Singapore’s goal of becoming Asia’s premier liquefied natural gas (LNG) trading hub is steadily unfolding. Earlier this month, Singapore’s Second Minister for Trade and Industry S. Iswaran said that the Singapore Energy Market Authority (EMA) received nine bids in December from suppliers hoping to become LNG aggregators in the city-state. The bids came after the closing of the first phase of requests for proposals.

Iswaran said that collectively bidders proposed more than 10 new source countries to supply the next tranche of LNG to Singapore at competitive prices. “These new supply options will improve the diversification and competitiveness of our gas sources when our next LNG importer or importers commence supply for our next tranche of LNG,” he said.

After Iswaran’s remarks, media reported that the EMA is expected to shortlist up to three potential suppliers this year, while bidders that make the short list will be required to negotiate for binding commitments to supply LNG from buyers in Singapore. At the end of the year, one or two bidders will be awarded an import license.

Though this development is significant, other factors could challenge Singapore’s ambition to be the region’s top LNG trading hub. The first challenge is one that the entire oil and gas industry – from oil field service providers to exploration and production companies, oil majors and oil producing countries – are grappling with: plunging crude oil and natural gas prices.

Global oil prices have dropped nearly 60 percent since mid-June amid excess supply from US shale production and OPEC’s decision to maintain production levels in an effort to protect their market share. LNG prices are also off by around 60 percent since the beginning of last year.

The inability for oil and natural gas prices to find a floor has created a precarious situation for Singapore in the short to mid term, as has an over supply of LNG in the region. Singapore’s new LNG terminal, that imported its first gas in March 2013, is mostly intended for spot purchases, which allows buyers to receive gas in small quantities and for short contract periods when they have supply gaps due to problems with long-term supply contracts or because demand has spiked unpredictably, according to Beni Suryadi, an Association of Southeast Asian Nations (ASEAN) energy policy analyst based in Jakarta. The spot market is now awash in gas supply and will likely remain so at least until the end of the decade. Singapore is also working to develop a second LNG receiving terminal with a completion date of 2020.

Another hurdle for Singapore comes from both within and outside the Asia-Pacific region. Qatar, currently the world’s top LNG exporter, Malaysia and the UAE, all have plans to become LNG trading hubs. Unlike Singapore which currently has only one import terminal, these other countries have liquefaction facilities which provide flexibility and trading advantages.

Some analysts, however, say not so fast, claiming that Singapore still holds the advantage. They point to the fact that Singapore is already Asia’s leading oil pricing and oil trading hub and thus already has considerable infrastructure in place. Singapore is also the world’s leading bunkering hub and the number of LNG trading desks has been increasing, with about 20 desks already in operation.

Finally, a third hurdle that should cause concern for Singapore energy planners is the US$5.25 billion Panama Canal Zone expansion due to be completed by the beginning of 2016. A report last year from energy consultancy Wood Mackenzie said that the canal’s expansion holds particular significance for the US, as it offers time and cost savings on LNG trade routes from the US Gulf Coast to East Asia.

If the Panama Canal does indeed create a trade route for LNG from the Sabine Pass LNG terminal in the Gulf of Mexico, for example, to be transported directly to top LNG importers Japan and South Korea, it will be problematic for Singapore. As this scenario develops, Singapore will likely find itself losing market share in North Asia and concentrating more on South Asian (predominately India) and Southeast Asian LNG markets.

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