Pavilion Energy, a subsidiary of Singapore's sovereign wealth fund Temasek Holdings, is on the lookout to acquire gas assets abroad as part of a plan to diversify its LNG supply portfolio and make Singapore a trading hub for liquid gas.

After the acquisition of a 20% stake in three offshore blocks – block 1, 3, and 4 – in Tanzania from Ophir Energy on Nov. 14, the Singaporean company said it is pursuing more “partnership opportunities and new prospects in the region.” The company’s management has earmarked a committed capital of US $6.9 billion to acquire upstream and downstream gas assets mainly in the Americas, Australia, and Africa.

News reports inform that Pavilion Energy is in talks with Spain's Repsol to acquire the latter's 30% stake in Gas Natural Fenosa, which owns equity in Qalhat (Qatar) and Damietta (Egypt) gas and liquefaction assets.

“This investment in Tanzania blocks 1, 3, and 4 is a key milestone for Pavilion Energy to build up our LNG portfolio. It supports our plan to secure long-term energy supply at competitive prices to meet the need for clean energy in Asia. It is also an important milestone for us as we work to develop an Asian LNG hub,” Pavilion CEO Seah Moon Ming said.

Ophir Energy divested half of its 40% participating interest in blocks 1, 3, and 4 in the Ruvuma and Mafia Deep basins area offshore Tanzania, with estimated total reserves of about 425 Bcm (15 Tcf) of gas in moderate water depths, to the Singapore company for $1.288 billion. BG Group is the operator of this project with 60% interest. The first gas delivery is expected to begin in 2020.

This is Pavilion’s first major investment to build a diversified LNG supply portfolio to meet Asian demand for clean energy. It will pay $1.25 billion upon completion of the transaction and $38 million following a final investment decision (FID) on the development of blocks 1, 3 and 4, which is expected in 2016.

The company’s parent, Temasek Holding, which has investment portfolio of about $215 billion, early this year acquired 6.3% in Repsol, the Spanish national oil company that owns stake in oil and gas assets in 30 countries. It also bought small equity in Chesapeake Energy Corp., the second largest gas producer in the US and Kunlun Energy Co. Ltd., a well-established E&P player in China.

Investment Strategy

Pavilion Energy intends to acquire assets across the entire LNG value chain, including production, liquefaction, shipping, and trading.

Elaborating the company’s strategy at a recent industry meet, the CEO said, “Our plan is to acquire assets across the full LNG value chain by building strong relationships with key partners, investing and co-investing in gas acreage, liquefaction plants and assets, shipping and regasification with the aim of building a diversified asset portfolio that enhances our efficiency and competitiveness. Pavilion Energy will continue to engage and acquire working interest in upstream gas and liquefaction projects.

“We are also in talks with various parties on partnerships and investments in other parts of the LNG value chain, e.g. in midstream shipping and downstream transportation/ trucking,” he added.

Pavilion has adopted a three-pronged approach to spread its portfolio through geographical diversity, pricing index diversity, and tenure diversity. The geographical diversity provides energy security against potential natural or political uncertainties; while pricing index diversity helps to adjust to recent industry trends and ensure access to competitively-priced gas. The tenure diversity gives the company a mix of contract lengths so that it remains nimble and flexible in a fast-changing LNG market.

The Singaporean company has already reached its first long-term supply agreement with a major European oil and gas multinational for delivery into Singapore and the region. As part of the deal it will receive 500,000 tons a year over a period of 10 years starting from 2018.

Besides, Pavilion has offered investments in development LNG infrastructure in the island state. “Pavilion Energy would like to participate and invest in this critical initiative. We are ready to contribute to the building of a robust LNG system and framework that will support Singapore’s energy security,” Ming said.

The city-state currently has an import terminal with capacity 3.5 million tons per year. The import terminal capacity will be expanded to 10 million tons by 2016 to facilitate storage of LNG volumes to be traded.

“To enhance Singapore’s energy security, we believe a second LNG terminal is required. There is a need to invest into and develop a comprehensive, island-wide critical energy infrastructure. This will address both the increasing demand for natural gas, as well as the existing risks of concentrating Singapore's gas supply of LNG and PNG on Jurong Island,” he added.

Singapore LNG Hub

The main objective of these investments is to make Singapore a major trading hub for LNG in Asia. The existing ecosystem and infrastructure for oil trading would prepare and position Singapore as a major LNG trading hub in Asia.

“Singapore is an established international oil trading center. Over the years, more companies have been attracted to establish their operations in Singapore due to Singapore's political neutrality and proximity to the regional Asia-Pacific markets, and a mature ecosystem of trade services in areas such as finance, logistics, manpower, and risk management. Today, many global LNG players have trading teams and desks in Singapore for the same reasons,” Ming said.

“As part of our plan to begin regional trading of LNG, we have put in place an experienced trading team, complete with the requisite mid-office and back-office functions. Pavilion Gas, a subsidiary of Pavilion Energy that manages gas operations, LNG distribution and regional trading, is now fully operational and have commenced our LNG trading activities. We expect to complete our first cargo delivery into Asia by this February,” he added.

The International Energy Agency has supported the plan to make Singapore a trading hub for LNG, considering its strategic location and developed ecosystem for trading. Ernst & Young said in report that a Singapore-based trading hub for LNG may seem small in size but, in the global market, its impact on pricing has the potential to extend far beyond its borders.

The Asia-Pacific region is the fastest-growing gas market in the world, accounting for about 70% of global LNG trade. Besides Japan and South Korea, China and India are increasingly looking for gas imports to meet the growing demand. Thailand, Philippines, and Vietnam are expected to become major LNG importers in coming years. It is forecasted that Southeast Asia’s LNG demand could reach 50 million tons per year by 2025, from the current level of about 20 million tons per year.