Questions about Singapore's gas dependency

Andrew Symon, The Straits Times, Asia News Network, Singapore

Is Singapore's reliance on natural gas imports via pipeline a dangerous dependency?

This is one thought in many minds after the recent technical failure at the Singapore end of an import pipeline from Indonesia cut fuel supply to electricity generation plants.

For up to two hours, a third of the island-city was left without power, an event almost unprecedented for the normally ultra systems-efficient Singapore.

Singapore's reliance on imported pipeline natural gas is not unusual by international standards.

Europe, Belgium, France, Greece, Luxembourg, Sweden, Finland, Spain and Portugal are more than 95 percent dependent on imported gas from Norway, Russia and central Asia, and Algeria. Germany, Austria and Italy are more than 75 percent import reliant. And these are countries where natural gas plays a dominant role.

In South-east Asia, imported pipeline gas is emerging as an important component of the energy mix.

For while the region's gas reserves are plentiful, they are unevenly distributed. Thailand, which has one of the region's largest gas supply systems, relies on pipeline gas from Myanmar for 30 percent of its supply. Malaysia complements its domestic gas supply for its peninsular system with Indonesian gas from the West Natuna fields in the South China Sea -- the same ones that supply Singapore -- and plans to take gas from Indonesia's south Sumatra.

In fact, cross-border gas pipelines, rather than a cause for concern, can bind countries, contributing to regional harmony in the same way as other close trade and investment links. Politically, there should be an alignment of interests between governments.

Nevertheless, the damaging malfunction of a valve at the station receiving gas from Indonesia's West Natuna fields at Sakra on Jurong Island, operated by United States company ConocoPhillips, has triggered a wider scrutiny of Singapore's overall natural gas program and the pipeline import system.

Singapore now relies increasingly on pipeline import natural gas from Indonesia: From the offshore West Natuna fields 650km to the north-east, which began flowing in January 2001, and from fields 500km away in south Sumatra, which began supplying gas in August last year via Batam island.

This Indonesian gas, being delivered under 20-year contracts to several different wholesale buyers, is on top of the earlier and smaller gas supply from Malaysia, which began in 1993. This 3km connection was the first international pipeline in East Asia.

The Indonesian gas supply is now about three times the volume of that from Malaysia and is contracted to increase substantially. For Indonesia, the pipeline sales for the present contracts are worth US$17 billion.

Singapore, in just a few years, has shifted from almost complete reliance on oil as fuel for power generation and industrial boilers, to natural gas as the first fuel of choice. Natural gas is both a cheaper and cleaner fuel than oil.

But is the power cut a reason to doubt the wisdom of this policy? Will Singapore face a rerun of the water import supply story where the sometimes acrimonious renegotiation with Malaysia gave rise to the specter of the taps being turned off and Singapore without water?

The natural gas situation though is different and should not be a cause for alarm.

First of all, Singapore has immediate and substantial oil backup should there be a gas interruption. As one of the world's major oil refining centers, there is no shortage of oil on hand.

Accidents are not, of course, a risk limited to cross-border pipelines. One of the worse interruptions in recent times occurred in the entirely domestic Australian system when all supply was cut to Melbourne and surrounding areas for two weeks as a result of an explosion at the ExxonMobil-run Lonsdale processing plant in 1998.

Singapore, unlike Melbourne at that time, receives piped natural gas not from a single source, but from three pipeline sources, thereby reducing the damage that interruption to one can cause.

Multiple supply sources also mean more competitive economic pressures on gas prices. As a result of the gas supply pipelines from Indonesia, Singapore is in a better position to negotiate any renewal of the contract with Malaysia when the existing one concludes in 2007.

Singapore could diversify gas supply further through the import of liquefied natural gas (LNG). This could have merit, especially as it is a good time for Singapore to be negotiating LNG purchase.

But set against this is the need for Singapore to have sufficient new demand as it is now already committed to take large volumes of pipeline gas under long-term contracts from Indonesia that have barely begun.

Under the prevailing commercial practices, Singapore would have to take reasonably large volumes of LNG under medium- or long-term contracts.

LNG is also not a cheap option as a receival port and regassification facility to introduce LNG into the domestic pipeline system cost US$500 million (S$850 million). And while LNG prices are falling, they would still likely be more expensive than piped natural gas.

Malaysia's ability to supply more gas to Singapore appears limited, given existing peninsular demand. Yet, introduction of large flows of new pipeline gas from the Thai-Malaysia Joint Development Area (JDA) off the lower Gulf of Thailand, to north- west Malaysia, set for next year, could mean surplus available to Singapore. The JDA will also link to the Thai system further north.

Decisions then about managing Singapore's natural gas supply over the longer term are enmeshed with regional gas pipeline and market developments. Singapore could be linked to a much larger gas pipeline supply system. Singapore could be thought of as being part of a developing gas corridor that includes Thailand, peninsular Malaysia, Indonesia's Sumatra and Java and the surrounding seas from which most gas is sourced.

This could provide more options for gas sales and purchases. A regional pipeline third-party access regime, for example, would allow producers not party to original supply contracts to use existing pipelines, assuming sufficient capacity, to reach new consumers. Gas from the Thai-Malaysia JDA could be sold to Singapore through peninsular Malaysia's system.

Certainly, thinking about regional gas flows has been going on for some years under the auspices of ASEAN and energy ministers have endorsed indicative cross-border pipeline plans: The "ASEAN gas grid".

The hard task remains of establishing binding agreements over the necessary common policy, legal and regulatory conditions for multi-country pipeline gas flow.

But one important step towards such agreements is now being contemplated by governments -- an ASEAN energy treaty or, as some suggest, a simpler course, membership of the international Energy Charter Treaty (ECT).

ASEAN became an observer to the Brussels-based ECT processes in December last year. The treaty, which grew out of European concern to guarantee free energy flows in their region, sets down rules of conduct and requires, among other things, governments to guarantee their non- interference in cross- border energy trade, and acceptance of agreed dispute resolution procedures.

The writer is a visiting research fellow at the Institute of Southeast Asian Studies in Singapore.