Core Values

Pavilion diversifies LNG supplies further with BP deal

Singapore (The Business Times) | 25 September 2014

TEMASEK'S liquefied natural gas (LNG) investment arm Pavilion Energy has made further progress in diversifying and strengthening overall supply of its LNG portfolio.

Announced by Pavilion Energy's chief executive officer Seah Moon Ming, under its wholly-owned subsidiary Pavilion Gas, they have sealed a 20-year contract with UK oil and gas company BP, under which the latter will supply it with 0.4 million tonnes per annum (mtpa) of LNG beginning 2019.

This announcement comes just three months after Pavilion Gas inked a 10-year deal to receive 0.7 mtpa of LNG from France-based international oil and gas company Total beginning 2018, and a year since the official start of the unit's operations in September 2013.

Pavilion Gas, which manages downstream natural gas operations for both piped natural gas (PNG) and LNG in Singapore, also overlooks the marketing, trading and distributing of natural gas in Singapore and the region.

Under the latest signed deal, BP's chief executive Paul Reed says "supply will be from BP's global portfolio of equity and merchant sources of LNG, which includes the Freeport LNG Project in the United States where BP holds tolling rights and which is expected to reach a final investment decision before the end of the year".

In February 2013, Bloomberg reported that Freeport LNG had indeed entered into a 20-year liquefaction tolling agreement with BP for 4.4 mtpa.

Since its incorporation in April 2013 to cater to increased LNG demand in Asia and reduce Singapore's reliance on Malaysia and Indonesia gas supplies, Pavilion Energy has rapidly built up committed capital from US$1 billion earlier this year to its present value of US$6.9 billion.

Beyond BP's and Total's contracts, other portfolio projects show the company's expansion along the LNG value chain, which includes a joint venture with shipping firm BW Group to expand into LNG shipping and a 20 per cent stake in Tanzania gas fields. The company has also stored an LNG cargo at the Singapore LNG terminal for trading purposes.

Pavilion Energy's diversification strategy provides flexibility, says Tony Regan, principal consultant at Singapore-based energy consultancy Tri-Zen International, over a phone interview with BT on Wednesday.

Currently, about 90 per cent of Singapore's electricity consumption comes from natural gas, of which 80 per cent is supplied by piped gas from Indonesia and Malaysia.

"Now, with the terminal (referring to the LNG terminal which commenced operations in May 2013), Singapore can now import LNG and bring in LNG from 20 suppliers, rather than the two that provide piped gas ... some of the gas may come from North American suppliers with cheaper American gas," said Mr Regan.

While Pavilion Energy has declined to reveal the total dollar amount of their signed deal with BP, Mr Regan said: "What's agreed now is the pricing formula, we won't really know the actual value of the goods till it ships in 2019."