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Vessels anchored near an oil refinery on Singapore's Jurong Island. Photo: Roslan Rahman/AFP/Getty Images

Singapore has for decades been a premier refinery hub and gatekeeper between Asia and the Middle East, but its position is increasingly threatened as more Gulf nations expand their processing capacity and petrochemical production.

Why it matters: Oil and petrochemicals drive about one quarter of Singapore's net exports. Greater competition in the global oil and gas value chain could take a heavy toll on the city-state’s national budget and economic growth prospects.

Background: Since the 1970s, Singapore's economy has been highly dependent on the oil industry, especially downstream activities. The prices paid by consumers in the oil markets of Asia and the Middle East are linked to cargo prices set in Singapore.

What's happening: Producer countries are increasingly shifting into the downstream activities that helped make Singapore the "Houston of Asia."

  • In 2018, the CEO of Abu Dhabi’s National Oil Company announced an investment of $45 billion to create the world's largest integrated refining and petrochemical project.
  • Saudi Aramco’s CEO Amin Nasser intends to double the firm's refining capacity over the next decade, increase its petrochemical production and invest $150 billion in its integrated gas business.
  • The Kuwait National Petroleum Company also plans to spend $25 billion on new downstream projects over the next 20 years.

Meanwhile, countries such as Malaysia, South Korea and Japan are competing with Singapore to establish themselves as Asia’s next liquefied natural gas hubs.

  • Companies and ship operators have been switching to LNG as their preferred fuel.
  • Furthermore, Asian countries are searching for alternative energy shipping routes through the Arctic and elsewhere, with the strategic aim of reducing dependence on energy and commodity imports that pass through chokepoints such as the Straits of Malacca.

Between the lines: These moves diminish Singapore’s bargaining power as a transit state, to the advantage of consumer countries that have more choices in the era of energy abundance.

The bottom line: The global energy transition is in an early stage, with Asian demand for oil and gas expected to continue growing and alternative shipping routes still taking shape. Yet Singapore’s relationships with oil producers will have to evolve if it’s going to remain an integral player in the future energy mix.

Juergen Braunstein is a postdoctoral fellow at Harvard Kennedy School's Belfer Center.

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