with Lawrence Wong, Chief Executive, Energy Market Authority (EMA)
EMA was founded in 2001 when the electricity and gas sector was liberalized in Singapore. Why was the market liberalized at that exact point in time in Singapore and why was EMA put in place as an authority to regulate this process under the Ministry of Trade and Industry (MTI), rather than creating a Ministry of Energy for example?
The process of liberalization started already in the 90s when the vertically integrated government-run Public Utilities Board (PUB) was part of MTI. Historically, MTI has been looking at a wide range of activities affecting the industries and the economy. The PUB used to run the power generators in Singapore. Following a global liberalization wave in the 80s, Singapore looked into applying some of these principles to make its own industries more efficient and innovative.
Rather than a big bang approach, Singapore decided to embark on a systematic, progressive process. The first step was to carve out the power generation and distribution business from the PUB into a corporate entity called Singapore Power. Singapore Power was vertically integrated with power generators, distributors and so on. Another company called Tuas Power was later set up to create a competitor against Singapore Power. However, because Tuas Power was only a generator while Singapore Power was vertically integrated, there was no real sense of competition.
Hence in 2001, the government decided to undertake another phase of restructuring to separate the power generation/retail and distribution/transmission segments of the business. Two power generators, Senoko Power and PowerSeraya, were separated from Singapore Power. From then on, Singapore Power became the transmission and distribution network owner and operator for the whole of Singapore. EMA was formed to take over from PUB as a stand-alone energy regulator to regulate the market.
While EMA used to be more of a regulator, its position has now evolved towards a planner, promoter and developer of the energy market. What is the mission of EMA today and what is your role as Chief Executive?
This change in mission and vision is quite recent. In 2001, EMA’s primary role was to regulate the market. We are also unique in that we have a power systems operations role within EMA. In some countries this is called the ISO, the Independent Systems Operator. We decided to keep this within EMA as it is critical to energy security. So from day one, EMA had two primary roles: regulation of the market, and power systems operations.
Around two years ago, the Singapore government decided that it was necessary to look at energy more broadly. Energy issues were becoming of greater importance because of geopolitics, climate change and so on. As a consequence, EMA was given a broader mandate both in terms of energy planning to support the overall energy needs of the country as well as industry development to determine what areas can be pushed to take advantage of new opportunities in energy.
I came in around a year and a half ago. Last year, we did an organizational review and updated EMA’s vision to “Smart Energy, Sustainable Future”, reflecting our broader mandate. EMA’s goals are to have secure energy supply, a competitive market and a dynamic energy sector. This covers EMA’s different roles as a regulator, a systems operator and an industry developer.
Do you expect other countries in the region to take an example from Singapore’s liberalization efforts?
Singapore has received many study visits from other nations to observe what Singapore does with its deregulated electricity market. Many other countries run on Power Purchase Agreements (PPAs), which are contracts with independent power plants. Implementing the Singaporean system will not be that straightforward because PPAs cannot simply be unwound overnight. The transition will not be easy, but there is a lot of interest in the region.
Looking at these geopolitical issues, Singapore is obviously highly dependent on Malaysia and Indonesia for the supply of gas while EMA aims to provide a reliable and secure energy framework. To what extent is Singapore’s energy dependency on other countries in the region impacting the geopolitical relationship you maintain with them?
The gas contracts with these countries are commercial contracts that have been delivered in a reliable way over the years. Singapore is highly dependent on piped gas, accounting for 80% of the country’s electricity. Of that piped gas, 80% comes from Indonesia. Overall, the companies that have supplied gas to Singapore have done so reliably. Even though there have been technical issues at some times, these have been dealt with in a very responsive way. Nevertheless, because of this high dependency, Singapore’s strategy is to diversify which is why we currently pursuing LNG.
Exactly, we have observed a higher interest in LNG with new facilities on Jurong Island. The responsibility was given to EMA because of concerns about the commercial viability during the financial crisis…
There was a competitive process that resulted in the appointment of the BG Singapore Gas Marketing Pte Ltd (BG) as the exclusive supplier for three million tons per annum of LNG supply. The project for the LNG receiving terminal was awarded to Singapore Power, which brought in GDF Suez as a minority stakeholder. When the downturn came in 2008, there was no demand or throughput to underpin the project so its financing became very difficult. Consequently, these companies would have to defer the project which is something the government did not want to see happen, due to the importance of the terminal in ensuring energy security. Singapore Power and GDF Suez then agreed to be compensated for the work that had already been done in order to have the Singapore government take over the project entirely. Hence EMA set up a subsidiary company called Singapore LNG Corporation or SLNG to own and operate the terminal. The company has since finalized the construction tender to Samsung as well as several other key commercial agreements.
Lately some private companies have approached EMA to become a partner on this project. How do you see the respective roles of the private and public sectors in Jurong Island for the LNG terminal in the coming years?
For now, the LNG terminal project is fully government funded under a government-owned entity. The company does not need any equity partners and is unlikely to look for equity partnerships at this stage. We will take the project through its start-up phase and once the finances have stabilized after a few years, we are open to the possibility of divesting the company.
Singapore also has a critical position in between the routes from the Middle East to Japan or Korea while it is also strategically located in the center of South East Asia. It is an ambition of the country to become a trading hub for LNG, but what will it take for Singapore to realize these ambitions?
While Singapore has no oil reserves, it has succeeded in oil trading because of its location, the facilities and the environment it has to offer. While this started on a very small scale at first, oil trading has now become a very significant part of Singapore’s trading activities. The question is whether the same can be done for LNG. The scale and challenges are different. Whereas oil storage is relatively cheap, each LNG tank costs around 200 million dollars. The economics of onshore LNG storage vis-à-vis floating storage in ships need to be determined, and there needs to be a business model in place that makes sense for companies. For example, one model is to have a big ship unload its cargo in Singapore and then break off into smaller barges to re-export to regional countries. Another example is to store LNG for export in peak periods when the price is higher. In the end, it comes down to whether SLNG can make an economic return from the investments in the tanks by offering such storage solutions.
We still need to find an answer to this but we already see a lot of interest from companies that have set up LNG trading operations in Singapore. Gazprom has set up its office here; ConocoPhillips has moved its global trading office from Houston to Singapore while a few other companies are looking at doing the same. While Singapore is already attracting such trading offices, the key challenge is to grow this sector further by adding terminal capacity and growing the physical LNG trade.
You mentioned many companies have come to Singapore to set up their offices here. What impact do you think the LNG terminal will have on Singapore as an oil and gas and related centre?
Singapore will be the first in the region to have an open-access, multi-user receiving terminal. As mentioned, the next step is to work out a viable business model and engage the different companies to use the terminal as an infrastructure to grow their LNG trading activities in Singapore. Two tanks are now being constructed in the terminal of which a large part will serve as storage space for domestic consumption. The remaining capacity can be used for storage, reloading and other trading activities. This extra space will not be very significant at the start. But of course, once we have a viable business model for LNG storage and trading, and if there is demand for more capacity, additional tanks may be constructed.
Looking back at Singapore’s energy mix in 2001, 70% of the electricity was generated from oil. Today, 80% is generated by piped natural gas. How do you see Singapore’s energy mix in 2015?
By 2015, the mix of natural gas will be higher because quite a number of power companies are looking at repowering their steam plants by converting them to gas turbines. In the longer term, the question is whether Singapore can diversify away from gas. Options such as importing electricity from neighboring countries, the construction of clean coal plants and the use of nuclear energy have not been ruled out.
EMA also started a fund SGD 25 million for research and development. How is this fund allocated and what part is dedicated to the oil and gas industry compared to renewable energy? What is your target?
The SGD 25 million fund is designed as a challenge where people can submit ideas in three different categories, being power generation, transportation and energy efficiency. This took place last year and we received good response with around 90 submissions. EMA is currently evaluating the proposals and the winners are to be announced by the end of August 2010.
Singapore is sometimes described as a “living laboratory” where companies can come and try out solutions. To what extent are EMA and other government institutions working with the private sector to come up with new solutions and new regulations?
This idea covers more than the energy sector alone. It comprises urban solutions as a whole, covering water solutions, building development and so on. The body overlooking this is the Economic Development Board (EDB), which oversees the entire economic structure. EMA is responsible for the energy component and we are working on some projects in line with this “living laboratory” strategy. The first is an electric vehicle test project where we are in discussion with Mitsubishi, Renault, Nissan etc. to bring their electric cars to Singapore. EMA is also in the midst of a tender for charging infrastructure so that when the first batch of cars arrive, the supporting infrastructure will be in place.
Apart from electric cars, EMA is currently in the midst of a tender for a smart grid pilot. Several companies such as Accenture, IBM and Siemens have been shortlisted. The result will be awarded by the end of the year. This project will be run in two phases: one to test out the communications and define what kind of connections are going to be used and the second serves to test out the whole range of applications around smart grids.
Besides these two key projects, Singapore is also testing a micro-grid in Pulau Ubin, an offshore island in the North-East of Singapore. The residents on this island use diesel generators because they are not connected to the main grid. With this project, companies will come in to deploy a micro-grid and make use of renewable energy to replace the diesel generators.
In each of these projects, EMA’s approach is to identify companies that are interested to participate and engage them through requests for proposals (RFP). Through this RFP process, the companies are eventually awarded and appointed to bring their ideas into fruition. In the end, the whole idea of a living laboratory is to provide a platform where an innovative solution can be put in place to meet our domestic needs, and also to export to other markets afterwards.
Where do you think lies the most potential for MNCs to learn from Singapore or for large national companies to export capabilities from the country in the energy sector?
The MNCs all have their own competencies and expertise, but what EMA offers them is the opportunity to try out new projects for the Asian region. They can come to Singapore and try out technical solutions or R&D activities, as well as different business models to find out how Asian consumers respond to different types of applications.
In terms of the activities, products or the services Singapore can export to the region, there is already a whole range of examples such as Keppel’s production of oil rigs, the waste-to-energy projects of Sembcorp and so on. Singapore Power is widely recognized for its grid management capabilities, and has set up SP Global Solutions offering consultancy services abroad. If Singapore embarks on smart grid solutions, Singapore Power will have the competency to export these technologies. The testing of the micro-grid project in Pulau Ubin is one example of how Singapore can find solutions for different niches that can eventually be exported to other markets.
What do you think EMA can do to bring the world the idea that Singapore is a great door to enter Asian markets where companies can try out various projects?
We do so with the Singapore International Energy Week (SIEW) which is an annual platform for energy professionals, policy makers and commentators to discuss energy issues, strategies and solutions.
Organised by EMA, SIEW 2010 is an opportunity for Singapore to showcase the various projects it manages on the energy side. Through that, EMA hopes to create some excitement and awareness of what Singapore is all about. It gives the participants the chance to both see the opportunities in Singapore as well as to meet people from the region and embrace an Asian perspective of what is happening on the energy front. Last year, there were around 5,000 participants of which more than half came from overseas. This year, we expect more than 10,000 visitors. It is an event to profile Singapore as an energy thought leader and a place in Asia where people can come for energy innovations as well as network with others.
What message would be interesting to send out to the international readers of Oil and Gas Financial Journal that may be looking at Singapore as an investment opportunity?
Singapore is an attractive location for new investments in the energy space. This space is growing, with opportunities opening up in different areas whether it is in LNG, smart grids or electric vehicles to name but a few. Singapore and EMA certainly welcome collaboration with the private sector because these are areas where the government does not have all the expertise and would welcome the competencies and capabilities of private companies. This also gives companies the opportunity to use Singapore as a living laboratory to try out their ideas and potentially export these ideas to the region. This is also an open invitation to those who are interested in Singapore and to attend our Singapore International Energy Week. For more information, please consult http://singapore.iew.com.sg/.