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Singapore Prepares to Swap Its Oil Hub Status for Greener Future

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(Bloomberg) – BukomRoyal Dutch Shell Plc late last year announced that it would cut capacity in half at its largest refinery. For Singapore, where the plant has been a mainstay of the economy for six decades, it marks a turning point in one of the most successful bets on fossil fuels in history.

The Bukom Island plant is part of a huge refining and petrochemical industry built mainly on reclaimed islands just off the city-state. In tandem with the cargo ships they fueled, refineries helped fuel Singapore’s economic success after independence, attracting billions of dollars in investment and creating businesses ranging from plastics to plastics. rig construction and finance.

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“We have come a long way thanks to the energy and chemicals sectors,” said Tan See Leng, Singapore’s Labor and Second Minister for Trade and Industry. “The important thing is not to eliminate it completely, but to see how we can turn it around, how we can transform.”

To that end, this year the government issued the Singapore Green Plan 2030, which sets the path for the city-state to become a leading regional hub for carbon trading, green finance, consulting and risk management and other services. National Investment Fund Temasek Holdings Pte., along with Singapore Exchange, Standard Chartered Plc and DBS Group Holdings Ltd. announced in May plans to set up a global exchange for high-quality carbon credits.

The city also provides a modern facility with a highly skilled workforce from which new energy companies can run their operations in the area. Vena Energy Capital Pte., one of the largest independent renewable generators in Asia-Pacific, with wind and solar projects stretching from Australia to India, has established its headquarters. headquarters in a modern glass and steel tower in the financial center of the city, although there are no other operations in the country.

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“With the regulatory transparency that Singapore has, that brings comfort to investors,” said Vena CEO Nitin Apte. “That has been true in the past and will be true in the future with renewables.”

Oil town

But Singapore’s shift from black gold to green energy is a difficult balancing act. In 2019, the city was the world’s fourth-largest exporter of refined petroleum, and fuels and chemicals accounted for about 23% of the city’s total merchandise trade, according to data from the World Bank and the Observatory. Economic Complex. It remains a regional trading hub for coal, natural gas and oil products and supports dozens of commodity-specialized financial firms. More than 100 global chemical companies have operations in the city.

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Bukom Island has been there from the beginning. Since the 1890s, it has been the landing site of Russian oil. Shell opened Singapore’s first refinery there shortly before independence in 1961, and four more were added over the next few decades.

The predecessors of Exxon Mobil Corp. soon after, including a refinery on nearby Ayer Chawan, now part of the massive Jurong Island refinery complex that Singapore is hoping to convert into an energy and chemical industrial park. sustainable substance.

Now Shell’s investment is in reverse. Around 500 jobs will be done at the Bukom complex, and many more are likely to disappear in Singapore in the coming years. For a country without natural resources, the middle position in the global fuel supply chain will be difficult to replace.

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As historian Michael Barr writes in his book Singapore: A Modern History, Singapore owes much of its economic success to the imaginative and ruthless exploitation of its location. In the energy sector, that means capitalizing on its position on one of the busiest shipping lanes in the world, between the Middle East and the major economies of East Asia.

That doesn’t necessarily help its position as an energy hub for renewables such as solar and wind which tend to be located in consuming countries, but it could still be one. asset for hydrogen, which is gaining momentum as a zero-emissions fuel for transportation and other energy supplies.

Hope Hydrogen

“Like natural gas, it can position itself as an intermediary for hydrogen in terms of price,” said David Skilling, founding director of Landfall Strategy Group, which advises small, advanced economies. both, terminal facility and repository. However, it remains unclear to what extent the hydrogen economy will rely on hubs, said Skilling, who was based in Singapore for more than a decade before moving to the Netherlands recently.

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According to a report by the Hydrogen Council and McKinsey & Co., more than 30 countries have announced roadmaps for using hydrogen, but Singapore is not yet ready to commit to a strategy, Tan said.

Mr Tan said the government had agreements with Australia and Chile for potential cooperation on hydrogen technology and was working with Japanese companies to find ways to transport gas. “As the technologies become more accepted, more widely available, when the costs start to drop somewhat, I think they will come to an inflection point,” he said.

George Nassaouati, Asia head of natural resources at Willis Towers Watson, said hydrogen and liquefied natural gas had the advantage for Singapore that some of the oil and petrochemical infrastructure could be retrofitted. back to them. Singapore can also provide engineering and project management expertise to help set up LNG or hydrogen facilities in Southeast Asia, he said.

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Landfall’s Skilling said “constructive paranoia” has allowed Singapore to navigate the wave of economic disruption that could help it make the transition. “It has always been very adept at figuring out what the next thing is, figuring out what its niche in that space is and being able to extract value from it,” he said.

Selena Ling, head of research and treasury strategy at Oversea-Chinese Banking Corp, said the Monetary Authority of Singapore is developing funding programs to support green and sustainable loans, as well as put 2 billion USD. of funds with asset managers to catalyze green financial activities outside of Singapore, she said.

The country of 5.7 million people may also have more time to adapt than Europe or the US as it is located in an area that is likely to depend on hydrocarbons for many years to come. South and Southeast Asia will experience the highest growth in demand for oil products between 2019-2035, according to another report from McKinsey. Victor Shum, vice president of energy consulting at IHS Markit, said Singapore’s refineries don’t need to do anything drastic yet.

At least until around 2030, Tan said, there is little risk of a large drop in demand for oil products. Meanwhile, the government is encouraging innovation in areas such as carbon capture and towards more solar and tidal power, aiming to be a pioneer in the energy transition in the region.

“I’m not sure they necessarily want to follow us, but I think we hope to become a green oasis,” he said.

© 2021 Bloomberg LP

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