Regional natural gas market hub: Singapore leads the way

A gas storage tank (left) at Singapore's liquefied natural gas terminal on Jurong Island. PHOTO: ST FILE

As I write these lines, key players in global energy markets, including chief executives, senior government officials and leading analysts are gathering here for the Singapore International Energy Week, which opened yesterday.

One significant idea is Singapore's push to be South-east Asia's liquefied natural gas (LNG) energy hub, and what this means for the region's economy and security.

The reality is that we live in a global economy with interdependent energy markets. Energy shortages, price volatility and supply disruptions anywhere threaten economic growth everywhere.

The Asia-Pacific region - which accounts for more than one-third of global gross domestic product - relies on vast quantities of energy imports to sustain economic growth, including natural gas. Yet, Asia continues to experience inefficiencies in its gas market.

The lack of an established market accentuates three dilemmas facing the Asia-Pacific: LNG price volatility, worsening air quality and growing carbon emissions, and the potential for the market to be coerced by dominant actors.

The development of regional natural gas trading hubs will prove critical to overcoming these inefficiencies, especially at a time when LNG imports are becoming an increasingly vital part of Asia's energy mix.

In this regard, Singapore is leading the way. Its mature and transparent financial system, strategic geographic location and experience as a trading centre for oil make Singapore a strong contender for a regional natural gas market hub.

The Asia-Pacific and non-Organisation for Economic Cooperation and Development countries are the new drivers of global energy demand and will continue in this role for decades to come. Meeting Asia's energy needs, while improving air quality, requires strong mechanisms that foster a flexible and vibrant trading climate.

A liquid market with a pricing index that more readily reflects regional supply and demand fundamentals will encourage meaningful growth of a cleaner energy source and help prevent the emergence of dominant market players keen to dictate the terms of the market for political ends. The development of a natural gas trading hub in Asia brings us closer to achieving these objectives.

The United States understands that no matter how much energy it produces at home, the challenges facing the Asia-Pacific region have direct implications for global energy security, geopolitical relationships, the environment and our own economy. Isolationism is not an option.

We are a Pacific country and an emerging LNG exporter and we want to bolster our cooperation on energy security with our Asia-Pacific partners.

We welcome a coordinated approach to the development of critical energy infrastructure in the region. With a focus on building flexibility into the region's energy distribution systems, we are working closely with our partners in Asean and elsewhere to increase cross-border power inter-connections, joint development of strategic gas transit and import infrastructure.

Achieving such a regional approach will require national governments to work together to harmonise regulatory systems.

It will require politically difficult removal of market-distorting fuel and electricity subsidies that exist across much of Asia to provide suppliers with a level playing field in Asian economies and help fill government coffers with much-needed financing and budget support for critical energy infrastructure.

These steps are not easy, but if we take them together, the Asia-Pacific region will be

more prosperous and better equipped to meet our vital shared energy security and air quality challenges.

I know that the security of our partners and allies in the region will be enhanced through the development of a more efficient and flexible natural gas market, and the US government is pleased to partner with key leaders in Singapore and across the Asia-Pacific region.

• The writer is Special Envoy and Coordinator for International Energy Affairs leading the Bureau of Energy Resources at the US Department of State. He is in Singapore to attend the Singapore International Energy Week

A version of this article appeared in the print edition of The Straits Times on October 27, 2015, with the headline 'Regional natural gas market hub: Singapore leads the way'. Print Edition | Subscribe