Singapore proposes cap on spot LNG imports

06 December 2013 16:51 Source:ICIS

Singapore’s Energy Market Authority (EMA) said on Friday that it will move ahead with plans to issue a two-stage tender in the first quarter of 2014 for the next tranche of its LNG supply, but may place a cap on the amount of spot LNG that can be imported into the country.

Under the draft plan, the EMA will seek up to 2mtpa of contractual LNG, but will impose a limit on short-term supplies.

The tender invites suppliers to submit proposals, which would be evaluated on the basis of supply security and price competitiveness. The regulator will also consider contractual flexibility and price indexation diversity in its decision.

The EMA then plans to shortlist up to three potential importers in a second stage where the parties will be given up to nine months to negotiate with domestic buyers to secure LNG supply commitments.

Prospective suppliers would be required to enter into binding agreements with buyers for a minimum of 600,000 tonnes per annum of LNG to be delivered over a minimum three year period, according to the document made public on the EMA’s website.

The EMA said that based on the negotiations and the attractiveness of the baseline gas supply agreements (GSAs) that each supplier will have to submit, it will award up to two LNG import licences.

Each appointed importer will have an exclusive franchise period of up to three years or until it has sold 1mtpa of LNG, whichever is earlier.

The tender process, outlined in the EMA’s draft determination on Singapore’s future LNG import framework, is expected to take up to 15 months to complete with an award expected by the end of June 2015.

A number of suppliers, including Pavillion Energy – the LNG trading company established by Singaporean sovereign fund Temasek Holdings, US major ExxonMobil and Anglo Dutch major Shell are understood to have expressed an interest in competing to secure the next tranche of LNG supply.

BG Group is the currently the sole aggregator, being awarded the exclusive franchise for contracting up to 3mtpa of LNG or up to the year 2023, whichever is earlier. The UK-headquartered supplier has contracted around 2.7mtpa of LNG as of November 2013, but has previously suggested that it may not finalise the 3mtpa target until 2015, claiming that potential offtakers in Singapore are waiting for the EMA to finalise the new procurement framework before committing to volumes.

EMA could impose 10% spot LNG cap

While the LNG policy framework will allow any party to apply for a spot LNG import licence, the EMA proposed to cap the amount of spot LNG imported into the terminal.

The regulator is in the process of developing a terminal access code (TAC) which is expected to offer more clarity on how capacity will be allocated between term import, spot LNG imports and other services such as reloads from the facility.

However, the draft plan would cap spot LNG imports to the terminal at 10% of the prevailing contractual term pipeline and LNG gas imports into Singapore, claiming that spot LNG could “inadvertently increase uncertainty for the newly appointed LNG importer(s)….causing instability to the Singapore gas market in the next few years.”

In order to manage spot LNG imports, the EMA would allocate spot credits to end-users on an annual basis to the value of 10% of their contracted term quantities that will allow them to bring in the equivalent amount of spot LNG.

The EMA said the policy, which will be reviewed when the exclusive franchise for the next tranche of LNG is reached, would not allow the spot credits to be rolled over. Moreover, in a situation where buyers do not have enough credits to bring in a full spot cargo, the EMA said the imports would need to aggregate credits from other end-users to make up a full cargo.

The Singapore LNG terminal is expected to increase its capacity to 6mtpa by year end and 9mtpa by the end of 2016.

The Draft Determination Paper can be accessed from the EMA’s website .

The regulator has called for written feedback on its plans by 17:00 hours Singapore time on 17 January 2014.

By Ben Wetherall