, Developing a Natural Gas Trading Hub in Asia, at the Orchard Hotel and said that Singapore led the pack partly because it is already a global hub for oil trading.

"Some of its broader strengths, including its good location and supportive legal environment, will be applicable for liquefied natural gas trading as well," said IEA head of gas, coal and power Laszlo Varro.

Currently, the market for natural gas in Asia is dominated by long-term contracts with prices linked to those of oil. These deals give countries energy security but may also lock them into high prices. Large reserves of shale gas, recently discovered in the United States, have led to lower prices there.

Developing a natural-gas trading hub for the region would allow countries to negotiate shorter-term contracts with prices determined mainly by supply and demand. This would allow them to respond to market forces more quickly and could lead to cheaper electricity prices in the long run.

A more transparent price signal will also help "steer investments in natural gas infrastructures", said the IEA.

Mr Chee Hong Tat, chief executive of Singapore's Energy Market Authority (EMA), said yesterday at the event that the country would benefit from having greater flexibility and diversity in its gas contracts.

Currently, about 80 per cent of Singapore's electricity is generated using piped natural gas from Malaysia and Indonesia. The other 20 per cent comes from fuel oil and other sources such as waste and renewable energy.

The country's first liquefied natural gas (LNG) terminal in Jurong Island is expected to start operations this year and will allow for the import of gas from more countries. The EMA expects natural gas to make up more than 90 per cent of Singapore's electricity fuel mix in future.

Said Mr Chee: "While we remain open to having some of our gas supplies come from long-term, oil-indexed contracts, it would be useful for Singapore to build up a diversified gas portfolio, comprising reliable and price-competitive supplies from different sources around the world.

"In this way, we avoid being overly exposed to a particular supply source or price index."

He added in his welcome remarks that the EMA would work with industry partners here to develop their LNG-related activities but stopped short of committing Singapore to becoming a natural-gas trading hub.

"We have seen a steady growth in the presence of major trading houses and industry players such as Shell, BP and Gazprom, which are interested to use Singapore as a hub for their business in the region," he said.

"Shell, for example, has decided to locate its global gas operations in Singapore."

Last year, when asked in an interview whether Singapore could become a regional hub for LNG trading, Minister in the Prime Minister's Office and Second Minister for Trade and Industry S. Iswaran said: "We are open to the idea of leveraging on the LNG terminal as a platform to facilitate trading. The terminal could facilitate the physical trading of LNG as well as financial trading. We are open to both options."

He has also said that the terminal will "catalyse business opportunities such as LNG trading, break-bulk services and LNG bunkering".