SINGAPORE's energy sector has never been as robust. In coming months, an expected slew of new projects and initiatives will even better position it for the longer-term, especially given increasing competition and challenges posed by new emerging oil/gas hubs. These include a Request for Proposals from investors, which will kick off preparations for the US$500 million LNG (liquefied natural gas) terminal to be built on Jurong Island; more petrochemical investments including possibly a second multi-billion dollar cracker by ExxonMobil, the world's largest oil company; and Temasek Holding's much-anticipated divestment of the three largest power generating companies here.

Fuelling growth: EDB sees the need for at least one more world-scale refinery here to help secure Singapore's position as energy hub

They follow other strategic moves like the government's recent go-ahead for the S$700 million underground Jurong Rock Cavern to boost oil storage, and amendments to the Gas Act to completely liberalise the gas market to attract more players like Island Power, which is building a $1 billion power station here, as well as others eyeing the big three - Tuas Power, PowerSeraya and Senoko Power.

The market buzz is that the first-ever report by the inter-ministry Energy Policy Group is also due out soon. The EPG, formed a year ago to handle the multi-faceted aspects of energy issues here, cuts across and draws on the resources of relevant ministries and agencies ranging from Trade and Industry, Foreign Affairs, Environment and Water Resources to the Energy Market Authority, Economic Development Board and the National Environment Agency.

While the EPG report may yet throw up a few surprises, the general direction of energy policy is clear: Build on existing assets/infrastructure and invest for the future. Take oil refining, once regarded as a sunset industry. Today the three refineries here,ExxonMobil (605,000 barrels per day), Shell (500,000 bpd) and Singapore Refining Company (285,000 bpd) form the backbone of a thriving refining industry (the third largest worldwide) and also supports a vibrant oil trading hub (also ranked third globally after New York and London). The refineries are also the building blocks of a sizeable and ever-growing petrochemicals industry chain.

While the three are unlikely to build new capacity, they are expected to increase this gradually through 'refinery creep' or small increments through maintenance shutdowns, and also via upgrading projects. SRC, for example, announced in May a US$81 million plant revamp to produce ultra-low sulphur diesel, understood to be just the first phase of a planned upgrading potentially costing up to US$400 million to enable it to produce environmentally friendly gasoline as well to meet demand from 'green' markets.

The EDB therefore sees the need for at least one more world-scale refinery here to help secure Singapore's position as a global oil refining and trading hub.

This is because total refining capacity here has remained unchanged at around 1.3 million bpd over the last decade, with this resulting in Singapore's share of global capacity falling to 1.4 per cent from 2 per cent previously, while others like China (8.1 per cent) and India (3.4 per cent) have steadily ramped up their shares.

Additional refineries here - possibly by Middle East or Chinese investors - will also help provide the naphtha feedstock needed by the petrochemicals industry here, which is seeing Shell just starting to build its new US$3 billion cracker, with ExxonMobil expected to decide anytime now on its estimated US$4 billion second cracker project.

The two new crackers will add 1.7 million tonnes per annum, bringing Singapore's cracking capacity, including that of pioneer Petrochemical Corp of Singapore, to 4 million tpa - or over half of Japan's petrochemical capacity. In turn, the crackers will draw in a train of downstream plant investments over the next few years. PCS for instance is expecting three new chemical plant investments worth over S$1 billion in the coming six months, which will spur it to invest in S$300 million worth of supporting plants itself.

New opportunities

The investment in the LNG terminal, expected to be operational in 2012, is strategic as it will allow Singapore to ship in natural gas from around the globe for power stations and industries here. This will supplement current piped gas supplies from Malaysia and Indonesia, whose own increased domestic gas needs may result in decreased supplies to the Republic eventually. Besides, Singapore also intends to leverage on the project to build up LNG trading(it has started offering concessionary tax schemes to encourage this), just like it has succeeded with the oil trading/logistics hub here.

Similarly, increased liberalisation of the electricity and gas markets has created opportunities for incumbents and new players. Keppel Energy has started up its cogeneration plant for industries on Jurong Island, just as Federal International is also building a power plant there for a biofuels maker. With their growing need for electricity and steam, big industries here are also looking to build their own dedicated, or 'embedded', cogen units run by third-parties.

Sales details are also set to be released next month for Tuas Power, PowerSeraya and Senoko Power, each said to be worth over S$2 billion each. The sale has already attracted big local corporates like Keppel Corp and SembCorp, with other regional players like Marubeni Corp and Tokyo Electric, Hong Kong's CLP Power and Malaysia's Petronas and YTL said to be eyeing the assets. Temasek's divestment of the gencos should result in an even more competitive electricity market.

Beyond conventional energy, Singapore is also banking on new 'sunrise' industries like solar power, biomass and fuel cells, and has initiated pilot projects to develop these.

Environmental issues also spell big bucks, and carbon trading is next on the cards here as well. Nothing - including coal or nuclear - has been dismissed outright under the Republic's intent to stay as flexible as possible on future energy use.