Fuel for Thought: Singapore looks to next energy transition, this time away from oil

Singapore was on the forefront of oil's emergence in Asia more than a century ago and has grown to become a global giant in petroleum trade, but now the city-state is tasked with finding a new pathway as the clean energy transition accelerates worldwide.

Shell, which started out as M. Samuel & Co. and built the first fuel depot in Singapore in the 1890s, said in November it was shutting half of its refining capacity on Singapore's Pulau Bukom island, a move signaling the start of one era and the beginning of another for the energy hub.

Shell said Pulau Bukom will become one of its roughly six energy and chemicals parks and part of a "pivot from a crude-oil, fuels-based product slate towards new low-carbon value chains."

Repurposing the facility will involve significant changes in refinery configuration, increased investment, and studies of products resilient to the energy transition, such as biofuels, specialties like bitumen, alternative feedstocks and renewable raw materials such as recycled chemicals, Shell said.

Transition experience

But Singapore is no stranger to energy transition.

In 1892, the SS Murex, the world's first bulk-oil tanker to pass through the Suez Canal, delivered 3,000 tons of kerosene to Pulau Bukom, cutting transportation costs and allowing M Samuel & Co. to slash the price of kerosene by nearly half.

With the move the firm to broke the dominance of Rockefeller's Standard Oil, company that controlled much of the global kerosene trade at the time.

In 1961, Shell built Singapore's first refinery on Pulau Bukom, beating rival Japanese trading company Maruzen Toyo, paving the way for the emergence of Singapore as the "Houston of the East."

Singapore's initial role as a key port came about when sailing ships were replaced by coal-powered steamships that needed a place to bunker and trade.

Then when coal-fired ships switched to oil in the early 1900s, led by Winston Churchill's decision to move the British Navy to a more energy-efficient fuel, Singapore's oil blending and storage facilities were key to the transition.

Singapore, with regional outlets of companies like Asiatic Petroleum, an early joint venture between Shell and Netherlands' Royal Dutch, went on to become a strategic fuel supply base for warships in World War I, World War II and later conflicts.

Over the years, Singapore's oil refiners, which included ExxonMobil, BP and Petrochina, have processed everything from US shale to crudes produced in China, Australia, Malaysia, North Sea, West Africa and South America.

A new course

The challenge now for Singapore is much bigger than just decarbonization, because of the sheer size of the city-state's economy linked to fossil fuels. Singapore has one of the world's largest refining and petrochemical complexes, the world's largest bunkering port, Asia's largest oil trading hub and two of the world's largest rig builders.

It needs a longer-term plan that taps its unique position at the crossroads of global trade.

So far, Singapore has set out a plan to phase out internal combustion engines by 2040, manufacture electric vehicles, import electricity from Southeast Asia and expand regional power trading. And the city-state's Carbon Pricing Act came into effect in 2019, introducing a carbon tax to help reduce greenhouse gas emissions.

It has established Pavilion Energy, a Temasek-owned gas company, to help build an LNG trading hub and is working to build a carbon trading and a hydrogen supply chain.

And energy conglomerates are pitching in.

Speaking at the Singapore International Energy Week in late October, Aw Kah Peng, chairman of Shell Companies in Singapore, noted Shell had been a "very big part of how the Singapore energy system and chemical industry has developed over the decades," and moving forward the company sees both a "huge challenge as well as a huge opportunity, given the hub role that Singapore has."

She said some of Shell's initiatives include the digitalization of Pulau Bukom, which houses its biggest fully owned refinery, putting electric vehicle chargers in retail stations, and working with the environment regulator on a plan to recycle 1 million mt of plastic waste by 2025, equal to all the plastic waste that Singapore generates.

Aw said it was important to scale up these new energy businesses because they must be economically competitive and viable, and not just at a pilot level.

New energy business underway

Over the decades, Singapore was able to combine the heft of a physical trading hub like Houston or Rotterdam, and a financial hub like New York, or London, and that kind of synergy will be key in energy transition. Such a move is already seen in the LNG space, with trading activity already concentrated in the city-state.

Pavilion Energy, which imports LNG and operates a fleet of LNG carrier vessels, today is a financial trader for LNG hedging, portfolio optimization and risk management, Frédéric H. Barnaud, group chief executive officer, said at Singapore International Energy Week.

The company's recent LNG tender that required companies to detail the carbon footprint of the gas supplied was the first of its kind. Barnaud said such initiatives will help promote Singapore as a reference hub for carbon pricing and carbon trading, with carbon-neutral LNG cargoes already being traded.

Jimmy Khoo, CEO of power utility SP PowerGrid, outlined at the event how electricity providers are bracing the grid for the complete electrification of road transport.

"Without the power grid, especially in countries or cities like Singapore, where reliability is a big piece of the consumption of electricity, the low-carbon future cannot be properly enabled," he said, pointing out that each EV equals the same power demand as a single household.

"So, imagine if 650,000 vehicles all turning into electric vehicles by 2040; we're talking about large numbers," Khoo said.

From one of Asia's first oil storage hubs to the first Southeast Asian country to implement a carbon tax, Singapore has seen its share of changes to the global energy complex. While the city-state's exact pathway in traversing the clean energy transition is uncertain, there may be no better place to lead the way.