Temasek racing Exxon to build biggest LNG terminal stash

A Temasek Holdings Pte unit is up against Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc (RDSA) in a contest to fill storage tanks that will hold three times as much liquefied natural gas as Singapore will consume this year.

The city-state’s Energy Market Authority is seeking feedback through the end of July for stocking an LNG terminal with capacity of as much as 9 million metric tons. The threefold expansion will allow Singapore to offer last-minute deliveries, or spot cargoes, to buyers in Asia seeking an alternative to long-term contracts linked to oil.

“If Singapore were to successfully conduct trades out of the terminal, it could lead to more price transparency that will aid the development of the spot market in Asia,” said Zhixin Chong, a gas and power analyst for Wood Mackenzie in Singapore. “The spare capacity should allow for both of the government’s objectives to be met: security of supply and the ability for a trading hub to emerge.”

Singapore, Asia’s oil-trading center, is challenging Shanghai and Bangkok to play matchmaker for buyers and sellers of LNG, supercooled gas shipped by tankers rather than pipelines. Shell, Exxon and Pavilion Energy, set up in April by Singapore’s state-owned investment company, Temasek, are among the contenders as the city selects additional suppliers for the LNG terminal now stocked exclusively by Berkshire, England-based BG Group Plc.

Jurong Island

The participants in Singapore’s competitive licensing framework are vying to provide 1 million additional tons of LNG for the domestic market and as much as 5 million tons for spot cargoes. The expanded facility will hold Asia’s largest reserve of gas that isn’t committed to a specific buyer or contract, analysts said.

The fuel will be stored in four tanks located on Jurong Island southwest of Singapore’s city center. The first three are each big enough to store three stacked up A380 jumbo jets, the world’s largest commercial passenger planes. The fourth tank, forecast to cost as much as S$500 million, could hold four A380s.

Singapore’s new LNG storage center is designed to limit price volatility in Asia, which bought 71 percent of the world’s traded volume of about 236 million tons in 2012, according to The International Group of Liquefied Natural Gas Importers.

LNG spot cargoes last year in northeast Asia declined from $18.40 per million British thermal units on May 28 to $12.90 per million Btu Aug. 13, data from Energy Intelligence Group show. From Oct. 8, 2012 to Feb. 4 this year, LNG prices jumped from $12.80 per million Btu to a record $19.40 as Japan put nuclear reactors on hold, boosting gas demand.

The latest spot price for LNG cargoes for Northeast Asia was $16.10 per million Btu, Energy Intelligence said on the website of its World Gas Intelligence publication July 17.

First LNG Cargo

Singapore imported its first LNG cargo in March to inaugurate its 3 million ton-a-year receiving facility on Jurong Island. Expansion of the terminal to 6 million tons a year is set to be complete in early 2014, when the facility’s third tank is finished, prompting the EMA to begin a second consultation on June 3 about future supplies of LNG.

“The objective is to put in place a competitive process for Singapore gas buyers to access secure and competitively priced gas,” an EMA spokeswoman said in an e-mailed statement to Bloomberg. The regulator will request proposals after the second consultation process closes July 31.

The proposal provides the EMA with the flexibility to award more import licenses as Singapore’s gas market grows while facilitating competition and allowing the regulator to adapt to the prevailing market conditions, Chong said.

BG won the contract in 2008 to supply 3 million tons of LNG annually over the 10 years starting in 2013. It sold 2.7 million tons as of August, the company said on its website.

Tough Choice

Singapore isn’t capping the number of LNG suppliers and may be able to accommodate as many as four importers, according to an EMA paper. Choosing the next providers may be “tricky,” said Tony Regan, a Singapore-based energy consultant at Tri-Zen International Inc., with Shell and OAO Lukoil (LKOH) as clients.

“We’ve got probably 20 traders here,” Regan said. “If you just chose one of them, that might put off many of the others. You’ve got a very long list of traders sitting here who might like the opportunity to put cargoes in.”

Shell, based in the Hague, and Exxon, based in Irving, Texas, may prefer to import their own natural gas instead of buying through an aggregator in Singapore, Regan said. The companies, ranking among the world’s biggest LNG producers, have their largest refineries with integrated petrochemicals complexes near Singapore’s LNG terminal. They now get their gas from the city-state’s domestic network supplied by four pipeline importers and BG.

Competitive Framework

Exxon is participating in the EMA’s consultation and supports a competitive framework for Singapore’s LNG market, a company spokeswoman said in an e-mailed statement. Shell is looking at global LNG opportunities, including Singapore, said Serene Loo, a Singapore-based Shell spokeswoman. She declined further comment on the matter.

Temasek set up Pavilion Energy with S$1 billion in capital for LNG investments, the company said in an April 5 statement. Pavilion started a wholly owned gas subsidiary, Pavilion Gas, with initial capital of S$1.25 million to manage downstream gas operations. Temasek has a stake in Cheniere Energy Inc. (LNG), operator of the Sabine Pass LNG terminal in Louisiana, a U.S. project with full government approval for gas exports.

Pavilion Energy is studying the EMA’s consultation paper and will submit its feedback to the regulator this month, a company spokesman said in an e-mail.

Pipeline Moratorium

Companies that deliver gas to Singapore via pipeline can also compete for the franchise to provide the next 1 million tons through 2018. The city bought 8.1 million tons of oil equivalent of piped natural gas in 2011, according to the EMA.

Gas Supply Pte Ltd., Sembcorp Gas Pte Ltd., Senoko Energy Ltd. and Keppel Gas Ltd. are the Asian city state’s four existing piped-gas importers, according to the EMA’s website.

The regulator imposed a moratorium on pipeline natural gas imports until 2018, meaning no new gas supply can be piped into the country until BG sells out its 3 million ton allocation. The city may allow new piped-gas supply if it comes from reliable sources at a competitive price, the EMA said.

Spot Allocations

The EMA will clarify how LNG terminal capacity could be allocated to spot imports. The regulator will model its system after Europe and bundle spare capacity into delivery slots for use by spot LNG importers.

Singapore LNG Corp., formed by the EMA in 2009 to own and operate the Jurong Island terminal, will provide an attractive option if it allocates space for spot imports, Regan said.

“It will be the first terminal in Asia offering the import, storage and reload options to traders,” Regan said. “Southeast Asia becomes really quite significant, as it’s a big new market with Singapore sitting right in the middle.”

Singapore is the most likely hub for trading natural gas, the International Energy Agency said in a Feb. 26 report. Its new LNG terminal will serve a wide array of tankers and boost import capacity “far beyond” domestic needs, the IEA said.

The notion of a trading hub in Asia is yet to be proven, according to Wood Mackenzie. Singapore has limited domestic demand and lacks the pipelines and infrastructure that support the U.S. depot at Henry Hub, Louisiana, Chong said.

“It may be premature to consider that a credible trading hub with ample liquidity will develop in the region over the next ten years,” he said. Thailand has proposed doubling the capacity of its 5 million ton a year Map Ta Phut LNG terminal.