Singapore Trumps Shanghai as Asia’s Future LNG Hub, IEA Says

Shanghai, with a more extensive pipeline network and bigger domestic demand for natural gas than Singapore, still loses out as a future trading hub in Asia because China lacks market-oriented policies, according to the International Energy Agency.

Singapore is poised to become a maritime gas-trading hub in two to three years, Laszlo Varro, the IEA’s head of coal, gas and power, told reporters today in Singapore. While the city- state is currently connected by pipeline to neighboring Malaysia and Indonesia, further development of trading volumes would involve liquefied natural gas, he said.

“If China had as liberal a market in the energy sector as Singapore, my prediction would be that Shanghai’s prospects are better,” Varro said. “In the case of Singapore, you have good- enough geographical fundamentals and supportive market-based policies.”

Singapore is building an LNG terminal at Jurong Island that will begin operating later this year. The country has an agreement to buy as much as 3 million metric tons a year of the fuel from BG Group (BG/) until 2023, Chee Hong Tat, chief executive of the Energy Market Authority, said at today’s presentation in Singapore.

“This is to provide the baseload demand to start off the LNG project,” Chee said. “Looking ahead, Singapore’s gas supplies would likely be a combination of LNG and piped natural gas, a combination of long-term contracts and a mix of shorter- term contracts and spot cargoes. We hope that this would be a framework that would facilitate trading activities.”

Second-Biggest Market

Asia is forecast to consume 790 billion cubic meters a year of gas by 2015, making it the world’s second-biggest market, the IEA said in a Feb. 26 report. Imports are dominated by long-term contracts linked to the price of oil rather than spot cargoes reflecting the supply and demand for LNG, gas that is chilled to liquid form for transport on tankers.

About 88 percent of natural gas sold in Asia was tied to oil rather than gas in 2010, a figure that has changed little since 2005, according to the IEA report. Asian buyers began using oil indexing for contracts because there was no existing LNG market in the region, and gas was viewed as an alternative for crude in power generation, according to the IEA.

Singapore is best-suited for regional gas trading because government interference in markets is limited, allowing fundamentals to set prices, the IEA said. The city-state is also introducing wholesale pricing for natural gas.

Myriad energy trading companies are based in Singapore, the IEA said. “Financial LNG swaps were introduced by banks in Singapore in 2010,” the IEA said. “Financial parties serving global commodity markets are already in place and well- positioned to serve emerging natural gas trade.”

Seven Tanks

The master plan for Singapore’s LNG terminal calls for as many as seven storage tanks and a peak capacity of 20 million tons, Neil McGregor, chief executive officer for Singapore LNG Corp., said in Feb. 20 interview. The company is currently considering a fourth gas storage tank big enough to fit four A380 jumbo jets to lower storage costs and hold cargoes from a 266,000 cubic-meter Q-Max LNG ship, he said.

Singapore will still be very exposed to government policy in other countries, including China, even if the city-state becomes the Asian gas hub, IEA’s Varro said.

“A small domestic market means any trading hub in Singapore will have to be internationally oriented,” Varro said. “As a result, it will be exposed to the policies of other major Asian countries. So for example, China deciding to import a lot of LNG is much better for the Singapore trading hub than a scenario where it decides to make a bilateral contract with Russia to import large quantities of Siberian gas.”

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.