with Howard Pang, General Manager, Horizon Singapore Terminals Pte Ltd
At the beginning of the years 2000, Singaporean tanks were seen as too costly or too full, thus an increase in capacity would bring back business in the country and reinforce the country’s positioning as a hub. How have you seen Singapore’s business environment in the oil & gas and related business evolve since the establishment of Horizon Singapore Terminals?
In the years preceding the start of the construction of the terminal in Singapore, Horizon identified a lack of capacity and noticed that the market could take more. This is what drove Horizon to invest in Singapore, showing the way for other terminal and oil companies. Horizon’s investment was closely followed by the adding of additional capacity by new and existing storage companies. Judging by the significant increase in the volume of oil being traded over the past five years, we believe that the increase in storage capacity has somewhat unlocked Singapore’s full potential as a major oil trading hub.
During the course of 2008, fees have gone up & down. What is the situation today in Singapore and how do you foresee the revenue trend for 2010?
The rates have grown since Horizon’s arrival in 2005. Capacity and price is related but even with five million m3 of new capacity, prices still went up simply because the demand is there. Today, storage rates are at least 50% higher than pre 2005. You will find that demand for storage capacity in Singapore is long-termed in nature, with most terminals leasing at least 90% of their capacity on 3 to 5 year contracts. Storage rates for these term contracts remain very healthy and stable. The market fluctuations generally apply to the very limited amount of spot capacity that terminals make available to the market.
What have been the main challenges that you had to face when establishing your terminals in Singapore?
I think two issues come to mind when you speak of challenges. The first challenge was recruiting the best people for the company. We needed to hire a core team of experienced personnel to start-up the terminal. But in an environment where there were another 2 new terminals being started-up, attracting and keeping the right people became a challenge. The situation has since stabilized, of course, and we have been able to show our commitment towards developing people and providing a safe workplace. The second challenge was to “fine-tune” the terminal to meet customers’ requirements. We have spared no expense, including some that were capital in nature, to ensure that we can support our customers’ operations in terms of efficiency and flexibility.
In the long-term, will capacity and demand balance each other out, or will there be excess capacity at some point?
Different markets have different structures. The Singapore hub is largely driven by the oil trading market and a benchmark price assessment process has been entrenched here for quite some time. It is difficult to take that momentum away. With liquidity centred in Singapore, many new entrants are attracted to the market. And with Singapore being a premier global hub port, its status as the world’s biggest bunkering hub remains unchallenged. For these reasons, we feel that demand for oil storage capacity will remain robust in the long run.
This sector being extremely capital intensive, the 2008-09 economic slowdown has forced many companies to reshape their strategies. How has Horizon Singapore Terminals’ adapted its strategy to the economic downturn?
Horizon Singapore Terminals has not been very affected by the global economic crisis, simply because of its robust risk management policy. Because of the long-term nature of our contracts, the size and financial strength of our customers are very important. We typically focus on the larger and stronger companies in the industry. Most of Horizon’s customers have come through the crisis very well, thus not significantly affecting performance in Singapore. New entrants in the market may give you very good numbers, but Horizon is very wary about whether they will be around for the next few years.
When expanding internationally, many companies tend to go where their customers go. How has Horizon Singapore Terminals been able to draw on the expertise and experience from its operations in the Middle East?
You will find that the shareholders of Horizon Singapore Terminals are companies with which the group has worked before. This partnership has also been replicated in more than one location and Singapore is an extension of that cooperation. In that sense, Horizon has gone into markets where its partners have been operating. The company engages in joint ventures all over the world and generally prefers to involve at least one joint venture partner that knows the local market. The setup is usually a mix between partners supporting the demand side of the terminal and local partners that can give the venture an edge by drawing on local market knowledge.
Horizon Singapore Terminals certainly consists of a multitude of international players. However, the joint venture did not include a local Singaporean partner. Why is that so and how important have the Singaporean operations become in terms of Horizon’s global activities?
There are a few reasons. Singapore is one of the very few countries in the world where you can operate without a local partner, on paper as well as in practice. As a government, as a country, Singapore is that transparent and straightforward to do business. Everything that needs to be arranged is very clear, whether it is licenses, taxes and so on. In this respect, all the government agencies such as EDB are very pro business and facilitate the business context significantly. In Singapore, Horizon could afford to bring in partners that only supported the demand side of the mix. In terms of local knowledge, no partners were required because of the ease of establishing the business here. As a result, the Singapore terminal has become Horizon’s largest terminal outside the Middle East. In terms of international investment, this terminal would rank as Horizon’s biggest so far.
A key issue in Singapore is the island’s small size, limiting the expansion of storage space. What are the options that Horizon Terminals is looking at to increase its physical presence on the island when looking at possibilities such as floating storage and new land agreements with the government?
Horizon Singapore Terminals has given up on the option to acquire more land as the government has made it clear that there is no more land available for commercial storage projects. But even if more land was available, we need to be mindful of the ratio between berth and capacity. Adding storage capacity continuously without sufficient berthing capacity eventually creates a bottleneck situation. The possibility of acquiring more land would be good, but only if it can come with more marine facilities. This is difficult for any country as waterfront land in general is very scarce. In Singapore, we have already exhausted the options on land. The government is therefore also looking into other innovative solutions such as the caverns they are constructing right now as well as the possibility to operate with floating structures. But for that again, it is important to find the right location.
What opportunities do new infrastructures such as the LNG terminal pose for Horizon in Singapore?
Horizon Singapore Terminals remains focused on bulk liquid storage and is not yet looking into new markets such as LNG storage. But when the time comes, who knows.
With a lot more newcomers on the market, what is Horizon Singapore Terminals’ competitive edge and how does the company differentiate itself from the competition?
You can see this in terms of hardware and software. There is very little product differentiation between terminals with one terminal being very much like another. On the hardware side, the Horizon terminal was one of the first terminals designed to take in very large crude carriers (VLCCs). The draft here limits us to partially laden VLCCs, but nevertheless Horizon kept up with the trend when VLCCs were increasingly used as a mode of bulk oil transportation. At the moment this is not the competitive edge anymore as the other terminals around built similar infrastructure, but Horizon was ahead of the curve in Singapore in making sure such facilities were available. One other aspect unique to any other terminal in Singapore is Horizon’s heating capabilities. This has brought Horizon to a leading position in handling high-pour products, and ahead of competition as the only land terminal in Singapore able to handle products such as LSWR, used as a low sulphur blending component. On the software side, Horizon Singapore Terminals monitors ship turnaround times and pumping performance very closely. These are elements of the business the company tries to continuously improve and has led to us handling 10 to 15 % of the bunker volumes in the country today.
Vopak and Oiltanking are the historical leaders of the market, but the growth of more independent terminals has changed the situation. How does Horizon Singapore Terminals position itself against these large players in Singapore and globally?
In Singapore the playing field is very leveled. If the government says there is no land available for expansion, everything should be status quo in terms of capacity. In terms of market share, there will thus not be too many changes. It is in terms of Horizon’s performance, its commitment towards customer satisfaction and its ability to deliver on its promise that the company can strengthen its position in the market. At a global level, Horizon focuses on hub locations at the moment. The company is now trying to establish a foothold and develop terminals in regional hubs. As a growing company, Horizon remains selective as it cannot afford to expand into every area. Before widening the service offering, Horizon needs to build a strong foundation.
In Asian cultures, commitment is very important. What is Horizon Singapore Terminals’ contribution to the Singaporean society?
As a global company, Horizon is committed to contributing positively to the communities in which it operates, namely by promoting the concept of sustainable development. Safeguarding the environment, health and safety of the employees and community is the overarching theme of our EHSSQ policy.
In September 2009, HSTPL was awarded the ISO 9001 certification for our quality management system, ISO 14001 certification for our environmental management system and OSHAS 18001 certification for our occupational health and safety management system. This is testament to our commitment to sustainable development and is shared by our customers, employees and shareholders.
Besides our integrated management system, we also have various corporate social responsibility initiatives that allow us to do our part for the environment and community.
For example, we are part of a Jurong Island-wide oil spill response group that stands ready to provide aid in the event of a spill in surrounding waters. Our employees and equipment stand ready to be deployed in a mutual-aid initiative that involves all the major terminals in this area. Other environment-related programmes include committing to use only diesel with a sulphur content of below 0.05 ppm for all machinery and vehicles operating within the premises.
In safety and health, we sponsor and organise various safety trainings for our employees and contractors. These trainings include safety in confined space, ship mooring and lifting operations. Horizon also participates in terminal industry forums and groupings for regular sharing and updating of safety and health information and practices.
Internship opportunities were also offered to students from the Singapore Management University in 2008. The internship provided students with valuable exposure to different aspects of terminal operations and insight into the role of storage terminals in oil trading.
What are your personal ambitions with Horizon in the coming three to five years?
This is the first Terminal for Horizon in the Far East. About the same time as Horizon started in Singapore, the company invested in a terminal in Korea through a joint venture. While Asia is leading the global recovery, Horizon wants to see itself present in more than two locations in the Far East. From a regional point of view, that will be our priority.
What is your final message to the readers of Oil and Gas Financial Journal about your operations here in Singapore?
There are two things that Horizon Singapore Terminals focuses on. The first aspect is safety where no expense is spared. Secondly, Horizon is driven by customer satisfaction. We then talk about quality, integrity, turnaround and so on. From an internal point of view, these elements are very important as we are custodians of very valuable commodities. Horizon spares no effort in making sure that it is one of the best, if not the best.