Mr Ian Taylor, President of Vitol Group,

Mr Kho Hui Meng, President of Vitol Asia Pte Ltd,

Distinguished Guests,

Ladies & Gentlemen,

1.               I am delighted to join everyone here for this evening’s celebration of Vitol Group’s 25^th Anniversary in Singapore.

Energy Markets

2.               Vitol is an oil trading company under IE Singapore’s Global Trader Programme.  The trading of energy in Singapore has a long history going back to the nineteenth century when Singapore was a regional centre for the kerosene trade in the age of the sailing ship.

3.               The efficiency of the energy markets is vital to the proper functioning of the global economy.  From time to time, there are shocks like wars and revolutions.  Then, there are changes in technology like the arrival of the steamship and the replacement of horses by motorcars.  We are now in the age of jet travel.

4.               On the supply side, high energy prices encourage exploration of oil and gas, alternative sources like wind power and solar cells, and greater efficiency of energy use.  The technological developments are quite dramatic and will steadily lower the energy requirement for every dollar of economic growth.  In theory, there will never be a shortage of energy in the world.  We have both in the sun and in the depths of the earth a potentially unlimited supply.  What limits us is affordable technology. 

5.               On the demand side, the rise of China and India means that there will be a new Great Game to secure energy supplies in the world.  Last year, China overtook Japan as an importer of oil.   In 2003, car sales in China nearly doubled to 2 million units, after breaching the million mark for the first time in 2002.[1]  According to a General Motors’ survey, China’s car market is expected to equal that of the US’ in 2025[2].

6.               As global demand surges, the security of supply becomes a strategic preoccupation for many countries.  A good part of world energy supply comes from regions in the world which are politically unstable.   Terrorism is also a growing threat to stable supply.  The security of choke points like the Panama Canal and the Malacca Straits becomes very important.

7.               Energy markets help suppliers and consumers to manage political and technological risk.  When prices stay high, they encourage more economic use of energy and the greater exploitation of alternative sources like Canadian oil sands.   Since the 1973 Oil Crisis, motor cars have become much more fuel-efficient.  And they will become even more so with the use of lighter composite materials and          cleverer aerodynamic designs.

8.               The development of the oils futures and derivatives market has enabled different risks associated with the energy market to be borne by those most able to bear these risks.  From airlines to refineries, the energy financial market allow companies to hedge away the risks that they have no special competence in dealing with.

The Changing Singapore Oil Market

9.               Over the years, Singapore has adjusted itself to changes in the global energy market.  We have avoided muting price signals either by subsidies or by price control.  During the 1973 Oil Crisis, we were careful not to sequester supplies in Singapore for our own domestic use.  Building on our reputation for reliability and integrity, we have been able to strengthen Singapore’s position as a major centre in the world for oil trading, both for physical delivery and in financial instruments.

10.           We encouraged the oil majors to make use of Singapore’s strategic location to produce and export to the booming markets of Asia. Singapore became a key refining centre and a distribution centre for refined oil products.  The need for storage and terminalling prompted players like Vopak and Oiltanking to set up operations here in the 80’s.  Singapore is now the world’s top bunkering port.  Today, on average, a vessel calls at Singapore for bunkering every half an hour, and our bunker sales exceeded 20.8 million tons in 2003[3].

11.           To encourage more international oil trading activities in Singapore, we introduced the Approved Oil Trader (AOT) scheme in 1989 which became the Global Trader Programme (GTP) administered by IE Singapore in 2001. We now have over 50 of the world’s top oil trading companies using Singapore as their Asian or global trading entity.  These companies generate more than US$100 billion in physical oil trades annually from Singapore.

12.     For many oil traders, Singapore completes the 24-hour oil trading cycle, plugging the gap between London’s and New York’s trading hours. Vitol Singapore, for example, acts as the group’s nerve centre in the Asian time zone, trading the group’s full range of oil-related products, and managing its trading activities from Bahrain to Beijing.

13.           The mix of GTP companies has also changed over the years. While many of the GTP oil traders come from the US, Western Europe or Japan, newer GTP companies have now joined us from the growing markets of China, Russia and the Middle East, such as China Aviation Oil, Lukoil and Emirates National Oil Company.

An Integrated Energy Hub For The Future

14.     Today, the oil traders here are part of a wider integrated community which also includes refiners, storage providers, shippers and end users.  The oil traders themselves have diversified into activities like storage and blending.  Some have developed new capabilities in derivatives trading and risk management.

15.           All this has made Singapore an integrated oil hub in Asia.  Many industry players now cover the entire value chain of activities out of Singapore including regional exploration management; the construction and maintenance of oil vessels, rigs and platforms, and the associated financing; the processing of crude oil; the storage of refined products for export; and the marketing and trading of a range of products.

16.           With the growth of China and the development of oil and gas fields in the Russian Far East, more activities will shift to Asia in the coming years. We are positioning Singapore for this future.  We are seeking new partners among oil and gas producers in the Middle East for this new China trade. The recently announced partnership between China Aviation Oil and Emirates National Oil Company to build a US$135m oil terminal in Singapore is a good example of how Singapore can add value to this trade. 

17.           Storage is a key area we are developing. Royal Vopak of the Netherlands announced in 2003 that it is expanding its existing oil storage facilities in Singapore by 102,000 cubic metres. The Government is currently studying the feasibility of building underground rock caverns for the storage of oil[4]. 

18.           As natural gas becomes more important as a source of energy, we will gradually move into gas-related activities. Opportunities for trading will increase as the region builds more facilities to liquefy, receive and store natural gas.  The investments are huge and growing. For example, Qatar’s new US$2.3b LNG processing facility at Ras Laffan will be supplying 7.5 million tons of LNG to India’s Gujerat state[5] over 25 years.  China will complete its first LNG terminal in 2006 in Guangdong province for the import of gas from Australia.

19.           For Singapore, the Government is studying the feasibility of constructing an LNG terminal to complement the pipelines which now supply us gas from Sumatra and the South China Sea.

20.           Many experts believe that as the buyers and sellers of LNG increase in number, a shorter-term market will form at the end of the decade.  With the knowledge and expertise that already exist in Singapore for oil, it will be natural for us to move into this market when it takes off.

21.           We are also promoting derivative trading activities for the energy market. The GTP was enhanced in 2003 to cater to the needs of both high-growth trading enterprises as well as the world’s top trading groups.  IE Singapore and MAS jointly administer the Commodity Derivative Trader (CDT) scheme announced in this year’s Budget to spur derivative trading activity in Singapore.  NYMEX, the world’s leading energy bourse, has announced plans to set up a futures energy exchange in Singapore next year[6].

23.     10 million barrels of crude oil are shipped to Northeast Asia daily through the Straits of Malacca, half of the world’s daily trade in oil, and one third of the world’s total trade.  We have been working closely with Indonesia and Malaysia to ensure the security of ships passing through the Straits.  Just in June, the three navies announced that each country will be deploying five to seven corvettes to patrol the Malacca Straits all year round[7].   The security of the sea lanes is of vital importance to global trade.  Many countries have agreed to provide assistance.

24.     Singapore has grown, together with the international oil community here, to become a leading global oil hub in Asia.  We are honoured to be called home by so many top oil trading companies and to be your partner in Asia.

25.     I congratulate Vitol Group on your success in the past 25 years and wish you even greater success in the future.