Questions about Singapore's gas dependency

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.