Singapore’s Aim to Become Asia’s LNG Trading Hub Kicks Into High Gear

Singapore’s Aim to Become Asia’s LNG Trading Hub Kicks Into High Gear

Singapore aims to become Asia’s new liquefied natural gas (LNG) trading hub. Not only does the city-state hope to take the lead in the region, it is taking steps to make that ambition come to fruition by the end of the year.

Lloyd’s List Intelligence said on September 26 that Singapore had imported 1.1 million cu meters of LNG since its imports started in April, equivalent to cargos for around seven and a half 160,000 cu meter LNG carriers.

Pavilion Energy’s chief executive Seah Moon Ming told a global LNG conference in late September that his company plans to begin trading LNG within three months. The company is the new LNG unit of Singapore state-owned investment company Temasek Holdings. Surprisingly, Pavilion began operations just last month. It was established in April to handle Temasek’s LNG business in Singapore and to distribute and trade LNG in Asia. The Strait Times, quoting Seah, said that Pavilion has start-up capital of $1 billion (S$1.25 billion), with more capital to be injected as plans unfold.

Going global

Seah said that Pavilion will secure supplies from downstream global sources and aggregate gas demand in Singapore and the region. He also raised the possibility of co-investments in LNG terminals and infrastructure within the region.

Pavilion already has stakes in US-based Chesapeake Energy and in Kunlun Energy, a Chinese exploration and production company. Seah also wants to form partnerships with energy companies from South Korea, Japan and Taiwan.

If more deals are inked, this would help establish Pavilion’s place in the region, especially in light of the fact that Japan and South Korea are the world’s number one and two LNG importers, respectively, while China is diversifying its energy mix and using greater quantities of natural gas.

After the 2011 Fukushima disaster and subsequent shut down of all but one of its nuclear reactors (the last operating reactor was also shut down last month), Japan saw LNG demand needed to fuel its electricity generation spike, as did the corresponding price of LNG in Asia. The country imported 87.3 million tons of LNG at a price of ¥6 trillion ($64 billion) in 2012, a new record.

South Korea has its own LNG problems as well. The country’s LNG imports surged in August, while it imported 3.27 million metric tons (mt) of LNG, up 35.3% from July on the back of summer demand, South Korea’s customs data showed. Platts said LNG imports rose 40.2% from August 2012.

Lack of pipelines means opportunities

The lack of interconnected natural gas pipeline infrastructure in the region, especially Southeast Asia, also makes supplying LNG in Asia a lucrative endeavor for Singapore.

Beni Suryadi, an Association of Southeast Asian Nations (ASEAN) energy policy analyst based in Jakarta, told Energy Tribune on Thursday that through the 2008 Trans-ASEAN Gas Pipeline (TAGP) Master plan, ASEAN realized that supply security was a growing concern as escalating gas demand in member states is expected to outstrip indigenous supply in the near future, where ASEAN is expected to emerge as a net importing region in 2017.

“As such, LNG import has become the natural choice to address the shortfall,” he said. “In this regard, with its strategic location and already an important commodity trading hub, Singapore’s LNG future is bright.”

The TGAP is a massive project that would connect South East Asia in one of the largest networks of its type in the world. Linking the gas reserves of Indonesia, Malaysia, Singapore, Vietnam, Myanmar, Philippines, Brunei and Thailand, the project had the backing of the oil and gas majors in each of these countries and was originally projected to be in full operation by 2020.

However, more than a decade after its inception the project remains only half finished due to its expense and lack of integration between ASEAN members. Now, many claim the idea is already obsolete and will never be completed.

Price setter

Pavilion also wants to help set LNG prices in Asia, according to Seah. “Pavilion will adopt a mix of price indexes for contracts of different durations,” he said. He did not specify however which gas prices Pavilion would use. Some media outlets in Singapore said the company could help lower LNG prices in the region, which in the past few years have averaged up to six times higher than natural gas prices in North America.

Suryadi disagreed with that assessment. He said that Singapore will likely not lower gas prices, at least in the short term, particularly since much of their sales will be on the spot market.

“The way I see Singapore’s new LNG facilities is to provide more options for buyers to get gas in smaller amounts and for short contract periods due to circumstances such as supply gaps due to problems with contracts or because demand is up for an unpredictable situation (i.e. Fukushima where the demand increased, or recent floods in Thailand),” he said.

Suryadi added that pricing in spot/short-term shows a very different pattern with what is known about oil-linked LNG prices in Asia. “Sellers have various options to sell their spot cargoes and of course it will go to the buyers who pay higher. To secure this, Asian buyers should compete with that price which is normally higher than contract prices.”

Another factor that Singapore might not have factored into its supply equation is the massive gas deal signed this week between Russia and China. On Wednesday Novatek, Russia’s second largest natural gas producer, signed a 15-year deal with Chinese Oil major CNPC to sell at least 3 million mt of LNG a year to CNPC on delivered ex-ship terms, with the price indexed to the Japanese Crude Cocktail.

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