It is worth noting that even as Singapore’s piped gas importers and their foreign gasfield suppliers are working out a swap arrangement proposed by Indonesia – aimed at diverting some Singapore-destined supplies to meet urgent domestic needs there – the Republic is starting to look at how it wants to procure future LNG supplies.
The writing is on the wall: piped gas supplies from neighbouring countries – whose own gas needs are increasing just as their domestic gas production is slowing – will dry up sooner rather than later, perhaps even before Singapore’s long-term gas supply agreements (GSAs) with Indonesia and Malaysia expire.
Already, additional gas supplies under a new GSA that importer Sembcorp struck with Indonesia have been delayed pending the closure of the complicated swap, which will see some Sumatran gas that is piped into Singapore by Gas Supply Pte Ltd (GSPL) being fed instead to a new Batam power station (which has no pipeline connection yet to new Natuna supplies). In turn, GSPL will get make-up supplies from Sembcorp under the latter’s second GSA for additional West Natuna gas.
With over 80 per cent of power here generated by gas-firing stations, and with ever-increasing gas volumes demanded by big refining/petrochemical plants and industries here, it is a good thing that Singapore has gone the liquefied natural gas (LNG) route to diversify its supplies.
Reflecting Singapore’s huge gas appetite, appointed LNG aggregator BG Group is set to hit its franchised sales volume of 3 million tonnes per annum by next year – about 11 years sooner than expected. That has spurred the regulator, the Energy Market Authority (EMA), to embark on a study recently, with the help of management consultant McKinsey, on the best ways for Singapore to procure future LNG supplies beyond the initial BG arrangement.
There have been some earlier industry grumbles – over arm-twisting and transparency issues – regarding the earlier LNG deals here, and how these essentially helped underwrite Singapore’s $1.7 billion investment in the LNG terminal, which will start receiving worldwide gas supplies come mid-2013.
The question now is: what LNG import model should Singapore opt for, post-BG-style aggregatorship? While many global LNG players – trading houses as well as producers – have started stationing themselves here in anticipation of a regional LNG trading hub emerging, the big challenge for Singapore is whether it wants to see an LNG trading market develop first, or to opt for security of gas supplies.
Hopefully, it can be both. One argument is that instead of small-parcel imports by a number of individual buyers or traders, consolidated buying by an aggregator or a group or association of buyers (as in the case of Korea or Japan) will give Singapore a better bargaining position with regard to more competitive LNG prices, and ultimately lead to lower power tariffs here.
