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Interview

with John Lim Kok Min, Chairman, Gas Supply Pte Ltd (GSPL)

07.09.2010 / Energyboardroom

Can you briefly give our readers some background on how the restructuring of the Singapore gas industry in 2008 has affected Gas Supply (GSPL) and its position in the market?

T.C.T.: In the early nineties, there was originally a single import pipeline for the supply of gas by Petronas from Malaysia to the Senoko Power Station in Singapore. In 2001, SembGas completed the West Natuna Pipeline to primarily serve the Jurong area. As demand grew, you could see more and more players coming into the market, including GSPL which started importing gas through Powergas’ pipeline from 2003. It took a while for the gas network to become deregulated and develop further, which only saw full implementation in September 2008.

From 2008 onwards, the industry saw the entrance of Keppel Gas, bringing in gas for its own co-generation unit as well as some of its customers. The 2008 liberalization has been a milestone for the development of the natural gas industry in Singapore, even though we still do not see a full integration of the different networks today. This may be one aspect that EMA (editor’s note: the Energy Market Authority is the regulatory body of Singapore’s energy market) will need to start looking into, in particular when the upcoming LNG industry will require the integration of additional pipelines.

J.L.K.M.: GSPL is of course one of the four importers of natural gas, but it is the only company supplying to all three Generating Companies (GenCos), which make up 80% of the total generation of electricity in Singapore.

What prevents the other players from becoming a provider to these GenCos?

J.L.K.M.: In terms of importation, this is related to licenses. At this point in time, there is a moratorium on the import of natural gas which is licensed to GSPL, SembGas, Senoko Power and Keppel Gas.

T.C.T.: One has to look at the competition in this perspective. By 2008, the number of importers had shot up from 1 to 4 players while now, with the introduction of LNG, anyone can buy natural gas. There has thus been a tremendous development in terms of competition, which is a good thing for the market and industry as a whole.

What makes GSPL the preferred supplier or what reflects your competitive advantage?

T.C.T.: If we trace back to the beginnings of GSPL, the company was part of the PUB (Public Utilities Board) until privatization and a series of divestments took place. When GSPL was formed, it became the vehicle of piped natural gas to the three GenCos, which all used to be part of one family, providing GSPL with a foot in the door.

J.L.K.M.: Naturally, this industry is nurtured by long-term contracts which are now in place between GSPL and the GenCos. The long-term nature of these contracts does not prevent GSPL from continuously looking into value-adding propositions, in particular for the industrial customers where long-term contracts are much less prevalent.

Talking about the nature and longevity of certain contracts we also see that, today, there is quite some pressure on the supply of natural gas from Indonesia, despite a contractual agreement until 2020. How do you deal with this challenge and how can GSPL protect itself from such renegotiations?

T.C.T.: Firstly, GSPL maintains excellent working relationships with its partners in Indonesia that first of all prevent any disruptions at both ends of the value chain. As for the rumors on renegotiation, GPSL tends to be very cooperative while one of the strengths of Singapore in attracting businesses is also the sanctity of contracts. We therefore automatically expect both parties to respect the terms of the contract. Notwithstanding the contracts, if certain elements of the contract require some adjustments, GSPL is convinced that it is possible to reach mutual agreements.

The contract structure is of course a little bit more complex for GSPL which does not only have contracts with its supplier, but also with its customers in the downstream sector, in particular with the GenCos. All parties thus have to get together and reach a consensus on how these arrangements can be renegotiated or adjusted to make sure that the interests of all groups are respected.

J.L.K.M.: This is not a straightforward exercise due to the rights and obligations embodied in the agreements of the different parties involved. The reality of the situation is that Indonesia is raising some concerns. However, the strong working relationship creates a culture of cooperation.

While 80% of Singapore’s electricity is generated from natural gas, Indonesia’s dominant source is still oil. How do you assess the risk of relying on a single source of supply from an energy-needy country?

J.L.K.M.: The current supply of natural gas from Indonesia is not final. With a lot of exploration taking place, new supplies are coming up. As demand will increase, so will supply. Obviously, as an exporting country looking for foreign exchange, Indonesia will have to balance the domestic needs with the need for foreign exchange.

T.C.T.: A positive aspect of this supply and demand equation is the fact that GSPL’s gas comes from fields in South Sumatra, where the reserves are rather large. As a matter of time and development, the supply of gas from this area will last for a long time. The current speculations over renegotiations only concern the short-term in a long-term industry.

J.L.K.M.: What also matters is the rigidity. You cannot simply move or switch supplier from one day to the other. The infrastructure needs to be in place. In General, the increased use of gas for power generation will be there. The use of natural gas is increasing continuously, in particular in the Asia Pacific region.

T.C.T.: There are obviously also a lot of benefits about the use of natural gas, as the cleanest source of energy from hydrocarbon sources. There are numerous applications, both as a green and efficient fuel. In Singapore in particular there has been a transformation of the power generating technology, with a conversion from oil fired steam plants to combined cycle gas turbines.

GSPL is also at the forefront to supply piped natural gas to people who co-generate their power and steam requirements onsite. TPGS Green Energy, a joint-venture between GSPL and Tuas Power, has already supplied three facilities to generate electricity and steam at the same time. In one case, this supply was even used for refrigeration too, creating a tri-generation set-up. All in all, such set-up is much more efficient and decreases the emission of greenhouse gas emissions significantly.

Seen these advantages, what can Gas Supply further do to promote the use of natural gas?

T.C.T.: In Singapore, GSPL is the dominant supplier of natural gas to the transportation industry. Singapore now has around 2000 taxis from two taxi companies, SMART and Transcab, which buy natural gas form GSPL.

J.L.K.M.: To some extent, the current use is constrained by the supply. Nevertheless GSPL will keep looking at opportunities in the different industries to pursue future growth.

At the heart of your operations lies the GNABS IT system, offering numerous advantages commercially and operationally. To what extent does this system allow you to gain a stronger competitive position in the market?

T.C.T.: GNABS stands for Gas Nomination Allocation and Billing System. GSPL’s contract is governed by the Gas Supply Agreements, the GSA, which require a number of different inputs in order to correctly compute the seller’s and customers’ bills. GNABS organizes the nomination and aggregation while it also keeps track of how much gas is delivered under which conditions, in order to bill the customers correctly. It is a software package that is able to discern whether GSPL undertook after nominating or whether the seller did not supply enough after nomination. The penalties for these levels of supply depend on certain landing pressure conditions. This is an example of some conditions that GNABS helps to monitor. GNABS is an essential tool to reliably import and distribute natural gas to all the end users.

When we met with Wong Toon Suan, the President of the Gas Assocation of Singapore, he identified LNG as a major opportunity for the gas industry in Singapore. Yourself (editor’s note : to Mr. Tan Chin Tung) commented in the Business Times that LNG will provide diversity and security of supply. What role will we see LNG playing in Singapore’s energy mix and how do you see this affecting Gas Supply?

T.C.T.: Singapore’s policymakers have so far made good decisions to help diversify the country’s energy sources. The energy source of choice is of course natural gas coming from three pipelines, four if you count the one from Keppel Gas. Our government is visionary in identifying the need to diversify the country’s energy sources of which the construction of the new LNG terminal is one example. Despite the fact that the commercial viability is not clear yet, it will attract business and create a new source of supply. Most importantly, LNG will enhance the security of natural gas supply.

J.L.K.M.: It really is a strategic decision that completely changes the rules of the game to provide the flexibility and diversity that Singapore requires.

T.C.T.: This is of course something that piped natural gas is not able to do, simply because you are literally attached to a specific source of supply. With LNG, it is easily manageable to bring in gas using another ship from another source. Singapore had this security when it’s power generating was oil based. The fact that Singapore had a huge refinery and terminal activity meant a theoretical 100 percent security. This is not the case with natural gas, especially when it is coming from pipelines. Moving forward, Singapore will have LNG tankage and storage capacities which will offer the country more freedom.
J.L.K.M.: Not only will this enhance our supply source, it will allow us to move from a local to a global source of supply. Further to that, the new terminal gives Singapore the opportunity and prosperity to become a trading hub for natural gas.

T.C.T.: In the same way as the nation has been very successful with oil, there is a lot of potential to attract LNG, particularly also because of the many spin-off effects that may potentially arise. Even more than for oil, Singapore is ideally located on the crossroads of the producers in the Middle East, Papua New Guinea and Australia and the large consumers such as India, China, Japan, Korea, Taiwan and so on. Notwithstanding the different economics in the value chain of LNG, I foresee developments towards the use of Singapore as a physical and commercial trading hub.

J.L.K.M.: The emergence of LNG in Singapore is of course something GSPL has been anticipating for a while now and, as the largest piped natural gas importer at the moment, we must of course prepare ourselves for the advent of LNG.
Can you briefly give our readers some background on how the restructuring of the Singapore gas industry in 2008 has affected Gas Supply (GSPL) and its position in the market?

T.C.T.: In the early nineties, there was originally a single import pipeline for the supply of gas by Petronas from Malaysia to the Senoko Power Station in Singapore. In 2001, SembGas completed the West Natuna Pipeline to primarily serve the Jurong area. As demand grew, you could see more and more players coming into the market, including GSPL which started importing gas through Powergas’ pipeline from 2003. It took a while for the gas network to become deregulated and develop further, which only saw full implementation in September 2008.

From 2008 onwards, the industry saw the entrance of Keppel Gas, bringing in gas for its own co-generation unit as well as some of its customers. The 2008 liberalization has been a milestone for the development of the natural gas industry in Singapore, even though we still do not see a full integration of the different networks today. This may be one aspect that EMA (editor’s note: the Energy Market Authority is the regulatory body of Singapore’s energy market) will need to start looking into, in particular when the upcoming LNG industry will require the integration of additional pipelines.

J.L.K.M.: GSPL is of course one of the four importers of natural gas, but it is the only company supplying to all three Generating Companies (GenCos), which make up 80% of the total generation of electricity in Singapore.

What prevents the other players from becoming a provider to these GenCos?

J.L.K.M.: In terms of importation, this is related to licenses. At this point in time, there is a moratorium on the import of natural gas which is licensed to GSPL, SembGas, Senoko Power and Keppel Gas.

T.C.T.: One has to look at the competition in this perspective. By 2008, the number of importers had shot up from 1 to 4 players while now, with the introduction of LNG, anyone can buy natural gas. There has thus been a tremendous development in terms of competition, which is a good thing for the market and industry as a whole.

What makes GSPL the preferred supplier or what reflects your competitive advantage?

T.C.T.: If we trace back to the beginnings of GSPL, the company was part of the PUB (Public Utilities Board) until privatization and a series of divestments took place. When GSPL was formed, it became the vehicle of piped natural gas to the three GenCos, which all used to be part of one family, providing GSPL with a foot in the door.

J.L.K.M.: Naturally, this industry is nurtured by long-term contracts which are now in place between GSPL and the GenCos. The long-term nature of these contracts does not prevent GSPL from continuously looking into value-adding propositions, in particular for the industrial customers where long-term contracts are much less prevalent.

Talking about the nature and longevity of certain contracts we also see that, today, there is quite some pressure on the supply of natural gas from Indonesia, despite a contractual agreement until 2020. How do you deal with this challenge and how can GSPL protect itself from such renegotiations?

T.C.T.: Firstly, GSPL maintains excellent working relationships with its partners in Indonesia that first of all prevent any disruptions at both ends of the value chain. As for the rumors on renegotiation, GPSL tends to be very cooperative while one of the strengths of Singapore in attracting businesses is also the sanctity of contracts. We therefore automatically expect both parties to respect the terms of the contract. Notwithstanding the contracts, if certain elements of the contract require some adjustments, GSPL is convinced that it is possible to reach mutual agreements.

The contract structure is of course a little bit more complex for GSPL which does not only have contracts with its supplier, but also with its customers in the downstream sector, in particular with the GenCos. All parties thus have to get together and reach a consensus on how these arrangements can be renegotiated or adjusted to make sure that the interests of all groups are respected.

J.L.K.M.: This is not a straightforward exercise due to the rights and obligations embodied in the agreements of the different parties involved. The reality of the situation is that Indonesia is raising some concerns. However, the strong working relationship creates a culture of cooperation.

While 80% of Singapore’s electricity is generated from natural gas, Indonesia’s dominant source is still oil. How do you assess the risk of relying on a single source of supply from an energy-needy country?

J.L.K.M.: The current supply of natural gas from Indonesia is not final. With a lot of exploration taking place, new supplies are coming up. As demand will increase, so will supply. Obviously, as an exporting country looking for foreign exchange, Indonesia will have to balance the domestic needs with the need for foreign exchange.

T.C.T.: A positive aspect of this supply and demand equation is the fact that GSPL’s gas comes from fields in South Sumatra, where the reserves are rather large. As a matter of time and development, the supply of gas from this area will last for a long time. The current speculations over renegotiations only concern the short-term in a long-term industry.

J.L.K.M.: What also matters is the rigidity. You cannot simply move or switch supplier from one day to the other. The infrastructure needs to be in place. In General, the increased use of gas for power generation will be there. The use of natural gas is increasing continuously, in particular in the Asia Pacific region.

T.C.T.: There are obviously also a lot of benefits about the use of natural gas, as the cleanest source of energy from hydrocarbon sources. There are numerous applications, both as a green and efficient fuel. In Singapore in particular there has been a transformation of the power generating technology, with a conversion from oil fired steam plants to combined cycle gas turbines.

GSPL is also at the forefront to supply piped natural gas to people who co-generate their power and steam requirements onsite. TPGS Green Energy, a joint-venture between GSPL and Tuas Power, has already supplied three facilities to generate electricity and steam at the same time. In one case, this supply was even used for refrigeration too, creating a tri-generation set-up. All in all, such set-up is much more efficient and decreases the emission of greenhouse gas emissions significantly.

Seen these advantages, what can Gas Supply further do to promote the use of natural gas?

T.C.T.: In Singapore, GSPL is the dominant supplier of natural gas to the transportation industry. Singapore now has around 2000 taxis from two taxi companies, SMART and Transcab, which buy natural gas form GSPL.

J.L.K.M.: To some extent, the current use is constrained by the supply. Nevertheless GSPL will keep looking at opportunities in the different industries to pursue future growth.

At the heart of your operations lies the GNABS IT system, offering numerous advantages commercially and operationally. To what extent does this system allow you to gain a stronger competitive position in the market?

T.C.T.: GNABS stands for Gas Nomination Allocation and Billing System. GSPL’s contract is governed by the Gas Supply Agreements, the GSA, which require a number of different inputs in order to correctly compute the seller’s and customers’ bills. GNABS organizes the nomination and aggregation while it also keeps track of how much gas is delivered under which conditions, in order to bill the customers correctly. It is a software package that is able to discern whether GSPL undertook after nominating or whether the seller did not supply enough after nomination. The penalties for these levels of supply depend on certain landing pressure conditions. This is an example of some conditions that GNABS helps to monitor. GNABS is an essential tool to reliably import and distribute natural gas to all the end users.

When we met with Wong Toon Suan, the President of the Gas Assocation of Singapore, he identified LNG as a major opportunity for the gas industry in Singapore. Yourself (editor’s note : to Mr. Tan Chin Tung) commented in the Business Times that LNG will provide diversity and security of supply. What role will we see LNG playing in Singapore’s energy mix and how do you see this affecting Gas Supply?

T.C.T.: Singapore’s policymakers have so far made good decisions to help diversify the country’s energy sources. The energy source of choice is of course natural gas coming from three pipelines, four if you count the one from Keppel Gas. Our government is visionary in identifying the need to diversify the country’s energy sources of which the construction of the new LNG terminal is one example. Despite the fact that the commercial viability is not clear yet, it will attract business and create a new source of supply. Most importantly, LNG will enhance the security of natural gas supply.

J.L.K.M.: It really is a strategic decision that completely changes the rules of the game to provide the flexibility and diversity that Singapore requires.

T.C.T.: This is of course something that piped natural gas is not able to do, simply because you are literally attached to a specific source of supply. With LNG, it is easily manageable to bring in gas using another ship from another source. Singapore had this security when it’s power generating was oil based. The fact that Singapore had a huge refinery and terminal activity meant a theoretical 100 percent security. This is not the case with natural gas, especially when it is coming from pipelines. Moving forward, Singapore will have LNG tankage and storage capacities which will offer the country more freedom.
J.L.K.M.: Not only will this enhance our supply source, it will allow us to move from a local to a global source of supply. Further to that, the new terminal gives Singapore the opportunity and prosperity to become a trading hub for natural gas.

T.C.T.: In the same way as the nation has been very successful with oil, there is a lot of potential to attract LNG, particularly also because of the many spin-off effects that may potentially arise. Even more than for oil, Singapore is ideally located on the crossroads of the producers in the Middle East, Papua New Guinea and Australia and the large consumers such as India, China, Japan, Korea, Taiwan and so on. Notwithstanding the different economics in the value chain of LNG, I foresee developments towards the use of Singapore as a physical and commercial trading hub.

J.L.K.M.: The emergence of LNG in Singapore is of course something GSPL has been anticipating for a while now and, as the largest piped natural gas importer at the moment, we must of course prepare ourselves for the advent of LNG.

When meeting with Datuk Rahim Hashim in the MGA, he was highlighting that as the president of the international gas union, he wanted to bring the attention to the geopolitics of gas. The ASEAN block has already been discussing the possibility of a transnational gas pipeline and regional electricity grids, and it seems that a consensus among the 10 nations is hard to find! Hypothetically speaking, what could be the potential advantages and disadvantages of such network for Gas Supply, or how would it possibly affect the company?

J.L.K.M.: The regional cooperation is something the ASEAN area has been talking about for 30 or 40 years with visionary projects such as the transasian pipeline. While this would make the entire area one common market, I am not sure how or when this can be realized.

T.C.T.: Wherever possible, GSPL will of course play its role. Ironically, while gas typically flows from high pressure to low pressure, regional gas tends to flow from a low price to a high price market! Another aspect is the rules and regulations that will determine the behavior within this network. Even within Singapore, there is still room for improvement.

J.L.K.M.: Once LNG comes in, GSPL will play a role in the gas supply market as a whole, rather than only piped natural gas.

T.C.T.: At the moment, all LNG purchase in Singapore needs to go through the main aggregator BG. Hence, we will be buying LNG from BG to play the role of a wholesaler or subaggregator. In the future, GSPL aims to be part of a consortium that brings LNG into Singapore. If there is gas shortage in Malaysia in the long term, there may be a possibility to import LNG into Singapore, regassify and export again to Malaysia by reversing the Senoko pipeline for example.

Having a look at the short term objectives, if we would come back in five to ten years, where would you have liked to taken GSPL by then?

J.L.K.M.: Certainly I would like to see GSPL as the major gas player in this market, not only involved in piped natural gas but also in LNG. While GSPL is currently confined to the domestic market, the company will further capitalize on new opportunities such as LNG to grow in the future and realize its ambitions.

T.C.T.: Exactly, we want to be an important player in the country and have the ambition to establish ourselves as a strong player in LNG as well.

Do you have a final message you would like to send out to our readers, on behalf of GSPL?

J.L.K.M.: While many people have argued that the emergence of LNG will impact our market and business because, at the moment, we are only importing piped natural gas, we see this differently. Rather than a threat, LNG will open a vast amount of opportunities for the company, which will be able to capitalize on its flexibility as a subaggregator in Singapore and additionally tap into new potential within the region.

J.L.K.M.: The regional cooperation is something the ASEAN area has been talking about for 30 or 40 years with visionary projects such as the transasian pipeline. While this would make the entire area one common market, I am not sure how or when this can be realized.

T.C.T.: Wherever possible, GSPL will of course play its role. Ironically, while gas typically flows from high pressure to low pressure, regional gas tends to flow from a low price to a high price market! Another aspect is the rules and regulations that will determine the behavior within this network. Even within Singapore, there is still room for improvement.

J.L.K.M.: Once LNG comes in, GSPL will play a role in the gas supply market as a whole, rather than only piped natural gas.

T.C.T.: At the moment, all LNG purchase in Singapore needs to go through the main aggregator BG. Hence, we will be buying LNG from BG to play the role of a wholesaler or subaggregator. In the future, GSPL aims to be part of a consortium that brings LNG into Singapore. If there is gas shortage in Malaysia in the long term, there may be a possibility to import LNG into Singapore, regassify and export again to Malaysia by reversing the Senoko pipeline for example.

Having a look at the short term objectives, if we would come back in five to ten years, where would you have liked to taken GSPL by then?

J.L.K.M.: Certainly I would like to see GSPL as the major gas player in this market, not only involved in piped natural gas but also in LNG. While GSPL is currently confined to the domestic market, the company will further capitalize on new opportunities such as LNG to grow in the future and realize its ambitions.

T.C.T.: Exactly, we want to be an important player in the country and have the ambition to establish ourselves as a strong player in LNG as well.

Do you have a final message you would like to send out to our readers, on behalf of GSPL?

J.L.K.M.: While many people have argued that the emergence of LNG will impact our market and business because, at the moment, we are only importing piped natural gas, we see this differently. Rather than a threat, LNG will open a vast amount of opportunities for the company, which will be able to capitalize on its flexibility as a subaggregator in Singapore and additionally tap into new potential within the region.

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