|
Oil & Gas Forecast - Q4 2006
Executive Summary
The latest Singapore Oil & Gas Report from Business
Monitor International (BMI) forecasts that the country
will account for 3.4% of Asia/Pacific regional oil
demand by 2010, while not contributing to supply.
Asia/Pacific regional oil demand rose to 24.27mn b/d
last year and should average 24.77mn b/d in 2006,
before reaching 27.79mn b/d by 2010. Asia/Pacific
gas consumption in 2005 was 385bcm, with demand of
602bcm targeted for 2010. Production last year of
314bcm should reach 490bcm by the end of the decade.
Singapore's share of consumption in 2005 was 1.8%,
while it has no domestic gas production. By 2010,
its share of demand is forecast to be 2.2%.
Assuming an uneventful Q4, we are now predicting
an OPEC basket price for 2006 averaging US$61.10/bbl
- an increase of US$1.10 from our June forecast. This
also represents a 19% rise from the FY05 average.
Our forecasts for the US, Brent and Urals are US$66.40,
US$65.40 and US$61.60/bbl respectively. For 2007,
we continue to assume an OPEC basket price of US$50/bbl,
which implies US$55.40 for the US, US$53.40 for Brent
and US$49.50 for Urals. Prices are then forecast to
fall by around US$5/bbl in 2008-2010, with the OPEC
price averaging US$45/bbl over the period.
Singapore's real GDP growth is now forecast by BMI
at 6.7% for 2006, up from 6.4% in 2005. We are assuming
4.5% growth in 2007, 4.3% in 2008-09, followed by
4.2% in 2010. There is no domestic oil or gas production,
with extensive IOC involvement in refining and petrochemicals.
Oil consumption is forecast to increase by around
3% per annum to 2010, implying demand of 957,000b/d
by the end of the forecast period. Gas demand and
imports are forecast to increase from 6.5bcm last
year to 12.5bcm by the end of the decade.
In the BMI Business Environment Ranking matrix, Singapore
receives an unchanged composite score of 35 which
continues to rank the country fourth out of 14 states
included in the Asia/Pacific region. The overall business
environment can be considered attractive in a regional
context, thanks almost exclusively to low levels of
perceived political and economic risk. The country
has no oil or gas resources, which restricts its appeal
to international oil companies (IOCs). There is only
modest growth in domestic oil and gas consumption,
but the regulatory framework is benign and an effective
competitive landscape exists. Singapore is a regional
refining and petrochemicals hub, with much of its
appeal coming from its location and the political/economic
stability. However, regional competition is strong
and some IOCs have been reducing their exposure to
the island state.
SWOT Analysis
|
Singapore Economic SWOT
|
| Strengths |
-
Singapore controls monetary policy by managing
the exchange rate against an undisclosed basket
of currencies. This has accommodated the revaluation
of the Chinese yuan with little instability
amid continued gradual appreciation of the
Singapore dollar.
-
Singapore's current account surplus remains
over 20% of GDP and its external finances
are in good shape. This is reflected by the
world's credit-rating agencies, which continue
to award Singapore top marks for external
strength.
|
| Weaknesses |
-
Volatile economic output remains a problem
given that the tiny, trade-dependent economy
is so exposed to global trends in demand for
electronic goods, which account for around
half of Singapore's non-oil exports.
-
Singapore faces a number of long-term economic
problems. Productivity is low, competition
from low-cost neighbouring countries is on
the increase and structural unemployment is
placing a growing burden on the economy.
|
| Opportunities |
-
In the face of regional challenges for both
its exports and investment, the government
is encouraging economic diversification to
boost the country's competitiveness. New areas
being promoted are biomedical sciences, tourism,
medical and financial services, as well as
plans to develop two casino resorts.
|
| Threats |
-
There is significant state involvement in
the private sector, with the government refusing
to disclose the assets of the Government of
Singapore Investment Corp (GIC). The GIC is
one of the world's largest institutional investors,
managing foreign exchange reserves and government
funds worth over US$100bn. Without increased
openness, investor confidence could be damaged
and domestic growth hindered.
-
High labour costs will continue to be an
issue as long as cheap labour in China continues
to undercut Singapore's competitiveness.
|
|
Singapore Political SWOT
|
| Strengths |
-
Singapore enjoys a stable political system,
following the country's second change of leadership
in 40 years, with Lee Hsien Loong - son of
the nation's founding father Lee Kuan Yew
- taking over as prime minister in 2004.
-
Official promises have been made to eradicate
Singapore's reputation as being an overprotective
nanny-state, with efforts to enhance freedom
of expression.
|
| Weaknesses |
-
Singapore is not a properly functioning
democracy. The ruling People's Action Party
(PAP) has all but two seats in parliament,
and the opposition is restricted from campaigning
through tight control over political debate
and frequent use of libel laws.
-
The government has yet to improve the situation
for the less well off in Singapore, with a
rising wage gap between the top earners and
the lowest paid.
|
| Opportunities |
-
Lee is proving himself a capable leader,
moving away from the shadow of his father
by taking on the role of finance minister
and repeatedly calling for more openness.
-
Singapore is leading its regional neighbours
in signing free trade agreements. Increased
regional integration is likely to give the
island more influence in the region.
|
| Threats |
-
There are fears that Singapore's foreign
policy alignment with the US will cause the
tiny city-state to become a target for terror
attacks launched by Muslim extremists.
-
Singapore's close relationship with the
US, with military ties expanding significantly,
may rile other Asian countries. This will
make it harder to establish closer regional
security ties.
|
|
Singapore Business Environment SWOT
|
| Strengths |
-
Singapore is the least corrupt country in
Asia, according to Transparency International,
a Berlin-based anti-corruption watchdog.
-
Strikes and labour protests will remain
rare, if not absent, in Singapore for the
foreseeable future due to the government's
autocratic insistence on a business-friendly
environment. Policymakers will continue to
use heavy-handed tactics to ensure the unions
stay pliant.
-
Industry deregulation is advanced in the
oil sector, with a mature competitive landscape
and a good location for regional refining
and petrochemicals capacity.
|
| Weaknesses |
-
Political and economic stability has come
at a price. The Singapore government censors
the media and limits the distribution of foreign
publications. The judiciary's record of siding
with prominent politicians calls into question
the true extent of its neutrality in any contract
dispute involving a politically sensitive
issue.
-
Competition from other Asian states in refining
and petrochemicals is rising, putting pressure
on margins and returns.
|
| Opportunities |
-
Due to the lack of progress at the World
Trade Organisation (WTO), the Singaporean
government has committed the country to sign
19 bilateral free-trade agreements.
-
Singapore has one of the best business operating
environments in Asia. This is reflected by
Singapore's second place in an Index of Economic
Freedom league table complied by the Heritage
Foundation and the Wall Street Journal.
-
Strong growth in regional oil and chemicals
demand provides scope for capacity expansion.
|
| Threats |
-
The risk of a terrorist attack in Singapore,
which has increased since the Bali bombings
in neighbouring Indonesia in 2002 and 2005,
is a major deterrent to foreign investors,
who are concerned about the spread of Islamic
terrorists to Singapore.
-
China is now seen as the key regional market
and much of IOC downstream oil and petrochemicals
FDI may be diverted away from Singapore.
|
Singapore
Although not a significant energy market in itself,
Singapore plays a key role in the sector through its
status as a major refining and petrochemicals centre
for South East Asia. Its ideal location and easy sea-borne
access have made it the Asian region's main energy
and petrochemicals hub, which has a substantial impact
on the country's economy. Singapore is unusual in
having oil refining capacity of nearly twice its domestic
petroleum products consumption. This refining capacity,
of almost 1.3mn b/d, is aimed at export markets -
although it is currently suffering from the expansion
of refining industries in countries such as India,
China and Thailand. In 2004, Singapore's average refinery
utilisation rate reached 91.5% of total capacity,
the highest rate since early 1999. Singapore-based
consultant Ong Eng Tong said recently that the expansion
of refinery capacity around the region this decade
led by key consumers India and China could hurt Singapore's
export markets. He warned that if Vietnam really builds
refineries (which we believe it will), Singapore will
have an even bigger problem as it imports crude from
Vietnam and supplies it with refined products.
Singapore imports all of its natural gas, which is
mainly used for power generation and as a feedstock
for petrochemicals production. The main suppliers
are Malaysia and Indonesia. Natural gas use is rising
rapidly, as the Singaporean government implements
policies aimed at reducing carbon dioxide and sulphur
emissions. There is a state strategy to promote Singapore
as a regional hub for an integrated gas pipeline network.
Singapore's electricity generating capacity is almost
7.0 gigawatts (GW), all of which is thermal.
|