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Highlights

Indonesia to halt piped gas sales to Singapore from Sumatra by 2023

Singapore issues EOI for new floating LNG import terminal

Pavilion, Shell, Trafigura likely to benefit from higher LNG demand

Singapore — Singapore is set to shift toward LNG to meet the bulk of its gas demand in the coming years as piped natural gas supply contracts are discontinued and LNG import capacity is expanded, with a new floating regasification plant planned in the next decade.

The commodity trading hub's increasing reliance on LNG underscores the commoditization of seaborne gas and its development as a source of energy security for importers. The new offshore terminal will also add Singapore to a growing list of Asian countries deploying floating infrastructure.

Singapore in 2018 imported 9.96 million mt of oil equivalent of natural gas, out of which 71.4% was pipeline gas from Indonesia and Malaysia, and 28.6% was LNG, according to data from Energy Market Authority, the country's energy regulator.

The share of LNG in Singapore's gas demand has grown from 11% in 2013, and is set to account for more than half by the middle of the next decade as piped gas suppliers back out, traders estimated.

Singapore's natural gas imports

Indonesia's Ministry of Energy and Mineral Resources said late November it will halt natural gas supply to Singapore from the Suban Field in the country's Corridor Block, which is managed by ConocoPhillips, when the contract expires in 2023.

Indonesia plans to switch the gas supply to meet domestic demand, highlighting another key trend in Asia's energy markets -- depletion of domestic resources that is forcing traditional exporters to divert resources for their own use, and the rise of resource nationalism.

"Gas is plentiful in Sumatra; supply to Singapore ends in 2023 and will be switched to domestic market," Indonesia's minister of energy and mineral resources Arifin Tasrif said in a statement.

Arifin said the gas will be redirected to the Duri Dumai pipeline and distributed to Sumatra island in addition to new wells that state-run gas distributor Perusahaan Gas Negara, or PGN, is in the process of allocating.

The 468-km Grissik-Batam-Singapore pipeline, which carries gas from Indonesia's Sumatra island to Singapore under a 20-year contract that started in 2003, is one of two gas pipelines from Indonesia to Singapore.

Indonesia also supplies piped gas via the 654-km West Natuna-Singapore subsea gas pipeline, but the country's energy ministry has not said whether this will be impacted.

Additionally, Malaysia's piped gas supply to Singapore is also subject to similar concerns around pricing and domestic demand commitments. There is no certainty that expiring contracts will be renewed. Also, Peninsular Malaysia's gas deficit continues to widen, and changing pricing mechanisms are likely to complicate contract renewals.

"We are still 4-5 years from contract expiry. Indonesia changes its stance even 2-3 months before the deadline ... anything can happen," a Singapore-based trader said, adding that fuel oil-linked pricing is the main near-term concern for suppliers.

SINGAPORE'S ENERGY INFRASTRUCTURE

Indonesia's decision to pull back gas supply has vindicated Singapore's decision to build an LNG terminal that began operations in May 2013 with an initial throughput capacity of 3.5 million mt/year at a cost of S$1.7 billion ($1.25 billion), on the grounds of energy security.

The LNG terminal will eventually be expanded to seven storage tanks with a capacity of 15 million mt/year. The excess capacity has been used for independent trading activities so far, but will be needed to replace declining pipeline supply.

Singapore has been looking to build a second terminal on the country's east coast to diversify its supply sources.

EMA on November 8 issued an expression of interest for an offshore LNG import terminal that can store and reload cargoes, provide cooling down and bulk-breaking services, and other facilities for LNG bunkering and small-scale industries.

The offshore terminal could also be part of a larger value proposition, like supporting floating power plants or harness cold energy, as LNG is stored at supercooled temperatures, the document said.

Based on current demand and supply projections, EMA expects additional regasification may be required only in the later part of the next decade. The deadline for replying to the EOI is February 28, 2020.

In 2019, 95.3% of Singapore's electricity production was from natural gas, and a large quantity of gas is also used to supply the industrial, transportation and city gas sectors.

Singapore-based traders said utilities will be prompted to tie up for more gas supply from companies like Temasek-owned Pavilion Energy, energy major Royal Dutch Shell and commodity trading house Trafigura, which are likely to benefit from higher LNG demand.

Ongoing overcapacity in electricity generation, ambitious solar power generation targets and growing power demand from data centers will all factor into Singapore's future energy mix and gas demand volumes, they added.

Some of Singapore's key power producers are Tuas Power, Senoko Energy, YTL PowerSeraya, Keppel, SembCorp and PacificLight Power, while its main gas retailers include SembCorp Gas, Pavilion Gas, City-OG Gas Energy Services and City Gas.

Overall, the decline in Southeast Asia's piped gas supply and the shift toward LNG will undermine projects like the Trans-ASEAN gas pipeline and affect the region's gas export surplus, pulling in LNG from other regions.

-- Eric Yep, eric.yep@spglobal.com

-- Edited by Shashwat Pradhan, shashwat.pradhan@spglobal.com