Howard Pang, General Manager, Horizon Singapore Terminals
Faced with rapidly rising energy demand and space limitations, General Manager Howard Pang elaborates on how Horizon Terminals can support Singapore in overcoming profound storage challenges, while maintaining its position as the regions preeminent oil trading hub.
In 2010 you pointed out that the significant increase in storage capacity over the preceding five year period helped to unlock Singapore’s full potential as a major oil trading hub. How has the industry evolved since then?
Access to logistics infrastructures, is a key enabling factor allowing traders to participate effectively in the physical oil trading market. Hence, as an integral part of the oil supply chain, the increase in capacity allowed more traders to come into the market. Before the last round of expansions and new builds around 2008, there was not enough storage capacity and supply was lagging demand. The current state of affairs has brought about a more balanced marketplace and we are seeing more participation from oil traders in Singapore, benefiting the country’s industry as well as regional supply and demand.
In addition to this, the terminals in Singapore have been operating at an increasingly effective manner over the past few years. Prior to the addition of the new builds, terminals were turning 12 to 16 times, whereas now this figure stands at approximately 10 to 12. This is a much more optimal level at which to operate as it allows both traders and terminals a bigger operational buffer. Today, berth congestion and delays are more the exception than the norm and there is very little need for “operating at the edge”. Ultimately, this translates to significant cost savings for our customers.
Considering the space limitations that characterize Singapore, to what extent has the company invested in the better management of existing capacities to maximize usage?
The scope or opportunity for operational improvements from a technological point of view is rather limited. Terminals are essentially warehouses. Having said that, the availability of jetties, or lack thereof, perhaps holds the biggest potential to enhance efficiencies for any terminal as it is often where the biggest bottleneck is experienced. Interestingly, Singapore is among the very few locations in the world that allows terminal businesses to own and operate their own jetties. This is greatly beneficial for us as a terminal operator because it enables us to prioritize our customers and plan the logistical aspects of our business in the most efficient manner.
Another implication of this jetty-ownership policy is the limited number of terminals that can be constructed in Singapore. By contrast, other developing countries opt for public ports instead. Although this is not a bad idea in itself as it seeks to share and optimise resources, it could have negative consequences because it could encourage “overbuilding”, especially when there is a lack of capable master-planning. In other words, this often leads to overcapacity in terms of storage space, beyond what is optimal. Hence, the constrained number of terminals that can be built in Singapore, as determined by the limit of jetties, has served to ensure that every terminal built here is of the highest quality with each capable of turning as quickly and efficiently as possible.
It is worth noting that although Singapore is placing a limit on new oil and gas terminal developments as part of a drive to focus on higher value added developments, the country has been fortunate in that its surrounding neighbors are looking to complement its positioning as a hub by providing land for potential storage terminal projects.
Can you tell us more about the so-called ‘greater Singapore hub’ expansion projects?
This idea primarily revolves around some of the Indonesian islands that surround Singapore as well as the south Malaysian territory bordering Singapore offering land area that can accommodate the construction of a variety of terminals and ports that will complement Singapore’s limited land and shoreline availability. In a sense, these alternative locations will represent only a marginal difference in terms of freight, allowing them to be considered pursuant to Singapore. As such, they will provide traders and oil companies with greater capacity in peak times.
Singapore’s positioning as a major oil trading hub has attracted some of the world’s most prominent and biggest industry players. How does Horizon Singapore Terminals differentiate themselves from the rest and how do you compete?
Generally speaking, there is very little product or service differentiation in the terminals business. However, one way we can stand out from the rest, to some degree, is perhaps through our independent status. The ownership structures of Singapore’s terminals lie somewhere between either ends of the spectrum; with some being purely independent, others that are completely owned by the trading firms and some that are partly owned by traders. In the case of Horizon Singapore Terminals, although we have a range of shareholders, we have always operated on a non-exclusive and arms-length basis with our shareholders. We cater to a portfolio of customers composed of both shareholders and external clients and I am proud to say that, over the years, we have earned the trust of our customers as an independent terminal and this is essential in this business.
As an integral partner in the development of Singapore’s oil logistics infrastructure, to what extent do the ongoing investments in regional neighbors like China, Malaysia, Indonesia, Vietnam of South Korea represent a threat to Singapore’s positioning as a hub?
One of Singapore’s biggest advantages that has helped place it on the world map in terms of trade is its inherent geographical location. In turn, Singapore has historically been the region’s entrepôt which has for long developed and honed the skills and infrastructures needed to support that. In this respect, it would be very difficult to match and overcome the momentum that the island-state has gained over time.
Similarly, petrochemical plant or refinery investment projects are by no means small, costing billions of dollars regardless of the location. The question one should be asking here is where to place those investments. Do you place this in a still developing nation with underdeveloped regulatory or unstable political regimes, or do you invest that money in a tried and tested market that is both transparent and heavily pro-business? Singapore is among the very few places in the Far East where you can enter a strategic sector and maintain full ownership of the company with few local content stipulations. These are important considerations to make when making such large investment decisions and geographical location is a critical factor for downstream plants and terminals. In that regard, the premium that Singapore might command is, in my view, more than justifiable.
What tendencies have you observed in your margins over the recent past bearing in mind the continued strong growth for energy demands in Asia?
Indeed, demand has been strong and this has contributed to the realization of some of the highest margins we have seen over the past two to three years. However, I believe that the general rates have now reached somewhat of a peak and have begun to flatten. There is nevertheless no reason for rates to collapse as the demand for energy remains healthy and robust.
On the other hand, the next structural change in prices will perhaps come about when the ‘greater Singapore hub’ concept comes into play and terminal projects in nearby neighboring territories start to come on-stream. It will be interesting to see how much new capacity will be constructed, capable of serving the same function that existing terminals in Singapore are serving, the given market situation at that time and the balance between the given supply and demand.
Besides its strategic location at the cross roads of international trade routes, what is it that makes Singapore one of the world’s largest oil trading hubs?
Singapore is a major pricing centre for refined petroleum products and the strong liquidity levels it enjoys as a result should continue to attract more oil traders to the country.
In line with Horizon Terminals mission of maintaining leadership in the Far East region, what growth opportunities have you identified?
Over the past six years, we have been quite active in exploring business development opportunities combing through many of the regional countries including Vietnam, Indonesia and China, among others. Being highly selective in our growth strategy, we are looking for opportunities that are large in scale. We seek investment opportunities that can provide at least 500,000 of cubic meters, or more, of storage capacity. Ideally, these targets would be situated in established hub locations.
Although we have identified a number of potential locations, a limiting factor of these opportunities is that their respective oil markets are not yet fully liberalized. Instead, these countries tend to have just a handful of state-owned oil companies that have the rights to import crude oil and other products. Without a healthy and independent third party volume trading scene, we do not think it would be suitable to penetrate those markets just yet. As such, Singapore remains to be the focal point for Horizon Terminals and we are believers in the greater Singapore story – seeking opportunities in the surrounding countries which are offering land space such as Malaysia or Indonesia.
What contributions would you say that Horizon Singapore Terminals has made to the country in terms of its development as an oil trading hub?
I like to believe that our investment in Singapore served as a catalyst for further investments in the bulk liquid storage terminal industry. For a good fifteen years prior to our entry, there were only three commercial terminals present here and nobody had considered to expand the capacity because of space limitations. However after we constructed our first 800,000 cubic meters of capacity, another two to three million quickly emerged. Sometimes it takes someone to make the first move before the rest follow suit. In that respect, I believe that Horizon’s show of confidence in Singapore helped to stimulate a number of other investments in the sector and cement Singapore’s position as an oil trading hub in the region.
Besides being the group’s largest terminal in the Far East region, the Singaporean affiliate has also been recognized for its health, safety and environment (HSE) winning some awards along the way. In that regard, to what role does the Singaporean office play in the group’s overall development and sharing of best practices?
Horizon Terminals approach to HSE is uniform across the group and are committed to maintaining the highest standards possible across all our geographies. As such, Horizon Terminals is always actively involved on a national level to promote workplace health and safety.
In Singapore, we have voluntarily participated the Workplace Safety and Health Council’s annual Performance Awards and have been awarded the Silver award for two consecutive years. In addition to that, we are in close contact with the terminaling community and are active participants in mutual aid platforms.
Considering that Horizon Terminals has now well established itself in the Singaporean and regional market, what ambitions would you like to fulfill over the foreseeable future?
My goals are still very much the same as they were when we first established our operations here. We are fortunate to have a great terminal in Singapore, the flagship for the region, but it would be a shame to leave it at that. We would very much like to expand our footprint in the region by using Singapore as a launching pad and leverage the expertise we have accumulated here. We intend to grow when the right time and opportunity presents itself and create a much larger regional organization.
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