Alex Bower, Chief Representative for GDF Suez LNG, Singapore
Alex Bower, Chief Representative at GDF Suez LNG, discusses the considerable potential of LNG in Asia, and expands on the entity’s strategy for capitalizing on this nascent growth and staying ahead of the competition in these emerging markets.
GDF SUEZ has had a presence in the region for some three decades now. What are your major areas of responsibility and scope of operations in Singapore?
The group has been active in Singapore since around 1990, when the energy services sector of the company arrived through Cofely. This was a company primarily operating on infrastructure works, such as public lighting. In 2008, the power side of our business invested in Senoko Energy, one of the three main electricity generation companies in Singapore, entering the Singaporean market through that acquisition.
More recently, both GDF SUEZ LNG and GDF SUEZ Trading arrived here, in early 2010. Speaking for the LNG section, it is clear that Asia is a huge opportunity and represents our primary growth market. For that reason, we need a physical presence here in Singapore to allow GDF SUEZ LNG to pursue projects and increase our ability to interact with regional markets and customers.
GDF SUEZ recently announced it will divert 25 percent of Europe’s LNG (4 million tones) to Asia well into 2014. From your perspective, can you give a more detailed overview of the company’s role in supplying the regions demand?
GDF SUEZ’s external sales of LNG volumes to third parties in Asia, Europe, and Latin America are expected to represent 24 percent of our long term LNG supply portfolio.
Traditionally, in Asia, GDF SUEZ has supplied LNG to the more established North East Asian markets including Japan, Taiwan and South Korea. These are established markets which have been importing LNG since the industry’s early days.
More recently we have seen the emergence of high growth markets, particularly China and India. Moreover, South East Asian (SEA) markets including Thailand in particular, as well as Singapore, Malaysia and Indonesia are increasingly looking at LNG as an energy source.
Our approach to the region is to supply LNG cargoes on a short, medium and long-term basis to consumers in Asia. In the traditional markets, demand is still strong, but growth is rather limited as the markets are mature. By contrast, the real growth is in China, India and the SEA region and it is in these markets that we are focusing on developing our regional business and presence.
You have been described by some as a latecomer to the mature markets, but to focus on your key target markets, what is your strategy for staying ahead of the competition in these growth markets?
Whilst we were historically a central player in the Atlantic-basin, our presence in Singapore represents a conscious effort to enter the markets in the region. We have been building up relationships with customers across the region in a process that has so far gone very smoothly. With regard to China and India specifically, our central value proposition rests on the fact that we have a very strong portfolio at the moment, amounting to 16 million tons of LNG under long-term contracts. We also have a fleet of around 17 vessels of varying capacity enabling us to divert some of our LNG from long-term sources to new markets. In China, for example, we signed a deal with China National Offshore Oil Corporation (CNOOC), the primary LNG importer, in 2010 for 44 cargoes of LNG spread over three and a half years. After this contract proved a success we were then taken on to provide a floating regasification plant for CNOOC as well, reflecting the momentum we are rapidly building up in the region.
Moreover, we have made some inroads into India with a series of short-term transactions; the first being a one-year deal with Petronet, and more recently another year-long contract with GAIL. In addition to this, we also have some in-country presence in India. As an investor, Gaz de France has previously been selected as the strategic partner of Petronet, which gives us a stake in that company which is the principal LNG importer to India.
Between Asia, Europe and the US, this region commands the highest natural gas prices making for a compelling case for export to the region. What implications does this have for your supply activities in the region?
As a global company, we seek opportunities in all markets but the LNG market is indeed rather regionalized. Whilst the commodity certainly flows globally, the pricing is very much dependent on local conditions and the fundamentals in the respective markets. Historically, North East Asia has attracted a premium primarily due to lack of indigenous gas and security of supply reasons. However, as a global player for LNG we do focus on all markets and although we do consider Asia a critical market, not all of our gas necessarily flows to the Far East. Equally, we also look at markets closer to our sources of LNG, including the Middle East, India and Latin America.
In 2007, GDF was supposed to play an integral role in the country’s LNG ambitions in partnership with PowerGas but this deal fell through following the global economic downturn. Does GDF SUEZ still have a desire to play a role in Singapore’s future LNG expansions?
GDF SUEZ was indeed selected to work with PowerGas to push the LNG market forward in Singapore with the construction of an LNG terminal. Unfortunately, however, the local Government decided it would be better placed to manage that project. As to whether GDF SUEZ LNG still holds an ambition to be involved in Singapore’s LNG market, we certainly do from an energy supply perspective.
As of today, the market is under an exclusivity agreement with BG Group. Whenever the Energy Market Authority (EMA) decides to award new import licenses, for the next phase of LNG imports once the third and fourth storage tanks are complete, we would certainly be interested in participating. It is only natural given that we have a presence here already.
Equally, the LNG storage situation is highly interesting. There is already discussion with regard to building an extension to the LNG terminal. However, should there be a possibility to be involved in the terminal itself, GDF SUEZ group could also be interested. Nevertheless, given the early phases of these developments, it is difficult to determine the commercial attractiveness of the deals themselves since the terms and conditions have not been laid out yet.
What steps are you taking now to ensure you are part of the equation when the LNG terminal becomes fully operational?
In terms of LNG supply, the EMA is seeking to work out the best situation for Singapore through continuous consultations with the industry. As a highly experienced and interested party, we are offering the benefit of lessons we have learned over the years as best as we can. Obviously as a significant supplier, operating three import LNG terminals in Europe, one in Chile and one in the US, we consider that we have useful insights relevant to Singapore’s ambitions and we are supportive of the EMA’s proposals to open up the market to further new suppliers. Once we see the outcome of the recommendations from the EMA, we will then be better prepared to properly assess and respond to those conditions.
In terms of applications for this excess capacity, Singapore is looking at a wide variety of proposals, including LNG bunkering or even creating Singapore as an LNG trading hub. In your professional opinion, what do you think will most likely happen to this excess LNG capacity?
I think this depends on the definition of an energy-trading hub. Singapore’s primary driver to construct an LNG import terminal is to ensure the security of its energy supply through diversification. Specifically, there has been an objective to diversify Singapore’s sources of supply away from Indonesian and Malaysian pipeline gas.
Any further LNG business related activity, should be seen as a secondary objective. Singapore’s efforts to develop in this context would first and foremost require the construction of an adequate infrastructure and Singapore is clearly achieving this by expanding LNG storage capacity. For LNG trading, the amounts of spare capacity available for trading will be somewhat subject to future pipeline gas imports, which have been contracted up to 2019. Post 2019 these contracts may start to suffer from depleted resources, but there may be the potential for some extension. Nevertheless, as of this moment, there is a significant degree of uncertainty with regard to replenishing supplies from these pipelines and for this reason the availability of spare capacity in the terminal is not guaranteed in my opinion.
There are also factors that extend beyond capacity and infrastructure considerations that are required for a location to be truly considered as an LNG trading hub. Typically such hubs in European and American markets have very deep and liquid trading markets behind the terminal and in the downstream sector. You often have gas-on-gas competition from pipeline gas supplies and there is clear and transparent pricing, through a local price index. These characteristics are not as yet apparent in Singapore. This represents some barrier to, or will at least cause a delay, achieving Singapore’s ambition to position itself as a true LNG trading hub. Of course, these obstacles can be overcome with time, but one also has to consider the size of the market in Singapore. The level of demand is somewhat constrained due to the city-state’s limited size, and that certainly represents some form of barrier to the development of a LNG hub.
There is a complex nature to business here in the region, with high cultural and regulatory fragmentation. As a result, we often see upstream players assuming a partnership approach with local players with regard to the projects they develop. What is your stance on partnerships with public or private entities?
In the LNG business, we state that partnerships are essential, particularly in the upstream sectors. Given the significant risks that characterize the LNG business, it is important to have excellent partners to take projects forward. In this regard, GDF SUEZ LNG is the same. In our regional upstream projects, for instance, we are currently working with a local partner, Santos, in Australia as well as with ENI in Indonesia.
Similarly, partnering with representative governments in this region is also important. Indonesia is a good example of this where the state is involved through the production sharing agreements regime in the development of the resources. The project is a co-development and we have to work effectively with the local government in this respect.
We have discussed a great deal what GDF SUEZ LNG has been doing, but what are your plans for the next five years?
GDF SUEZ LNG is here for the long term, and whilst we have started small, due to the inherently long lead times in LNG projects, we certainly aim to grow our presence and business in the region over time. If for instance you are developing a liquefaction project, it would probably take four years of construction work alone to build it, yet the project is often preceded by many more years of planning. A project can easily take seven to 10 years to develop, and sometimes longer. The next project we are pursuing in Indonesia will be only completed in 2017, and after that 2019 should see our Australian project come to fruition.
We see Singapore as an excellent base from which to establish our growth for the region. Geographically it is well situated, and that is highly advantageous to us. The ease of doing business here is also highly useful and is very important for us. Moreover, most of the industry’s largest players are to some extent based in Singapore facilitating business connectivity and communication. Whilst the Singapore market might still be in the process of developing its LNG sector, we believe it is the optimal location from where we can access the more expansive markets in the region as well as participate in the city-states growth ambitions.