Regional LNG: Singapore LNG plan looks feasible: Report

Singapore’s plan to import liquefied natural gas (LNG) for power stations, homes and industry looks feasible referring to a recent LNG purchase deal made by Korea Gas Corp with Shell, Total and their partners.

The Business Times of Singapore reported Thursday that the price paid for the gas - to be shipped from Russia, Malaysia and Yemen - is more than a third cheaper than natural gas piped into Singapore from next-door Malaysia and Indonesia.

Under the US$20 billion deal announced Wednesday, Korea Gas will buy five million tonnes of LNG a year from Shell ventures in Bintulu, Malaysia and Sakhalin II in Russia and from Total's Yemen project, starting in 2008.

Taking advantage of rival bids from Iran and Australia's North-West Shelf, Korea Gas secured the LNG at 40 percent below current prices. It will pay between US$3.80 and US$4.20 per million British thermal units (BTU), assuming a crude oil price of US$40 a barrel, Bloomberg cited the Korean government as saying. This compares with about US$6.20 per million BTU under existing contracts.

The Korean LNG price is 35-45 percent lower than the price of natural gas Singapore buys from neighbours, Business Times said.

According to consultancy Facts Inc, Singapore buys gas from Malaysia based on 107 percent of high sulphur fuel oil prices (HSFO) and gas from Indonesia at 115 percent of HSFO price. This works out to about US$5.40 per million BTU from Malaysia and US$5.80 per million BTU from Indonesia - making it among the world's most expensive gas.

The big question on LNG is whether Singapore could secure as good a deal as the Koreans. Korea, which imports 30-40 million tonnes of gas annually, has the volume and market clout to dictate better terms than tiny Singapore, which imports only about a tenth of that amount. And this is why Singapore is also looking to trade in LNG - it could deal in bigger volumes.

On the bright side, Singapore could tap many competing LNG suppliers, such as Australia, Indonesia, Malaysia, Russia, Oman and Qatar. The more suppliers, the better the prices.

Price, while important, is just one factor that consultant Tokyo Gas Engineering will look at in an LNG feasibility study it is doing for the Singapore government.

Strategic considerations, including supply security, will also be critical. Singapore has always looked to diversify its energy supplies, especially given recent disruptions to Indonesian gas supplies that caused blackouts here. Unlike piped gas, which is tied to a fixed supplier, LNG - which is natural gas cooled to a liquid for transport by ship - will enable Singapore to source gas from anywhere. (*)