Energy diversification in Singapore has to make business sense: Gan Siow Huang

[SINGAPORE] Singapore companies’ efforts to diversify energy supplies have to be based on market and commercial sense, said Minister of State for Trade and Industry Gan Siow Huang. 

The question companies have to ask “is not simply can we diversify; it is ‘where is additional resilience worth paying for?’”, Gan said in a speech to oil and gas industry players on Tuesday (Sep 8).

She was speaking at the S&P Asia Pacific Petroleum Conference, held at the Raffles City Convention Centre.

Some 60 per cent of South-east Asia’s crude imports have traditionally come from the Middle East.

But the US-Iran war posed a major disruption. Before the conflict, 20 million barrels of oil moved through the Strait of Hormuz, but between March and May, that fell to just 2.7 million barrels per day.

Gan noted that the region’s heavy reliance on Middle Eastern crude is based on commercial value: Gulf producers operate at scale and are close to Asian markets. Many regional refineries are configured to process medium and heavy Gulf crudes.

As such, diversification does not mean abandoning established relationships but creating more options.

Gan said: “The objective here is not to maximise the number of crude grades a refinery can process. It is to maintain a practical portfolio of alternatives that have been tested, understood and also that can be activated quickly when normal supply is disrupted.”

She acknowledged that flexibility carries a cost, as alternative crude “may involve longer shipping distances, different yields, additional storage or blending, and changes to refinery operations”.

Each company will therefore have to make commercial decisions based on its own assets, markets and risk exposure.

Preparing for the next shock

Gan also highlighted that energy resilience requires building capabilities across the value chain, such that alternative sources can actually be delivered when needed.

“That means having the right producer, but also the vessel, insurance, storage, financing, liquidity, infrastructure and risk-management capabilities to execute the transaction, particularly when markets are volatile,” she said.

Singapore has a vital role in bringing together capabilities that manage these complex energy flows.

For instance, oil giants ADNOC and Petrobras have tapped Singapore as a regional base, while India’s Bharat Petroleum established its first international trading office here to expand crude procurement and refined-products trading.

Gan noted that the next energy shock may come from geopolitics, extreme weather, infrastructure failures, cyber attacks or a sudden shift in demand.

While governments will need to provide stable policy and investment frameworks, companies “must decide where resilience is worth the cost and build that flexibility into their operations”, she said.

“And the wider energy ecosystem – traders, financiers, shipowners, logistics providers and technology companies – must continue to find better ways to connect supply and demand to manage risk.”