Singapore a 'great location' for LNG trading

LNG storage tanks at the Singapore LNG (SLNG) terminal on Jurong Island.
LNG storage tanks at the Singapore LNG (SLNG) terminal on Jurong Island. PHOTO: SINGAPORE LNG

Singapore is an "obvious location" in Asia to trade financial products related to the liquefied natural gas (LNG) market, according to a top executive at energy giant Shell.

Mr Steve Hill, the executive vice-president for gas and energy marketing and trading, told an LNG outlook briefing yesterday: "I think it's a great location both in terms of the trading community that's here, the regulatory environment that's here and all the support infrastructure."

But the challenge now is for the industry to identify the "right product" to use, said Mr Hill, referring to financial instruments like futures contracts.

He added: "You hear a lot of energy from certain Asian buyers about wanting an Asian LNG index, but you actually see very little activity from those same buyers on the markets that already exist today.

"To sign term contracts (for LNG), the product has to be credible. And ideally you want it to represent real deals, and not just the views of the market. Some of the challenges we have today is that some of the indices are based on opinions and very few real deals."

There have been several schemes promoted but none have really gained the credibility of players, he noted.

But Mr Hill is confident about the global LNG market as a whole, which could see the industry take off in a bigger way here.

Global LNG demand is expected to grow by 4 per cent to 5 per cent a year between 2015 and 2030. By 2020, the size of global LNG trade is expected to expand by 50 per cent compared with 2104 volumes.

The bulk of the growth in demand will come from Asia, at 39 per cent, said Mr Hill, citing factors such as the growing economy and population as well as an increasing shift in policy towards cleaner energy.

China, for instance, has increasingly been moving from coal to gas, as it targets 45 billion cubic m of additional gas consumption by 2020 to improve air quality in cities, in line with the 13th Five Year Plan.

Last month, its National Energy Administration cancelled or suspended more than 100 coal-fired power plants that were in planning or under construction.

The South-east Asian region - including Malaysia and China, already among the world's biggest LNG exporters - is set to become a net importer of the gas.

The increase in demand will be driven by economic growth in the region coupled with declining domestic gas supplies in countries such as Thailand.

Mr Hill noted that final investment decisions last year fell to its lowest in recent years, which means the LNG industry will need to make large investments to supply demand growth after 2020.

A version of this article appeared in the print edition of The Straits Times on February 23, 2017, with the headline 'S'pore a 'great location' for LNG trading'. Print Edition | Subscribe