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S'pore to gain importance as trading hub as LNG becomes commoditised (Amended)
SINGAPORE will have a greater role to play in the liquefied natural gas (LNG) trade as the product becomes more commoditised, according to an IE Singapore official.
These comments come as over 10 more companies set up shop in Singapore in the past three years, bringing the total number of LNG companies in the country to almost 40.
"When a product is more commoditised, that's where there's perhaps a greater need for companies to place their trading activities in a trade hub for greater optimisation," said Amreeta Eng, director of the trade promotion group in IE Singapore, the government agency responsible for promoting Singapore as a commodity trading hub.
Ms Eng was speaking to The Business Times in an interview after the conclusion of Gastech, the world's largest natural gas and LNG exhibition and conference, held in Japan in early April.
That LNG is seen as a commodity is only a recent phenomenon. The sector has long been reliant on bilateral long-term contracts signed between LNG exporters and power producers, with the price being linked to that of oil, such as the Brent or the Japan Crude Cocktail benchmarks.
Most LNG supply is still sold under long-term contracts. Spot and short-term transactions, or those under contracts of four years or less, account for about 28 per cent of total trade, according to the International Group of Liquefied Natural Gas Importers.
But with rising global supply and scattered pockets of demand, independent trading houses such as Vitol, Trafigura, Gunvor Group and Noble Group have become bigger players in a market previously dominated by oil majors and gas producers.
These independent trading houses, which started LNG trading desks in Singapore, have added to the marketplace here, said Ms Eng. After them, the latest newcomers to set up shop in Singapore in the past few years have been LNG buyers.
This could be because these buyers have excess volumes that they have bought under long-term contracts, and are now looking to onsell them, she said.
"In this oversupplied market, they are more interested to be in a trading hub to understand the dynamics both on the buy and sell side."
One such player, Toho Gas, the third-largest city gas supplier in Japan, set up a representative office here in June last year.
Its Singapore general manager Yuichiro Hitomi told BT that it has found itself meeting more energy-related companies than it had initially expected. The firm now plans to upgrade the office to a branch within a year in order to do more here.
The LNG companies in Singapore hail from countries ranging from US to Europe to China to North Asia.
According to Ms Eng, they have set up offices here for either trading-related activities, such as procurement or portfolio optimisation and marketing, or business development.
Aside from players involved in LNG trading themselves, companies offering supporting services, such as law firms or shipping firms, have also grown in numbers.
Also, besides the Sling index that the Singapore Exchange has created as an Asian LNG price benchmark, S&P Global Platts' Japan-Korea Marker, the other price benchmark most widely used now, has prices compiled by a team based in Singapore, noted Ms Eng.
The confluence of players based in Singapore "puts us in good stead to produce a trusted pricing benchmark", regardless of which one eventually gets adopted as the industry benchmark, she added.
A recent poll of over 50 senior energy leaders in Asia by Deloitte showed that most, or 58 per cent of the respondents, believe the JKM will become the most widely-adopted benchmark for Asian LNG trades in five years.
At stake is the race by various exchanges to claim the prize of forming the price benchmark for Asian LNG. Derivative contracts such as SGX's LNG futures are settled against these price indices.
The final piece of the LNG ecosystem in Singapore lies with the LNG terminal in Jurong Island, said Ms Eng, noting that it has excess capacity for interested parties to do storage or cargo reloading.
Singapore LNG Corporation (SLNG) will add a fourth storage tank at the terminal by next year. This will bring the terminal's total storage capacity to 800,000 cubic metres, and increase its send-out capacity from the current 6 million tonnes a year to 11 million tonnes, in excess of Singapore's domestic requirements.
SLNG has said that it will launch request for proposals to use this spare capacity in the first half of this year.
In continuing to build Singapore as an LNG hub, IE Singapore will focus on three areas, said Ms Eng.
First, the government agency will continue what it has been doing in bringing market participants to Singapore, riding on the strengths that it has built up as a commodity trading hub, especially in oil.
Second, it will work with exchanges and companies to build awareness of how LNG derivatives can be relevant for hedging needs, and how it can be improved.
Third is to help Singapore companies - ranging from established players, such as Sembcorp Marine and Keppel Corporation, to small and medium enterprises (SMEs) - gain a foothold in the emerging LNG value chain.
IE Singapore, for instance, organised a Singapore pavilion at Gastech with the Singapore Marine Industries to showcase solutions by local companies, including the gas cylinders and LNG testing services provided by Sing Swee Bee.
Ms Eng said: "It's not just about inward attraction (of LNG trading companies), but it's also about helping Singapore companies participate in the value chain."
Amendment: The piece has been revised to reflect that the LNG terminal is in Jurong Island instead of Tuas.