Oil, Gas and Petrochemical Industry Singapore

A Hot Tip about Energy in Singapore

Posted on: 18 Feb 2010

Summary

Despite its small size, Singapore was the 15th largest trading partner and 11th largest export market of the United States in 2007. American firms find that Singapore is a great place to do business and they utilize the island city-state as their gateway to the region. There are more than 1,500 U.S. firms in Singapore, many of which have located their Asia Pacific headquarters here.

 

Singapore’s strategic location at the entrance to the Strait of Malacca has allowed it to become one of the most important shipping centers in Asia. Singapore imports all of its natural gas from two sources – Indonesia and Malaysia, which is mainly used for power generation and petrochemical production. Natural gas use is rising rapidly, as the government promotes policies aimed at reducing carbon dioxide and sulfur emissions, ensuring energy security and promoting the country as a regional hub for an integrated gas pipeline network.

 

A strategic location at the crossroads of the Indian and Pacific Oceans, sound financial system, excellent infrastructure, transparent legal system and skilled workforce have helped Singapore to establish itself as one of the top three global oil trading and global refining hubs. Singapore has a total crude oil refining capacity of 1.3 million barrels per day (bbl/d). Its three main refineries are ExxonMobil’s 605,000-bbl/d refinery at Pulau Ayer Chawan, Royal Dutch/Shell’s 458,000-bbl/d refinery on Pulau Bukom and the Singapore Petroleum Company’s 273,000-bbl/d refinery on Pulau Merlimau.

 

ExxonMobil is also one of the biggest producers and suppliers of bunker fuels and Singapore is one of the premier bunkering centers in the world with more than 27 million metric tons being sold last year. Continued growth in the price of fuel (petroleum products) has forced ship owners to maximize returns on their bunker fuel portfolios in the search for solutions that reduce transport costs. Singapore has also introduced more stringent quality standards on bunker delivery and sampling. However, in the light of fluctuating / falling oil prices and weakening global economy, the refineries in Singapore have plans to cut output by as much as 10 percent.

 

Two years ago, Singapore embarked on a diversification strategy to avoid becoming dependent on a single source for gas imports. The nation plans to build a liquefied natural gas (LNG) import terminal, freeing itself from dependence on Indonesia and Malaysia for its gas supply. Importing LNG is also desirable because there are more countries producing it making Singapore less vulnerable to disruptions. Moreover, LNG has a better price stability than piped gas because LNG contracts are locked in for longer periods, unlike piped gas prices that are primarily linked to fuel oil prices. The LNG terminal which is scheduled to start operating in 2012, will add another 400 million standard cubic feet (mscf) to the current 1.2 billion mscf daily of piped gas imports.

 

Singapore may eventually become important as a regional natural gas hub for Southeast Asia due to its ideal location. International links already exist or are under construction between Burma and Thailand, Malaysia and Thailand, and Indonesia and Singapore. Moreover, it is anticipated that global production of LNG may increase by more than 80 percent to approximately 250 million (metric) tons a year by end of the decade as countries look to reduce dependence on crude oil. This is especially so when the price of crude oil almost reached US$150 per barrel less than six months ago but is now fluctuating at slightly less than half the peak price. Estimated average price of oil for 2009 will be at least US$88 per barrel.

 

Market Demand/Overview

According to estimates from the International Energy Agency, more than US$6 trillion of upstream investment will be required to meet world demand for oil and gas from now until 2030. Approximately three-quarters of this investment will be needed to replace declining production from existing oil fields that are more than 30 years old. It is expected that the remaining quarter will be invested in new oil production locations, particularly in deepwater regions, to meet the increase in demand. In addition, there are already 175 refineries operational in Asia and more are expected to cater to the growing demand.

 

The changing landscape of the industry will require companies to invest heavily in new technologies that will enable them to better define and develop promising reservoirs while sustaining production for mature fields. These investments will need to include better, faster and more cost effective solutions and technologies that should translate into new opportunities to work jointly with industry for the oil and gas sector. However, many projects will slow down in view of the global financial crisis but Asia is expected to lead in terms of energy consumption in the near future instead of follow.

 

Singapore’s major oil refineries hold 88 million barrels of storage capacity, or 88 percent of the country’s total storage capacity. Currently, Singapore’s independent storage operators have a total capacity of around 28 million barrels, although this number will grow as companies bring new facilities on-line. An expansion of the country's independent storage facilities has been spurred by a shortage of oil storage space in Singapore. Over the last five years, Singapore’s independent storage providers have reportedly been running at above 90 percent capacity.

 

While this growth in petroleum storage in Singapore is driven by long-term high regional oil demand, some independent analysts have expressed concern that the new terminals may lead to excess capacity. For example, construction has begun on the joint Hin Leong Trading / PetroChina Universal Terminal, which will have a storage capacity of 14.2 million barrels. In 2006, Singapore also approved the development of storage facilities in underground rock caverns with a potential capacity of up to 20.1 million barrels. These caverns will store petroleum liquids and products such as naphtha and gasoil.

 

In October 2008, it was reported in the local press that Indonesia is prepared to sell more natural gas to Singapore not from existing gas fields but from smaller, isolated gas pockets known as “stranded fields” in the South China Sea. The gas from these isolated fields can be easily piped through smaller pipelines to connect with existing pipelines already in operation. Currently, Indonesia has a number of ongoing gas supply agreements with Singapore – the very first was inked 10 years ago with SembCorp Gas of Singapore to import around 333 mscf per day and SembCorp in April 2008, signed another agreement to import 86 mscf per day during the next decade.

 

The nation’s petrochemical industry has experienced rapid growth as a direct result of Singapore’s strong base in petroleum refining. Jurong Petrochemical Complex is the center of Singapore’s expanding petrochemicals industry and the island also houses a number of oil storage terminals such as those from Dutch company Vopak and German company OilTanking. Companies on the island have benefited from lower operating costs through synergistic relationships, sharing facilities, integrated utilities, tax incentives and proximity to important regional markets.

 

By CHAN Y K

Read the full market research report


Posted: 18 February 2010

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