Singapore could still thrive as regional LNG trading hub

22 March 2018 10:31 Source:ICIS

Singapore’s success as an evolving Asian LNG trading hub will likely rely on the growth of the small-scale LNG market in southeast Asia over the medium term.

The market size for southeast Asia is forecast to grow by around 71mtpa by 2035 in an annual LNG outlook that Anglo-Dutch energy major Shell published in March 2018.

Southeast Asia will become a net LNG importer by 2035, with Indonesia – the largest economy in the region – alone requiring 30mtpa by that year, Shell said at an industry event on 8 March.

Many companies see the region as key to creating new LNG demand.

Shell, Singapore-based Pavilion Energy as well as Japanese utilities Osaka Gas and Tokyo Gas are among those that have invested and signed collaboration agreements to develop the southeast Asian market.

Small LNG vessels are needed to deliver to the remote areas not linked to a gas grid. An ideally placed receiving terminal that can break conventional-sized cargoes into smaller volumes to supply those areas is at an advantage.

The Singapore LNG (SLNG) terminal is being heavily promoted as that connection point for southeast Asia. Singapore is already providing break-bulk, bunkering and reloading services.


Infrastructure expands

SLNG will expand its annual regasification capacity to 11mtpa when its fourth 266,000 cubic metre (cbm) storage tank comes on line in the second quarter of 2018. The terminal currently operates three 188,000cbm tanks – one of which can conduct reloads.

The second quarter of 2018 will see SLNG open terminal access to multiple third parties.

The Energy Market Authority (EMA) has allowed companies to import spot LNG into Singapore from 2018, but total quantity is capped at 10% of Singapore’s long-term contracted pipeline gas and LNG supply.

The terminal is also adding a Wobbe Index correction facility that will allow importers to change the LNG specifications to meet any domestic or re-export requirements.

On the business front, Singapore is already a thriving hub, where an estimated 45 LNG buyers, portfolio suppliers and traders have set up shop to trade.

This number will continue to grow, with a number of Chinese buyers having indicated interest in establishing operations in Singapore.


Demand growth prospects

EMA is working with domestic participants to develop a secondary gas trading market to allow buyers and sellers to trade on a short-term basis, but progress is slow.

Singapore’s current market size is equivalent to around 8mtpa of LNG on average and will likely stay at this level over the next three years.

Its LNG demand is expected to increase only from 2023, when most of its long-term pipeline gas contracts expire. The country is forecast to have around 9mtpa of demand by 2025, with contractual pipeline gas and LNG supply meeting two-thirds of that.

Local market participants said the likelihood of buyers extending the pipeline gas contracts from Indonesia and Malaysia is high. Both countries have ample supply and do not expect their respective domestic demand to rise until after the mid-2020s.


Cost flaws remain

The high costs of conducting trans-shipment and break-bulk operations at SLNG remain a sticking point for market participants. Exact figures are unavailable.

Reservation fees for storage capacity and the throughput rate into the domestic gas grid at around $1.55/MMBtu in total are also high, according to local market sources.

Unless SLNG brings the fees down, there is little incentive to trade or bring LNG into Singapore. EMA is currently working with SLNG to set the cost structure for storing and regasifying spot LNG imports.

It would also be in Singapore’s interest to increase the transparency of the fees, capacity access and the delivery schedule at SLNG akin to those in Europe to allow a hub and price discovery to develop organically. xieli.lee@icis.com

By Xieli Lee