Jurisdiction - Singapore
Reports and Analysis
Singapore – A Global LNG Trading Hub?

29 January, 2013



Singapore is positioning itself as the pre-eminent trading hub for Asia’s evolving LNG market. Singapore’s first LNG import terminal is scheduled to come into operation in the second quarter of this year and with Asian gas demand continuing to grow, the Government of Singapore is already assessing the feasibility of a second LNG terminal.


Singapore LNG developments


Singapore’s first facility has a startup capacity of 3.5 million tonnes per annum (mtpa), that will be increased to 6 mtpa when a third storage tank is completed in 2014, and it is anticipated that a fourth storage tank will boost the terminal’s capacity to around 9 mtpa by late 2018. BG Group is the aggregator of LNG demand for the Singapore market (for the first terminal), responsible for supplying up to 3 mtpa of LNG for a period of 20 years. In respect of the second terminal, details are yet to be revealed as to how terminal capacity will be allocated and whether the aggregator model will be utilised. Given the strategic importance of Singapore in Asian gas trading routes and the number of oil and gas companies currently established in Singapore, an aggregator role for the second terminal is likely to be highly sought after.


Rising Asian gas demand


Singapore is also likely to benefit from Asia’s rising gas demand. Since the Fukushima nuclear disaster, Japan has temporarily shut down the majority of its nuclear plants and LNG demand has increased substantially, by 12% since 2010, and now amounts to more than eighty million tonnes. This represents nearly half of the nation’s energy requirements and about a third of the world’s total LNG trade. Furthermore, China is reportedly looking to reduce its dependence on coal by tapping into cleaner energy sources, with the International Energy Agency estimating that China’s demand for natural gas is likely to grow by around 17% by 2017. 


On the supply side, Malaysia and Indonesia are currently the second and third largest LNG exporters in world respectively (behind Qatar). However, domestic output in both countries is declining. Significant population growth has led to increasing domestic gas consumption and it is likely that both countries will become net gas importers in the near future. By 2015, South East Asia is expected to have 10 LNG import terminals with a total capacity of 34 billion cubic meters, with Thailand, Vietnam and the Philippines the latest entrants to the market.


LNG trading boom


Singapore’s heritage as an oil trading hub should aid the development of an LNG trading market, as many of the major energy trading houses are already based in Singapore, along with supporting banking and professional service companies, together with key price reporting agencies such as Platts, ICIS and Argus. Singapore is at the centre of most LNG trade routes in Asia, as a key port for vessels passing through traditional Suez Canal and Malaca Strait routes on their way to Northern Asian countries such as Japan and South Korea. 


Singapore’s growth in the LNG trading sphere has been exponential according to International Enterprise Singapore chief executive Teo Eng Cheong, who comments that “with no significant LNG players five years ago, we now have 14 companies with LNG trading or marketing desks in Singapore”. Key players include BG, BP, Gazprom, GDF Suez, SK Energy, Statoil, ConocoPhillips, Mercuria, GAIL, and Shell. To spur the sector’s growth, a 5 % concessionary corporate tax rate for LNG trading income was introduced in 2007. 


Singapore’s first terminal is considered unique in the sense that it is the world’s first LNG terminal to be built with both import and export in mind. The intention is to both import LNG, which will be regasified and used to meet Singapore’s domestic gas demands, and also export LNG, with LNG ships docking at the terminal to store, reprocess and re-export LNG to other Asian countries.


LNG bunkering potential


There will also be potential for LNG bunkering in Singapore, which is expected to be introduced by the end of 2014 according to the Maritime Port Authority of Singapore. Whilst LNG ships have commonly run on sulphur-heavy marine fuel oil, the bunkering industry now has an increasing focus on LNG as a cleaner and more commercially viable alternative fuel. Singapore is currently the world’s top bunkering port (selling more than 40 million tonnes of bunker fuel in 2012), and by the second quarter of this year will have its own LNG supply, so is ideally placed to take advantage of LNG bunkering. It is anticipated that Singapore will have developed and finalised the licensing requirements for bunker suppliers and craft operators to supply LNG to ships, along with the associated technical, environmental, health and safety and legal framework by the middle of this year.


Competing trading hubs


However, Singapore faces a number of challenges in its quest to become the pre-eminent LNG trading hub. Recent US shale gas developments and the availability of LNG imports from the US in the medium term are likely to have a significant effect on global LNG trading routes. The Government of Singapore Investment Corp recently invested in Cheniere’s $6.5 billion Sabine Pass LNG export plant, and a number of other Asian companies such as Kogas and GAIL have looked to take advantage of the gas boom in the US and secure cheap gas supply from the US, as Asian gas prices continue to rise.


It remains to be seen whether US gas will be routed through Singapore, as companies like Cheniere may look to supply the major gas importers in Japan and South Korea directly. Interestingly, the $5.25 billion Panama Canal expansion project is now expected to be completed by 2015 and paves the way for a new shipping route from the US to Asia. The project could potentially create a trade route for LNG from Sabine Pass and the Gulf of Mexico to be transported directly to Asian markets such as South Korea and Japan.


In addition to this, Singapore faces competition from other established Asian countries such as South Korea, Japan, Indonesia and Malaysia, along with Middle Eastern countries such as Qatar and the United Arab Emirates, who are all looking to establish similar LNG trading hubs. Both South Korea and Japan have already established the necessary infrastructure for LNG trading, such as the storage tanks and related facilities necessary to trade LNG. In both countries, a number of domestic LNG trading players have well established operations.


Malaysia is expecting to complete the first phase of its $1.3 billion LNG import terminal in the Pengerang Integrated Petroleum Complex by spring 2014. The terminal will be used for storage, loading and regasification of LNG, and is also designed for both import and export markets. In addition, Malaysia is set to unveil the world’s first regasification unit on an island jetty, located in Melaka, which is due for commercial start up in the second quarter of this year. Petronas has already signed two LNG import agreements with GDF Suez and Qatargas, respectively, securing volumes for the terminal for over 20 years. 


Competing markets are diversifying and becoming increasingly sophisticated in the ways that LNG is imported and processed. A number of South East Asian countries are starting to embrace the development of floating storage and regasification units (FSRUs), with existing FSRU projects in West Java, Indonesia, and further FSRU projects planned in Malaysia, the Philippines, and Indonesia. In addition to this, the appetite for floating liquefied natural gas (FLNG) is increasing, with INPEX scheduled to start FEED for its Abadi FLNG Project in Indonesia later this year, and Petronas reaching final investment decision on its own FLNG project last year, with discussions already taking place in relation to a second FLNG project. 


Despite facing increased competition from other markets in the region, Singapore remains committed to establishing itself as the pre-eminent LNG trading hub and continues to attract significant levels of public and private investment in this rapidly evolving sector.



For further information, please contact:


Alastair Henderson, Partner, Herbert Smith Freehills

[email protected]

Nick Kouvaritakis, Herbert Smith Freehills

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