By Neil McGregor
Next year, Singapore, the world's busiest port, will open its first liquefied natural gas (LNG) terminal, slated to become one of the largest in Asia by 2020. Its creation is based on the belief that Asia is on the cusp of entering “a golden age of gas” as a commercial and clean energy source.
The 1.7 billion Singapore dollar terminal on Jurong Island is partly based on Korea's acknowledged expertise in the sector, with the project being built by Samsung C&T Corporation. Korea has the second-largest LNG terminal infrastructure in Asia after Japan, with facilities located in Pyeongtaek, Incheon, Tongyeong and Gwangyang. This reflects the fact that Korea is one of the world's largest LNG importers.
Like Korea, Singapore is highly dependent on external energy supplies with a heavy reliance on natural gas. Piped into the country through offshore pipelines from Malaysia and Indonesia, the share of natural gas in the city-state's electricity generation mix is 80 percent today. This is expected to rise to 90 percent by 2030.
As a gateway economy in a strategic location, Singapore is aware that an added capability to import LNG will enable the city-state to diversify its energy mix and bolster its energy security. The terminal will offer services to off-load LNG from vessels, store it and deliver regasified LNG to local end-users.
LNG is favored as a clean burning fuel that reduces carbon footprints and improves energy efficiency. The rapid growth of natural gas in Asia reflects concerns among regional governments about energy security and efforts to curb the pollution caused by oil and coal.
With lower emissions and generally lower costs per calorie than oil, natural gas is an attractive fuel to provide clean, cost-effective energy. In addition, Asia's gas reserves are bigger than its oil reserves. Southeast Asia and Australia are the main gas suppliers to the region, while new reserves are being developed in China, India and further afield in East Africa.
However, the supply landscape is changing, as are the LNG market dynamics. In the near term, it is increasingly likely that more Arabian Gulf-sourced cargoes will find their way to Asia to supplement the region's growing demand.
Asia has become the hub of the global LNG trade and will remain so for the foreseeable future. The use of natural gas in the region has increased three-fold since 1990. This energy source now accounts for around 60 percent of total global demand, and will increase to 70 percent by 2020. Over the next 15 years, LNG consumption volumes in Asia are set to double. This reflects the fact that natural gas accounts for only 10 percent of the total energy mix in Asia compared with 23 percent globally.
Singapore wants to play an important role in this process. The LNG terminal will be one of the first in the world designed as an import-export facility.
Singapore views Korea as an important partner when it comes to the development of LNG facilities. Korea is already a global leader in this rapidly-growing industrial sector, with over 100 terminals worldwide currently in service _ of which about 40 or so are located in Asia.
Singapore LNG Corporation, the terminal's operator, selected Samsung C&T as the construction contractor because its very novel and efficient design minimizes the facility's footprint and frees up land within the site that will allow the further expansion of business and range of services in the future.
The Singapore LNG terminal encompasses best practices and could serve as a model for other LNG terminals in Asia. It is being built in stages to serve initially domestic needs and later provide LNG shipments to other regional markets. In the first stage, the terminal will have three tanks, three jetties and a production capacity of around 6 million tons per annum. This figure is expected to potentially hit 12 million tons per annum within the next decade.
The goal is for the Singapore terminal to become a regional LNG transshipment hub similar to the roles that the Port of Singapore Authority and Changi Airport now play when it comes to container shipments and aviation, respectively.
Singapore's geographical position will aid the LNG terminal in this regard since more LNG trade is moving to Asia. This is in the face of demand expected to slow down in North America and Europe while increasing in new markets such as China, India, Thailand and Vietnam.
This regional market is expected to grow with the evolution of a more flexible LNG contract price structure. The business model of long-term take or pay contracts with limited flexibility is being increasingly challenged. Customers are demanding the flexibility of short-term volumes that fit with sudden changes in demand and prices. This is expected to accelerate LNG consumption in Asia as prices fall.
Reflecting these changing industry trends, the Singapore LNG terminal will serve as a prime example of the regional cooperation that is needed to make natural gas Asia's preferred energy source of the future.
Neil McGregor is chief executive officer of the Singapore LNG Corporation. He has over three decades of experience in the oil, gas and power generation sectors.