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Commentary: Singapore’s rising natural gas ambitions face big challenges

Singapore’s central role in global LNG markets is unquestionable but the country’s long-term prospects faces huge challenges, says one oil and gas expert.

SINGAPORE: About 95 per cent of Singapore’s electricity is generated using natural gas.

Before the completion of Singapore’s first liquefied natural gas (LNG) terminal in 2013, the city’s only option was to import natural gas via pipelines from Malaysia and Indonesia.

Singapore’s LNG industry has boomed since then, powering gas cookers and water heaters in most households and fueling industries including refineries and petrochemicals.

Its LNG ambitions are massive, involving markets further afield. Singapore’s strategic location and reputation as a global trading hub for other commodities place it at the forefront of becoming Asia’s LNG trading hub.

But the city state faces several challenges as it persists tirelessly towards this goal.


Singapore’s central role in LNG trading is unquestionable and is supported by an expanding LNG infrastructure, business-friendly regulation, and a strong and growing pool of industry talent.

And as the global supply expansion drives LNG towards becoming a global commodity in its own right, Singapore’s position as an LNG trading centre will grow too.

Nearly 40 companies have opened offices in Singapore – from traders, buyers and sellers looking to enhance optimisation capabilities, to companies offering supporting services such as lawyers, consultants and shipping firms – according to the Singapore Department of Statistics.

The country’s move to expand its LNG capacity to 11 million metric tonnes a year (mt/year) by 2018 and give international players access to storage and reload services demonstrates its commitment to become a regional facilitator of LNG trading.

Unlike other Asian buyers, Singapore has taken bold steps to develop a competitive and liberalised gas market, has access to international pipeline connections, and already allows third-party access to its gas and LNG infrastructure.

It has the support of its regulatory authorities and first-mover advantage relative to similar efforts by Japan and Shanghai to build their own LNG hubs.

Concerted efforts to create a Singapore-based pricing point for spot cargoes have also been made, in a bid to boost regional pricing transparency, and capitalise on the LNG industry’s departure from its traditional oil-indexed pricing model.

As LNG trading becomes more liquid in the physical and financial markets, industry participants feel more comfortable with pricing and hedging LNG cargoes not against an associated commodity like crude oil, but LNG itself.


Low liquidity will continue to be the biggest challenge to Singapore’s hub ambitions, as the limited size of its domestic gas market relative to the volume of LNG traded in Asia (which accounts for three quarters of global demand), makes it difficult for the country to replicate the balancing role the bigger and interconnected European hubs play in the global LNG markets.

The prospects of its storage and reload initiative may also be limited by the inefficient nature of LNG re-exports. Unlike oil, the cost of transporting and handling LNG relative to its market price is significant.

Storage costs at the Singapore LNG terminal on Jurong Island have been estimated within a range of US$2.5 million (S$3.3 million) to US$6 million British Thermal Units per year (or US$0.21 to US$0.50/MMBtu per month) depending on the source, plus unspecified reloading costs to re-export the volumes.

This means the cost of storing an LNG cargo for a year in Singapore can be as high the price of the cargo itself – the January to October 2017 average of the S&P Global Platts JKM benchmark daily spot price for physical deliveries to northeast Asia was at US$6.54/MMBtu.

Unlike oil, arbitrage decisions have to be made knowing that LNG cannot be stored for long periods because it loses volume due to boil-off.

Meanwhile, increasing flexible supplies from North America, Middle East and Asia-Pacific are reducing regional and seasonal price differentials in the global LNG markets, leading to fewer and shorter arbitrage opportunities, and less appetite for LNG reloads.

Singapore is seizing a huge part of the global LNG pie. It has reloaded six cargoes, of slightly less than 400,000 mt of LNG, from January to November 2017, up from five cargoes in 2016, according to S&P Global Platts Analytics.

Meanwhile, the global market has reloaded just over 2 million mt of LNG this year, down from a peak of nearly 6 million mt in 2014, when the JKM averaged US$13.86/MMBtu.

Storage and reload costs on a US$/MMBtu basis are even higher for medium and small-size LNG cargoes, one of the potential growth areas for Singapore.

Meanwhile, the ability of domestic end users in the potential break-bulk markets of Indonesia and the Philippines to pay a premium is particularly uncertain given downstream gas prices in those markets are heavily regulated.

Lastly, the future of Singapore’s further plans to develop the LNG sector, including LNG bunkering plans and leveraging LNG as a marine fuel – an alternative to the currently used marine diesel oil – are dependent on several factors including the areas where the vessel operates, the life of the ship, and most importantly, its relative price to other fuels.

To boost LNG bunkering in Singapore, the Maritime and Port Authority of Singapore has announced in December 2017 that it has pumped another S$12 million into the industry. The funds will be used to build new LNG bunker vessels to allow ship-to-ship LNG bunkering and to build LNG-fuelled vessels.

LNG is seen as a substitute as Asian LNG spot prices have only been marginally lower than that of marine diesel oil. In fact, LNG spot prices have risen and hit its highest since 2015, with January deliveries assessed at US$9.90/MMBtu in November according to the Platts JKM benchmark price assessment.

The long-term prospects of Singapore’s LNG hub ambitions are therefore still uncertain.

But there is room for optimism as the country is well on track to becoming a global reference for LNG trading, and a key facilitator of regional market liquidity, flexibility and transparency.

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