Distinguished guests, ladies and gentlemen, good morning.
All of us gathered here today have a stake in natural gas. Some of us are LNG producers and sellers, with ownership of LNG assets; some are LNG buyers, with a pool of end-user customers. Some are both LNG sellers and buyers, or portfolio players; and some are LNG traders.
Significance and importance of LNG
Our interest in LNG may differ, but the role of gas in meeting cleaner energy requirements around the globe, in countries, industries and communities unites us along the LNG Value Chain. The COP21 Paris agreement has made clearer the value proposition of natural gas as a cleaner fuel source. Most people predict that Gas will become the world’s primary energy source before 2035. Last year, for the first time in U.S. history, natural gas surpassed coal in electricity generation. From now till 2020, the U.S. will see 150 natural gas power plants come online, with gas accounting for almost half of U.S. power generation capacity.
Today, LNG continues to play a pivotal role in meeting growing energy demand, as world population grows and demographics change. China has 1.4 billion citizens and 15 megacities with more to come. As China grapples with urban growth and continued economic expansion, demand for power will increase. Its demand for imported LNG is growing at more than 30% per year and may exceed 100 mtpa post-2020. China’s appetite for LNG will see it overtake Japan as the world’s largest LNG importer and could help re-balance the currently over-supplied LNG market sooner than expected.
LNG is also an enabler of new market segments, especially in transportation; and specifically for LNG shipping and trucking. As a transport fuel, LNG offers a cleaner and more sustainable solution. Emissions from traditional bunker fuel contain up to 2,000 times more sulphur compared to emissions from cars. Today, the discussion on LNG for the transportation industry involves LNG suppliers, vessel owners and operators, as well as port operators. While LNG as a marine fuel may not be a new idea, an LNG bunkering eco-system is emerging for the industry as a whole.
An industry not without its challenges
For an industry slightly older than 50-years-old, LNG has done pretty well for itself. Today, it is the world’s second most traded commodity, after oil. But the industry is not without its challenges. In a low price and oversupplied market and with more supplies expected in the near term, the hunt for new markets and demand centres has become urgent.
As the Chinese say: “不怕慢, 就怕停”. Be not afraid of growing slowly; be afraid only of standing still. The challenges of our industry today make the road bumpy and our journey slow and challenging. We must continue to press forward. As an industry, we have the responsibility to ensure that LNG remains a compelling fuel of choice and a clean energy source for everyone. In my many years of working experience, I have learnt that it is not so much about facing challenges, but managing these challenges – and preparing for whatever lies ahead. Pavilion Energy sees three core pillars where we will play our part in driving our LNG growth.
Firstly, our Singapore operations. We look forward to bringing our first LNG cargo into Singapore later this year or early next year upon the issuance of the licence by EMA. Pavilion Gas currently supplies to more than 30% of industrial users across the power generation, petrochemicals, biotechnology, pharmaceutical and manufacturing industries in Singapore. We continue to value partnerships and believe in a collaborative and win-win approach to working with customers, for mutual growth and progress.
In May this year, Pavilion Gas successfully conducted the first ever LNG bunkering truck-to-ship operations in Singapore and Southeast Asia. We see the benefits and potential of the LNG bunkering industry, which is expected to expand to US$10 billion by 2023, up from just US$214 million last year. LNG is set to play a significant role in the energy mix for the maritime sector with the IMO 0.5% global sulphur cap on marine fuels coming into force in the year 2020. We look forward to a thriving LNG bunkering hub in Singapore as part of the global LNG bunkering ecosystem.
The second pillar is the regional market. The Asia-Pacific region accounts for 70% of LNG demand. Closer to home, Southeast Asia’s LNG demand is expected to grow seven times to reach 70 mtpa by 2035. Indonesia could start importing LNG as early as 2019 if domestic supplies prove insufficient for its growing energy needs. And Thailand, which has been importing LNG since 2011, plans to triple its LNG intake by 2022, from the 5 mtpa today. Receiving terminal capacity in Southeast Asia is also expected to double to about 50 mtpa over the next five years. In Singapore, SLNG has announced a terminal capacity expansion to 11 mtpa next year, and the possibility of up to 15 mtpa of capacity in the near future.
In this entire demand picture, we see small-scale LNG as a critical component. Small-scale LNG allows LNG to be transported and distributed in smaller quantities to hard-to-reach locations where pipelines do not exist. It is a fitting solution for the Southeast Asian region, which is home to more than 27,000 islands scattered through the Pacific and Indian Oceans. Indonesia alone accounts for a staggering 18,000 islands. Many of these islands are remote, inhabited and require power, representing a new cluster of LNG demand to be unlocked. Pavilion Energy has identified small-scale LNG as a key business area for the company, and has built up capabilities in small-scale LNG supply chain and engineering to provide a reliable, efficient and cost-effective solution. Earlier this month, we signed a HOA with Indonesia’s state-owned PLN and Keppel Offshore & Marine to explore collaboration on small-scale LNG. The collaboration involves the distribution of LNG to islands and locations in West Indonesia that are near Singapore.
In a world that is inter-connected and interdependent, it will serve all of us well to ensure our region’s growing energy needs are well taken care of. As the saying goes, “a neighbour close by is better than a relative afar”. We welcome more energy partnerships across regional governments and private sectors, which will underpin the success of a thriving energy ecosystem in this region.
Our third focus is LNG trading. Today, the LNG market is one of the fastest growing in the world. Some have even described the growth as “historic”, with global LNG trade having increased by about 100 mtpa in the last 10 years. Between now to 2020, LNG trade globally is expected to increase by another 100 mtpa to 350 mtpa. New supplies primarily from the U.S. and Australia amounting to about 140 mtpa are expected to come on line in the next few years. We believe that such an environment will see a spike in LNG trades, which has increased to account for 25% of total LNG trade. We observe that Swiss trading houses, Trafigura, Gunvor, Vitol and Glencore are all shaking up a decades-old system dominated by Western oil majors who sell LNG to large buyers or consumers in long-term contracts. These four Swiss traders expect to deliver over 25 million tonnes of LNG this year, up from 7 million tonnes just two years ago.
Last month, Pavilion Gas signed a storage and reload agreement with SLNG. Over the next two years, Pavilion Gas will have rights to access tank capacity on a segregated basis at the SLNG Terminal for LNG Storage and Reload Services. We will continue to work closely with SLNG to facilitate multi-user access of the SLNG Terminal for LNG trading activities, small-scale LNG opportunities, LNG breakbulk and vessel cool-down services.
In line with this, we are pleased to announce that we have concluded an option swap agreement with Uniper whereby we will be able to leverage on each party’s access to the Gate LNG Terminal in Rotterdam, Grain LNG Terminal in U.K. and SLNG Terminal in Singapore. The agreement will strengthen Pavilion Gas’ reach to the U.K. and Continental European gas markets. Likewise, it also allows Uniper to have better reach to Asian markets. Europe’s demand for LNG is expected to grow as it looks to reducing its reliance on pipe gas. Access to these markets will also enhance the flexibility within our LNG portfolio and create further optimisation opportunities. Pavilion Gas is well-positioned to expand and grow its LNG trading presence regionally and globally, and we continue to welcome collaboration opportunities to grow our trading business.
To conclude, these three core pillars represent our mid-term focus on LNG. While I have no doubt that this may change in the future as the market develops, these areas of focus will be key in shaping our role in driving LNG growth. There is a Chinese saying: “宝 剑 锋 从 磨 砺 出, 梅 花 香 自 苦 寒 来”. A good, fine sword is made through the constant grinding and filing in extreme heat; just like the beauty of a cherry blossom which can only bloom after a cold, bitter winter. As our industry goes through a recovery, the challenges we face today will only serve to shape a thriving and robust market of tomorrow.
With that, I wish you a fruitful and engaging conference ahead. Thank you.