Distinguished guests, ladies and gentlemen,
Good morning and welcome to the 7th LNG Asia Pacific Summit.
The past year was an eventful year. We have seen oil prices dip dramatically – the lowest ever since 2009. We continue to see the extraordinary development of the U.S. shale resources, as more projects are due to come online. Consolidation in the energy industry through mergers and acquisitions has taken place – such as the impending mega Shell-BG deal valued at over US$70 billion. More recently, we have also seen a unified call for the urgent need for a carbon pricing framework. Such fluctuations are making waves in our industry, and the knock-on effects are likely to extend beyond the next few years.
LNG Demand-Supply Dynamics: Short-Term View
With most LNG contracts being oil-linked, the 50% fall in oil prices led to lower spot prices. Most buyers have also adopted a “wait and see” attitude and are not willing to commit to long-term, large volume purchases. As a result, we are seeing more of shorter term sales rather than long-term contracts. With low spot prices, buyers are turning towards the spot market to supplement their supply. This has resulted in spot volumes accounting for 27% of total LNG sales.
Oil and gas companies have also reacted to the fall in oil prices. Super majors such as BP, Shell and Chevron have all announced that they will be reducing their capital expenditure by 10% – 12% as compared to 2014. They are doing so by farming down on selective positions or cancelling pre-FID projects. Shell’s cancellation of its Arrow Greenfield LNG project bears testimony to the extent of cost cutting measures adopted by IOCs.
I have seen some very interesting changes in LNG supply and demand dynamics. While global LNG supply is predicted to grow by 13 million tonnes per annum in 2015 due to four new Australian liquefaction plants and the United States’ Sabine Pass coming on stream, global LNG demand is slowing down.
In China, last year’s over-aggressive industrial gas price hikes, slowing economic growth and efforts to move towards a service based economy have resulted in weakening gas demand. Demand from traditional importers – Japan, South Korea and Taiwan, has been predicted to grow only marginally. Their demand has always been pegged to power generation requirements. With both Japan and Korea’s increased focus on renewable and nuclear energy, their LNG demand growth has somewhat slowed down.
Overall, with the limited demand growth for LNG coupled with the increased supply of LNG, our LNG market today is long.
LNG Demand-Supply Dynamics: Long-Term View
The long-term view for the global LNG demand-supply dynamics remains positive. Global LNG demand will rise, as countries and governments come to realise the importance of balancing economic and environmental objectives. Asia will still play an important role in the global demand for LNG.
Today, Asia accounts for 76% of global LNG demand. China and India will contribute most to the demand growth of LNG, accounting for 49% of total growth from 2015 to 2020. This is mainly due to urbanisation and increasing peak power demand in all these countries. Stronger environmental controls and government enforcement of coal to gas switching further contributes to China’s rising appetite for LNG.
India’s gas demand is also predicted to grow, as the country starts to look towards LNG as a cleaner and cheaper source of energy for a densely populated and rapidly urbanising country.
China and India aside, 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 one day.
On the supply side, today, LNG supply growth can be attributed primarily to the U.S. and Australia. By 2020, the U.S. and Australia will account for 39% of total LNG supply. In the mid 2020s, East Africa will then pick up the mantle of being a key contributor towards LNG supply growth, with Mozambique and Tanzania starting to deliver its natural gas.
LNG Market Developments & Opportunities
Indeed, the LNG market has seen some dramatic changes in the last 10 years. From just 15 countries importing LNG 10 years ago, there are 29 LNG importing countries today. There will be 54 new terminals to be built by 2020, 27 of which have already received approval or are under construction. In the next five years, about 150 new LNG carriers will be built, all with capacity above 100,000 m3. This will bring the total number of LNG carriers in the world to about 550.
In just the last 5 years, 65% of all contracts were signed for volumes below 1 million tonnes per annum. In fact, some European terminals have started to offer LNG bunkering, truck loading, re-exports and small-scale services. The Gate terminal in Rotterdam will offer break bulking services in 2016. The trend towards small-scale LNG has gained its momentum. We saw this at the recent World Gas Conference in Paris, where there was a strong focus and keen discussion on small-scale LNG solutions.
Unlike the U.S. or Europe, Southeast Asia has numerous small and remote islands, of which many are permanently inhabited and require power. It makes sense to use small 10,000 m3 vessels, carrying about 0.05 to 0.5 million tonne per annum of LNG, to perform multi-location deliveries. Simple and low cost infrastructures such as bullet tanks and ambient air vaporizers; can also be used to bring the initial CAPEX investment down by 10–25 times as compared to conventional solutions.
So what does this mean for international LNG suppliers? I think it is positive news. Small-scale LNG, whether transported via land or sea – or a combination of both, is a cost effective solution for making natural gas available to energy users currently not connected to pipeline networks. With smaller scale LNG projects, it also increases flexibility in terminal operations, allowing for greater penetration of LNG into previously unreachable markets. The concept of small-scale LNG has increased the market for natural gas since it is targeted at fulfilling small-scale demand, and operates in different market segment of large scale exporters. Such a trend also lowers the barriers of entry of the LNG export market, allowing more competitive players to enter the market.
Markets are opening up to small-scale LNG solutions, and some governments have expressed their support for this initiative. Next steps include having governments align interests with the industry and put in place the much needed regulations and policies that can help promote and support small-scale LNG as a supply solution.
Pavilion Energy plans to develop small-scale supply chain solutions within the region. We have begun discussions with several partners in some markets, such as Indonesia and the Philippines, and look forward to progressing on this initiative.
Pavilion Energy: Building Energy Capabilities
Pavilion Energy plays an active role across all segments of the LNG value chain. Pavilion Energy has 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 signed various portfolio LNG supply contracts. Pavilion Energy has also entered a joint venture with BW Group to acquire, manage and charter LNG carriers. The JV company now owns 3 LNG ships. We have also been steadily building our LNG trading capabilities over the last 2 years. We are now an active player in the LNG spot market.
On 29 May, EMA announced that Pavilion Gas has been shortlisted for the final stage of the EMA Request-for-Proposal to import LNG into Singapore. 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.
Let me take this opportunity to thank partners and customers for your continued support. Pavilion Energy values partnerships and the mutual trust and respect that we share in our working relationships. We believe in a collaborative and win-win approach to working with customers and look forward to growing and progressing together.
With a diversified supply portfolio, 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.
In Singapore, we are also working on various other initiatives. This includes LNG transportation for industrial use. We are keen to see the pioneering of the sale of LNG using LNG trucks in Singapore to access non-piped gas demand soon.
Currently, we are working on an LNG bunkering trial and license. We believe in the future of LNG bunkering in Singapore. Our strategic location in the Straits of Malacca and the South China Sea sees over 50% of global LNG supplies passing through the proximity of Singapore – that’s approximately 2,000 cargoes per year. While Southeast Asia may be a busy maritime region, there is currently no LNG fuelled ship in Southeast Asia. In time to come, by having LNG bunkering services in Singapore, we will be able to act as a refuelling station for Southeast Asia and promote both the use of international and regional LNG ships in Asia.
I recall a Chinese proverb: “功崇惟志，业广惟勤” from <<尚书 周书>>. We need to be passionate and resilient in working towards our goals. We must also be proactive and work in harmony to secure a bright and promising LNG future.
Let me now wish all participants a fruitful time in Singapore and an enriching summit ahead.