Honourable Prime Minister of Malaysia Dato' Seri Najib Tun Razak, Your Excellencies, distinguished guests, ladies and gentlemen:
I am honoured and delighted to be here in the wonderful city of Kuala Lumpur, and to participate in this conference. I appreciate very much the warm hospitality of my friends in Malaysia, whom I have met, and will meet over these two days. Over my many years in corporate life in Singapore, I have enjoyed good business relations with my Malaysian counterparts, and have had the privilege of making many close Malaysian friends too.
Today, ties between Malaysia and Singapore have never been warmer. Singapore is Malaysia's largest foreign investor, and Malaysia is Singapore's second largest trading partner. In 2013, bilateral trade between the two countries reached almost S$114 billion. There exist many areas of co-operation between Malaysia and Singapore, including the high-speed rail link between Malaysia and Singapore as well as the Iskandar project in Johor state.
I firmly believe that there is another important area of collaboration, that we can together work on. The subject of energy is an important one for both Malaysia and Singapore. Malaysia is a leading international oil and gas producer with exciting plans to further develop the country's refining and petrochemicals sector. Singapore is an established international oil trading and refining centre and the leading oil bunkering hub in the world. We should explore close collaboration on energy co-operation.
A Bright LNG Future in Asia
The focus of this conference is highly pertinent and timely. It deals with some very real and dynamic issues; which at the same time offer us great opportunities. Prospects for the energy market in Asia are promising. Demand growth in the region will accelerate, especially in China and India. Mature economies such as Japan and South Korea will continue to be important energy markets. By 2030, Asia's population is expected to grow by 500 million, roughly the size of the European Union (EU) today.
Countries around the world are reviewing their energy mix, for different reasons. Natural gas looks set to be the energy of choice, at least in the near term. This is so for two key reasons. One, natural gas is well-accepted as the cleanest burning fossil fuel. And two, in its liquefied form or as "LNG", natural gas is particularly transportable. As a liquid, LNG can be carried on cryogenic vessels, on-board ocean-going ships, river barges or container trucks, to reach demand centres across the world – making it a highly accessible and flexible energy solution. This way, LNG offers quick energy solutions to low electrification populations, such as those on the remote islands of Indonesia and Philippines, who currently depend on more expensive diesel. All things considered, LNG is a good fuel candidate to meet both economic and environmental objectives. This is vital given the wave of urbanisation sweeping Asia and the many fast-growing cities we see in the region today.
Asia has been importing two-thirds of the world's LNG supply every year, since 1980 -- in part due to the large demand in Japan and South Korea. Asia's overall LNG consumption is expected to grow over the next 20 years. Particularly so in China, where we see a promising picture for the use of natural gas, driven largely by the Chinese Central Government's clean energy policies. It will not be hard for China to achieve 10% gas usage, as part of its overall energy mix, over the next 10 years. This is a conservative level compared to the average of 22% gas consumption in OECD countries. China will become a significant LNG markets in the world, making the Asian marketplace more vibrant than before.
Even Malaysia and Indonesia, traditional exporters of natural gas to Northeast Asia, are seeing a dramatic shift in consumption patterns, and will themselves become increasingly dependent on imported LNG. Malaysia is one of the world's largest LNG exporters, the country currently experiences a geographic disparity of natural gas supply and demand among its regions. The western Peninsular Malaysia demands more natural gas to fuel the power and industrial sectors, while the eastern states of Sarawak and Sabah, produce more than half the natural gas in Malaysia but currently lack the local demand for it. In the case of Singapore, the country is completely reliant on energy imports. Apart from the piped natural gas Singapore imports from our kind neighbours Indonesia and Malaysia, the country also depend on LNG shipped from around the world to its receiving terminal in Jurong Island.
In the overall scheme of things, Asia's increasing appetite for gas will be met by imports from outside the region. Major new supplies are expected over the next decade from Australia, the U.S., and East Africa. Australia's new projects have already put the country on-track to overtake Qatar to become the largest LNG exporter in the world by 2020. This new geography of demand and supply will generate new trade flows and new markets. In my view, these developments are even more significant against the backdrop of the "shale gas revolution" that is already changing the dynamics within the global energy market.
An Asian LNG Hub: Sustainable and Secure Energy for the Future
As the energy demands in Asia increase, it is important to ensure that LNG continues to be affordable and economically viable. Today, Asian buyers are paying more for LNG compared to other demand centres in the world. Is this sustainable for Asia? Take China, where natural gas plays an important role, as an example. Gas is a "bridging fuel" to transition the country toward cleaner sources of energy, away from coal and diesel. On average, a gas-fired power plant produces about half the carbon dioxide emissions and one third of the nitrogen oxides of a coal plant. This is extremely good news, since China consumes as much coal as the rest of the world combined. The question we then need to ask is whether China, in its quest for a cleaner energy future, is willing to pay more for LNG? This is not a trivial question as China will need more than US$40 billion to finance the switch from coal to natural gas. Price could ultimately be the tipping point. And the choices that China makes could have a lasting impact on regional energy and LNG dynamics.
Therefore, getting the "price right" and getting the "right price" in Asia are both critically important. Asia needs access to competitive clean energy to power and sustain liveable cities for future generations. This is where developing an Asian LNG Hub is justified by providing an economically sustainable solution to Asian countries, through fair and transparent pricing. And here is where we can do well by taking a leaf out of the books of the hub frameworks of the U.S. and Europe.
The Asian LNG Hub will provide a platform that facilitates transparent LNG pricing and price discovery leading to an Asian LNG Price Marker; as well as the development of financial instruments such as LNG futures contracts. We could take a straightforward "Net-Back" approach as a means towards transparent regional LNG pricing. This is how gas prices in continental US take reference, on a "Net-Back" basis to Henry Hub.In the Asian LNG Hub approach, the price that a regional Asian buyer pays for an LNG cargo will be "Net-Back" to the Price Marker of the Hub. Pavilion Energy is ready to be an Industry Partner, and a Market Participant to support developing an Asian LNG Hub.
Malaysia has extensive natural gas infrastructure and network of pipelines and domestic demand centres in the western peninsula; and is well-placed to provide a vast and natural Secondary Gas Market to support price discovery in a Regional LNG Trading Hub.
In addition to ensuring an affordable energy source, the Asian LNG Hub provides Asian countries physical access to a robust network of diversified LNG supplies. Such a network of supply sources ensures system level resilience and reduces the vulnerability of buyers and sellers to individual disruptions in the supply chain. Recent developments in the Russia-Ukraine gas crisis have once again highlighted the importance of energy security and the need for reliable access to competitively-priced fuel. There is an interesting view shared to me by a top executive in an oil major, that the ongoing Russia-Ukraine tensions, coupled with production decline in Western Europe, may propel the EU to be the world's top two LNG importers with a decade.
The Way Forward: An Integrated Market
An Asian LNG Hub moves the region towards greater collaboration, transparency and openness. I would like add that what we have in mind is not a private "buyers club" concept, but something more open, transparent, regional and collaborative. We are mindful that any initiative which has a strong bias to either buyer or seller may not work that well. Sellers would be suspicious of a hub if it was based solely on buyer countries as these countries would want to have the price as low as possible. A hub should also not be captive to a huge buyer whose procurement plans could tip the market. The Asian LNG Hub has therefore got to be neutral and serve the wider interests of countries within and beyond the region.
I am confident the Asian LNG Hub will benefit many countries, even suppliers of LNG. The US, a major supplier of LNG, has taken an interest in this initiative. The Center on Global Energy Policy at Columbia University in New York, supported by the US Department of State, plans to research the requirements and benefits of a more liberalised Asian gas trading system. They are looking at how a well-developed Asian LNG hub would allow the market to receive more accurate price signals to distribute supplies more efficiently, and boost energy access.
Asian governments and industry leaders need to be at the forefront of driving the Asian LNG Hub and look for ways for greater collaboration. Particularly for Singapore and Malaysia, we see the strong potential for collaboration given the close political, economic and cultural links, as well as close proximity of both states.
It is timely for the two countries to work together towards an Asian LNG Hub. As a start, Singapore's and Malaysia's location poses several strategic advantages. Our strategic location in the Straits of Malacca and the South China Sea are host to some of the world's vital sea lanes. About 50% of global LNG supplies pass through each year.
Last year, Singapore commissioned Asia's first multi-user, open-access export and import LNG terminal. The Singapore Government plans to build a second LNG terminal in the East of Singapore – further adding geographical diversification to the country's LNG infrastructure. More companies have also set up their trading operations to Singapore due to its friendly business rules & policies and mature finance & legal systems. Separated by the Straits of Johor is Malaysia's Pengerang project, a world-class oil storage terminal with plans for an LNG terminal and storage facilities. Malaysia wants to create a more dynamic and progressive oil and gas industry in Malaysia and create value for the downstream oil and gas value chain. The complementary visions and strategic developments of Singapore and Malaysia represent scope for closer partnership between Malaysia and Singapore on energy and related services.
We could start looking at how the two countries can build an integrated gas market as part of the wider Asian LNG Hub initiative. I believe this could hold tremendous benefits for both Malaysia and Singapore. Further ahead when the time is right, we could also look at how to tap the US$7 billion Trans-ASEAN Gas pipeline project which connects 4,500km of gas pipeline networks of all ASEAN member states, so that the benefits of an Asian LNG Hub can be fully reaped and enhance energy security for ASEAN.
Let me just add that the year of 2015 marks an exciting year for Malaysia as it assumes the chairmanship of ASEAN. As one of the five founding nations of the ASEAN charter, Malaysia continues to play a key role in shaping the direction of ASEAN's charter and framework. Enhancing co-operation and dialogue in regional energy collaboration could be a focus for ASEAN countries. I believe that we have much to look forward to next year as ASEAN enters collaboration interesting phase.
These are exciting times for this region, especially with greater international attention on the natural gas market in Asia. The "energy for tomorrow" landscape in Asia is attractive for governments, communities and corporations. This region is about to embark on yet another phase of significant development. More accessible and affordable energy will be a vital component of enhancing the economic and physical environment that will help improve the lives and livelihoods of many Asians.
The opportunities are there, but we all have to put in our share of effort, and to be willing to embrace change to reshape the environment for a brighter future. PETRONAS has been supplying piped natural gas to Singapore for many years now. The first pipeline connecting Malaysia with Singapore was first commissioned in 1991. Singapore currently has two contracts to import about 1.5 Mtpa of gas from Malaysia. More recently, Pavilion Gas has also engaged PETRONAS on trading LNG cargoes. This is a small but important attempt to start a relationship between our organisations in energy co-operation.
司马迁, the most famous Chinese Historian, during the Han Dynasty, about 2,100 years ago once said "一花独放不是春，万紫千红春满园 ". It means one flower does not represent the coming of Spring; until we are able to see the full blossom of the entire garden.
So may our partnership in energy blossom and grow ever richer like the beautiful Spring flowers. We look forward to exploring more opportunities for collaboration and new ventures with all of you at this conference and beyond.
Thank you very much.