Singapore as an LNG hub

Asia is clearly the world’s dominant market for LNG. It houses the world’s largest importing country (Japan) and the world’s largest single importer (Kogas in South Korea). The global LNG market is forecast to expand significantly over the coming decades, and the lion’s share of that growth expected to be in Asia. Asia’s LNG import volumes are projected to rise to approximately 198 million tons per annum (“MTPA”) by 2015, 247 MTPA by 2020 and 325 MTPA by 2030, providing the basis for a more sophisticated market. 

In Singapore, a number of encouraging signs can be seen that would suggest that the city-state is on the right path to realizing its ambition of being Asia’s LNG hub. Since the 2013 IEA Report, the Singapore LNG Terminal, which is Asia’s first multiuser, open-access terminal with re-export capability, has grown significantly in capability and capacity and continues to grow: in January 2014, the third storage tank was completed, and a fourth storage tank and related regasification facilities are being developed so that the terminal’s throughput capacity will reach nine MTPA by 2017, up from its current six MTPA. A second terminal is now also being planned, which would further add to Singapore’s import capacity.

Development of the sector
Singapore’s state-owned Pavilion Energy continues to ramp up its involvement in the LNG value chain. In 2014, its subsidiary, Pavilion Gas, entered into a 20-year contract with BP for 0.4 MTPA of LNG with shipments commencing from 2019. In 2014, Pavilion also purchased 0.4 MTPA of LNG from Sempra Energy’s Cameron LNG project in Louisiana, and it increased its purchase commitment under its 10-year contract with Total, with shipments commencing in 2018 from 0.5 MTPA to 0.7 MTPA of LNG. During 2014, Pavilion also entered into a joint venture with the BW Group that represents its first foray into LNG transportation, having earlier taken a 20 percent equity stake in Tanzanian gas fields—Blocks 1, 3 and 4 in the Ruvuma and Mafia Deep Basins. The company is also working with the Singapore Stock Exchange, IE Singapore, regional governments and commodity exchanges to develop a Singapore LNG price marker, which is intended to be independent of the oil market and better reflect regional demand–supply metrics.

Singapore has set its sights on developing both a physical and financial LNG trading hub. This sits with conventional wisdom that a financial hub would ordinarily be preceded by the establishment of a physical hub. The realization of an Asian LNG hub would be an important development for the region. It would provide a price-setting mechanism for Asian LNG trade reflective of regional fundamentals. In turn, this would enhance the operation of the gas market and, ultimately, the availability and delivery of energy in the region.

Source: Jones Day

Sectors: Energy
Countries: Singapore
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