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Home > Industries >International Trading

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
  • 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.
  • 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.
  • 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.
  • 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
  • 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.
  • 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.
  • 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.
  • 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
  • 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.
  • 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.
  • 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.
  • 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.


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.

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