Distinguished guests, ladies and gentlemen,
A very good morning to you.
Three years ago, at my first keynote speech at the 2013 CWC Asia Pacific Summit, I spoke about the ‘golden age of gas’, based on a scenario where global gas demand rises by 50% from 2010 to 2035. Here we are now, some three years later, with low LNG prices and an over-supplied market. This certainly makes for a challenging operating environment. Quite a number of LNG projects have been put in ‘pause’ mode, as companies take on more conservative investment positions. We will likely not see more than 20% of currently planned LNG projects sanctioned (or achieved FID) before 2025.
This is very much the view that has dominated the discussion in our industry today. While many of us are feeling the pain, and kept awake at night by a gloomy outlook, it is also timely to look beyond the horizon, at longer-term Natural Gas and LNG prospects. We need to remind ourselves that the long-term fundamentals remain bright for energy demand as a whole.
The global economy is growing at about $3 trillion in real GDP per year. By 2030, the global population will increase to 8.5 billion (from 7.4 billion today). Growing GDP and population together with increasing urbanisation will result in LNG demand rising to over 500 million tonnes per annum by 2030, up from the current about 240 million tonnes per annum. Today, more than 30 countries import LNG – compared to just 11 countries in the year 2000. This figure does not include countries such as Sri Lanka who had just this year announced plans to begin building an LNG import terminal and Hong Kong, where the local power companies are looking at LNG seriously. As countries and governments realise the importance of balancing economic and environmental objectives, global LNG demand will rise.
Asia will continue to play an important role in the global demand for LNG. As it is, Asia Pacific accounts for more than three-quarters of global LNG demand. This region is also home to two of the fastest growing economies in the world, China and India. China and India are expected to account for half of total LNG demand growth from now till 2020.
LNG demand in Southeast Asia is also expected to rise. Between 2000 to 2013, we have already seen energy demand in this region increase more than 50%. Traditional exporters of LNG, like Indonesia, are also facing increasing domestic demand and may end up becoming net importers in the near future. China, India and Southeast Asia (or “CIS”) may soon become the next “JKT” of LNG imports.
LNG: An Ever-Evolving, Robust Industry
Ladies and gentlemen, the LNG industry has come a long way. Today, LNG has emerged as what was previously a niche energy source to be a worldwide industry. Since the very first LNG delivery was made in 1959, our industry has seen a lot of developments and progress. In the 1970s, LNG demand increased four-fold from a decade ago. By the 1990s, new advances in LNG shipping reduced the costs of building ships and shipping fleets expanded. Fast forward to the 2000s, technological advances, such as in fracking and floating LNG terminals and storage units, have continued to spur developments in various projects worldwide. New supply centres have emerged as well – it is expected that 80% of new LNG supply is expected to come from Australia, the U.S. and East Africa.
Today, we see a rebalancing going on in the market as low oil prices have made a profound impact to industry developments. One such development is a shift in balance from long-term agreements to more spot or short-term deals being done. Buyers are also looking for more flexibility in respect to LNG prices and destinations. At the LNG18 conference in Perth this year, several of our industry colleagues took the stand to push for continued investment through this down cycle. Taking the long-term view, it makes sense to do so to prepare for the future when LNG demand peaks again.
In today’s low-price environment, and keeping our eye on the potential of LNG, I see two clear opportunities that can be unlocked. That will continue to support growth towards a sustainable LNG future:
Firstly, creating new and alternative markets for LNG; and
Secondly, fostering greater cooperation in the region to develop LNG solutions and unlock LNG’s potential.
The Way Forward: New LNG Markets and Greater Regional Cooperation
While the spotlight has been on Asian demand growth for LNG, this region alone is not likely able to take on new LNG supply. By the 2020s, nearly 100 million tonnes of LNG will enter the supply market – largely from projects in the U.S. and Australia that have taken FID. While Europe’s demand for natural gas has slowed in recent years, its dependence on gas imports has increased. Today, Europe relies on imports for more than 65% of their natural gas. This figure is expected to grow as Europe looks at rebalancing its natural gas imports, to include more imported LNG and reduce its reliance on piped gas. In the mid to long-term, Europe would emerge to be a key demand centre for LNG.
The list of new LNG importers is growing. There are also new clusters of LNG demand that can be unlocked. Take small-scale LNG in Southeast Asia as an example – the region has many small and remote islands, of which many are inhabited and require power. Indonesia has a population of 250 million that live across its 17,000 islands. The Indonesian Government has made electrification a priority, in particular for the remote islands. LNG demand may be in small, scattered quantities, but collectively, they represent an alternative market for LNG demand growth.
Last month, Pavilion Energy signed an MOU with Indonesia’s Pertamina on energy cooperation. The scope of collaboration included exploring opportunities in small-scale LNG projects as well as joint marketing, trading and procurement. We see these opportunities as mutually beneficial. With more regional collaboration, the market potential for small-scale LNG will be clearly evident, as economies in the region look to replace diesel with cleaner and cheaper natural gas.
Singapore enjoys good geographical location from which larger LNG carriers could break-bulk and re-load onto smaller regional barges for “milk-run” LNG deliveries. Once all stakeholders along the regional supply chain work together to tighten the economics, I am confident a new business of small-scale LNG supply and deliveries can be launched.
The MOU with Pertamina is the first collaboration agreement we signed with our partners in the region. The energy industry is a capital intensive one that spans various segments of the value chain. It involves a variety of stakeholders across national governments, government agencies and private sectors. As the saying goes: if you want to go fast, go alone; if you want to go far, go together. There is much to do to realise the potential and true success of this industry. And, there are clear benefits for both the industry and region for us to work together in a collaborative and sustainable way.
Pavilion Energy sees LNG bunkering as another key market for LNG demand growth where partners can work together to develop the market. Since being appointed as one of the two licence holders for the MPA Bunker Supplier Licence in January 2016, Pavilion Gas continues to work closely with MPA as well as other major shipping and oil & gas companies to explore both short and long-term LNG bunkering opportunities. As part of MPA’s LNG Bunkering Pilot Programme in Singapore, we are working with local shipowners to introduce up to two LNG dual-fuelled vessels that will deliver conventional bunker fuels to vessels in the port of Singapore. This effort is also supported by our partnerships with Japanese shipping companies and trading houses. I would also like to share that Pavilion Energy and ExxonMobil are also collaborating to develop LNG solutions for LNG bunkering and other downstream developments in Singapore. Together, we hope to embark on a journey of learning and establishing LNG bunkering procedures starting with truck to ship LNG deliveries. This initiative will also help test and improve the safety and operational standards for LNG bunkering in Singapore which Pavilion Energy is a key partner with MPA, SPRING Singapore and representatives of the Maritime industry here. Pavilion Energy welcomes all opportunities to collaborate with partners in the industry to build a flourishing LNG Bunkering ecosystem in Singapore and the region.
I would like to give an update on the Asian LNG Hub. Since the launch of the SGX LNG Index Group or “SLInG” in January this year, I am heartened to know that more industry players are looking at how they can trade SLInG swaps and futures. I should point out that SLInG allows trading in small 10,000 mmbtu lots, and this is ideal for hedging smaller LNG cargoes that are transacted in regional small-scale LNG supply or in bunkering. 10,000 mmbtu is about 0.3% of a normal LNG cargo (of at least 3 Million mmbtu).
Feedback on the SLInG methodology have been positive, and you must have heard that SGX has just introduced a second SLInG index – the “North Asia SLInG”. The Singapore SLInG will continue to serve as a price reference point for the fast growing South-East Asian LNG market; while the North Asia SLInG will provide a representative price for the traditionally large demand centre comprising Japan, Korea, Taiwan and China (or JKTC) which accounts for 60% of world LNG demand. The two indices will complement each other and together create an Asian LNG Price framework
The success of an Asian LNG Hub will depend on the region’s commitment in recognising the benefits of a hub and driving the changes required for this. With more robust collaboration in the region for the mechanisms and infrastructure to be in place, the Asian LNG Hub can be a key benchmark for transparent and fair LNG pricing in the region in the near future.
If the history of LNG is any indication for the future, exciting developments are ahead of us.
There is a Chinese saying: 众人拾柴火焰高。It means we will grow stronger when we work together. The future of LNG remains bright with new and alternative LNG markets waiting to be unlocked and pursued. I am confident that with close regional cooperation, we can progress forward as an industry and region together.