Singapore the preferred location of future Asian LNG trading hub: Deloitte

Some 74 per cent of respondents in a Deloitte survey said Singapore would attain the position of a future Asian liquefied natural gas trading hub by 2023.
Some 74 per cent of respondents in a Deloitte survey said Singapore would attain the position of a future Asian liquefied natural gas trading hub by 2023.ST PHOTO: JONATHAN CHOO

SINGAPORE - Singapore has carved out a wide lead over other nations as the preferred location of a future Asian liquefied natural gas (LNG) trading hub.

In a Deloitte survey of over 80 senior energy industry leaders from across the Asia-Pacific region, some 74 per cent of respondents said Singapore would attain the position by 2023, with 10 per cent of respondents each selecting China and Japan as other potential hub locations.

Deloitte's oil and gas Asia-Pacific regional leader Mike Lynn said Singapore "fits all the criteria of an ideal trading hub".

Singapore "has a world-class trading infrastructure already in place, excellent institutions, offers low geopolitical risk whilst situated in an ideal geographic location with deep and liquid financial and capital markets, in addition to an attractive tax and regulatory regime", Mr Lynn noted.

Looking at possible LNG pricing benchmarks, 52 per cent of respondents believe the Platts Japan/Korea Marker (JKM) will be the most widely chosen for spot trades in 2023, followed by 16 per cent for the Henry Hub Natural Gas Spot Price and the SGX LNG Index Group.

The JKM is "consistent with the move away from the traditional oil-linked pricing to a system based on gas becoming a globally traded commodity and needing its own pricing benchmark", Mr Lynn noted, adding it also was indicative of Asia wanting its own pricing benchmark to better reflect local and regional market dynamics.

Little separates the three contenders Australia, Qatar and the US in the competition for Asian market LNG supply leadership by 2023, said Deloitte Global LNG leader and Australia oil and gas lead Bernadette Cullinane.

China, Japan and South Korea are expected to be the top three LNG importers in Asia in five years' time, Deloitte said.

Ms Cullinane noted Qatar's "serious threat" to Australia, due to its low-capital intensity operations and ability to expand relatively quickly via low-cost brownfield developments.

The US will benefit from its huge shale gas resource, political will and operational flexibility, and also from the expanded Panama Canal to divert cargoes to the more lucrative Asian market, she said. Some 52 per cent of respondents said the expanded canal would have a positive effect on their business.

"China is increasing in importance as a gas nation, driven by environmental and air quality policies, a shift from coal to gas and renewables, combined with economic reforms and the shutdown of high cost, inefficient capacity," Ms Cullinane said.

The survey results also acknowledge India as an emerging gas nation, with the country shifting towards lower carbon energy resources.

Meanwhile, nine out of 10 survey participants said they expect rebalance in LNG market supply and demand by 2024, with 56 per cent saying market equilibrium could be restored by or before 2022, and 12 per cent saying the market will remain in surplus past 2024, significantly less than the 18 per cent who felt this way in 2017.

Deloitte's survey identified shorter off-take contracts and uncertainty over future prices as the top two challenges in LNG project financing and investment, with capital markets and disaggregation of the value chain seen as the two key sources of financing and investing in LNG projects.

"In terms of finance options, Singapore's likely emergence as an Asian LNG trading hub could play a crucial role given the quality of its financial institutions and deep capital market," Ms Cullinane said.