Distinguished guests, ladies and gentlemen,
Good afternoon and welcome to Gastech Singapore 2015.
I am delighted to see both familiar and new faces here in Singapore at an important time for the gas sector. The LNG business globally is undergoing fundamental change. Nowhere is this more obvious than in Asia. Many of you are keen observers of the industry and have seen many changes over the years. At Gastech 2015, we have come together as a community to discuss how the future of the global gas sector is shaping up and the opportunities and challenges we see emerging. Together, we are better able to make sense of today's developments and see the big picture come together more clearly.
Today's LNG Market Dynamics
Since Gastech last met in 2014, we have seen major shifts in market dynamics. For one, the 50% fall in oil prices has led to lower spot prices, with most LNG contracts being oil-linked. Most buyers have also adopted a "wait and see" attitude and are not willing to commit to long-term, large volume purchases. Some have even switched back to coal. As a result, we are seeing more of shorter term sales with buyers turning towards the spot market to supplement their supply. This has resulted in spot volumes accounting for about 29% of total LNG sales today.
There are also interesting changes in LNG supply and demand dynamics. While global LNG supply is predicted to grow by 150 million tonnes per annum in 2018, global LNG demand is slowing down.
In China, last year's industrial gas price hikes, slowing economic growth and efforts to move towards a service-based economy, have resulted in weakening gas demand. Elsewhere in Asia, demand from traditional importers – Japan, South Korea and Taiwan, or "JKT", has been predicted to grow marginally. With both Japan and South Korea's increased focus on renewables, their LNG demand growth has somewhat slowed down. With the restarting of Japan's nuclear power plants, Japan has projected that their overall LNG consumption would fall to 62 million tonnes per annum, compared to about 89 million tonnes per annum today.
Long-Term LNG Market Dynamics
The long-term view for LNG remains positive. OPEC expects crude price to rise to US$80 by 2020. As countries and governments have realised the importance of balancing economic and environmental objectives, global LNG demand would eventually rise. Asia plays an important role in the global demand for LNG due to an increase in population, urbanisation of cities and development of Infrastructure. I see that the global economy will shift favourably towards Asia.
Today, Asia accounts for 76% of global LNG demand. China and India will contribute most to the demand growth of LNG, and would account for half of total growth from 2016 to 2020. Stronger environmental controls and government intervention to switch from coal to gas will further contribute to China's rising appetite for LNG. Natural gas will continue to be important to the Chinese industry as it re-gears in coming years. I am confident that China would pick up from the slowdown and maintain its consistent growth in the mid-term of about 7%.
LNG demand in Southeast Asia is also expected to rise. Currently, traditional exporters of LNG, like Malaysia and Indonesia, face increasing domestic demand and may end up becoming net importers in the near future. China, India and Southeast Asia may well become the next "JKT" of LNG imports.
Let us not forget Europe in the overall scheme of things. In the mid to long-term, Europe could be a key demand centre for LNG as it looks to reducing reliance on piped gas. Europe has 28 receiving terminals today. There are 8 terminals under construction and another 26 are in the planning stages.
On the supply side, by 2020, the U.S. and Australia may reach 40% of total global LNG supply. East Africa could also be a key contributor towards LNG supply growth, with Mozambique and Tanzania starting to deliver natural gas in 2020's.
Sector Transformation and Innovation
LNG is also going through major sector developments. In the last 10 years, the number of countries importing LNG has nearly doubled from 15 to 29. By 2020, there will be 54 new LNG terminals built around the world and 150 new LNG carriers with capacity exceeding 100,000m3.
We have also seen a trend towards small-scale LNG. Nearly two thirds of all contracts signed in the last 5 years had volumes with less than 1 million tonnes. I mentioned in a recent conference that Pavilion Energy plans to develop small-scale LNG supply chain solutions within the region. Southeast Asia has numerous small and remote islands, of which many are inhabited and require power. It makes sense to use smaller vessels, carrying about 0.05 to 0.5 million tonnes per annum of LNG, to perform multi-location deliveries. We have begun discussions with several partners in Indonesia and the Philippines in the last 12 months, and are excited about progressing on this initiative.
Enhancing the maritime supply chain is in our blood in Singapore, honed by many decades of experience as a seaport and trading hub. Pavilion Energy is keen to play a part in forming a small-scale LNG ecosystem through integrating various local capabilities. We are currently in talks with SLNG on the use of its jetties, and several home grown companies such as Rotary Engineering as well as the Agency for Science, Technology and Research or A*STAR, on this effort. Pavilion Energy is supportive of industrial research across the LNG value chain, and is keen to tap into the advancement of technology to boost the development of the small-scale LNG capability. In the future, with more regional collaboration, the market potential for small-scale LNG is evident, as economies in the region look to replace diesel with cleaner and cheaper natural gas.
LNG bunkering is now offered in some European terminals and we look forward to seeing the same in Asia. Pavilion Gas believes in the future of LNG bunkering in Singapore. By having full-scale LNG bunkering services, Singapore will be able to serve as a key refuelling station for Southeast Asia, and can welcome more international and regional LNG ships through Asia.
Pavilion Energy: An Integrated LNG Business
As today's LNG sector transforms, so will the businesses operating in it. LNG is emerging as a true globally traded commodity that will evolve with its own unique market signals. These changes will, by necessity, demand greater specialisation and a deeper knowledge of what is going on worldwide, at any given time. Whether it is upstream or downstream capability, transportation and storage or LNG trading, Pavilion Energy wants to take advantage of these shifts.
Pavilion Energy is very much focused on the long-term as we continue to build expertise and capabilities across the entire LNG business. To grow Pavilion Energy, our approach is to "升 高 必 自 下，陟 遐 必 自 迩". To rise high, one must first begin from the bottom; and to travel far, one must first take a step. We continue to take a step-by-step approach as we pursue our long-term ambitions and goals.
We have a diverse portfolio of suppliers. To date, we have taken an equity position in the Tanzania gas fields, secured LNG supply from U.S. Cameron & Freeport and have also entered into various portfolio LNG supply contracts. On this front, Pavilion Energy would like to announce the completion of a 10-year Sales & Purchase Agreement with Gazprom Marketing & Trading from its portfolio. We continue to strengthen our overall LNG supply portfolio to add to the company's diversity, including price indexation.
Pavilion Energy has also been steadily building our LNG trading capabilities over the last 2 years. We continue to be an active player in the LNG spot market and make good progress on this front.
Today, Pavilion Gas has a proven and independent downstream capability in Singapore. We supply gas to more than 30% of industrial users across the power generation, petrochemicals, biotechnology, pharmaceutical and manufacturing industries.
Pavilion Energy is currently focused on developing regional demand. We see this as an important step towards building a reliable and robust LNG ecosystem in Singapore, and hopefully for Asia. To this end, I would like to mention that Pavilion Energy has signed a Memorandum of Understanding (MOU) with Huadian to supply cargoes of LNG to the company from 2020 onwards. Pavilion Energy has also signed an MOU with Japan's JERA for collaboration in joint LNG procurement and investment.
The global picture will surely change again in the years ahead. We aim to remain competitive and effective by responding to shifts in all aspects of demand, supply and price.
Next, moving on to a topic that I strongly believe in – Singapore's potential to be a significant global LNG Trading Hub. Singapore is already the leading hub in Asia for various global commodities trading including oil, iron ore and rubber.
It is home to the vast majority of the world's largest commodity trading companies. This extensive network of buyers and sellers creates an effective and neutral market place for global traders to structure their deals. Singapore offers political and economic stability as well as a strong legal and especially arbitration framework. As a global financial hub, Singapore has the capacity to finance nearly one-third of all Asian trades. In the foreign exchange market, Singapore has the highest USD liquidity in Asia and is the largest offshore RMB hub. This year, Singapore ranked first in the World Bank's Ease of Doing Business index, and also ranked first in the World Bank's Logistic Performance Index, with the best Seaport in Asia.
We therefore believe that Singapore is well-equipped to host this new and more open way of doing business in the LNG sector. The International Energy Agency or IEA has expressed confidence about Singapore's prospects, and believes Singapore will eventually emerge as Asia's premier LNG Trading Hub.
We see a fairer and more transparent market as the best outcome for LNG physical spot trading in Asia. This follows from developments such as the unveiling in June this year of a price index for LNG at the Singapore Exchange, or SGX through its subsidiary EMC. This index called the "Singapore SLInG", or short for SGX LNG index Group, is an "FOB Singapore" LNG price pegged to a cargo transacted in the vicinity of Singapore. In September, EMC took a further step to make the SLInG Index widely accessible to interested subscribers.
Like the signature Singapore Sling cocktail that many have come to appreciate and enjoy, our Singapore SLInG, Singapore LNG Index Group has also attracted interest from afar. Thirteen LNG players were on board when the Singapore SLInG index was unveiled. This number has since grown to 16 and should reach 20 soon, comprising a good mix of traders, buyers, and both small and larger gas producers. These LNG players are drawn especially to Singapore's central location in Asia. An FOB Singapore index like SLInG makes sense and is a good reference point, as Singapore is at the heart of major international shipping routes. About half of all global LNG cargoes pass through the Straits of Malacca or South China Sea, all in the vicinity of Singapore.
LNG prices generated from Singapore can also be more easily extended to origin and destination ports as a proxy for Asian spot LNG prices. Singapore is neither a significant LNG seller nor significant buyer. I think the regional and international markets are more likely to trust price discovery from a neutral platform. With a clearer price benchmarking, the region will clearly benefit. In these two days, we have heard from the industry leaders who strongly support this price benchmarking index. This is encouraging.
Moving ahead, we are looking for industry stakeholders, in particular market makers and traders, to get comfortable with SLInG and to consider placing trades using SLInG. SGX is in the process of launching a SLInG swap product and once this is ready, Pavilion Gas will be keen to explore with interested counter-parties, both gas producers and/or buyers, on transacting cargoes on SLInG, within the next one to two years.
Traders should be expecting large volumes of commissioning or excess cargoes coming out of the new Australian projects in the next 6 to 12 months, all looking for a home. We may be ready to consider trading opportunities for strips of such cargoes, especially when producers are prepared to accept SLInG-indexed pricing. It could also be an opportunity for financial stakeholders, like the major Australian and international banks financing the LNG projects to see how they could contribute to a regional LNG pricing initiative that promises a more transparent and fair gas-to-gas pricing index; and thereby promote more LNG trade flows and business.
To conclude, Pavilion Energy wants to be a dynamic industry player, ready to make a transformative difference for our partners and customers. New initiatives such as small-scale LNG and LNG bunkering will create new opportunities as the industry continues to grow and evolve. And in time to come, with the Asian LNG Hub, the mechanisms and platform are in place so that price can be better regulated to become more reliable, trusted, and more attractive.
I look forward very much to hearing your perspectives on the challenges and opportunities before us, and would like to take this opportunity to wish all of you a very fruitful and fulfilling conference and exhibition.